Starbucks doesn’t think the economy will have a big impact.
Starbucks’ management team is confident that the company can not only weather a worldwide economic slowdown but also continue to thrive, thanks to a successful first quarter. Chief marketing officer Brady Brewer stated that resilience and relevance will be essential for growth regardless of the state of the economy during a conference call on February 2 to discuss first-quarter results.
“If we look at the last quarter, the total population of the US has more customers than ever before,” he stated. They’re incredibly involved. If we examine wallet share and spend, our Reward members accounted for 56% of our transactions.
In terms of resilience, last quarter’s results showed growth in both tickets and transactions despite macroeconomic difficulties. Therefore, we expect that momentum will continue into the upcoming quarter and year.
Additionally, management has faith in the steadfast commitment of its core clientele to the Starbucks name.
“We had, I believe, the highest average ticket in our history in the month of December, at a time when people are generally trading down, and there’s a lot of discounting going on,” interim CEO Howard D. Schultz stated. Therefore, we don’t think we’re in a position where we have to provide significant discounts. We also don’t observe any circumstances in which our clients are trading down.
The fact that inflation is slowing down will help the business much more in the upcoming year.
Chief financial officer Rachel Ruggeri stated, “We don’t have expectations that we’ll have to further that pricing increase,” in reference to price hikes implemented the previous year. Rather, by the latter part of the year, prices will begin to return to more historical levels.
Starbucks’ net income increased from $816 million, or 69¢ per share, the previous year to $855 million, or 74¢ per share, during the quarter that ended on January 1.
Sales for the quarter increased to $7.1 billion from $6.7 billion in the first quarter of the fiscal year 2021.
The company’s North America business unit had a sharp increase in sales and operating profits during the quarter. Operating income increased by 12% to $1.2 billion, while sales increased by 14% to $6.5 billion.
“In Q1, average weekly sales in company-operated stores in the United States reached a new high, surpassing the previous record set in the fourth quarter of fiscal 2022,” Mr. Schultz stated. “And Q2 momentum has carried over from Q1. As of the end of Q1, there were over 30 million active Starbucks Rewards members in the US, an increase of 4 million or 15% from the previous year and 6% from a previous quarter.
According to Mr. Brewer, Starbucks’ breakfast sandwiches and sous vide egg bits had record sales in the US throughout the quarter. Beverage sales rose 13% throughout the quarter, he continued.
He stated, “All year long, customized beverages remain a differentiator with customers.” “In our US company-operated stores, modifier sales increased by 28% year over year, demonstrating that customers are coming to Starbucks for beverages that are tailored to their preferences and that they cannot find anywhere else.”
In the first quarter of this year, 72% of Starbucks’ US revenues came from drive-thrus, deliveries, and mobile order and pay.
Starbucks continues to face difficulties navigating China’s COVID-19 policy revisions. Sales of the international business units decreased by 20% to $1.2 billion, while operating income did the same, coming in at $240 million.
“In early December, zero COVID was lifted and COVID infection spiked throughout China, causing the most severe COVID disruptions any retailer had experienced and a dramatic decline in consumer activity nationwide,” Mr. Schultz stated. “For us, that month saw the closure of around 1,800 Starbucks locations at its height. Consequently, comps fell 29% in the first quarter, including a 42% fall in December alone.
“But like consumers everywhere, our customers in China are creating a full return to familiar pre-COVID routines and lifestyles. And huge consumer demand in China is waiting to be unleashed.”
He added that the company remains on plan to have 9,000 stores in China by the end of 2025. The company currently has 6,100 stores in the country.
During the call, Mr. Schultz also teased an upcoming announcement about a new platform.
“My Starbucks journey will come full circle when I return to Milan later this month to introduce something much bigger than any new promotion or beverage,” he said, adding that the company had released numerous successful coffee beverages over the years. “Last summer in Italy, I stumbled into an enduring, revolutionary new category and platform for the company that was unmatched by anything I had ever encountered.
Without giving too much away, I would characterize it as alchemical. We won’t reveal all the facts today, but be ready for a game-changing announcement.