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Starbucks forecasts steamy sales despite pressure in China

Starbucks delivers steaming results as customers return to stores
Starbucks delivers steaming results as customers return to stores   -   Copyright  Thomson Reuters 2021
By Reuters

By Praveen Paramasivam and Hilary Russ

-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% to 21%, expecting strength in the Americas. Analysts on average expect growth of 17.5%, 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% 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 18-20% from 27-32%, and it dropped its international sales forecast to 15-17% from 25-30%.

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% 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 U.S. restaurants, including Chipotle Mexican Grill and Domino’s Pizza.

Starbucks’ U.S. quarterly sales soared 83% over the previous year – in part as urban areas recovered with people returning to businesses – and 10% above pre-pandemic levels two years ago.

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

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

Its cold drinks also grew to 74% 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.