Starbucks sales beat estimates as consumers pay up for lattes

Starbucks reported sales that exceeded expectations as US consumers forked over more for their lattes amid higher economy-wide inflation, driving the shares higher in late trading.

The key measure of same-store sales rose 7 per cent in the quarter ended October 2nd – above the average estimate for 4.1 per cent global growth compiled by Bloomberg. Internationally same-store sales shrank, but less than anticipated by Wall Street. The company laid out an optimistic outlook for the next 12 months in a call with analysts.

The results show that Starbucks’ signature lattes and frappuccinos remain a luxury that consumers are willing to pay for even if they cost more. The majority of the 11 per cent comparable-store sales growth in North America was driven by an increase in the amount spent per order. There was only a slight increase in transactions, suggesting that store traffic is stable but customers are paying more.

The company pointed to “strategic price increases” that were primarily in North America. Interim chief executive Howard Schultz told analysts that Starbucks was not looking to raise prices more yet the company had not seen any impact on loyalty or orders when it increased prices before. He added that the company’s customers have gotten younger, and those consumers have a significant amount of discretionary income at their disposal.

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The company expects US comparable sales to be at the high end of its prior guidance for growth of 7 per cent to 9 per cent in the current fiscal year. Starbucks also sees earnings in the period near the top of the projected 15 per cent to 20 per cent growth range.

Operating margin fell from a year earlier, reflecting pressure from inflation as well as the company’s initiatives to boost pay and training for baristas and improve equipment to make their jobs easier. The company is looking to blunt a unionisation drive at its US locations by raising pay and improving benefits.

Inflation, commodity and supply-chain headwinds will continue in the current year, albeit less than last year, Starbucks said.

In China, where Starbucks has more than 6,000 stores, sales were limited by Covid resurgences and government restrictions. Still, the 16 per cent decline in comparable sales there was better than expected. Analysts had predicted a decrease of nearly 22 per cent.

“We anticipate the current Covid-related uncertainty to continue in China,” Schultz said, adding that recent virus resurgences have “meaningfully reduced traffic in cafes there”. He reiterated general optimism on the business’s trajectory there, however, saying Starbucks could become the No. 1 western brand in the country due to the company’s intensive investment there. – Bloomberg