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Starbucks earnings heat up on China expansion, digital and cold brews

By Hilary Russ and Uday Sampath Kumar

By Hilary Russ and Uday Sampath Kumar

NEW YORK (Reuters) - Starbucks Corp <SBUX.O> beat Wall Street sales and revenue estimates on Wednesday, driven by new stores, digital ordering and delivery in China, and cold drinks in the United States.

Total net revenue for the world's largest coffee chain rose 7% to $6.75 billion, higher than the average analyst estimate of $6.68 billion.

Starbucks shares rose nearly 3% in extended trading after the Seattle-based company also forecast 2020 comparable restaurant sales largely above estimates. Its fiscal year ended Sept. 29.

A year ago, Starbucks announced an organizational restructuring with corporate job cuts and leadership changes, partly to revitalize stagnant sales. Changes have included more focus on digital sales and new beverages.

Starbucks has been fending off competition from niche independent coffee shops in the United States, as well as startups such as Luckin Coffee <LK.N> in China.

To boost sales, Starbucks continued to expand its "Rewards" loyalty program, including access to Happy Hours events.

In China, the program had 10 million active members in the company's fourth quarter, up 45% over the prior year. U.S. membership jumped 15% to 17.6 million.

Chinese consumers are "much more digitally savvy than any other market in the world," Chief Executive Kevin Johnson said.

Ten percent of sales in China are digital - 7% for delivery, and 3% for mobile ordering. That compares to less than 1% of U.S. orders for delivery.

"We do have two very different markets," he said.

Overall, sales at restaurants open for at least 13 months rose 5% in the fourth quarter. Analysts had forecast same-store sales growth of 3.95%, according to IBES data from Refinitiv.

Starbucks estimated fiscal 2020 global comparable store sales would rise 3% to 4%, while analysts had expected a 3.3% increase.


Starbucks plans about 2,000 new store openings in 2020, with 600 in the Americas and 1,400 more internationally.

In Chicago, Starbucks plans to open its largest store in the world next month, a "Reserve Roastery," with about 35,000 feet of retail space across five floors.

Another driver for U.S. growth has been cold beverages, including iced teas and coffee, "Refreshers" fruit-flavored drinks, and Nitro Cold Brew drinks.

Over the summer, Starbucks launched four flavored creamers under its partnership with Nestle <NESN.S>.

In stores, faster new espresso machines will finish rolling out in about the next 12 months with built-in, internet-connected sensors to relay data to a central location about every single espresso shot, allowing managers to know if a machine needs service.

(Reporting by Uday Sampath in Bengaluru and Hilary Russ in New York; Editing by Sriraj Kalluvila and Richard Chang)