Starbucks (NASDAQ:SBUX) kicked off fiscal 2019 with a bang earlier this month when it reported strong fiscal first-quarter results. Revenue rose 9% year over year to a record $6.6 billion and comparable-store sales increased 4% globally, driven a solid 4% increase in the company’s home market. Meanwhile, China helped fuel the company’s total revenue growth as Starbucks grew its store count in the important market.
As investors digest the results, these key quotes from management provide some more context on the quarter and the company’s overall momentum.
Connecting with customers
Starbucks recently initiated an effort that will span multiple quarters to help its employees better connect with customers. To achieve this goal, Starbucks is aiming to simplify employees’ work and reduce the amount of time they spend on noncustomer-facing tasks. Some examples of these efforts include shifting some cleaning tasks to after-hours and automating product planning, management explained in the company’s fiscal first-quarter earnings call.
These efforts are already beginning to make a difference, Starbucks’ CEO Kevin John said:
The actions taken thus far are already paying off as our customer connection scores continue to improve in Q1 on both a sequential and year-over-year basis and, importantly, across both the morning and afternoon dayparts.
Prioritizing digital relationships
One of Starbucks’ main priorities in the U.S. is to grow and improve its digital relationships. Recently, the coffee giant has made significant strides in this effort by creating a digital experience for non-rewards members. Importantly, this has been a boon for the company’s rewards program by helping the company deepen relationships with customers and prompt some of them to become members.
Johnson explained how this has been a catalyst for its rewards program:
To build our digital ecosystem, we widened the aperture of digital reach and created a funnel of activation that is leading to increases in active membership in our Starbucks Rewards program. Since we started these efforts last spring, we have acquired 13 million digital customer registrations, and we’re excited about the potential this has to drive our Starbucks Rewards program.
Helped by its large funnel of non-rewards digital relationships, Starbucks’ active rewards members increased by 1 million sequentially in Q1 to 16.3 million. That’s up 14% year over year.
China has always been an important growth market for Starbucks. But negative comparable-store sales growth in part of last year had some investors concerned about the market’s ongoing prospects. Of course, 1% comparable-store sales growth in both the fourth quarter of fiscal 2018 and the first quarter of fiscal 2019 have helped alleviate some concern. But is growth in the market sustainable?
Management remains very bullish on the market.
“I think that, overall, from a China perspective, we saw strong Q1 performance and continued momentum in the business,” said Starbucks’ International chief John Culver during the earnings call.
And as I shared in New York at Investor Day, really, just looking at the total transaction growth in the market, the new store build-out, which represents about 80% of our total revenue growth, and the fact that we continue to increase our overall share in the market as we build out our store footprint. Clearly, the environment in China right now, we’ve demonstrated our ability to navigate what is a changing consumer, economic and competitive environment.
Capturing how significant Starbucks’ momentum is in China, 18% year-over-year growth in total stores in the market during fiscal Q1 helped drive 19% year-over-year revenue growth in the country when normalized for currency changes and to adjust for the company’s East China integration. This revenue growth rate more than doubles Starbucks’ consolidated first-quarter year-over-year revenue growth rate of 9%.