Pumpkin spice lattes add spice to Starbucks revenues

A bump in sales of high-priced Starbucks coffee and cold drinks in North America helped cushion a revenue drop in China.

Starbucks Corp has topped Wall Street estimates for quarterly comparable sales as demand in North America for pricier drinks, including the chain’s iconic Pumpkin Spice Latte, remained strong while declines in China were not as bad as feared.

Shares in the Seattle-based company rose about 1.5 percent in after-market trading after its results on Thursday.

While restaurants such as McDonald’s Corp and Yum Brands Inc have drawn inflation-hit Americans with cheaper meals, higher-priced Starbucks coffee and cold drinks have enjoyed a steady stream of higher-income customers.

The company’s comparable sales in the United States rose 11 percent in the quarter, also boosted by the return of the Pumpkin Spice Latte, which, according to Credit Suisse analysts, contributed to the highest sales week in Starbucks’ history.

The jump helped Starbucks cushion the hit from a 16 percent decline in comparable sales in China – its fastest-growing market – where it is still reeling from a zero-COVID policy that has shut its seating areas.

Wall Street analysts expected Starbucks’ comparable sales in China to drop by 20 percent, according to analysts at Gordon Haskett. The company had reported a 44 percent slump in the previous quarter.

“We saw accelerating demand for Starbucks coffee around the world in Q4 and throughout the year,” interim Chief Executive Officer Howard Schultz said in a statement.

Schultz is set to depart on April 1, 2023, when Laxman Narasimhan will take over the role.

Some investors told the Reuters news agency they are looking to Narasimhan to address challenges including a growing union movement at US cafés and an overhaul of stores with new equipment to make coffees and lattes more quickly.

Global comparable sales at Starbucks rose 7 percent in the fourth quarter, which ended October 2, while analysts on average had expected a 4.2 percent rise, according to Refinitiv IBES.

The company expects global comparable sales for fiscal 2023 to be near the high end of its previous long-term guidance of 7-9 percent, it said on Thursday.

Total net revenue rose to $8.41bn from $8.15bn a year earlier, compared with analysts’ average estimate of $8.31bn.

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