Starbucks accelerates reforms, same-store sales in China return to growth, stock price rises 4.6% after hours | Earnings Report Insights

Starbucks Corporation announced its third-quarter financial results after the market closed on Tuesday, showing that although the company's same-store sales and profits fell short of market expectations, CEO Brian Niccol stated that the Starbucks Recovery Plan is "progressing ahead of schedule," and the Chinese market recorded growth for the first time since 2023. The company's stock price rose as much as 4.6% in after-hours trading on Tuesday.

Here are the key points from Starbucks' third-quarter financial report:

Key Financial Data:

Revenue: Starbucks' third-quarter revenue was $9.5 billion, exceeding analysts' expectations of $9.31 billion.

Same-store Sales: Starbucks' same-store sales in the third quarter fell by 2%, a decline greater than the 1.3% expected by StreetAccount.

Net Profit: Starbucks' net profit attributable to the company in the third quarter was $558.3 million, or $0.49 per share, a significant drop from $1.05 billion or $0.93 per share in the same period last year.

Adjusted Earnings Per Share: Starbucks' adjusted earnings per share in the third quarter were $0.50, below analysts' expectations of $0.65.

Starbucks' stock price rose as much as 4.6% in after-hours trading, before narrowing to about 3%. As of Tuesday's close, Starbucks' stock price has increased by 1.9% this year, far below the S&P 500's gain of 8.3%.

Investors Focus on Positive Signals

Media reports indicate that despite the comparable sales and profits falling short of market expectations in the third quarter of this fiscal year, investors are focusing on the positive signals appearing in the financial report, such as the first recorded sales growth in the Chinese market since the end of 2023.

Over the past year and a half, Starbucks has experienced a rare consecutive decline in same-store sales and is currently undergoing a comprehensive reform phase. Since taking office in September last year, Niccol has aimed to boost business in the U.S. market by shortening wait times, updating the menu, and renovating stores to restore seating areas.

While analysts and investors generally support these reform plans, they are also looking for more details regarding the timeline and budget costs. On Tuesday, Niccol stated that Starbucks has reduced store construction costs by 30%. The company has also launched new initiatives to enhance customer service quality by increasing store staff and prioritizing in-store and drive-thru orders to provide "faster service, stronger sales, and a better customer experience."

In a prepared speech, Niccol stated that the company's revitalization plan is "progressing ahead of schedule" and promised to launch "a wave of innovation" by 2026. He mentioned that although the financial performance has not yet fully reflected the results of the reforms, the pace of revitalization is ahead of expectations. He noted that based on his past experience at Chipotle in successfully addressing food safety crises, the company is currently gaining momentum

"Although the financial results have not fully reflected the progress we have made, the signs are clear—our momentum is strengthening."

Global Same-Store Sales Decline for Six Consecutive Quarters, Chinese Market Recovers

However, these advancements have not yet fully reflected in the overall financial data. Same-store sales globally declined by 2% this quarter, while analysts surveyed by Bloomberg had originally expected a decrease of only 1.5%, marking six consecutive quarters of decline. In the U.S. market, same-store sales fell by 2%, primarily due to a decrease in transaction frequency, with the decline slightly better than market expectations. Nicole stated:

"In the U.S., employee engagement is up, customer connection scores are rising, shift completion rates have reached new highs, and the transaction volume from non-Starbucks Rewards program customers is recovering, with more stores achieving positive transaction growth."

In China, Starbucks' second-largest market, the company is responding to a long-term sluggish trend by lowering prices on some tea beverages and increasing sugar-free options. These measures have shown initial results this quarter, with transaction numbers growing by 6% and same-store sales increasing by 2%.

This marks the first time in a year and a half that Starbucks' China business has achieved same-store sales growth. According to previous reports from Bloomberg, Starbucks has been considering selling a portion of its stake in its Chinese business. Nicole stated during the earnings call that more than 20 parties have expressed interest in this asset, and the company hopes to retain a "significant" stake.

Future Plans to Increase Human Resources Investment, Maintaining a Cautious Attitude

Since Nicole joined the company in October last year, Starbucks has suspended its fiscal year performance guidance. He hopes that Starbucks stores can recreate a welcoming atmosphere and improve service experience through increased staffing and training investments.

Investors are closely monitoring the costs required for the revitalization plan, especially expenditures related to increasing staffing in coffee shops. Nicole is also pushing for cuts in other expenses, including offering buyout options for company employees and granting stock rewards to executives who meet cost control and operational goals.

The company stated that due to increased spending on the revitalization plan, including adding staff to stores, hosting a manager conference in Las Vegas, and inflationary pressures, the operating profit margin has declined this quarter. Excluding certain items, earnings per share were 50 cents, far below analysts' expectations of 65 cents.

Chief Financial Officer Cathy Smith stated during the analyst call that the company will increase human resources investment by $500 million for U.S. company-operated stores over the next year.

Smith also mentioned that given the changes brought about by the revitalization plan and the uncertainty in the consumer market environment, Starbucks maintains a "cautious" attitude towards performance for the remainder of this fiscal year.

"Transaction volume is improving, but the final results remain uncertain."

Looking ahead to fiscal year 2026, Starbucks plans to launch several products and services: including protein cold foam, improved handcrafted food, coconut water beverages, a new version of the Starbucks App, and a "refreshed" rewards program