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Starbucks (SBUX) shares surged in pre-market trading Friday after the world’s biggest coffee chain posted stronger-than-expected fourth quarter sales and said its China business rebounded thanks in part to a delivery deal with online retailing giant Alibaba Group Holding (BABA) .
Starbucks said adjusted earnings for the three months ending in September, its fiscal fourth quarter, came in at 62 cents a share, topping the Street’s 60 cent consensus and rising 13% from the same period last year as sales rose 11% to $6.3 billion. Comparable China sales, Starbucks said, rose 1% from last year, move that took global same store sales 3% higher. Comparable U.S. sales rose by a much better-than-expected 4%, the best in five years, as it closed under-performing stores and shifted its menu to focus more on lunchtime options.
“Accelerating growth in our two targeted long-term growth markets of China and the U.S. acknowledges that these two markets are in very different stages of development,” CEO Kevin Johnson told investors on a conference call late Thursday. “When we look at the strategic priority of accelerating growth in China, our second largest and fastest growing market, a key metric is total transaction growth, which includes new store expansion as well as same store comp. We’ve now successfully unified Mainland China as a company operated market which has positioned us for long-term expansion.”
Starbucks shares were marked 8.32% higher in pre-market trading Friday, indicating an opening bell price of $63.51 each, a move that would boost the stock’s year-to-date gain past 10% and value the Seattle, Washington-based chain at more than $86 billion.
Starbucks also guided for full year 2019 adjusted earnings of between $2.61 and $2.66 per share, but noted that global comparable sales growth could come in at the lower end of current guidance of between 3% and 5%.
John Cluver, who heads the group’s retail operations in Asia, said the Alibaba partnership, which includes not only delivery but digital sales on its various online platforms, would we “rocket fuel for our holistic digital flywheel strategy in China.
Earlier this month, Starbucks said it would start buying back $5 billion in shares as part of a broader plan to return around $25 billion to investors just days after a key activist, Pershing Square Capital Management’s Bill Ackman, unveiled a stake in the world’s biggest coffee chain.
Starbucks said the buybacks, flagged as part of a plan to return billions to shareholders by 2020 following its $7.15 billion deal with Nestle SA earlier this year that gives it perpetual rights to market Starbucks products outside of the United States, will likely be completed by February or March of next year.
Ackman unveiled his stake in Starbucks to an audience at Grant’s Interest Rate Observer Conference in New York Tuesday and now holds 15.2 million shares in the Seattle-based group. That equates to roughly 1.4% position in the world’s biggest coffee chain, which he called “one of the greatest businesses in the world.”
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