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Oct 30, 2019

Starbucks rises after posting growth in China, U.S.

Don Lato discusses Starbucks

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Starbucks Corp. rose as sales gains -- especially in its biggest markets -- show the company is fending off intensifying competition for breakfast and coffee.

The Seattle-based coffee giant sees growth continuing -- but maybe not at quite the same rapid clip. In fiscal 2020, global comparable sales, a key metric for the restaurant industry, will be up between 3 per cent and 4 per cent, the company said, shy of the brisk 5 per cent pace it pulled off in 2019. Starbucks also announced an increased dividend.

Key Insights

Chief Executive Officer Kevin Johnson said the company is making progress in its key markets of the U.S. and China while automating some operations. The company reported sales gains due to higher customer traffic in the two markets. Getting more diners in the door, especially in the U.S., has been a key challenge for restaurant chains in recent quarters.

In an interview, Johnson said that Starbucks is scaling back areas that haven’t panned out -- such as wider food offerings and evening events. Instead, the company is focusing on new beverages and digital ordering. He said their strategy is “focusing on the core things that differentiate Starbucks.”



 

Starbucks’ push to reach more customers via its mobile app and customized emails continues to buoy the brand. Membership in the company’s rewards program is up 15 per cent in the U.S. from the same period last year.

The coffee chain has been trying to improve its cafe operations amid rising labor costs and stubbornly low unemployment. Starbucks is automating some of its inventory management and cleaning procedures to free employees up to help customers more. In its latest quarter, operating margin fell in part due to growth in wages and benefits.

Market Reaction

The shares increased as much as 3.3 per cent in after-hours trading on Wednesday. Starbucks has climbed 31 per cent this year through Wednesday’s close, more than the benchmark S&P 500 Index.