The company delivered one of the best earnings reports investors have seen in a while.
A year ago, things didn’t look so great for Starbucks. The coffee company’s shares remained mostly flat since 2016, and investors were starting to wonder if it had reached a saturation point.
Then things started to turn around for Starbucks and the company’s shares are currently up 90% from a year earlier. And last week, Starbucks posted another strong earnings report, reaffirming to investors that it’s still very much a long-term growth stock.
During its fiscal third quarter, Starbucks generated $6.82 billion in revenue, which is up more than 8% year over year. And the company reported earnings of 78 cents per share, which is a 25% increase from a year earlier.
These improvements came about because Starbucks made a concerted effort to streamline its business and increase customer loyalty. And the company has several strong tailwinds that should continue to propel it forward for the remainder of 2019.
Starbucks Increased Its Growth in the U.S.
For a while, one of the biggest concerns about Starbucks was that it had reached saturation point in the U.S. After all, there seems to be a Starbucks on nearly every corner, and investors worried that consumers were growing tired of the brand.
Traffic remained steady during the first and second quarter, but it still didn’t increase. But during the third quarter, the company saw a 3% increase in traffic. And the company’s traffic even increased during the afternoon hours, which has largely remained stagnant for years.
Starbucks’ International Growth Remains Strong
During the third quarter, Starbucks opened 442 stores worldwide and global store sales increased by 6%. This brings their total international store count to 30,626.
One-third of the new stores open was in China, where the company has a strong international presence. During the third quarter, its revenue in China grew by 9%.
Starbucks Sticks to What It Does Best
The company’s growth in China is especially impressive given the recent competition from Luckin Coffee. Luckin went public in May and has been quickly expanding across China, with the goal of surpassing Starbucks’ store count. The company has invested heavily in marketing and undercuts Starbucks on pricing.
But rather than trying to change its strategy, the company is sticking with what works. Starbucks continues to offer high-quality products and doesn’t attempt to compete with Luckin on price. Luckin’s pricing strategy is causing the company to lose money and could prove unsustainable in the long run.
Final Thoughts
Starbucks continues to improve its systems for creating customer loyalty and expanding into new markets. And the company continues to improve its operating efficiencies to make it easier for employees to serve customers quickly.
However, CEO Kevin Johnson pointed out that now isn’t the time for the company to become complacent or take “victory laps.” Instead, the company will continue to deliver results by “staying true to our mission and values, taking care of our partners, serving our customers and delivering results.”
