Reporting Tuesday that Q1 comparable-store sales were down 5% in the U.S. but up 5% in China, Starbucks Corporation CEO Kevin Johnson said the chain was demonstrating sustained recovery and calling the company "stronger and more resilient than ever." Although comps were minus 5%, he said it was an improvement over the prior quarter's minus 9%.

"With over 60% of our U.S. company-operated stores offering limited seating as we entered our fiscal Q1, comparable store sales improved in October, building on the momentum we saw in the prior quarter," he said during a call with investors. "When COVID-19 cases began to surge mid-quarter, we adjusted our operations to grab and go, in alignment with our principles and in support of regulatory requirements across a number of states. We rapidly adapted and ended the quarter with approximately 40% of our U.S. stores offering limited seating."

Sales fell short of expectations, however, which dragged down stock by 1.7% in Tuesday's extended trading session. Q1 earnings of 61 cents per share topped Wall Street estimates of 55 cents per share but declined 22.8% year-over-year due to lower sales and margins. Revenue fell 5% to $6.75 billion and missed analysts' forecasts of $6.93 billion.

Still, Johnson was hopeful.

"I am very pleased with our start to fiscal 2021, with meaningful, sequential improvements in quarterly financial results despite ongoing business disruption from the pandemic," he said in a company press release. The financial results covered the 13-week fiscal first quarter ending Dec. 27, 2020 "Investments in our partners, beverage innovation and digital customer relationships continued to fuel our recovery and position Starbucks for long-term, sustainable growth."

The power of digital
Mobile orders represented 25% of U.S. company-operated transactions in Q1, up from 17% before the pandemic, said Johnson, who called the accelerating growth of digital customer relationships and customer engagement a highlight of the quarter. Last quarter's launch of Stars for Everyone via the mobile loyalty app, for example, set it up for growth

"Our 90-day active Starbucks Rewards member base to whom we directly communicate and provide personalized offers increased by 2.5 million members in Q1 to a record 21.8 million," he said. "Now this result surpassed our pre-COVID member base, representing a 15% increase relative to the same quarter in the prior year.

As the number of active Starbucks Rewards members grew during the quarter, so did their engagement.

"Rewards customers contributed 50% of U.S. company-operated sales in Q1, up from 43% last year before the onset of COVID-19 and up from 47% in the prior quarter, demonstrating our loyal customers resilience and affinity for Starbucks," Johnson said. "Any way you look at it, our first-quarter results were quite strong in the U.S., particularly considering the headwind we faced from the current surge in COVID infections"

Mobile is even hotter in China
In China, mobile is even more popular, where the number of 90-day active rewards members grew to 15.4 million in Q1, a record increase of 51% versus the prior year and 14% over the previous quarter.

With Starbucks Now Mobile Order & Pay services available across 99% of China's locations, and Starbucks Delivers in 85% of the locations, Mobile Order sales mix hit a record 30% of the company's China sales, up from 26% in the last quarter with 14% driven by Starbucks Delivers and 16% from Starbucks Now.

"Rewards customer engagement continues to grow as mobile ordering has more than doubled in China over the past year," Johnson said. "Starbucks remains Chinese consumers' first choice in the away from home coffee category and is the most talked-about coffee brand on social media in China. The brand is stronger than ever in our fastest-growing market."

Roz Brewer stepping down

COO Roz Brewer is leaving Starbucks at the end of February to lead Walgreens as CEO.

"We're very excited for her and are grateful for her many contributions over the years in leading our operations across the Americas," Johnson said on the earnings call, adding that he was proud to have a strong bench of Starbucks veterans to take over. Rachel Ruggeri, for example, is succeeding CFO Patrick Grismer, who is also leaving, while Rossann Williams, president of the North America Retail business and CMO Brady Brewer will report directly to Johnson, taking on Brewer's responsibilities.

Q1 Fiscal 2021 Highlights

  • Global comparable store sales declined 5%, driven by a 19% decrease in comparable transactions, partially offset by a 17% increase in average ticket.
  • Americas comparable store sales declined 6%, driven by a 21% decrease in comparable transactions, partially offset by a 20% increase in average ticket.
  • U.S. comparable-store sales declined 5%, driven by a 21% decrease in comparable transactions, partially offset by a 19% increase in average ticket.
  • International comparable-store sales were down 3%, driven by a 10% decline in comparable transactions, partially offset by an 8% increase in average ticket.
  • China comparable store sales were up 5%, driven by a 9% increase in average ticket, partially offset by a 3% decline in transactions.
  • International and China comparable store sales are inclusive of a benefit from value-added tax exemptions of approximately 3% and 5%, respectively.
  • The company opened 278 stores, yielding 4% year-over-year unit growth, ending the period with 32,938 stores globally, of which 51% and 49% were company-operated and licensed, respectively.
  • Starbucks Rewards loyalty program 90-day active members in the U.S. increased to 21.8 million, up 15% year-over-year.

"We remain optimistic about our robust operating outlook for fiscal 2021 as well as our ability to unlock the full potential of Starbucks to create value for our stakeholders," Johnson said.

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