Starbucks Corp. exceeded Wall Street projections for quarterly profits on Tuesday because to a rapid improvement in operations in China, but shares plummeted in after-hours trading by around 6% after the company decided not to raise its 2023 guidance.

Since the majority of China’s COVID-19 restrictions have been lifted, consumer mobility and spending in the area experienced a significant uptick in March.

Even still, after falling 29% the previous quarter, several analysts had predicted that China sales would continue to be negative.

Instead, according to Refinitiv data, the largest coffee chain in the world reported a 3% increase in China comparable sales in its second quarter that ended on April 2, helping to boost international sales 7%, more than double the 2.94% increase of the average analyst estimate.

Although the company’s expectations for the recovery in China were exceeded, chief financial officer Rachel Ruggeri stated during an earnings call that the second half will see a more moderate pace of growth in average weekly sales there.

“We’ve already seen it start to moderate,” she said, noting uncertainty about consumer behavior and international travel. “So when we take all of that into account, when we look at our guidance for the full year, we believe reaffirming our guidance allows us to continue to convey the momentum, but also for the confidence we have while still navigating a rather uncertain environment globally.”

This year, restaurant stocks have generally outperformed the S&P 500 Index, as McDonald’s Corp. and other companies have reported solid quarters.

After Starbucks’ stock increased 16% over the previous five weeks with “a pretty big run” into the earnings report, Edward Jones analyst Brian Yarbrough speculated that some investors may have cashed out.

Comparable sales for Starbucks, situated in Seattle, increased 11% globally, exceeding experts’ projection of a 7.36% increase.

According to the earnings release, customers made more frequent visits and spent more money each time. Starbucks made 74 cents per share after one-time expenses, above projections of 65 cents.

Starbucks has increased its focus on its cold and customizable beverages, boosting traffic in the United States and causing a 12% increase in comparable store sales in its North American market. Its customers are often younger, wealthier, and less affected by inflation.

According to the chain’s earnings report, its rewards programme has 30.8 million active members in the United States, an increase of 15% over this time last year.

Additionally, it is expanding its cafe network by opening 100 net new locations in North America and more than 360 elsewhere.

(Adapted from CNBCTV18.com)