Market Overview

Highlights from Starbucks' Q1 Conference Call

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Comments from CEO Howard Schultz:

  • There were two pronounced shifts in consumer retail experience this last quarter and Starbucks has dealt with them.
  • The two shifts were that people like never before are buying things online and that more people are buying gift cards as gifts for the holidays.
  • For Q1 Starbucks made 610 million dollars in U.S. & Canada and 2 million per day in the days leading up Christmas
  • In Q1 Starbucks Americas had a solid 4% increase in traffic and is benefiting from a continued development and redevelopment of storefronts.
  • 30 stores open in Canada in one day
  • “The year after the acquisition of Teavana we now believe we can transform the tea category like we did to coffee.”
  • Starbucks is expecting Teavana to bring innovation to the tea market.
  • Another interest of Starbucks is the premium hand crafted cold beverage market.
  • In China, Asia, Pacific Starbucks opened 209 new stores.
  • China is on track to become the largest and most successful market outside u.s.
  • Customer demand in India is at a fever-pitch.
  • Starbucks opened 150 new stores in EMEA
  • Starbucks continues to innovate in premium packaged coffee.
  • It has a 26% share in the premium packaged coffee market
  • Traditional brick and mortar retail is at an inflection point.
  • Stores must not only compete across the street, but across the country as well.
  • Starbucks can beat this with three things:
    1. The Starbucks experience cannot be copied
    2. Starbucks invested, continues to invest, and now has world-leading proprietary mobile payment technology.
    3. Traffic in Q1 demonstrates the sense of community at Starbucks and this is going to become more relevant in the future.

CFO

  • The Americas had a solid season taking in 3 billion Q1 revenue.
  • Though there was a softening in traffic and comp growth in December.
  • The operating margin had an expansion of 300 basis points.
  • In Asia, excluding Japan, cap operating margin expanded.
  • The performance in china offsets the shift though.
  • Starbucks has a growing share in the packaged coffee market, but has not yet seen much impact on the revenue due to lowered prices in the packaged coffee market.
  • Revenue and operating expenses reported for last year were lowered by 5.9 million.
  • Starbucks ended Q1 with 2.2 billion in cash
  • There are 26 million shares authorized for repurchase and Starbucks might raise this figure depending on market conditions.
  • For fiscal 2015 Starbucks has its coffee rates locked.

Q&A

  • Starbucks anticipates a big change in Q2 due to innovation from the Starbucks card
  • Relative to other quarters there was a slowdown in comp growth in December.
  • Starbucks ended Q1 with a 1.4 billion dollars in deferred revenue from unspent money on Starbucks cards.
  • Slower comp growth in December was not caused by unusual events such as government shutdown or the decrease in consumer confidence but because people have changed their shopping habits and are spending more time online instead of shopping offline.
  • Starbucks considers a 4% traffic increase and 5% comp growth in q1 a success
  • The health of the consumer today is better than a year ago, but it is still fragile.
  • One of the benefits of Starbucks is that it is an affordable luxury.
  • Any brick and mortar company that is in a mall is very susceptible to the change from offline to online shopping.
  • With Starbucks property portfolio though Starbucks is poised to benefit from the change by implementing innovation in mobile payments.

Posted-In: Earnings News

 

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