SEATTLE — Cold drink innovation led to afternoon sales growth for Starbucks Corp. in the third quarter ended June 30 while an increasing focus on delivery is impacting food sales positively.
Global comparable store sales in the quarter increased 6%, which included a 7% increase in the United States and a 5% increase in China/Asia Pacific. Net earnings of $1,372.8 million, or $1.12 per share on the common stock, was up 61% from $852.5 million, or 61c, in the third quarter of the previous year. Net revenues rose 8% to $6,823 million from $6,310.3 million. Starbucks’ stock on the Nasdaq rose 9% on July 26 as the close of $99.11 per share compared to a July 25 close of $90.98 per share.
“In the U.S., comp sales were up 7%, including comp transaction growth of 3%,” said Kevin R. Johnson, president and chief executive officer, in a July 25 earnings call. “Importantly, we saw comp growth across all dayparts, including the afternoon for the first time in three years. This strong performance was driven by three key factors: an enhanced customer experience, relevant new beverage innovation and accelerated expansion of digital customer relationships.”
The cold beverage platform was the catalyst for afternoon sales growth, he said.
“A customer favorite, Nitro Cold Brew, remains on track to be deployed across all U.S. company-operated stores and be supported by advertising by the end of the fiscal year,” Mr. Johnson said. “Iced espresso beverages, including Cloud Macchiato and Starbucks Refreshers, performed well.”
Within Starbucks’ Americas region, operating income of $1,067.1 million was up 18% from $906.8 million in the previous year’s third quarter. Revenues of $4,671.8 million were up 11% from $4,224 million.
Starbucks on July 23 announced plans to make Starbucks Delivers available throughout the United States in early 2020 through an agreement with Uber Eats as the preferred delivery provider of Starbucks items. The intention to expand follows an 11-market roll-out.
“It is still early days for food and beverage delivery in the U.S., and while we are not yet seeing Starbucks Delivers meaningfully contribute to our U.S. business results, we believe that delivery is an important long-term growth opportunity given customers' increasing demand for convenience,” Mr. Johnson said.
Starbucks executives are encouraged by the incremental growth in delivery in the United States, said Rosalind G. Brewer, group president of Americas.
“We are seeing expanded ticket,” she said. “We’re seeing food attach at a significant level for ticket. We’re seeing quality of the beverage upon delivery. We’ve made some advancements in our packaging, which has helped us tremendously. So we’re encouraged by what we’ve seen so far as we expand and get marketing dollars behind it. We’re encouraged by what we think this could do for us in the long run.”
Delivery initiatives are bringing growth in China as well. Within Starbucks’ China/Asia Pacific segment, operating income of $269.8 million in the third quarter was up 15% from $234.1 million. Revenues increased 9% to $1,336.9 million from $1,229 million.
“Our total store count in China grew by 16% versus prior year to more than 3,900 stores at the end of Q3,” Mr. Johnson said. “Additionally, comp sales were up 6%, including 2% growth in comp transactions. Much like the U.S., China’s comp performance was driven by an enhanced customer experience and beverage innovation.”
Delivery now represents 6% of sales in China, and delivery orders tend to have a slightly higher ticket price than in-store orders, said John Culver, group president of International.
“There’s a higher food attach,” he added. “It’s stronger in the morning and lunch daypart.”
Through the first three quarters of the fiscal year, Starbucks companywide had net earnings of $2,796.4 million, or $2.25 per share, which was down 26% from $3,762.8 million, or $2.67, in the same time of the previous year. Net revenues were $19,761.6 million over the first three quarters, up 7% from $18,415.9 million.
Management adjusted the chain’s adjusted fiscal-year outlooks on July 25, forecasting global comparable store sales growth of about 4%, which compared with a previous range of 3% to 4%. Forecasted revenue growth of 7% was on the high end of a previous range of 5% to 7%.