By Savyata Mishra
(Reuters) -Starbucks beat Wall Street estimates for third-quarter revenue on Thursday, as steadying sales in China and investments in labor, store operations and menu innovation helped overcome pressures from slowing consumer spending in its domestic market.
The company’s shares rose 4.6% to $97.02 in volatile extended trading.
The coffee chain operator is in the midst of a major brand reset under CEO Brian Niccol, who has pushed for a simplified menu, freshly baked food items, cups with handwritten messages and quicker service since taking the helm in last August.
He has also pledged to increase investments in staffing in all 10,000-plus Starbucks-owned U.S. stores by the end of the summer.
Starbucks’ net revenue came in at $9.46 billion, beating analysts’ estimate of $9.31 billion, although its overall same-store sales fell 2% for the quarter ended June 29, its sixth straight quarterly contraction. Analysts on average had estimated a 1.19% dip, according to data compiled by LSEG.
“The report came in less worse than expected, given some strength in China, but it remains a turnaround story. So the big question for investors is if this is the beginning of the trough in weak data,” said Dave Wagner, portfolio manager at Aptus Capital Advisors.
The company reported profit of 50 cents per share on an adjusted basis, missing estimates of 65 cents.
Starbucks said 11 cents of its decline in earnings per share was because of a “significant” cost of a conference in Las Vegas earlier this year.
The company flew and housed more than 14,000 store managers and leaders from across North America to hear from corporate executives about the “Back to Starbucks” plan. Attendees experienced a private Bruno Mars concert.
In its largest North America market, the drop in quarterly same-store sales was flat at 2%.
China comparable store sales increased 2%. Intense competition from local rivals like Luckin Coffee and Cotti Coffee and increasingly frugal consumers prompted it to cut prices on select iced drinks by an average of 5 yuan last month.
Customer visits to Starbucks were down an average 0.1% from April to June, data by research firm Placer.ai showed. That was better than a 0.9% drop in the prior three months, suggesting that Niccol’s “Back to Starbucks” initiative and recent menu innovations were beginning to drive a turnaround, Placer.ai said.
(Reporting by Savyata Mishra in Bengaluru and Waylon Cunningham; Editing by Anil D’Silva)
