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Starbucks Boosts Profits Through Efficiency Gains Despite Declines in U.S. & China Sales

by Nick
Starbucks

July 30 (Reuters) – Starbucks (SBUX.O) improved its quarterly profit thanks to operational enhancements, even as global sales fell due to ongoing consumer spending weaknesses in key markets like the U.S. and China.

Despite its shares dropping 22% this year, Starbucks saw a 5% rise in extended trading after executives reaffirmed their annual forecasts.

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This year, Starbucks implemented its Siren System plan, which involves upgrading equipment to speed up service. This initiative, including upgrades like refitting espresso machines, was rolled out in U.S. stores this quarter and will be in less than 10% of global stores by year-end.

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“We are concentrating on controllable factors in a complex consumer environment,” CEO Laxman Narasimhan said during a post-earnings call.

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The company’s operating margin decreased by 70 basis points in the third quarter, though this was a smaller drop compared to previous periods. The profit of 93 cents per share matched LSEG estimates. “Investors might view this as better than expected, especially given that Starbucks opened 526 new stores this quarter,” said Greg Halter, director of research at Carnegie Investment Counsel.

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In response to rising inflation and a shift toward home cooking, U.S. fast-food chains, including Starbucks, have introduced limited-time deals. Starbucks, known for its high-priced lattes, offered discounts this summer, including a $5 deal for a coffee or tea with a butter croissant in June and 50% off deals on Fridays in May.

In China, Starbucks faced challenges from weak consumer spending and competition from local coffee chains like Luckin’ Coffee. Same-store sales in China fell 14% in the quarter, following an 11% drop the previous quarter. International sales also fell short of expectations, mirroring trends seen with McDonald’s (MCD.N) and Domino’s (DPZ.N).

The company continued to experience difficulties in the Middle East, South Asia, and some European regions due to boycotts related to the Gaza conflict.

Starbucks maintained its global and U.S. comparable sales projections, expecting a low single-digit decline or flat results.

The annual profit forecast remains flat to low single digits. Additionally, Starbucks confirmed that Elliott Investment Management is a shareholder and that discussions with the activist investor have been “constructive.”

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