More drive-thrus planned for a continuing expansion into the Southeast, Southwest and Central U.S.
After reporting record fourth-quarter sales Thursday, Starbucks executives seemed confident that they had weathered a tumultuous year and put in place a clear, long-term plan focused on streamlined operations, returning cash to shareholders and growing in the U.S. and China.
“While we still have work to do, these results provide encouraging evidence that our plan is working,” Starbucks CEO Kevin Johnson said on the company’s conference call with financial analysts.
Starbucks shares jumped in after-hours trading after the company posted revenue of $6.3 billion, up 10.6 percent. But profit fell 4.1 percent in the quarter ended Sept. 30 from the year-earlier period to $755.8 million, or 56 cents a share. The consensus estimate of Wall Street analysts was for earnings of 60 cents a share.
The Seattle company said sales at existing U.S. stores rose 4 percent during the quarter, the strongest performance in more than a year for that closely watched measure of retail health. Embedded in that growth, however, was a 1 percent decline in transactions, more than compensated for by a 5 percent increase in the average value of each transaction.
In China, same-store sales were up 1 percent, after decreasing 2 percent in the third quarter. Comparable sales growth companywide came in at 3 percent.
Starbucks is also continuing to return cash to shareholders, announcing a 36-cent-per-share dividend payable Nov. 30. It also accelerated share buybacks, using $5 billion from the spinoff of its packaged-coffee business to Nestle.
Executives did not address the continuing corporate reorganization begun in September, which is expected to include job cuts at the company’s Seattle headquarters. More than 500 Starbucks employees have moved to Nestle as part of the blockbuster deal that sent Starbucks’ retail coffee business to the Swiss food and beverage giant.
Chief Operating Officer Rosalind Brewer said the improvement in same-store sales stems from a strategy of simplification that’s designed to allow employees more time interacting with customers. Employees — known in Starbucks parlance as partners — have been given more time for store-closing tasks so they can focus on customers while their store is open. A small number of stores have added automated inventory-management systems.
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Brewer said the expansion of Starbucks’ cold beverage sales, particularly its nitro, cold brew and lightly caffeinated fruit juices, has also helped. She said the company added nitro equipment to almost 700 stores in the quarter, and now has it in 2,800 locations.
Finally, she said, a simplified, more consistent happy-hour program to drive more people into stores in the afternoon replaced a more complicated lineup of limited-time promotions offered during the 2017 fiscal year.
Increasingly, Starbucks is delivering its promotions to customers through digital channels. At the end of the quarter, some 10 million people had registered with the company to receive e-mail promotions.
“As we get to know who they are and what they want, we’ll tailor specific offers with the goal of converting them to our [Starbucks Rewards] program,” Brewer said.
Another thing that’s working for Starbucks is convenience, be that at the drive-thru window — now a feature of more than half of its U.S. stores — or through its mobile order and payment platform, which now accounts for 14 percent of sales.
Brewer said 80 percent of the new stores the company opens in the U.S. during the current fiscal year will include drive-thru windows. This emphasis goes hand-in-hand with a changed geographic focus for store growth. Starbucks added 604 net new stores in the quarter and plans to add 2,100 new stores in the current fiscal year bringing its total store count to more than 31,000.
“We are not putting drive-thrus in Manhattan per se, but throughout the central U.S., Southwest, Southeast, we have the opportunity to really place drive-thrus in that area,” Brewer said.
Another way Starbucks is trying to make itself more convenient is through delivery. It began a pilot project with Uber Eats in Miami, and early results are promising, she said.
In China, it inked a deal with Alibaba that includes delivery — expected to be available from more than 2,000 stores by the end of the year — among a slate of other digital promotions.
Having added 585 net new stores in China during the fiscal year, Starbucks now has more than 3,500 outlets in what is its second-largest and fastest-growing market.
As expected, Starbucks operating profit margin narrowed in the fiscal year and may narrow further in the first half of the 2019 fiscal year.
Brewer chalked that up to the company being in “an investment mode,” particularly around its digital platforms. She said the company has opportunities to grow margins through lower costs of goods and reductions in everyday expenses.
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