Starbucks Corp.'s (SBUX) quarterly profit climbed 26% as the coffee giant attracted more customers with its loyalty program in the U.S. and China.
Starbucks has logged stronger sales in the U.S. than most of its competitors, like Dunkin' Brands Inc. (DNKN) and McDonald's Corp. (MCD), saying the wide adoption of its loyalty program helps its value perception and is a major driver of customer traffic.
Still, its latest sales trends fell slightly short of Wall Street's expectations, sending shares of the stock down 2.8% to $58.80 after market hours Thursday. Investors had propped up the stock to levels nearing its five-year high ahead of the earnings release.
Chief Financial Officer Troy Alstead said Starbucks was somewhat insulated from the "choppiness" that much of the U.S. restaurant industry saw in the recent quarter.
For instance, Dunkin' Donuts saw relatively flat customer traffic, as its growth was offset by winter storms in the Northeast--its largest market.
Dunkin' Chief Executive Nigel Travis said he's encouraged by its momentum so far this quarter. "Everyone says consumer sentiment and spending are down in a number of segments, but clearly we are taking market share," he said. The company's shares rose 3.6% to $39 Thursday.
It's clear many consumers remain concerned about spending money. McDonald's last week said its same-store sales are declining in April, and that it will keep making a stronger push for its Dollar Menu in hopes of gaining market share.
After facing some setbacks in sales trends in June, Starbucks made additional efforts to draw in more cost-conscious consumers too, and it saw a return to growth a few months later.
Mr. Alstead said Starbucks finished its fiscal second quarter in a "solid place," giving him confidence in the chain's ability to sustain that momentum in the back half of the year.
Starbucks expects its U.S. traffic growth over the next few months to be driven by the expansion of its loyalty program to include coffee purchased at grocery stores, and by new drinks for the summer.
"Some of the ups and downs that perhaps others have experienced, driven by the payroll tax or weather...we believe we were fundamentally insulated from those types of movements," Mr. Alstead said in an interview. "There's not a question that we are seeing stronger transaction growth."
The company's global same-store sales rose 6%, including an 8% jump in its China and Asia-Pacific business, a 6% pop in the Americas, and a 2% decline in the Europe, Middle East and Africa division. The results came in just shy of analysts' expectations, according to Consensus Metrix.
Starbucks has also been working to expand geographically and diversify from its traditional coffee business.
Starbucks is looking to open thousands of locations in China in the next few years, while also expanding to new markets, like India, where it opened its first store late last year.
In addition to its $620 million acquisition of loose-leaf tea retailer Teavana Holdings Inc. last year, Starbucks has taken on new ventures such as its own single-serve espresso brewer called Verismo, energy drinks and the acquisition of a San Francisco Bay-area bakery chain.
But its U.S. cafes remain Starbucks's largest business.
"Anyone who suggested in '08 or '09 that Starbucks was reaching saturation in the U.S. was just flat-out wrong," Chief Executive Howard Schultz said. Starbucks will open 300 new stores this year in the U.S., where it already has roughly 7,000 cafes, he said.
Starbucks also raised its full-year earnings guidance to $2.12 to $2.18 a share, from its prior view of $2.06 to $2.15 a share.
For the quarter ended March 31, Starbucks reported a profit of $390.4 million, or 51 cents a share, up from $309.9 million, or 40 cents a share, a year earlier. The latest period included a three-cent gain on the sale of the company's equity in the joint venture that operates Starbucks stores in Mexico. Net revenue jumped 11% to $3.56 billion.
Wall Street analysts were looking for earnings of 48 cents a share and revenue of $3.59 billion.