Starbucks: China Revenues down 8% in Q2-2024

Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal second quarter ended March 31, 2024. Q2 Fiscal 2024 Highlights:

• Global comparable store sales declined 4 percent, driven by a 6 percent decline in comparable transactions, partially offset by a 2 percent increase in average ticket
  • North America and U.S. comparable store sales declined 3 percent, driven by a 7 percent decline in comparable transactions, partially offset by a 4 percent increase in average ticket
  • International comparable store sales declined 6 percent, driven by a 3 percent decline in both comparable transactions and average ticket; China comparable store sales declined 11 percent, driven by an 8 percent decline in average ticket and a 4 percent decline in comparable transactions
• The company opened 364 net new stores in Q2, ending the period with 38,951 stores: 52 percent company-operated and 48 percent licensed
  • At the end of Q2, stores in the U.S. and China comprised 61 percent of the company’s global portfolio, with 16,600 and 7,093 stores in the U.S. and China, respectively
• Consolidated net revenues declined 2 percent, to USD 8.6 billion, or a 1 percent decline on a constant currency basis
• GAAP operating margin contracted 240 basis points year-over-year to 12.8 percent, primarily driven by deleverage, incremental investments in store partner wages and benefits, increased promotional activities, lapping the gain on the sale of Seattle’s Best Coffee brand, as well as higher general and administrative costs primarily in support of Reinvention. This decline was partially offset by pricing and in-store operational efficiencies.
  • Non-GAAP operating margin contracted 150 basis points year-over-year to 12.8 percent, or contracted 140 basis points on a constant currency basis
• GAAP earnings per share of USD 0.68 declined 14 percent over prior year
  • Non-GAAP earnings per share of USD 0.68 declined 8 percent over prior year, or declined 7 percent on a constant currency basis
• Starbucks Rewards loyalty program 90-day active members in the U.S. totaled 32.8 million, up 6 percent year-over-year

«In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead,» commented Laxman Narasimhan, chief executive officer. «It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us. We have a clear plan to execute and the entire organization is mobilized around it. We are very confident in our long-term and know that our Triple Shot Reinvention with Two Pumps strategy will deliver on the limitless potential of this brand,» Narasimhan added.

«While it was a difficult quarter, we learned from our own underperformance and sharpened our focus with a comprehensive roadmap of well thought out actions making the path forward clear,» commented Rachel Ruggeri, chief financial officer. «On this path, we remain committed to our disciplined approach to capital allocation as we navigate this complex and dynamic environment,» Ruggeri added.

Q2-2024 North America Segment Results

(USD in millions)	Q2-2024		Q2-2023		Change (%)
Change in Comparable Store Sales	(3)%		12%
Change in Transactions	(7)%		6%
Change in Ticket	4%		5%
Store Count	18,065		17,482		3%
Revenues	USD 6,380.0		USD 6,380.6		0%
Operating Income	USD 1,148.3		USD 1,217.9		(6)%
Operating Margin	18.0%		19.1%		(110) bps

Net revenues for the North America segment of USD 6.4 billion in Q2 FY24 were flat to Q2 FY23, primarily driven by a 3 percent decline in comparable store sales, driven by a 7 percent decline in comparable transactions, partially offset by a 4 percent increase in average ticket. This decline was offset by net new company-operated store growth of 5 percent over the past 12 months, as well as growth in our licensed store business.

Operating income decreased to USD 1.1 billion in Q2 FY24 compared to USD 1.2 billion in Q2 FY23. Operating margin of 18.0 percent contracted from 19.1 percent in the prior year, primarily driven by deleverage, incremental investments in store partner wages and benefits, and increased promotional activity. This contraction was partially offset by pricing and in-store operational efficiencies.

Q2-2024 International Segment Results

(USD in millions)	Q2-2024		Q2-2023		Change (%)
Change in Comparable Store Sales	(6)%		7%
Change in Transactions	(3)%		7%
Change in Ticket	(3)%		0%
Store Count	20,886		19,152		9%
Revenues	USD 1,757.3		USD 1,854.8		(5)%
Operating Income	USD 233.8		USD 314.7		(26)%
Operating Margin	13.3%		17.0%		(370) bps

Net revenues for the International segment declined 5 percent over Q2 FY23 to USD 1.8 billion in Q2 FY24, primarily driven by an approximate 5 percent unfavorable impact from foreign currency translation and a 6 percent decline in comparable store sales, driven by a 3 percent decline in both comparable transactions and average ticket. Also contributing were lower product and equipment sales to, and royalty revenues from, our licensees. This decline was partially offset by net new company-operated store growth of 12 percent over the past 12 months.

Operating income decreased to USD 233.8 million in Q2 FY24 compared to USD 314.7 million in Q2 FY23. Operating margin of 13.3 percent contracted from 17.0 percent in the prior year, primarily driven by promotional activities, incremental investments in store partner wages and benefits, as well as sales mix shift, partially offset by pricing in certain markets.

Addendum: China Supplemental Data

(USD in millions)	Q2-2024		Q2-2023		Change (%)
Revenues	USD 705.8		USD 763.8		(8)%
Change in Comparable Store Sales	(11)%		3%
Change in Transactions	(4)%		4%
Change in Ticket	(8)%		(1)%
Store Count	7,093		6,243		14%