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Starbucks’ operational improvements enabled the coffee giant to meet Wall Street’s profit expectations for the quarter despite a global sales dip due to continued weak consumer spending in its key markets of the US and China, Reuters reported.
Although the company’s shares had fallen 22% this year, they rose by 5% in after-hours trading following executives’ reaffirmation of annual forecasts.
This year, Starbucks introduced its Siren System plan, which involves updating store equipment to speed up service. The plan was implemented across US company-operated stores during the reported quarter, with plans to install the new equipment, including updated espresso machines, in less than 10% of its global stores by year-end.
‘We are focusing on controllable factors in a consumer environment that can be best described as complex,’ said CEO Laxman Narasimhan during a post-earnings call.
In the third quarter, Starbucks’ operating margin decreased by 70 basis points, a sequentially smaller drop. The profit of 93 cents per share aligned with LSEG estimates.
‘Investors might be viewing this as not as bad as feared. It’s impressive they managed to open 526 new stores in the quarter,’ noted Greg Halter, director of research at Carnegie Investment Counsel.
US fast-food chains, including Starbucks, have introduced limited-time deals to attract budget-conscious consumers who are increasingly cooking at home amid persistent inflation. Known for its expensive lattes, Starbucks offered atypical deals over the summer, such as a $5 combo of coffee or tea with a butter croissant in June and 50% off on Fridays in May.
In China, Starbucks faced weak consumer spending and intense competition from local coffee chains like Luckin’ Coffee in a challenging macroeconomic environment. Same-store sales in China dropped 14%, following an 11% decline in the second quarter. Similar to McDonald’s and Domino’s results, sales in international markets also fell short of expectations.
The company struggled in the Middle East, South Asia, and parts of Europe due to boycotts related to the Gaza conflict.
The Seattle-based company reaffirmed its forecast for global and US comparable sales, projecting a low single-digit decline to flat and anticipated annual profit growth from flat to low single-digits.
During the post-earnings call, Starbucks confirmed that Elliott Investment Management is a shareholder and described discussions with the activist investor as “constructive.”