Starbucks Stock Rose After Impressive Q3 Earnings

Starbucks (SBUX) reported its third-quarter earnings after the market closed on Thursday. For the quarter ending on June 30, the company reported an adjusted EPS of $0.78 on revenues of $6.82 billion. Analysts expected an adjusted EPS of $0.72 and revenues of $6.67 billion. Starbucks’s global SSSG (same-store sales growth) was 6.0%—well above analysts’ estimate of 4.0%.

Starbucks Stock Rose After Impressive Q3 Earnings

Starbucks’s management credited beverage innovations, the enhanced customer experience, and the expanded digital relationship with customers for its strong sales growth. Following the impressive performance, Starbucks’s management raised its sales and EPS guidance for fiscal 2019. The better-than-expected third-quarter performance and higher guidance led to a rise in the company’s stock price. The company was trading 6.6% higher in the after-hours trading on Thursday.

Starbucks stock

By the end of Thursday, Starbucks was trading at $90.98—an increase of 41.3% since the beginning of this year. So far, the company has outperformed its peers and the broader equity market in 2019. During the same period, McDonald’s and Dunkin’ Brands have returned 20.8% and 26.7%, respectively. The S&P 500 Index has increased 19.8%, YTD (year-to-date).

Starbucks Stock Rose After Impressive Q3 Earnings

Starbucks’s revenue growth

Starbucks’s revenues grew 8.1% YoY (year-over-year) from $6.31 billion in the third quarter of fiscal 2018. However, removing the negative impact of streamlining activities and unfavorable currency, the company’s revenues grew 11.0%. Opening new restaurants in the last four quarters and positive SSSG drove the company’s revenues.

  • During the third quarter, the revenues from the Americas segment rose 10.6% to $4.67 billion. The net addition of 641 restaurants in the last four quarters and an SSSG of 7.0% drove the segment’s revenues.
  • The CAP (China and Asia-Pacific) segment reported revenues of $1.34 billion for the third quarter—growth of 8.8% YoY. The net addition of 994 restaurants and the SSSG of 5.0% contributed to the segment’s revenue growth.
  • The revenue from the EMEA (Europe, the Middle East, and Africa) segment fell 11.5% to $261.7 million during the quarter. Retail business in France and the Netherlands lowered Starbucks’s revenues from the segment. However, the net addition of 286 new restaurants and an SSSG of 3.0% offset some of the declines.
  • For the third quarter, the Channel Development segment reported revenues of $533.3 million—fall of 6.0% YoY. Licensing the CPG and foodservice businesses to Nestlé caused the segment’s revenues to fall during the quarter.

Starbucks Stock Rose After Impressive Q3 Earnings

Starbuck’s SSSG rose

Driven by the strong performance in two of the long-term growth targets, the US and China, Starbucks reported an impressive SSSG of 6.0% for the third quarter. The growth of 3% in transactions and an increase of 3.0% in the average ticket size drove the company’s SSSG during the quarter.

Americas segment

The Americas segment reported a strong SSSG of 7.0% during the quarter. A 4% increase in the average ticket size and an increase of 3.0% in the transactions drove the segment’s SSSG. The same-store sales grew across all of the dayparts, including the afternoon, which reported positive SSSG after three years. Beverage innovation, especially the cold beverage platform, resonated well with the customers and drove the company’s afternoon sales.

In April, Starbucks added more options to its rewards program, which enhanced the customer experience. The new features helped the company add 400,000 members during the quarter. The addition increased the number of active members on the Starbucks Rewards program to 17.2 million.

To improve convenience and enhance the customer experience, Starbucks expanded the delivery service to over 2,700 stores across 11 markets. The company’s management stated that the adoption of the Mobile Order and Pay facility and personalized marketing initiatives contributed close to 2.0% of the segment’s SSSG.

CAP segment

The CAP segment reported an SSSG of 5.0% with a 3% increase in the average ticket size and an increase of 2% in transactions. The strong performance in China and Japan drove the segment’s SSSG.

China reported an SSSG of 6% due to 2% growth in transactions. Beverage innovations, like Modern Mixology, resonated well with the customers. The company enhanced its Starbucks Rewards program in December of 2018, which allowed customers to earn rewards based on their spending. The reward program has 9.1 million members—an increase of 36% YoY.

In partnership with Alibaba, Starbucks expanded its delivery service to 2,900 restaurants across 80 cities. In the third quarter, delivery sales formed 6% of the segment’s overall sales and contributed significantly towards its SSSG. Implementing Mobile Order and Pay and the new store format also increased the segment’s SSSG.

Japan posted an impressive SSSG of 5.0% during the quarter with its transaction increasing 1.0%. The strong performance from Core Espresso beverages and Starbucks Rewards program drove the company’s SSSG in Japan.

EMEA segment

The EMEA segment reported an SSSG of 3.0%. Growth in the average ticket size contributed all of the SSSG.