Starbucks still hot on China despite muted sales

Fri Jan 22, 2016 1:02pm EST
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By Yashaswini Swamynathan

(Reuters) - Tepid growth in Asia might have taken some steam out of Starbucks Corp's (SBUX.O: Quote) latest quarterly sales, but both the company and analysts remain upbeat about the coffee chain's prospects in China.

Starbucks has been investing heavily in the world's most populous country despite signs of cooling economic growth, and Chief Executive Howard Schultz said on Thursday that business in the country had never been stronger.

"We believe one day (China) could very well be larger than the U.S. business," Schultz said on a post-earnings call.

Analysts said muted sales in the quarter were a blip. China is Starbucks' largest market outside the United States.

While comparable sales were muted in China in the latest quarter, Starbucks' return on investment on its newest stores has strengthened, Cowen & Co analyst Andrew Charles noted.

This, he said, is a more important indicator of the company's growth prospects in China.

Starbucks, whose shares were down 0.6 percent at midday on Friday, reported a 5 percent rise in comparable sales in the Asia-Pacific region in its first quarter ended Dec. 27.

Analysts had expected a rise of 6.1 percent, according to research firm Consensus Metrix.   Continued...

Customers walk out of a Starbucks coffee store in Shanghai July 28, 2014.  REUTERS/ Carlos Barria