Starbucks Corporation (NASDAQ:SBUX) released its first-quarter fiscal 2024 results, falling short of expectations on earnings and revenues according to the Consensus Estimate. However, both the top and bottom lines witnessed a year-over-year increase.

Despite the earnings miss, Starbucks’ first-quarter performance demonstrated strength across key metrics. CEO Laxman Narasimhan highlighted the loyalty of the customer base, growth in rewards program membership, and increased spending per member. Narasimhan emphasized the brand’s resilience in the face of challenges, attributing it to innovation and a focus on supporting green apron partners. The management expressed optimism, citing these factors and the Triple Shot Reinvention initiative as contributors to sustained earnings growth in the upcoming periods.

Following the announcement, the company’s shares gained 3.7% during the after-hours trading session on January 30.

Earnings, Revenues & Comps Discussion

Earnings: Starbucks reported adjusted earnings per share (EPS) of 90 cents for the fiscal first quarter, missing the Consensus Estimate of 92 cents by 2.2%. However, the bottom line showed a significant improvement, increasing by 20% year over year from the adjusted EPS of 75 cents reported in the prior-year quarter.

Revenues: Quarterly revenues amounted to $9.4 billion, slightly below the Consensus Estimate of $9.5 billion. Nevertheless, the top line exhibited an 8.2% year-over-year increase, primarily driven by growth in comparable store sales, net new stores, and solid performances in licensed store businesses. Global comparable store sales rose 5% year over year.

Comps Growth: The upside in global comparable store sales was supported by a 2% growth in average tickets and a 3% increase in comparable transactions.

Store Count: Starbucks opened 549 net new stores worldwide during the fiscal first quarter, bringing the total store count to 38,587.

Overall Margin Expansion in Q1

On a non-GAAP basis, the operating margin expanded to 15.8%, up from 14.5% in the prior-year quarter, driven by operational efficiencies within the stores and increased sales leverage. However, the growth was somewhat offset by investments committed to store partner wages and elevated general and administrative costs associated with the reinvention plan.

Segmental Details

North America: Segmental net revenues were $7.1 billion, up 9% year over year, benefiting from a 5% rise in comparable store sales and new store growth. Operating margin for North America expanded to 21.4% from 18.5% in the prior-year quarter.

International: Segmental net revenues of $1.8 billion ascended 10% year over year, with a 7% improvement in comparable store sales and net company-operated new store growth of 12%. Operating margin contracted by 120 basis points year over year to 13.1%.

Channel Development: Net revenues in the segment fell 6% year over year to $448 million, mainly driven by the dismal performance of the global ready-to-drink and Global Coffee Alliance. The operating margin contracted by 50 basis points year over year to 46.8%.

Financial Details

As of December 31, Starbucks ended the fiscal first quarter with cash and cash equivalents of $3 billion compared with $3.6 billion as of October 1, 2023. Long-term debt totaled $13.6 billion, slightly up from $13.5 billion as of October 1, 2023.

The company declared a quarterly cash dividend of 57 cents per share, payable on February 23 to shareholders of record as of February 9.

Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 34.3 million, up 13% year over year.

2024 Guidance

For fiscal 2024, Starbucks affirmed that the business challenges encountered in the first quarter are temporary, consistent with the reinvention update provided in November. However, adjustments were made to the full-year outlook for revenue and comparable sales due to the cumulative impact of first-quarter revenue and recent trends.

In fiscal 2024, Starbucks anticipates global revenue growth in the range of 7-10%, down from the previous projection of 10-12%. Full-year global and U.S. comp growth is forecast to be in the range of 4-6%, down from the previous range of 5-7%. China’s comp growth is expected to be in the low single digits for the remainder of the year.

Global net store growth is forecasted to be approximately 7%, and both GAAP and non-GAAP EPS are expected to improve in the range of 15-20%.

Featured Image: Unsplash @ June Andrei George

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