Starbucks stays bullish on China

by Jeff Gelski
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Starbucks in Shanghai
Starbucks has over 500 stores in Shanghai.

SEATTLE — Quick. Name the city with the most Starbucks stores. No, it’s not New York.

Howard Schultz, Starbucks
Howard Schultz, chairman and c.e.o. of Starbucks

“We now have over 500 stores in Shanghai alone, a city of over 24 million people, making Shanghai the city in the world with more Starbucks stores than any other, and we continue to add stores,” said Howard Schultz, chairman and chief executive officer, in a Nov. 3 earnings call. “We remain on plan to have over 5,000 stores in China by 2021, and I am convinced that given the trust our customers in China have in the Starbucks brand and experience and the loyalty they show us every day, in time we will have more stores in China than we do in the U.S.”

Starbucks executives gave details on fourth-quarter and fiscal-year 2016 results in the Nov. 3 call. Net earnings attributable to Starbucks in the year ended Oct. 2, 2016, were $2,817.7 million, equal to $1.90 per share on the common stock, which was up 2.2% from $2,757.4 million, or $1.82, in the previous fiscal year. Consolidated net revenues grew 11% to $21,315.9 million from $19,162.7 million in the previous fiscal year. The 2016 fiscal year contained 53 weeks compared to 52 weeks for the previous fiscal year.

Inside a Starbucks in China
Starbucks stores in China are among the company's most elegant, Starbucks' c.e.o. said.

In the China/Asia Pacific segment, operating income of $631.6 million in the fiscal year was up 26% from $500.5 million in the previous fiscal year. Net revenues in China/Asia Pacific increased 23% to $2,938.8 million from $2,395.9 million. Starbucks currently operates about 2,400 Starbucks stores in 114 cities in China, Mr. Schultz said.

“Perhaps nowhere in the world has the Starbucks experience come to life more powerfully and been embraced more enthusiastically than in China, a country we first entered 17 years ago,” Mr. Schultz said. “I personally observed this again firsthand on my visit to the market just two weeks ago. Starbucks stores in China are among our most elegant, efficient and profitable of any stores in the world, and China once again produced record revenues and profits and strong comp store sales growth in both Q4 and fiscal 2016.”

In the fourth quarter, China/Asia Pacific recorded year-on-year revenue growth of 29%, said Kevin Johnson, president and chief operating officer.

Kevin Johnson, Starbucks
Kevin Johnson, president and c.o.o. of Starbucks

“Starbucks China remains strong despite moderating G.D.P. growth in China, and we remain committed to build at least 500 net new stores each year over the next five years,” he said.

Globally, comparable store sales increased 5%, comprised of a 6% increase in the Americas segment and a 3% increase in the China/Asia Pacific segment. Comparable store sales in the Europe, Middle East and Africa (E.M.E.A.) segment were flat.

In the Americas segment, operating income of $3,742 million was up 16% from $3,223.3 million in the previous fiscal year. Net revenues rose 11% to $14,795.4 million from $13,293.4 million. Starbucks expects the Americas segment to add 800 new stores in 2017, split roughly even between company-owned stores and licensed stores, said Scott Maw, chief financial officer.

Starbucks in China
Starbucks plans to have over 5,000 stores in China by 2021.

In Europe, Middle East and Africa in the fiscal year, operating income was $151.6 million, down 10% from $168.2 million, and net revenues were $1,124.9 million, down 7.5% from $1,216.7 million.

Mr. Johnson said Starbucks Reward membership grew 18% year-on-year and that mobile payments now represent 25% of all transactions.

In the fourth quarter, net earnings attributable to Starbucks were $801 million, or 54c per share, which was up 23% from $652.5 million, or 43c, in the previous year’s fourth quarter. Net revenues rose 16% to $5,711.2 million from $4,914.8 million.

Starbucks rewards program
Starbucks Reward membership grew 18% year-on-year.
In giving forecasts for the 2017 fiscal year, Starbucks expects mid-single digit comparable store sales growth globally and consolidated revenue growth in the double digits. The company forecast a GAAP e.p.s. range of $2.09 to $2.11 in the 2017 fiscal year and a non-GAAP e.p.s. range of $2.12 to $2.14. 
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