Market Overview

Starbucks Tops Estimates Growing Traffic For The Second Consecutive Quarter

Starbucks Tops Estimates Growing Traffic For The Second Consecutive Quarter

Along with removing unnecessary administrative tasks to encourage more employee interaction with customers- it was all worth it as Starbucks Corporation (NASDAQ: SBUX) just ended its fiscal year on a high note, with its share price rising 3% to $86.50 in after-hours trading. Even despite growing competition and a weaker economy in China, Starbucks' sales still grew. And so they did in the US due to new beverages and more efficient stores. So, the Seattle-originated coffee legend has its biggest two segments covered.


Revenue rose 7% from a year earlier to $6.75 billion, topping analysts' forecasts of $6.69 billion. As for the entire year, revenue also grew more than forecasts at a rate of 7% to $26.5 billion. The fourth quarter net income rose 6% to $802.9 million, being $755.8 million last year. As for 2020, the company expects the same-store sales growth to continue at a rate of 3% to 4%.
The company plans to open 2,000 net new stores and more than half of them in the key markets of US and China. This year's earnings came to $2.83 and the company expects them to increase in the range of $3 to $3.05 per share during the next fiscal year.

Successful strategy

Sales at stores that were opened for at least 13 months rose 5% in the last fiscal quarter, beating Wall Street's forecast of 4% growth. Specifically, in the Americas region, they went up even 6% between July and September. Half of that increase came from consumers actually spending more, but the other half is due to successfully increased traffic. This is especially good news considering that traffic was flat in the first half of the fiscal years at the company's US stores. Same store sales in China rose 5%, customer traffic went up 2% and altogether with new drinks helped the company reverse US traffic decline from the start of the year. Moreover, delivery and mobile orders make 10% of its China business with new express stores that speed up the order process.

But the key trigger of those strong figures was to get new customers and throughout the entire day, as opposed to just in the morning. And strong sales of cold coffee and teas enabled that as they now account for about half of the company's beverage sales as younger customers in particular are buying those drinks throughout the whole day.

Competition – China

There's intensifying competition for breakfast and coffee in every little corner of the world. And don't forget the fact that China still relies heavily on coffee, as an average person consumes three cups of coffee per year as opposed to 363 for the average US customer. It is still a big market and Statista sees this trend increasing 11% per year in the next four years as the Chinese customer slowly turns to coffee for a caffeine boost. But, there are competitors such as China's Luckin Coffee, the fast-growing kiosk chain at about 2,000 locations.

Costa Coffee is also a direct competitor but with a severely poorer reputation as the company who just recalled snack product Millionaire Mallow Bites, urging customers with allergies not to eat it as the wrong label doesn't say that they contain eggs, wheat and gluten. And there's McDonalds's Corporation (NYSE: MCD) Mc Café in the offerings mix. But, Starbucks did manage to differentiate itself with an up-end customer experience, by also being located at high-end locations. And its strategy is doing the trick as revenue for the region grew 9% year over year and not only in this one but in the previous quarter as well.

Starbucks Came to Italy, Italian Coffee is Coming to the US

As for US, even Dunkin' Brands Group Inc. (NASDAQ: DNKN) offers coffee at its Dunkin' Donuts locations, also benefiting from ‘cold brew', one of the biggest coffee innovations in recent years. But more competition is incoming from European brands. Europe has renowned Italian coffee companies: Lavazza, who is in the top 10 companies with an admirable CSR framework and Milan's Illycaffe which just announced its goal to open 200 cafes in the US as part of its ongoing expansion.

This is also a counterattack to Starbucks which started its effort to conquer Italy last year as it debuted a high-end roastery in the center of Milan. Starbucks didn't intend to compete directly with the famous Italian coffee culture endorsed by its local cafes, thought by many as ‘snobbish', but rather get customers who are interested in a new approach to coffee, as just to begin with it: it has several cup sizes whereas they have only one for each coffee type. But the impact of these experimental cultural shifts only remains to be observed as time goes by.

Outlook – Future In Teens

The company's new espresso machines even have an automatic warning when they need preventive maintenance, and this is just one of the efforts that differentiate Starbucks, a healthy, strong and still growing brand. Starbucks is, after all, known for its distinguished taste of coffee and top-notch customer service. And no wonder the company is benefiting both from product launches but also positive seasonal trends. Just by deciding to introduce a fall favorite- Pumpkin Spice latte earlier this year in August, the company saw a 19% increase in traffic during the weekend this seasonal beverage became available.

And that is just one of the company's smart traffic moves! American teens named Starbucks as their second favorite food and drink destination in Piper Jaffray's latest survey, with the company taking first or second place during the last five years. The food and drink category is the area where teens spend the most money so Starbucks' revenue can only further increase as their buying power increases over time! The message is clear: the year was ended on a high note and bright hopes for the future!

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