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Last week Thursday we received third quarter results from Starbucks. Revenues increased 8% to a third quarter record of $5.7bn. This was on the back of comparable store sales increasing 5% in the US, 7% in China and 4% globally. The rest of the increase would have come from new stores which are flying in at 1.6 a day. 1 a day of those are in China alone.
The rewards programs are doing incredibly well. Rewards membership was up 8% to 13.3 million active members. Starbucks rewards represented a whopping 36% of US sales. They have absolutely crushed it with the mobile app, 30% of US transactions were done through it.
There were two big announcements in this report.
The company will assume full ownership of the Mainland China stores. They are buying the remaining 50% from their JV partners after 18 years of working together. 1300 stores in 25 cities are now 100% owned by the parent with many more to come. This $1.3bn deal is the biggest in their history and we believe is a fantastic strategic investment. China is a massive growth area for the business and now they have even more exposure.
Closing Teavana. Teavana was their tea focused retail stores. 379 stores will be closed which means the product was not well received. I must say this was quite disappointing as I thought this was an exciting product.
The results were not well received, the closing of Teavana overshadowed the purchase of the Chinese stores. The stock fell 9% on the day. To put that into perspective, it is up 127% in 5 years even after that drop.
We see this as a good buying opportunity into what is a very exciting brand. We have seen at McDonalds how a few menu innovations can make such a huge difference in customer adoption. Well Starbucks are the kings of innovative menus. As well as their amazing rewards programs. Expect a broad range of healthy and fresh lunch options to start filtering into the numbers. The developing market story remains a massive growth opportunity. We continue to buy at these levels.