Starbucks reports same-store sales growth for the first time in nearly two years

Starbucks reported its first global same-store sales growth in nearly two years, rising 1% against projected declines, indicating its "Back to Starbucks" turnaround strategy is gaining traction, with U.S. sales turning positive in September and strong international performance. While revenue of $9.57 billion exceeded expectations, adjusted EPS of 52 cents missed, partly due to restructuring costs and labor investments aimed at improving the in-store experience. The CFO cautioned that recovery may not be linear, and the company is also exploring selling a stake in its China business, valued over $10 billion, amidst competitive pressures. Shares rose 2% in extended trading.

Analysis

Starbucks (SBUX) reported its first global same-store sales growth in nearly two years, rising 1% against a projected 0.3% decline, signaling initial success for its "Back to Starbucks" strategy. U.S. same-store sales, flat for the quarter, turned positive in September, exceeding analyst expectations. Net sales increased 5% to $9.57 billion, surpassing the $9.35 billion forecast.

Despite robust revenue, adjusted EPS of 52 cents missed the 56-cent expectation, primarily due to restructuring costs and increased labor investments. The company closed 627 locations and laid off 900 nonretail employees, while adding assistant store managers, impacting operating margins. These investments aim to improve the in-store experience and reduce service times.

International markets drove growth, with same-store sales up 3% globally and 2% in China, fueled by a 9% traffic climb. In China, Starbucks is lowering prices and exploring selling a meaningful stake in its over $10 billion valued business, adapting to competitive pressures.

CEO Niccol expressed confidence, but CFO Smith cautioned that recoveries are not always linear. The company suspended its annual forecast, with no new outlook until a late January investor day, suggesting management acknowledges ongoing challenges for consistent growth.

Key Decisions for Investors

• The return to global same-store sales growth and revenue beat suggest the "Back to Starbucks" strategy is gaining traction, warranting continued monitoring of U.S. sales momentum.
• Investors should note the EPS miss due to restructuring and labor investments, and evaluate if these strategic costs will yield sustainable margin expansion and improved profitability in future quarters.
• The exploration of selling a stake in the China business indicates a strategic re-evaluation in a competitive market; investors should watch for details on this potential transaction and its implications for long-term international growth.
• Given the CFO's caution and suspended annual guidance, investors should await the late January investor day for a clearer outlook on the company's trajectory and management's updated financial targets.