Release Date: January 28, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Starbucks Corp (SBUX, Financial) reported a total company revenue of $9.4 billion for the first quarter of fiscal 2025, meeting their expectations.
- The company has seen a positive response to its 'Back to Starbucks' strategy, which focuses on reintroducing Starbucks as a premier coffeehouse.
- Starbucks Rewards membership and spend grew both quarter over quarter and year over year, indicating strong customer engagement.
- The company is investing in technology and staffing to improve efficiency and customer experience, including a new in-store prioritization algorithm.
- Starbucks Corp (SBUX) is planning to double its store count in the US, indicating confidence in market potential and growth opportunities.
Negative Points
- Global comparable store sales declined by 4%, with a similar decline in the US market, indicating challenges in driving same-store sales growth.
- The company's operating margin contracted by 380 basis points to 11.9%, primarily due to investments in labor and the removal of extra charges for non-dairy milk customizations.
- Starbucks Corp (SBUX) suspended its full fiscal year 2025 guidance, reflecting uncertainty in the business environment.
- The company is facing challenges with mobile order sequencing, which is causing bottlenecks and impacting customer experience.
- EPS for the first quarter was $0.69, down 22% from the prior year, reflecting deleverage and heightened investments.
Q & A Highlights
Q: Can you discuss the sales improvement seen throughout the quarter? Was it due to comparisons or structural improvements?
A: Brian Niccol, CEO: We observed sequential improvement throughout the quarter, driven by a shift from discounting to broad-based marketing efforts that highlighted our coffee's craft and premium experience. This approach resonated with non-Rewards customers, increasing traffic and transactions, particularly in the morning day part. Our partners are embracing the "Back to Starbucks" initiative, enhancing customer experiences.
Q: What is the plan for marketing spend in 2025, and how does it compare to last year's $50 million?
A: Brian Niccol, CEO: We are reallocating funds from discounting to brand experience marketing. Our recent ad campaign highlights the unique connection between baristas and customers. We aim to double marketing spend as a percentage of revenue, offset by reduced discounts, making it neutral to the business overall.
Q: Can you quantify the impact of operational improvements, specifically regarding the four-minute handover timeline?
A: Brian Niccol, CEO: We've segmented stores by transaction volume and identified that bottlenecks are more related to mobile ordering sequencing than capacity. High-performing stores already comp positively, showing better partner and customer satisfaction. We're piloting an algorithm to smooth mobile order rushes, improving performance and satisfaction.
Q: Is there still a $4 billion productivity opportunity by 2028, largely COGS-driven?
A: Rachel Ruggeri, CFO: We continue to focus on efficiencies both in-store and through our supply chain, achieving 150 basis points of margin expansion this quarter. While we're not sticking to the $4 billion figure, we will pursue efficiencies to drive margin expansion over time.
Q: How do you plan to balance being the most distributed coffee brand while maintaining premium pricing?
A: Brian Niccol, CEO: Innovation in food and beverage will be key to maintaining relevance and pricing architecture. We aim to serve various occasions and age groups with the right flavors and pricing, ensuring we remain a premium yet accessible brand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
