MILAN – Starbucks on Tuesday reported quarterly earnings that beat Wall Street expectations and called the holiday season “one of the strongest” in its history, but warned that corona virus outbreak in China could materially affect” future results.
The Seattle-based company posted first-quarter earnings of 79 cents per share, versus 76 expected. This is a 5.33% increase over earnings of 75 cents per share from the same period last year.
These figures are adjusted for non-recurring items.
Over the last four quarters, Starbucks has surpassed consensus EPS estimates three times.
The company reported quarterly sales of $7.097 billion, which missed the analyst consensus estimate of $7.1 billion by 0.04%. This is a 7.00% increase over sales of $6.633 billion the same period last year.
Comparable store sales were up 5% globally; 6% in the U.S. and 3% in China.
“Building on solid business momentum from fiscal 2019, Starbucks performed very well throughout the first quarter, including one of the strongest holiday seasons in the history of our company. As a result, we are off to a strong start in fiscal 2020,” said Kevin Johnson, president and ceo.
“Our growth was fueled by a healthy balance of comparable sales growth and new store development, as well as continued expansion of our Global Coffee Alliance with Nestlé. Investments in our partners, beverage innovation and digital customer relationships contributed not only to strong topline growth, but also significant margin expansion in the quarter.”
“Our partners are the center of creating a special Starbucks Experience for each and every customer we serve, and I am very grateful for their extraordinary efforts through this holiday quarter. As we begin our fiscal second quarter, I want to acknowledge the dynamic situation our partners in China are navigating as health officials respond to the coronavirus.
As events unfold, we will be transparent with all stakeholders in communicating how we are responding to these extraordinary circumstances and the implications for our near-term business results. We remain optimistic and committed to the long-term opportunity in China, building on our brand heritage and 20-year legacy of profitable growth,” concluded Johnson.
Starbucks closes 2,000 Chinese branches
The coffee chain said it has closed more than half of its Chinese locations but expects that it will be temporary.
“Currently, we have closed more than half of our stores in China and continue to monitor and modify the operating hours of all of our stores in the market in response to the outbreak of the coronavirus. This is expected to be temporary,” the company said in a press release.
“Given the dynamic nature of these circumstances, the duration of business disruption, reduced customer traffic and related financial impact cannot be reasonably estimated at this time but are expected to materially affect our International segment and consolidated results for the second quarter and full year of fiscal 2020.”
Starbucks has almost 4,300 outlets in China, making it the company’s largest market outside the US.
Q1 Fiscal 2020 Highlights
- Global comparable store sales up 5%, driven by a 3% increase in average ticket and a 2% increase in comparable transactions
- Americas comparable store sales up 6%, driven by a 3% increase in average ticket and a 2% increase in comparable transactions; U.S. comparable store sales up 6%, with comparable transactions up 3%
- International comparable store sales up 1%, driven by a 2% increase in average ticket and a 1% decrease in comparable transactions; China comparable store sales up 3%, with comparable transactions up 1%
- The company opened 539 net new stores in Q1, yielding 31,795 stores at the end of the quarter, a 6% increase over the prior year
- Consolidated net revenues of $7.1 billion grew 7% over the prior year
- Consolidated net revenues grew 9% over the prior year adjusted for unfavorable impacts of approximately 2% from Streamline-driven activities
- Streamline-driven activities primarily included the conversion of certain international retail operations from company-operated to licensed models
- GAAP operating margin expanded 190 basis points year-over-year to 17.2%, primarily due to sales leverage, supply chain efficiencies and lower restructuring and impairment charges, partially offset by growth in wages and benefits, as well as investments in store labor hours
- Non-GAAP operating margin of 18.2% expanded 80 basis points compared to the prior year
- GAAP Earnings Per Share of $0.74, up 21% over the prior year
- Non-GAAP EPS of $0.79, up 5% over the prior year. Excluding an 11% headwind from income tax rate favorability related to fiscal year 2019, non-GAAP EPS increased 16%
- The company returned $1.6 billion to shareholders through a combination of share repurchases and dividends
- Starbucks® Rewards loyalty program grew to 18.9 million active members in the U.S., up 16% year-over-year
- The company adopted the new lease accounting guidance and recognized right-of-use assets of $8.4 billion with corresponding lease obligations of $9.0 billion. Adoption of the new guidance did not have a material impact on our consolidated statement of earnings
