SEATTLE — A strong first quarter has given Starbucks’ management team confidence the company is capable of not only weathering a global economic slowdown but continuing to grow. Brady Brewer, chief marketing officer, said during a Feb. 2 conference call to discuss first-quarter results, that relevance and resilience will be keys to growth no matter the economic conditions.
“If we look at the last quarter, we have more customers in total population than ever in the US,” he said. “They're very highly engaged. If we look at share of wallet and spend, 56% of our transactions were from our Reward members.
“When we look at resilience, last quarter, we saw not only ticket growth but transaction growth, even in the face of the macroeconomic headwinds. So, in terms of momentum, we see that carrying into the quarter ahead and the year ahead.”
Management also is confident in their core customer’s loyalty to the Starbucks brand.
“At a time when people are generally trading down, and there's a lot of discounting going on, we had the highest average ticket, I believe, in our history in the month of December,” said Howard D. Schultz, interim-chief executive officer. “And, so, we don't see ourselves in a situation where we need to discount heavily. And we don't see a situation where our customers are trading down.”
Further benefiting the company in the year ahead is inflation is moderating.
“We don't have expectations that we'll have to further that pricing increase,” said Rachel Ruggeri, chief financial officer, referring to price increases taken the year prior. “Instead, … we’ll start to see pricing normalize to more historical levels by the back half of the year.”
Starbucks net income for the quarter ended Jan. 1 was $855 million, equal to 74¢ per share on the common stock, and up from $816 million, equal to 69¢ per share, the year before.
Quarterly sales rose to $7.1 billion during the quarter, up from $6.7 billion during the first quarter of fiscal 2021.
Sales and operating income for the company’s North America business unit surged during the quarter. Sales rose 14% to $6.5 billion and operating income rose 12% to $1.2 billion.
“Average weekly sales in the US company-operated stores reached a record high in Q1, exceeding the prior record set in Q4 of fiscal '22,” Mr. Schultz said. “And Q1 momentum has continued in Q2. Active Starbucks Rewards membership in the US, exiting Q1, totaled over 30 million members, up 4 million members or 15% over last year and up 6% sequentially.”
Mr. Brewer said that both Starbucks’ sous vide egg bites and breakfast sandwiches achieved record sales in the United States during the quarter. He added that beverage sales increased 13% during the quarter.
“Customized beverages continue to be a differentiator with customers all year long,” he said. “Modifier sales were up 28% year-over-year in our US company-operated stores, showing that customers are visiting Starbucks for beverages customized to their preferences that they cannot find anywhere else.”
Mobile order and pay, drive-thru and delivery made up 72% of Starbucks’ US sales during the first quarter.
China remains a challenge for Starbucks as it navigates that country’s COVID-19 policy changes. International business unit sales fell 20% to $1.2 billion and operating income also fell 20% to $240 million.
“In early December, zero COVID was lifted and COVID infection spiked across China, resulting in a dramatic decline in consumer activity across the country and causing the most severe COVID disruptions any retailer had encountered,” Mr. Schultz said. “For us, at its peak, nearly 1,800 Starbucks stores were closed during that month. As a result, comps in Q1 declined 29% with a 42% comp decline 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.
“While Starbucks has launched many successful coffee beverages over the years, 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. “While I was in Italy last summer, I discovered an enduring, transformative new category and platform for the company, unlike anything I had ever experienced.“The word I would use to describe it without giving too much away is alchemy. We won't unveil details today, but it will be a game changer, so standby.”