Wednesday 29 June 2022

Starbucks reports mixed first quarter results with revenue of $8.1B and net income of $815.9M

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MILAN — Starbucks reported mixed first-quarter earnings on Tuesday as rising COVID-19 infections during December and fresh curbs hampered recovery in its fast-growing China market. The coffee giant said higher costs were weighing on profits, leading the company to miss quarterly earnings estimates and cut its earnings outlook for fiscal 2022.

The company reported fiscal first-quarter net income of $815.9 million, or 69 cents per share, up from $622.2 million, or 53 cents per share, a year earlier.

Excluding items, Starbucks earned 72 cents per share, falling short of the 80 cents per share expected by analysts.

Reported revenue was $8.1 billion. That topped expectations of $7.98 billion.

The fast-spreading Omicron variant has delayed office reopenings and worsened a labour crunch – hurting the United States-based chain, which relies heavily on consumers picking up their coffees en route to work.

Starbucks Corp. expects to continue raising prices in the coming months to combat squeezed profit from inflation and labor issues related to the COVID-19 pandemic.

Chief Operating Officer John Culver said on a call with investors that consumer demand hasn’t been affected by the price hikes. Transaction growth totalled 12% for the quarter, which was the highest growth since pre-pandemic numbers.

Global comparable sales rose 13 percent in the first quarter ended January 2, Starbucks said, while analysts had expected growth of 13.2 percent. Comparable sales in the US jumped 18 percent, benefitting from new cold beverages, higher prices and an increase in rewards members.

But same-store sales in the international division declined 3 percent, reflecting a 14 percent drop in China. Analysts had expected a 0.5% increase in the international segment.

Starbucks: Q1 Fiscal 2022 Highlights

  • Global comparable store sales increased 13%, driven by a 10% increase in comparable transactions and a 3% increase in average ticket
    • North America and U.S. comparable store sales increased 18%, primarily driven by a 12% increase in comparable transactions and a 6% increase in average ticket
    • International comparable store sales decreased 3%, driven by a 5% decline in average ticket, partially offset by a 2% increase in comparable transactions; China comparable store sales decreased 14%, driven by a 9% decline in average ticket and a 6% decline in transactions; International and China comparable store sales include adverse impacts of approximately 3% and 4%, respectively, from lapping prior-year value-added tax exemptions in China
  • The company opened 484 net new stores in the first quarter of fiscal 2022, yielding 4% year-over-year unit growth, ending the period with a record 34,317 stores globally, of which 51% and 49% were company-operated and licensed, respectively
    • Stores in the U.S. and China comprised 61% of the company’s global portfolio at the end of the first quarter of fiscal 2022, with 15,500 and 5,557 stores, respectively
  • Consolidated net revenues of $8.1 billion grew 19% compared to the prior year, mainly driven by a 13% increase in comparable store sales primarily from lapping the unfavorable impact of business disruption in the prior year due to the COVID-19 pandemic and strength of new U.S. company-operated stores compared to the prior year performance of stores closed as a part of our North America Trade Area Transformation
  • GAAP operating margin of 14.6% increased from 13.5% in the prior year primarily driven by sales leverage from business recovery and the lapping of COVID-19 related costs in the prior year, pricing in North America and lapping the higher restructuring activities in the prior year primarily associated with the North America Trade Area Transformation, partially offset by investments and growth in retail store partner wages and benefits as well as increased supply chain costs primarily due to inflationary pressures
    • Non-GAAP operating margin of 15.1% decreased from 15.4% in the prior year
  • GAAP earnings per share of $0.69 grew 30% over the prior year
    • Non-GAAP earnings per share of $0.72 grew 18% over the prior year
  • Starbucks® Rewards loyalty program 90-day active members in the U.S. increased to 26.4 million, up 21% year-over-year

Q1 North America Segment Results

Net revenues for the North America segment grew 23% over Q1 FY21 to $5.7 billion in Q1 FY22, primarily driven by an 18% increase in company-operated comparable store sales, driven by a 12% increase in transactions and a 6% increase in average ticket, the performance of new stores compared to the closure of under-performing stores in the prior year and higher product and equipment sales to our licensees.

Operating income increased to $1.1 billion in Q1 FY22, up from $802.8 million in Q1 FY21. Operating margin of 18.9% expanded from 17.2% in the prior year, primarily driven by sales leverage from business recovery, the impact of pricing, lower restructuring expenses primarily associated with the North America Trade Area Transformation, sourcing savings and the benefits of the closure of under-performing stores. This expansion was partially offset by enhancements in retail store partner wages, increased supply chain costs due to inflationary pressures and higher spend on new partner training, onboarding and support costs to address labor market conditions.

Q1 International Segment Results

Net revenues for the International segment grew 12% over Q1 FY21 to $1.9 billion in Q1 FY22, driven by 1,381 net new store openings, or 9% store growth, over the past 12 months, higher product sales to and royalty revenues from our licensees and the conversion of the Korea market from a joint venture to a fully licensed market in Q4 FY21. These increases were partially offset by a 3% decline in comparable store sales, all of which was attributable to lapping the prior-year VAT benefit in China, and the impact of unfavorable foreign currency translation.

Operating income increased to $299.6 million in Q1 FY22 compared to $283.0 million in Q1 FY21. Operating margin of 16.0% decreased from 16.8% in the prior year, primarily driven by investments in partner wages and other strategic investments as well as higher product and distribution costs from sales mix shift, partially offset by sales leverage.

Starbucks: Fiscal 2022 Financial Targets

The company will discuss fiscal year 2022 financial targets during its Q1 FY22 earnings conference call starting today at 2:00 p.m. Pacific Time. These items can be accessed on the company’s Investor Relations website during and after the call. The company uses its website as a tool to disclose important information about the company and comply with its disclosure obligations under Regulation Fair Disclosure.

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