Key Takeaways from Starbucks Q1 FY22 Earnings Call

Barista in beanie and facial covering handing beverage to customer

Starbucks today reported its Q1 FY22 earnings results and shared insights into its quarterly performance as it delivered strong, record first quarter revenue growth while navigating significant disruptions brought on by the COVID-19 Omicron variant.

“This holiday quarter delivered strong revenue growth highlighted by incredible customer demand for Starbucks. As we enter the third year of this pandemic, our stores continue to play an important role as a community gathering place that offers safe, familiar, and convenient experiences for our customers. Although demand was strong, this pandemic has not been linear and the macro environment remains dynamic as we experienced higher-than-expected inflationary pressures, increased costs due to Omicron, and a tight labor market. We remain focused on actions that drive both top and bottom-line growth, including industry-leading investments to attract, train and retain the best talent for our stores as customer occasions increase,” said Kevin Johnson, president and ceo.

“Starbucks will proactively address the industry challenges and operating environment, as we continue to focus on our partners and customers. Our brand is stronger and more resilient than ever, and we remain confident in the long-term outlook as we navigate the future of Starbucks together,” concluded Johnson.

Key Takeaways

Global consumer demand for Starbucks is strong.

Starbucks delivered record first quarter revenue of $8.1B, representing 19% growth, while global same-store sales grew 13%, demonstrating strong customer affinity for Starbucks.

In the U.S., same store sales grew 18% year over year with the company reporting a double-digit increase in customer traffic and an increase in customer demand throughout all dayparts. This was driven by the company’s holiday lineup and strong in-store and digital customer connection throughout the season, which also resulted in record Starbucks Card activations and reloads. Starbucks Rewards loyalty program membership grew 21% to a record 26.4 million 90-day active members.

Starbucks continued to grow its footprint in China in Q1, surpassing 5,500 stores with new stores continuing to perform well. The company is encouraged by the performance and growth in its digital platforms in the market, where digital ordering grew to a record 38% of sales, and 90-day active Starbucks Rewards members reached nearly 18 million with members contributing 75% of sales.

Starbucks Continues to Prioritize Health and Safety of Partners and Customers

Since the beginning of the pandemic, Starbucks has prioritized the health and wellness of our partners and customers and playing a constructive role in supporting local health officials and government leaders.

In the U.S., throughout Q1, Starbucks continued to offer COVID-19 vaccination pay, which has supported thousands of partners and broader efforts in helping get more people vaccinated. With the rise of the highly transmissible Omicron variant, the company saw more partners leverage isolation pay benefits as they were either home sick or home isolating after being exposed to the virus, which led to significantly higher COVID-19-related benefits pay than expected. Starbucks offers full support with comprehensive care to our partners impacted by COVID-19, including vaccine pay, catastrophe pay, mental health and sick pay benefits, childcare support and more.

In China, the company navigated mobility restrictions in adherence with the country’s “zero-COVID” policy, and the market experienced closures, dynamic store protocols, or reduced operations in three- quarters of stores in China exiting Q1.

Company Continues to Strategically Navigate Disruptions from the Omicron Variant

While the company reported growth in the quarter, Starbucks leaders shared additional details on the extraordinary cost pressure experienced due to additional disruptions caused by the Omicron variant, resulting in higher than anticipated costs across its U.S. and China business as stores quickly adapted protocols.

Like many others in the industry, Starbucks experienced a rapid increase in supply chain costs in the U.S. related to distribution and transportation driven by supply chain staffing shortages. This required the company to identify more expensive alternatives to meet strong customer demand. While supply chain driven inflationary costs were unexpectedly amplified and rapidly accelerated in December, these disruptions are expected to continue for the foreseeable future.

Starbucks also reported higher than anticipated costs from training and onboarding new green apron partners, a critical investment as the company works to create a great Starbucks Experience. The company remains confident that the previously announced $1B investment in partner wages and hours is the right long-term investment to ensure it has the very best talent in place to support its business.

The company believes these are near-term challenges and is taking necessary measures to offset these expenditures, including reducing discretionary spend, implementing operational efficiencies throughout the organization, and taking additional pricing actions planned through the balance of the year to mitigate cost pressures, including inflation as it looks to position its business for the future.

Starbucks remains confident in the company’s ability to rapidly adapt while continuing to drive longer-term agenda of share gains, growth and value creation. Leadership emphasized the tremendous opportunity for continued growth, as highlighted by robust revenue results and reiterated confidence that the Starbucks brand is stronger and more resilient than ever.

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