Coffee Service

Starbucks' Q1 miss triggering price increases

provided

February 2, 2022

Starbucks is raising prices thanks to high inflation, supply chain issues, COVID-19 resurgences and labor shortages, CEO Kevin Johnson said Tuesday during the chain's Q1 earnings call.

"Net new store growth and performance remained strong, yet overall revenue and profitability came in below expectations," he said about the 13-week fiscal first quarter, which ended Jan. 2, 2022

The chain reported earnings per share of 72 cents adjusted vs. the 80 cents expected by analysts. Revenues, however, hit $8.05 billion, well above the $7.95 billion that had been predicted.

"Starbucks delivered record first quarter revenue of $8.1 billion, representing 19% growth," Johnson said. "Global same-store sales grew 13%, demonstrating strong customer affinity for Starbucks."

Customer demand increased through all dayparts and led to record-breaking Starbucks Card activations and reloads in excess of $3 billion, while the loyalty platform grew 21% to 26.4 million 90-day active members.

Still, it wasn't enough to offset the hardships.

"We have and we will continue to take intentional steps to offset these pressures, including selectively accelerating price increases, tightly managing numerous cost areas, as well as actioning throughput initiatives across our operations," Rachel Ruggeri, EVP and CFO said during the call.

Starbucks increased prices in October 2021 as well as in January.

Johnson also recommitted to raising wages, noting that the 4 million Americans who haven't returned to the workforce are driving a battle for workers. By year's end, U.S. average store hourly wage will be $17.

"While Starbucks has always been committed to attracting and retaining the best partners with our differentiated pay and benefits package, we, too, experienced staffing issues," he said. "In response to this challenge and as an employer of choice, we hired an increasing number of new partners into our business this past quarter, which rapidly increased our training costs well above historic levels."

He called the investment critical, however.

"We remain confident that the $1 billion investment in partner wages and hours that we announced on our fiscal '21 Q4 call is the right long-term investment to ensure we have the very best talent to support our business," Johnson told investors. "In addition to these actions and as we highlighted on the last call, we continue to implement operational efficiencies throughout the organization to drive the productivity critical to our commitment to long-term margin expansion."

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 stores, yielding 4% year-over-year unit growth, ending the period with 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, 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 U.S. company-operated stores compared to the prior year performance of stores closed as a part of our North America Trade Area Transformation.
• 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.

"Starbucks will continue to proactively address the industry challenges and operating environment while maintaining our focus on Starbucks partners and customers," Johnson said. "Our brand is more resilient than ever as we navigate the future of Starbucks together."