Starbucks Proves Loyalty Is Everything

On Tuesday, Starbucks SBUX reported better-than-expected results for its fiscal third quarter, topping Wall Street's estimates for both earnings and revenue. The powerful momentum empowered the multinational coffeehouse to raise its forecast for fiscal 2021 earnings per share, despite predicting slowing same-store sales growth in its second-largest market- China.

Figures

Starbucks' revenue grew 78% to $7.5 billion, a record fueled by soaring cold drink sales in the United States, its home market. The top line translated to a net income of $1.15 billion, or 97 cents per share, up from a net loss of $678.4 million, or 58 cents per share a year earlier.

Non-GAAP per-share earnings amounted to $1.01. During the same quarter last year, global same-store sales plummeted 40% due to lockdowns across the globe and its main markets.

The 84% increase in same-store sales in the US fueled an increase in comparable-store sales of 73% compared to last year's quarter. Outside of its home market, same-store sales jumped 41%, fueled by 55% growth in customer traffic.

The Not-So-Bright Areas

Fears about rising labor costs did not materialize since operating margins were higher both than last quarter and the corresponding period last year. But analysts were expecting better performance in international markets. China reported same-store sales growth of 19% whereas last year, the country's same-store sales fell 19%. Due to travel restrictions and related uncertainties, Starbucks now expects slowing same-store sales in a range between 18% to 20% in its second-largest market, where it previously predicted growth of 27% to 32%. Next quarter, it expects flat same-store sales.

Brand Loyalty Remains Strong

Starbucks's coffee fans are as loyal as ever, especially in the U.S. where 90-day active members of its Rewards loyalty program increased 48% YoY. Its expanded digital customers base of 24.2 million now accounts for 51% of all spending in U.S. stores. This is an increase of 8% from pre-pandemic levels.

Outlook

Starbucks CEO Kevin Johnson concluded that with these record results, the coffee giant has demonstrated a powerful momentum beyond recovery due to its ability to stay ahead of shifting customer behaviors. Besides differentiating itself from competitors, it has protected itself from the impact of higher prices related to colder temperatures by locking in the price of its coffee beans for the next 14 months.

The question remains whether strong U.S. growth will be enough to keep on offsetting slower international growth. Shares have risen 17% this year, giving it a market value of $148 billion but despite beating consensus revenue and earnings targets, stock was down 3% following the report.

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