Starbucks sales are increased by the Global Coffee Alliance
The construction of new stores, a “healthy balance” of comparable sales growth, and the ongoing expansion of Starbucks Corp.’s worldwide coffee alliance with Nestle S.A. all contributed to a “exceptional” quarter for the company, according to CEO and President Kevin R. Johnson.
During a conference call with analysts on January 28, Mr. Johnson stated, “The positive business momentum we’ve created over the past fiscal year continues with a strong start to fiscal 2020.”
“We achieved significant margin growth during the quarter, which is especially pleasing to us, despite our ongoing investments in key areas that support sustainable growth, primarily in our partners, beverage innovation, and digital customer relationships,” he stated.
Net income increased by 16% to $885.7 million, or 74c per share on common stock, in the first quarter of 2019 that concluded on December 29, 2019, from $760.6 million, or 61c per share, in the same period the previous year. From $6,632.7 million to $7,097.1 million, revenues grew by 7%.
Starbucks’ Americas business saw revenue growth of 9% in the first quarter, according to Chief Financial Officer Patrick J. Grismer. This growth was fueled by 6% rise in comparable sales and 3% growth in net new stores.
“Transactions and tickets drove an equally impressive 6% comp sales growth in Q1 for our U.S. business,” Mr. Grismer stated. “A robust beverage lineup, enhanced partner-led in-store experiences, and higher levels of digital customer involvement were the main drivers of these outcomes. For the sixth consecutive quarter, beverage led the way in terms of comp growth, delivering almost five points of growth in comp sales across all beverage categories, with food making up the remaining point.
“Cold coffee was our main growth driver for the quarter, but our cold platform still resonates with customers in all seasons. Significantly, cold beverage sales increased in Q1 across all regions and dayparts, indicating a wide appeal among our clientele.
Leaving excluding a 7% negative effect from the sale of Tazo-branded products to Unilever and transition activities related to the global coffee alliance, revenues within Starbucks’ Channel Development segment increased 5% in the first quarter.John Culver, group president of international, channel development and global coffee and tea, elaborated on the segment’s success during the first quarter.
“We saw acceleration into 40 markets globally through the quarter, where our products are available through food service and grocery stores,” Mr. Culver stated. By the end of this quarter, we plan to have over 50 markets under our belt. Our product sales—which include packaged coffee, Nespresso capsules, and Dolce Gusto—remain much higher than anticipated. In the United States, the Starbucks brand has outgrown the whole coffee industry when it comes to our core business. K-Cup share increased by 40 basis points, roast and ground share increased by 80 basis points, and we have some interesting new products coming soon.
“We previously announced that we’re releasing premium later this spring.We’re thrilled about the significant global possibility presented by soluble coffee. Following the launch of our four-flavor creamers, we’re now adding two more flavors due to their recent success. Thus, the global coffee alliance is operating at a high level globally and aiding in the expansion and amplification of the Starbucks brand.
Executives at Starbucks stated that the company will keep an eye on the coronavirus situation in China, its main overseas market. According to Mr. Johnson, Starbucks’ two main goals for China are to protect the health and wellbeing of its partners and patrons in its retail locations and to constructively assist local government officials and health officials.
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Thus far,Starbucks still offers delivery services from the locations that are still operating in China, despite taking steps to close more than half of its locations. China is a “very complex situation,” according to Mr. Culver, but since Starbucks has been in the market for 20 years and has established a well-known and dependable brand, it should be able to withstand the recent difficulties in the nation.
“We’ve handled challenging circumstances before,” Mr. Culver remarked. And given the relationship and trust we’ve been able to create with our partners and the relationship and trust that they’ve been able to build with their customers, we feel that no other company in China is better positioned to handle this. As the circumstances develop, we will continue to be open and honest, but weWe are fully confident in the choices we are making, and we will never stop offering our all to our Chinese allies and citizens as they work through this difficult time.