Starbucks reported mixed quarterly results with revenue rising 5.5% to $9.57 billion, beating estimates. Adjusted EPS dropped 35% to 52 cents, missing expectations. Same-store sales globally increased 1%, beating consensus. Despite modest stock movement, positive momentum in U.S. operations and China market growth show signs of progress under CEO Brian Niccol.
Niccol’s turnaround efforts are reflected in Starbucks’ positive comps in the U.S. and China markets. The fourth quarter saw a slight decline in spending per customer in China due to price cuts. The company’s focus on increasing transactions, not prices, is driving growth and customer satisfaction. Starbucks is actively shopping part of its China business.
Despite subdued market reaction, Starbucks delivered a good quarter amidst a challenging restaurant industry. Jim Cramer recommends Starbucks as a buy at current prices. While skeptics may focus on profitability metrics, including adjusted EPS and operating margin misses, Starbucks’ focus on topline growth and cost discipline is expected to drive earnings growth. CFO Cathy Smith anticipates earnings growth to follow topline growth. Starbucks has closed 627 stores in the quarter as part of its restructuring plan, with most closures in the U.S. and Canada. These stores didn’t meet the company’s customer experience standards and were unprofitable. While this will reduce revenue in North America, it will have a slightly positive impact on operating margins.
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