Starbucks celebrates strong holiday season

by Monica Watrous
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Starbucks sales and traffic improved during the holiday period from the previous year.

SEATTLE — One in seven Americans received a Starbucks gift card over the holidays, according to the company. driving strong seasonal sales at the coffee chain. Starbucks Corp. reported double-digit growth in earnings and revenue for its first quarter of fiscal 2015. Global comparable sales climbed 5%, with a 2% increase in global traffic.

“For the quarter, we drove nearly 9 million more customer transactions through our U.S. stores than we did in Q1 last year, almost 12 million more globally,” said Howard Schultz, chairman, president and chief executive officer, during a Jan. 22 conference call with financial analysts to discuss first-quarter performance.

For the first quarter ended Dec. 28, 2014, net earnings attributable to Starbucks increased 82% to $983.1 million, equal to $1.30 per share, which compared with $540.7 million, or 71c per share, in the year-ago period. Results included the benefit of the September acquisition of Starbucks Japan, which the company previously operated under a joint venture agreement.

Revenues totaled $4,803.2 million, up 13% from $4,239.6 million in the prior-year quarter.

Comparable sales in the Americas rose 5%, with a 2% increase in traffic. Net revenues for the segment advanced 10% to $3,366.9 million, benefitting from incremental sales from 766 net new store openings over the past year. Operating income increased 12% to $817.5 million.

“We increased operational focus to help drive transaction growth across all day parts, including strong growth at peak and accelerated during holiday,” said Scott Maw, executive vice-president and chief financial officer, during the call. “And for the fourth consecutive quarter, food contributed 2% to comp growth, including the excellent performance by our breakfast sandwiches, with net sales growing 29% in Q1 versus the prior year, and strong holiday limited-time food offers.”

Food contributed 2% to comparable sales growth in the United States with strong performance from breakfast sandwiches.

Holiday beverages, including the new chestnut praline latte, delivered 9% year-over-year growth, and total tea sales in U.S. stores grew 17% over the comparable quarter.

Starbucks plans to expand its mobile order and payment platform, which debuted in Portland stores in December and is expected to drive an increase in mobile payment transactions and strengthen customer loyalty.

“Mobile Order and Pay has been extremely well received by customers in the Portland market,” Mr. Schultz said. “We will be launching it now in over 600 stores in the Pacific Northwest in the months ahead and will be rolled out nationally later in calendar 2015.”

Also this year, the company plans to introduce delivery, with two models — one that uses Starbucks’ baristas and one that leverages a third-party service.

“We will have more to share with you on our plans for delivery in the months ahead, but rest assured that delivery, like Mobile Order and Pay, will drive incrementality and increased customer loyalty,” Mr. Schultz said.

Success around the globe

Comparable sales in Europe, Middle East and Africa markets climbed 4% with a 3% increase in traffic. Net revenues decreased 2% to $333.3 million, due to unfavorable foreign currency translation that was partly offset by an increase in sales from the opening of 184 net new licensed stores over the past year. Operating income grew 49% to $50 million, driven by operational improvements, cost management and the benefit of shifting the portfolio toward more licensed stores.

In the China and Asia Pacific region, comparable sales increased 8%, and net revenues advanced 86% to $495.8 million, driven by incremental revenues from the acquisition of Starbucks Japan as well as from 767 net new store openings in the past year. Operating income climbed 34% to $108.3 million.

Net revenues for the channel development segment grew 10% to $442.6 million, reflecting increased sales of premium single-serve and packaged coffee. Operating income for the segment increased 33% to $157.5 million, benefitting from lower coffee costs and efficiencies on costs of goods sold.

“Our relationship with Keurig and Green Mountain continues to strengthen at the same time as our K-Cup business continues to grow,” Mr. Schultz said. “Approximately 100 million Starbucks K-Cups were shipped in December 2014 alone, our largest single shipment month ever, up 20% over December 2013.”

Teavana’s performance, which is included in Starbucks' other reported segments, was relatively flat for the quarter, but sales of Teavana handcrafted beverages in U.S. Starbucks stores drove noteworthy growth in tea category revenue over the prior year, executives said.

The company opened 512 net new stores globally during the quarter, including its first Starbucks Reserve Roastery and Tasting Room in Seattle.

The company opened its first Starbucks Reserve Roastery and Tasting Room store in Seattle during the quarter.

Looking ahead

Starbucks has reaffirmed its full-year targets of 16% to 18% revenue growth and global comparable store sales growth in the mid-single digits. The company expects to open 1,650 net new units during the year. Starbucks executives also project earnings growth to accelerate through the year as the company rolls out the mobile order and payment platform to more markets and introduces new beverage products.

“Starbucks is off to a fantastic start in fiscal 2015,” Mr. Schultz said. “Together, our record-shattering holiday quarter financial and operating results, the historic opening of the Roastery, and the undeniable success of our card, mobile, and digital strategies underscore the increasing strength of the Starbucks brand around the world, and ideally and uniquely positions us to thrive in the face of this seismic shift in consumer behavior that is under way.”
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