Starbucks forecasts steamy sales despite pressure in China

Praveen Paramasivam and Hilary Russ

Posted at Jul 28 2021 08:54 AM

Starbucks forecasts steamy sales despite pressure in China 1
A single use coffee cup inside a Starbucks in London, Britain, March 6, 2020. Henry Nicholls, Reuters/File Photo

Starbucks Corp forecast fourth-quarter sales above Wall Street estimates on Tuesday despite headwinds in China as travel restrictions related to COVID-19 loom longer than expected.

The coffee chain forecast comparable sales for its current quarter to grow 18 percent to 21 percent, expecting strength in the Americas. Analysts on average expect growth of 17.5 percent, according to IBES data from Refinitiv.

But the Delta variant of the coronavirus has triggered a surge of new COVID-19 cases and the reinstatement of mask rules in some places.

The United States said on Monday that it will not lift existing travel restrictions.

In the third quarter ended June 27, sales rose 19 percent in China - Starbucks' biggest growth market - despite a resurgence of COVID-19 in the south, Belinda Wong, chief executive officer of Starbucks China, said on a call with analysts.

Starbucks lowered its fiscal 2021 forecast for China sales growth to 18 to 20 percent from 27 to 32 percent, and it dropped its international sales forecast to 15 to 17 percent from 25 to 30 percent.

The company's previous guidance for China had "assumed a shorter time frame for the lifting of travel restrictions and also less of the uncertainties that we have faced in the market," Wong said of the revision.

The volatility is "only temporary" and the company is on track to add more than 600 net new stores in China this fiscal year, she said.

Shares fell 3.3 percent in extended trading.

In the United States, the easing of COVID-19 restrictions on travel and restaurant capacity, as well as reopening of some offices have boosted sales at Starbucks and other big US restaurants, including Chipotle Mexican Grill and Domino's Pizza.

Starbucks' US quarterly sales soared 83 percent over the previous year - in part as urban areas recovered with people returning to businesses - and 10 percent above pre-pandemic levels two years ago.

Those results helped lift global sales 73 percent compared to estimates of 69.4 percent growth.

The company has also been pushing its digital business - its rewards program grew 48 percent to 24.2 million members - and new beverages, including three flavors of ready-to-drink coffee.

Its cold drinks also grew to 74 percent of beverage sales in the quarter.

Excluding certain items, Starbucks earned $1.01 per share, compared with a loss of 46 cents a year earlier. That exceeded analysts' estimates of 78 cents a share. 

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