Starbucks turnaround showing signs of traction as comparable store sales down less than expected

Led by better-than-feared fiscal third quarter comparable store sales and a beat on sales that offset weak margins, Starbucks (NASDAQ:SBUX) shares are gaining ground in postmarket trading.

“We’ve fixed a lot and done the hard work on the hard things to build a strong operating foundation, and based on my experience of turnarounds, we are ahead of schedule,” said Starbucks CEO Brian Niccol.

Comparable store sales in China were up 2%, beating expectations for a more modest gain of 1.44%. Additionally, North American sales were down 2% versus expectations for a 2.49% decline. This helped offset a miss on international sales (flat vs +2.09%).

Additionally, company-wide sales were up 4% in the fiscal third quarter to $9.46B, $150M better than Wall Street expected. Starbucks (NASDAQ:SBUX) earned an adjusted profit of $0.50 per share, which was down 46% from a year ago, but was impacted by an $0.11 “discrete tax item.” Analysts expected the company to report a profit of $0.65 per share.

Adjusted operating margin of 10.1% declined 660 basis points from a year ago and missed expectations by 150 basis points, while channel development operating margin missed expectations by 470 basis points.

By transaction, comparable transactions were down 3% in North America versus -4.26% estimates, while global comparable transactions fell 2%, slightly better than -2.7% expectations. U.S. comparable transactions were down 4% versus -4.5% estimates.

Shares last traded with a gain of more than 4%.