Shares of Starbucks Corporation (NASDAQ:SBUX) have increased by approximately 25% over the previous three months compared to the 20% surge that the industry has experienced. Higher North American comparable sales, growth activities, innovative inventions, and digital products contribute to the company’s success. However, poor performance in China and rising prices have been detrimental to the company. Let’s dive further.
Factors Driving Starbucks’ Growth
Investors have been pleased with the company’s comparative performance in North America for the sixth consecutive quarter. Comps in North America increased by 9% during the fiscal third quarter, thanks in large part to an increase of 8% in the average ticket price. Year-over-year, comparable store sales around the globe increased by 3%. The positive result was mainly the result of a 6% increase in average tickets, which was only barely outweighed by a 3% decrease in comparable transactions.
Despite the pandemic, the company has not shifted its attention away from its shop growth initiatives. During the fiscal year 2021, Starbucks launched a total of 1,173 new shops around the world. Starbucks expanded its global footprint by opening 313 and 318 net new stores, respectively, during the second and third quarters of its fiscal year 2022, bringing the total number of locations to 34,948.
As a result of pandemic-related restrictions, Starbucks China’s operations were disrupted throughout the second and third quarters of the fiscal year 2022. Despite this, the company maintains a highly bullish outlook regarding its prospects for long-term expansion. Starbucks expanded its presence in China by opening 107 net new outlets, bringing the total number of stores to 5,761 across 228 cities.
Starbucks is working to bolster its product line by introducing substantial innovations in beverages, refreshments, health and wellness, tea, and its core culinary products. Cold Brew, Draft Nitro drinks, and plant-based modifiers, such as almond, coconut, and soy milk replacements, are some of the fast-growing product categories that Starbucks is looking to capitalize on. In addition to introducing a plethora of novel beverage options, Starbucks has also been working hard to expand the selection of nutritious and healthful items available to its customers.
This company also benefits from having an effective customer loyalty program. The number of people who have been engaged in the Starbucks Rewards program for at least 90 days in the United States reached 27.4 million, representing an increase of 13% year-over-year.
Starbucks Cannot Provide a Forecast for China
The widespread coronavirus outbreak has had a detrimental effect on the company’s performance in China. The city of Shanghai, twice the size of New York City, was sealed off for two months. The falling office occupancy rates in the firm’s most critical metropolitan markets continue to affect the company’s performance in China negatively. Because of China’s political and economic unpredictability, the company cannot provide an accurate forecast for its performance in the country during the second half of the year. Comparable sales in China experienced a year-over-year decrease of 44% during the fiscal third quarter. The decrease was brought on by a 1% drop in the average ticket price and a 43% drop in the number of transactions.
China is currently engaged in an ongoing fight against COVID resurgences and navigating through protracted lockdowns. Nearly one-third of the firm’s stores in China were still temporarily closed as of the end of the third quarter of 2022, and the remaining stores in China offered only mobile ordering methods. The company provided this information.
Earnings for Starbucks in the fiscal year 2022 are likely to be influenced, both positively and negatively, by strategic initiatives and cost inflation. It is anticipated that the company’s profit margin will suffer in the fiscal year 2022 due to the expiration of government subsidies in Asia and the transition of Starbucks Korea to the licensee.
Featured Image: Megapixl @Felixfawn
