Starbucks (SBUX) has taken a beating lately. The firm’s performance over the past year is 27%, far worse than the Dow Jones Industrial Average’s 6% drop.
Starbucks’ share price guzzling has been kept in check, however, by supply chain shortages, a growing recession, and inflation. On the other hand, they weren’t the highlights of the company’s financial third-quarter results, which were announced on August 2.
Let’s look at the highlights and the primary issue that weighed on Starbucks’ excellent performance
1 green flag: Starbucks is becoming a worldwide brand
Starbucks is a firm that continues to grow in popularity throughout the world. The company’s main strength is its size in China and the United States, which has remained consistent since Q3. Revenue from these two countries accounted for 75% of total revenue during the quarter. Starbucks, on the other hand, saw considerable success with its business operations outside these two countries.
Starbucks reported record revenue and earnings for the third quarter of 2017, fueled by new store openings in Canada, China, Mexico and the United States. International comparable-store sales increased in the double digits, with international markets (excluding China) recording sales growth. In Japan – Starbucks’ third-largest market – comparable sales accelerated to their fastest rate since the year began.
Global expansion, as demonstrated by this quarter’s earnings, is paying off. Starbucks’ global brand continues to strengthen; not only does the firm have operations in China and the United States, but it may also be regarded as the world’s first coffee business to have a globally recognized brand because of its presence across the world.
1 red flag: The China knife cuts both ways
Despite a very good quarter for Starbucks, one area tanked: China. In contrast to many American companies, Starbucks has succeeded in China. Starbucks currently has over 5,700 outlets in China and last year generated almost $3.7 billion in revenue from the region.
However, the COVID-19 security restrictions have taken their toll on Starbucks. In Q3, comparable store sales in China fell 44%, dragging total worldwide comparable store sales down 18% versus the prior year despite good execution in virtually all areas.
The bottom line is that doing business in China is a risk. In recent years, Starbucks has benefited from the prosperous Chinese economy and rising consumer demand. That said, the economic climate is difficult to predict, which means businesses working in China might experience significant swings in fortune. Q3 was a reminder of this fact.