General Industry

Starbucks Targeting $3bn In Cost Savings Over Next Three Years

By Reuters
Starbucks Targeting $3bn In Cost Savings Over Next Three Years

Starbucks leaned on the hype around its Pumpkin Spice Latte and other fall-themed drinks in North America to surpass Wall Street targets for fourth-quarter results, as demand for its pricey coffees defied sticky inflation.

The company's shares closed 9.5% higher on Thursday, adding nearly $10 billion (€9.4 billion) to Starbucks' market capitalisation, after the coffeehouse giant also delivered an upbeat annual profit forecast.

Record Average Weekly Sales

The seasonal return of the Pumpkin Spice Latte (PSL) in August, coupled with new menu items such as the Iced Pumpkin Cream Chai Tea Latte and apple-flavored Espressos and croissants, helped drive US same-store sales up 8% in the quarter. data showed a 20% surge in visits on the day of the PSL launch. Starbucks also said the fall-season launch led to record average weekly sales.

Traffic at the coffee chain has also benefited from its younger, more affluent customer base prioritizing their morning coffee fix even as the wider US restaurant industry grapples with an inflation-driven slowdown.


'Change In Sentiment'

"Customer demand for us remains strong. We're not really seeing any change in the sentiment," CEO Laxman Narasimhan said on a post-earnings call.

Separately, the company executives said at a conference that Starbucks expects to save $3 billion (€2.8 billion) in costs over the next three years through store efficiencies and improved manufacturing and sourcing.

It also unveiled plans to grow its global store count to 55,000 by 2030 - from more than 38,000 currently - and expects to double the hourly income of baristas from 2020 levels over the next two years through increased working hours and higher pay.

China Market

Starbucks forecast fiscal 2024 per-share profit growth of 15% to 20%, above analysts' estimates of 15.1%, according to LSEG data.

It expects fiscal 2024 global comparable sales to grow between 5% and 7%, with China sales also projected to rise 4% to 6% in the last three quarters. Sales in China would be higher than that range in the first quarter, it said.


'Affordable Luxuries'

"The consumer is stressed, but they're going to go to ... those affordable luxuries ... and Starbucks does a great job with that," Stephens analyst Joshua Long said.

Global comparable sales at Starbucks climbed a better-than-expected 8% in the quarter ended Oct. 1. Adjusted per-share profit of $1.06 surpassed estimates of 97 cents.