Starbucks Gets a Lift From Iced Coffee -- 2nd Update
October 30 2019 - 7:06PM
Dow Jones News
By Heather Haddon
Cold coffee is warming up Starbucks Corp.'s U.S. sales.
The world's largest coffee chain said Wednesday that stronger
U.S. sales of iced coffee and other cold drinks bolstered sales in
its latest quarter. Global comparable-store sales rose 5% in
Starbucks's fiscal fourth quarter, a percentage point more than
analysts expected.
Chief Executive Kevin Johnson said the results reflected strong
sales of cold coffee and teas that now account for about half of
the company's beverage sales. Younger customers in particular are
buying those drinks throughout the day, he said, not just in the
morning.
"We are being very focused on the things that we know matter the
most," Mr. Johnson said in an interview.
Shares rose more than 2% to $86 in after-hours trading.
Comparable sales rose 6% in the U.S., where Starbucks has
promoted its nitro cold-brew coffee as sales of its older
Frappuccino beverages have slowed. The company has brought nitro
taps to all of its 8,700 company-owned U.S. stores, more than
one-fourth of its total, and started advertising the option. It
released a pumpkin-flavored cold drink for the fall.
Starbucks recorded robust cold-coffee sales during the summer, a
more natural time to drink iced beverages than the fall.
Still, cold coffee is proving popular with younger consumers
generally, not just during warm months, according to a recent
Guggenheim report. Younger consumers increasingly view cold coffee
as a healthier alternative to soda, the firm found.
Competitors are also introducing more cold drinks. McDonald's
Corp. is selling new cold coffees and Wendy's Co. is set to
introduce blended cold-brew beverages next year. Canadian coffee
chain Tim Hortons, meanwhile, has had less success with its cold
brews. Parent company Restaurant Brands International Inc. said
Monday that it is working to improve them.
Starbucks has chosen to focus on coffee as those and other
rivals work to improve their breakfast menus. Under Mr. Johnson,
who succeeded longtime CEO Howard Schultz in 2017, Starbucks is
expanding to new parts of the country while also simplifying store
operations. Mr. Johnson has also scaled back Mr. Schultz's plans to
open hundreds of more upscale Starbucks cafes.
Mr. Johnson told store managers last month that the chain plans
to automate or eliminate some tasks to reduce work and help the
company forcus more on serving customers, as well as training.
Abroad, Starbucks faces tough competition in China, its second
biggest market after the U.S.
Local rival Luckin Coffee Inc. has expanded rapidly there as
consumer spending across the country has slowed. Starbucks has also
become a target for democracy protestors in Hong Kong who are
critical of the company's franchisee there.
Mr. Johnson said Starbucks is increasing sales in China through
new stores, and hasn't experienced a softening of consumer
spending.
"We expect to see a lot of competitors competing for that
addressable market," he said.
The company struck a deal this year to roll out delivery across
the U.S. with Uber Technologies Inc.'s Uber Eats division, and is
quickly increasing its to-go service in China through a deal with
Alibaba Group Holding Ltd. Starbucks executives said delivery is
generating new business, but it is more expensive to provide and
eats into the company's margins, particularly in China where more
customers are using the service.
For the fourth-quarter, the company said revenue rose 7% from a
year earlier to $6.7 billion. Starbucks reported a quarterly profit
of $802.9 million, up from $755.8 milion, last year and in line
with analyst expectations.
Starbucks said it expects to earn an adjusted profit of $3 to
$3.05 a share for its 2020 fiscal year. Starbucks also projected a
3% to 4% gain in global comparable sales for that year.
--Micah Maidenberg contributed to this article.
Write to Heather Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
October 30, 2019 18:51 ET (22:51 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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