Starbucks sales drop larger than expected on China weakness; profit in line

(Reuters) – Starbucks (NASDAQ:) reported a bigger-than-expected drop in third-quarter comparable sales on Tuesday, dragged by stubbornly weak demand in the U.S. and a 14% drop in its second-biggest market, China.

The coffee chain’s global comparable sales fell 3% in the quarter, compared with a 2.35% decline expected on average by analysts, according to LSEG data.

However, Starbucks reported a profit that was in line with estimates. The company’s shares, which have fallen 22% so far this year were last up 1% in choppy trading after the bell.

Starbucks, like other U.S. fast-food chains, has rolled out promotions to bring back to stores consumers looking to cook at home due to sticky inflation, while it has offered cheaper options in a weak macroeconomic environment in China.

International same-store sales fell 7% in the third quarter, compared with expectations of a 4.3% drop. That included a drop of 14% in China, following an 11% drop in the second quarter.

Fast-food giants such as McDonald’s (NYSE:) and Domino’s also reported weakness in some international markets this quarter. McDonald’s said sales in its international markets fell on the back of slower demand in France.

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

Operating margin fell 70 basis points on an adjusted basis in the third quarter hurt by increased promotions and higher wages. It had fallen 150 basis points in the preceding quarter.

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