Starbucks Q3 - China Sales Down Again

Last week Starbucks reported numbers that weren't as bad as traders feared, beating revenue and profit forecasts. China is the group's second largest market, and with all their Covid restrictions, sales in the region dropped 44%. Very strong sales in the US offset the Chinese washout, with same-store sales up 9%, and foot traffic up 1%.

The fear was that cash-strapped consumers would trade down, replacing their premium Starbucks drink for something from a cheaper retailer like McDonald's or Dunkin Donuts. This didn't happen, which shows how loyal their customers are. High levels of inflation probably don't impact premium customers as much; well-off people are sticking to their caffeine routine.

Interestingly, three-quarters of US drink sales are cold, not hot. That's due in part to a warmer than usual summer in the Northern Hemisphere, but is also because younger customers seem to enjoy customising their beverages. Starbucks likes selling unusual drinks, because they have fatter profit margins.

The company is in a transition period and newly returned CEO Howard Schultz says his priority is to deal with high turnover and low morale amongst its coffee shop staff. These quarterly numbers demonstrated the strength of the Starbucks brand, and we remain happy long-term holders of the stock.