Starbucks can't stop talking about China
- Starbucks mentioned "China" 60 times in its earnings call and believes the country is key to long-term growth.
- US and global comparable same store sales growth of 2% barely beat out analysts' estimate of 1.9% while China reported comp sales growth of 4%.
- Watch Starbucks trade in real-time here.
Starbucks can't stop talking about China.
The coffee giant reported its second-quarter results Thursday, and pointed to China as a big part of its success. Comparable sales accelerated 4% in the country, far surpassing other markets. By comparison, global and US markets showed a 2% comparable sales, edging out analysts' 1.9% estimate. Comparable sales is a metric used to compare a company's revenue based on sales from stores that have been open for at least one year.
In fact, Starbucks is so excited about the prospects in the country that it mentioned "China" 60 times on its earnings call, stressing that creating a coffee culture there will be key to its long-term growth strategy.
"The opportunities for Starbucks in China, which are significant, are growing along with the size and scale of our business, and the deepening connections among our partners, our customers and the Starbucks brand," CEO and President Kevin Johnson said on the earnings call.
Johnson notes that the per capita coffee consumption in the country, which is home to an estimated 1.4 billion people, is about one half of one cup per person annually. By comparison, the per capital consumption in the US comes out to around 300 cups per person, per year.
Johnson thinks China's rapidly growing middle class, which is set to be double the US population by 2021, puts Starbucks in an enviable spot for years to come. In July, the company announced the acquision of its East China business from its join venture partners. At $1.3 billion, the East China acquision is the company's biggest ever acquisition and would give Starbucks control of about 1,300 stores.
The company also intends to improve the Starbucks experience through Roasteries, Reserve, and Princi. In December, Starbucks opened the Shanghai Roastery which brings in twice the dollar volume in a day that an average Starbucks can do in a week. A greater focus will be put on growing its beverage business, adding new cold items in the second half of the year, which will hopefully help increase sales in the afternoons. Happy Hour will be used to promote a variety of afternoon products during the year, not just in May, to bring in customers on a more consistent basis.
Looking ahead, management expects revenue growth in the high-single digits (which does not include benefits from East China acquisition and streamline activities) and full-year comparable sales growth on the low end of its 3%-5% long-term guidance. Compared to 2017, Starbucks anticipates a "moderate decline" in 2018 full-year operating margin due to increased investments in partners and digital investments.
Starbucks shares have gained 1.3% this year.
