Operations
Starbucks: 'Pandemic to blame for disappointing China sales'
Starbucks reported Thursday that Q4 revenue fell short of expectations, thanks to a 7% drop in same-store sales in China.
October 29, 2021 by Cherryh Cansler — Editor, FastCasual.com
Starbucks reported Thursday that Q4 revenue fell short of expectations, thanks to a 7% drop in same-store sales in China.
Although earnings per share were $1 vs. 99 cents expected by investors, revenues were $8.1 billion, missing predictions of $8.21 billion for the 14-week fiscal quarter ending Oct. 3. U.S. same-store sales, however, were up 22%.
"We experienced COVID-related restrictions that constrained customer mobility in 18 provincial-level regions," Starbucks CEO Kevin Johnson said Thursday during an investor call. "At its peak in mid-August, approximately 80% of our stores in China were impacted by the pandemic with some stores fully closed or operating at different levels of elevated public health protocols, such as mobile ordering only, limited seating or health stations."
The country's recovery momentum was below expectation and pushed two-year comps to a minus 10% in Q4.
"Cities with local COVID cases were impacted the most with stores relying on transportation and tourism also materially impacted during the quarter," said Johnson, who remained optimistic for recovery, however.
"Despite these strong headwinds, China grew revenue 11% year-on-year," he said. "While our overall reported comp growth was minus 7% for Q4, if we exclude the lap of a bad subsidy we received in fiscal year '20 along with the stores and cities that experienced local COVID cases or were in transportation and tourism zones, our core fleet of stores comp was positive. Starbucks business and operating margins remained strong and our commitment to China and our confidence in our long-term growth strategy in China is unwavering."
While China struggled, the North America segment delivered revenue of $5.8 billion in Q4, 27% higher than the prior year, Rachel Ruggeri VP and CFO, told investors. That was primarily driven by a 22% increase in comparable-store sales, including 18% comp transaction growth and a 3% increase in average ticket.
"In the U.S., comparable-store sales reached 22% in Q4, driven by transaction comp of 19%, delivering another sequential improvement in two-year transaction comp in the face of COVID delta variant disruptions," she said. "Simultaneously, we maintained our strength in average ticket of 3% over the prior year in Q4, remaining near record levels and posting two-year ticket comp of over 20% for the sixth consecutive quarter."
As the chain enters fiscal 2022, Johnson said he expects record-breaking holiday sales.
"In addition to new and iconic seasonal products, we are integrating brand building and transaction driving marketing programs to demonstrate our values and touch our customers' hearts," he said. "We're prepared with inventory this holiday and we are also anticipating that nearly $3 billion will be loaded on Starbucks Cards this season by leveraging our digital and out-of-store distribution channels and creating a promotional presence in drive-through lanes where we have seen significant channel shift during the pandemic. We are ready for this holiday."
Q4 highlights
- Global comparable store sales increased 17%, driven by a 15% increase in comparable transactions and a 2% increase in average ticket.
- North America comparable store sales increased 22%, primarily driven by an 18% increase in comparable transactions and a 3% increase in average ticket; U.S. comparable store sales increased 22%, driven by a 19% increase in comparable transactions and a 3% increase in average ticket.
- International comparable store sales increased 3%, driven by a 6% increase in comparable transactions, partially offset by a 2% decline in average ticket.
- China comparable store sales decreased 7%, driven by a 5% decline in average ticket and a 2% decline in transactions; International and China comparable store sales include adverse impacts of approximately 3% and 4%, respectively, from lapping prior-year value-added tax exemptions in China.
- The company opened 538 net new stores in the fourth quarter of fiscal 2021, yielding 4% year-over-year unit growth, ending the period with a record 33,833 stores globally, of which 51% and 49% were company-operated and licensed, respectively.
Full-year highlights
- Global comparable store sales increased 20%, primarily driven by a 10% increase in average ticket and a 9% increase in comparable transactions.
- North America comparable store sales increased 22%, primarily driven by a 13% increase in average ticket and a 7% increase in comparable transactions; U.S. comparable store sales increased 21%, driven by a 13% increase in average ticket and an 8% increase in comparable transactions.
- International comparable store sales were up 16%, driven by a 14% increase in comparable transactions and a 1% increase in average ticket; China comparable store sales increased 17%, driven by a 19% increase in comparable transactions and a 2% decrease in average ticket.
- Consolidated net revenues of $29.1 billion increased 24% (21% on a 52-week basis) from the prior year mainly driven by a 20% increase in comparable-store sales primarily from lapping the unfavorable impact of business disruption in the prior year due to the COVID-19 pandemic
- GAAP operating margin of 16.8%, up from 6.6% in the prior year primarily driven by sales leverage from business recovery and the lapping of COVID-19 related costs in the prior year as well as pricing in North America, partially offset by additional investments and growth in wages and benefits for store partners.
- Non-GAAP operating margin of 18.1%, up from 9.1% in the prior year.
- GAAP earnings per share of $3.54 grew from 79 cents in the prior year, including a 56-cent gain on the divestiture of South Korea joint venture and 10 cents related to the 53rd week in fiscal 2021
- Non-GAAP earnings per share of $3.24 grew from $1.17 in the prior year including 10 cents related to the 53rd week in fiscal 2021.
About Cherryh Cansler
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