Starbucks reports record Q1 sales; Schultz teases ‘game-changer’ coming soon

Starbucks Corp. reported first-quarter earnings and sales that just missed analysts’ expectations as its results were weighed down by dismal results in China.

On what was likely his last earnings call as Starbucks CEO, Howard Shultz hinted at an Italian-inspired “game-changer” that will be making its way soon to the coffee chain and it’s bigger than any new promotion or beverage.” He gave no other details except to say that he discovered “an enduring transformative new category” during a trip to Italy last summer.

“The word I would use to describe it without giving too much away is alchemy,” Schultz told analysts.  (The legendary retailer is set to turn over the reins of the company to Laxman Narasimhan on April 1.)  

Starbucks reported net income of $855.2 million, or $0.74   per share, for the quarter ended Jan.1, up from $815.9 million, or $0.69 cents per share, in the year-ago period.

Excluding restructuring and impairment costs and other items, Starbucks earned $0.75 per share, missing analysts expectations of $0.77 per share.

Net sales increased 8% to $8.71 billion, just missing expectations of $8.79 billion.Net revenues for the North America segment grew 14% to $6.6 billion.

Same-store sales in North America and the United States rose 10%, driven by a 9% increase in average ticket and a 1% increase in comparable transactions.

International comparable store sales decreased 13%, driven by a 12% decline in comparable transactions and a 1% decline in average ticket; Starbucks took a beating in China, its biggest market outside of the United States, with comp sales down 29% amid the country’s ongoing struggles with COVID. 

“Starbucks performance in Q1 demonstrates the strength and resilience of our business and accelerating demand for Starbucks Coffee all around the world,” said Schultz. “We posted today’s strong results despite challenging global consumer and inflationary environments, a soft quarter for retail overall and the unprecedented, COVID-related headwinds that unfolded in China in Q1.”

Operating income increased to $1.2 billion compared to $1.1 billion in the year-ago quarter. In its North America business, margins edged down to 18.5% from 18.9% in the prior year, primarily driven by investments in labor including enhanced worker wages and benefits, as well as higher commodity and supply chain costs due to inflationary pressures. Strategic pricing and sales leverage helped offset the contraction, according to Starbucks.

Starbucks opened 459 new stores worldwide during its first quarter, for a total of 36,170 stores globally. The U.S. and China make up 61% of the company’s total store portfolio, with 15,952 stores in the U.S. and 6,090 in China.

Despite the headwinds from China, Starbucks reaffirmed its 2023 full year guidance. The retailer expects adjusted earnings per share growth on the low end of 15% to 20%.

“I am very proud of what we achieved in Q1, with nearly every business segment contributing to our strong performance,” commented CFO Rachel Ruggeri. “And I’m pleased to share that our fiscal 2023 guidance remains unchanged, despite the headwinds from China.”