Starbucks U.S. same-store sales growth was 10% driven by higher menu prices, strong gift card sales and a 1% lift in traffic.
Starbucks reported its Q1 fiscal year 2023 results after market close Thursday, including a record-setting holiday season for sales. Founder and outgoing CEO Howard Schultz, who acknowledged this as his last of 108 total earnings calls throughout the entirety of his time at the company, called the quarterly performance “stunning,” given the softening macroeconomic environment.
Highlights on the quarter included:
U.S. same-store sales growth of 10%
Eight out of 10 of the highest sales day in the company’s 52-year history
Record revenues of $8.7 billion, representing an 8% year-over-year increase
$3.3 billion loaded onto Starbucks gift cards, which Howard called a “stunning record”
Rewards membership reaching 30.4 million members, up 15% year-over-year and 6% from Q4.
Rewards customers representing 56% of tender spent at company locations
Record-breaking mobile app usage at 27%
Drive-thru, mobile ordering and delivery representing 72% of sales
Despite the strength of the U.S. system, Starbucks’ earnings overall fell shy of Wall Street expectations as recovery in China remains sluggish. That said, the U.S. performance illustrates some of the company’s resilience in the face of persistent headwinds; as an example, Schultz pointed to sales and traffic increases from its stores located inside of retail locations that otherwise experienced declining sales and traffic.
Much of Starbucks’ U.S. sales performance came from pricing, though executives also credited the strong gift cards performance (greater than the next four brands combined, according to CMO Brady Brewer), a 1% increase in traffic – including during its busiest dayparts – and resonating product offerings.
“Our results benefited from strategic pricing actions and increased food attachments with record sales for both sous vide egg bites and breakfast sandwiches,” Brewer said during the call. “Beverage sales increased by 13% led espresso beverages. Our customized beverages continue to be a differentiator and our modifier sales were up 28%. Customers are visiting our stores for customized beverages they can’t find anywhere else.”
Record-setting performances aside, Schultz and his team also talked at length about the company’s “reinvention investments” geared toward improving employee turnover rates. The company said these investments have yielded an 8% improvement in U.S. hourly retail partner turnover on the quarter.
Chief Reinvention Officer Frank Britt said he is pleased with the traction the company has gained with its retention efforts and noted that the company continues to experience a strong applicant flow. Executives expect those efforts to continue as it adopts equipment innovations to “help make the work easier for our partners,” according to Sara Trilling, president of Starbucks North America.
The company has deployed handheld ordering devices in 54% of its stores, for instance, as well as cold beverage labelers in 81% of stores and new warming ovens in 90% of stores. Handheld ordering will be rolled out fully this year and Trilling called them “very, very useful in drive-thrus.”
“We’re really just getting started as we look to reinvention to drive throughput,” Trilling said, adding that the company has achieved all-time-high productivity.
Because of these efforts and results, executives are optimistic about the company’s insulation should a recession manifest as many predict.
“When we think about weathering a recession in the U.S., it comes down to momentum and resiliency. We have more customers in total population than ever in the U.S. and they’re highly engaged,” Brewer said. “We’ve experienced ticket and transaction growth even in the face of macroeconomic headwinds.”
“At a time when people are generally trading down, we had the highest average ticket in our history in December,” Schultz added. “We don’t see ourselves in a situation where we need to discount heavily or see our customers trading down.”
Schultz said the company also has a competitive advantage from customers’ ability to customize their own proprietary beverages, as they have proven they prefer given the growth in modifiers.
“That ability adds to ticket and customers’ value perception,” Schultz said.
Laxman Narasimha, who was named CEO in September, will lead Starbucks’ next quarterly earnings call and Schultz called him the “right CEO at the right time” for the company.
That said, Schultz has one last hurrah up his sleeve, though we’re unclear of the details at this time. What we do know as he took a few minutes to reminisce about his inspiration in starting the company while walking through Milan, Italy, in 1983, is there is a new platform coming that he discovered last summer.
“It will bring my journey full circle,” he said, when he introduces the promotion next month in Milan. He wouldn’t disclose further details about the platform, other than calling it “transformative,” “alchemy” and a “game changer.”