The American multinational chain Starbucks Coffee store and logo seen displayed.
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Starbucks on Wednesday reported that its quarterly same-store sales returned to growth for the first time in nearly two years, showing that its turnaround strategy is winning over lapsed customers.
The coffee chain’s global same-store sales rose 1%, lifted by international markets. Its U.S. same-store sales were flat for the quarter but turned positive in September. Wall Street was projecting global same-store sales declines of 0.3% and a 0.9% decrease in U.S. same-store sales.
“We’re a year into our ‘Back to Starbucks’ strategy, and it’s clear that our turnaround is taking hold,” CEO Brian Niccol said in a statement.
Domestic same-store sales turned positive in September, and the company has held onto that momentum through October, Niccol said on the company’s conference call. However, CFO Cathy Smith cautioned analysts against cheering too soon.
“Turnarounds are difficult to forecast, and while we have good reason to believe that our U.S. company-operated [same-store sales] should build through the year, we also know that recoveries are not always linear,” she said.
The company suspended its annual forecast a year ago, and it is not expecting to release a near- or long-term outlook until an investor day slated for late January.
Shares of Starbucks rose 2% in extended trading.
Here’s what the company reported for the quarter ended Sept. 28 compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
Earnings per share: 52 cents adjusted vs. 56 cents expectedRevenue: $9.57 billion vs. $9.35 billion expected
The coffee giant reported fiscal fourth-quarter net income attributable to Starbucks of $133.1 million, or 12 cents per share, down from $909.3 million, or 80 cents per share, a year earlier.
Excluding restructuring costs, litigation settlements and other items, Starbucks earned 52 cents per share. During the quarter, the company closed 627 locations and laid off roughly 900 nonretail employees as part of a restructuring plan.
In addition to the restructuring plan, Starbucks has been investing heavily in labor, including adding assistant store managers to many North American cafes. The added labor costs weighed on its operating margin this quarter.
Net sales rose 5% to $9.57 billion.
To revive U.S. sales, Starbucks has focused on improving the in-store experience for customers and cutting service times to under four minutes per order. More than 80% of company-operated locations have an average service time of four minutes or less, even as the chain saw a rise in traffic after it launched its fall menu, according to Niccol.
The company’s marketing efforts have switched from promotions and limited-time items to highlighting its coffee and trendy innovation, like protein-packed cold foam.
The strategy has succeeded in winning back some U.S. customers. Smith said that the number of 90-day active Starbucks Rewards members grew 1% both quarter-over-quarter and year-over-year.
Outside Starbucks’ home market, same-store sales increased 3%, fueled by a 6% jump in traffic.
In China, the company’s second-largest market, same-store sales rose 2%, boosted by a 9% climb in traffic. Under pressure in the country from home-grown rivals with cheaper beverages, Starbucks has lowered prices on many of its iced drinks to bring back customers.
The company is also exploring selling a stake in its China business after years of sales declines in the competitive market. Niccol previously told CNBC’s Jim Cramer that the company values the China business at more than $10 billion.
“On the strategic front, we have had very strong interest from multiple high quality partners, all of whom see significant value in the Starbucks brand and team,” Niccol said on Wednesday. “We expect to retain a meaningful stake in Starbucks China and remain confident in the long term growth potential in the region.”
