Starbucks Efficiency Gains Bolster Profit as China, US Drag Sales

Starbucks' store operation improvements helped the coffee chain meet Wall Street expectations, even as its global sales declined on persistent weakness in consumer spending in its top markets of U.S. and China.

The company's shares, down 22% this year, were up 4% in extended trading after the company reaffirmed its annual forecasts.

The coffee chain this year rolled out its Siren System plan, which included the introduction of equipment to increase the pace of service at its stores.

"Our efficiency efforts, which are tracking ahead of expectations, partially offset investments associated with the cautious consumer environment," Chief Financial Officer Rachel Ruggeri said in a statement.

Starbucks' operating margin saw a sequentially smaller fall of 70 basis points in the quarter.

Profit of 93 cents per share was in line with estimates.

The company's shares, down 22% this year, were up nearly 2% in trading after the bell.

"Quite possibly, investors are viewing this as not as bad as was feared potentially. We're kind of impressed that they were able to open 526 new stores in the quarter," said Greg Halter, director of research at Carnegie Investment Counsel.

Known for its pricey lattes, Starbucks spent the summer offering uncharacteristic deals on its coffees including bundled menus such as a coffee or tea paired with a butter croissant for $5 in June, as well as 50% off deals on Fridays in May.

In China, the company grappled with weak consumer spending and stiff competition from local coffee chains such as Luckin' Coffee, offering cheaper options in a weak macroeconomic environment.

Still, same-store sales dropped 14% in China, following an 11% drop in the second quarter.

Sales in international markets also missed expectations, echoing results from McDonald's and Domino's.

Starbucks is also facing weak spending in some markets in the Middle East as a result of boycotts related to the war in Gaza.

Total net revenue fell 0.6% to $9.11 billion, compared with market expectations of $9.24 billion.

The coffee chain reaffirmed its global and U.S. comparable sales in range of a low single-digit decline to flat, and annual profit in the range of flat to low-single digits.