Food

Global coffee alliance helps boost Starbucks sales



SEATTLE — A “healthy balance” of comparable sales growth, new store development and continued expansion of its global coffee alliance with Nestle S.A. helped fuel an “exceptional” quarter for Starbucks Corp., said Kevin R. Johnson, president and chief executive officer.

“The positive business momentum we’ve created over the past fiscal year continues with a strong start to fiscal 2020,” Mr. Johnson said in a Jan. 28 conference call with analysts.

“I’m especially pleased that we delivered meaningful margin expansion in the quarter even as we continued to invest in the key areas to support sustainable growth, first and foremost in our partners as well as in beverage innovation and digital customer relationships,” he added.

Net income in the first quarter ended Dec. 29, 2019, totaled $885.7 million, equal to 74c per share on the common stock, up 16% from $760.6 million, or 61c per share, in the same period a year ago. Revenues increased 7% to $7,097.1 million from $6,632.7 million.

Patrick J. Grismer, chief financial officer, said Starbucks’ Americas segment delivered revenue growth of 9% in the first quarter, driven by 6% comparable sales growth and 3% net new store growth.

“Our U.S. business delivered an impressive 6% comp sales growth in Q1 driven equally by transactions and ticket,” Mr. Grismer said. “These results were driven by an improved partner-led in-store experience, a strong beverage lineup and increased digital customer engagement. Beverage led on comp growth for a sixth consecutive quarter, driving approximately five points of comp sales growth with strength across all beverage categories, with food contributing the remaining point.

“Our cold platform continues to resonate with customers during all seasons and was our primary growth engine for the quarter led by cold coffee. Importantly, the growth in cold beverages in Q1 occurred in all dayparts and all regions, reflecting broad appeal across our customer base.”

Excluding a 7% adverse impact of the sale of Tazo-branded products to Unilever and transition activities related to the global coffee alliance, revenues within Starbucks’ Channel Development segment increased 5% in the first quarter.

John Culver, group president of international, channel development and global coffee and tea, elaborated on the segment’s success during the first quarter.

“Through the quarter, we saw acceleration into 40 markets around the world where we have our products available through grocery as well as food service,” Mr. Culver said. “We also are on path, by the end of this quarter that we’re in, to be in over 50 markets. Our product sales continue to be significantly ahead of expectations, both in terms of packaged coffee, Nespresso capsules as well as Dolce Gusto. When you look at our core business here in the U.S., Starbucks brand outgrew the total category for coffee. Roast and ground share grew 80 basis points, K-Cup share grew 40 basis points, and we’ve got some exciting new items that are coming up.

“Later this spring, we previously announced that we’re launching premium soluble coffee, which we’re excited about and the big opportunity internationally with that. And then the launch that we had with our creamers of four flavors, we’re now expanding to an additional two new flavors given the recent success. So the global coffee alliance itself is performing very well around the world, and it’s helping us continue to grow the Starbucks brand and amplify the brand.”

Starbucks’ executives said the company will continue to monitor the coronavirus situation in China, which is the company’s lead international market. Mr. Johnson said Starbucks has two key priorities for China: caring for the health and well-being of its partners and customers in its stores and playing a constructive role in supporting local health officials and government leaders.

To date, Starbucks has taken action to close more than half its stores in China but continues to offer delivery from stores that remain open. Mr. Culver called China a “very complex situation,” but he said Starbucks has been in the market for 20 years and has built an admired and trusted brand that should be able to weather the recent challenges in the country.

“We’ve navigated complex situations before,” Mr. Culver said. “And in China, we feel there’s no other company that’s better positioned to navigate this given our relationship … and trust we’ve been able to build with our partners and the relationship and trust that they’ve been able to build with their customers. We will remain transparent as the events continue to unfold, but we do have complete confidence in the decisions that we’re making, and we will continue to provide complete support for our partners and for the people of China as they navigate this situation.”



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