Starbucks shares jump on stronger-than-expected sales

  • Starbucks reported quarterly earnings and revenue after the bell Thursday.
  • Last year, Starbucks' holiday sales disappointed investors, so the company trimmed back its holiday drink menu and merchandise and cut prices for its limited-time offerings.
Mark Makela | Reuters

Shares of Starbucks rose more than 3 percent Friday in premarket trading after the company reported better-than-expected sales and earnings growth late Thursday, with customers spending more on their lattes and Frappuccinos.

"We are particularly pleased with the sequential improvement in quarterly comparable store transactions in the U.S., underpinned by our digital initiatives and improved execution of our in-store experience," CEO Kevin Johnson said in a statement. "With this solid start to the fiscal year, we are on track to deliver on our full-year commitments."

Starbucks said net income fell to $760.6 million, or 61 cents per share, from $2.25 billion, or $1.57 per share, a year ago. The company said it earned 75 cents per share on a non-GAAP basis. After stripping out a 7-cent gain from income tax items, Starbucks earned 68 cents per share, topping analysts' estimates of 65 cents per share.

The coffee giant said revenue rose 9 percent to $6.63 billion, beating Refinitiv estimates of $6.49 billion for the quarter.

Overall same-store sales rose 4 percent for the quarter that ended Dec. 30.

While the number of transactions in the U.S. remained flat, Starbucks reported same-store sales growth of 4 percent thanks to a 3 percent bump in the average check size. Wall Street was expecting to see same-store sales increase by 3.2 percent.

The company's iced beverages led growth with its Refreshers, iced espresso and iced coffee drinks proving popular with customers all day.

"We also saw continued improvement in cold beverages," Starbucks Chief Operating Officer Rosalind Brewer told CNBC. "So we continue to learn that cold beverages sell all year long."

The company also increased the number of rewards members to 16.3 million people, a year-over-year increase of 14 percent. Johnson said that the company is changing the loyalty program so customers can earn and redeem rewards more quickly and across a broader range of products.

The company beat same-store sales estimates for China/Asia Pacific. Starbucks reported an increase of 3 percent in the region, with transactions growing by 1 percent.

In China, in particular, the company saw transactions drop by 2 percent, while stores open at least a year increased sales by 1 percent.

Despite investor concerns about slowing growth in China, the company remains optimistic. It increased its number of stores in the country by 18 percent during the quarter.

"We believe we've built a strong foundation in the last 20 years in the China market and are well positioned to navigate any fluctuation that may take place," John Culver, president of international, channel development and global coffee & tea.

The company's weakest sales came from its Europe, Middle East and Africa segment. The region's same-store sales and transactions both declined by 1 percent. The company has added 324 stores in the region since last year.

Starbucks narrowed its outlook for fiscal 2019, saying it now expects same-store sales growth to be between 3 and 4 percent globally. At its investor day in December, the company reaffirmed its previous outlook of same-store sales growth near the lower end of 3 to 5 percent.

Starbucks is forecasting net income between $2.32 to $2.37 per share for the fiscal year. The company did boost its adjusted earnings forecast, thanks to income-tax items. It now expects to earn between $2.68 and $2.73 per share. It previously estimated adjusted earnings of $2.61 and $2.66 per share. It also expects revenue to grow by 5 to 7 percent during fiscal 2019.

Starbucks, which has a market capitalization of $80.3 billion, has had its stock rise more than 6 percent over the past year.