Financial Results Starbucks Announces Q1 FY 2025 Performance
Starbucks Corporation (Nasdaq: SBUX) has announced its financial results for the 13-week fiscal first quarter, which ended on December 29, 2024. The company reported key financial metrics and strategic initiatives, including the impact of its “Back to Starbucks” plan. This earnings report provides insights into the company’s performance across its global markets, operational adjustments, and ongoing efforts to drive long-term growth.
Q1 Fiscal Year 2025 HighlightsThe global comparable store sales for Starbucks declined by 4% in the first quarter of fiscal 2025. This decline was primarily driven by a 6% decrease in comparable transactions, which was partially offset by a 3% increase in average ticket size.
The North American and U.S. markets saw a 4% decline in comparable store sales, attributed to an 8% reduction in comparable transactions, counterbalanced by a 4% increase in average ticket size. Similarly, the international segment also faced a 4% decline in comparable store sales, with both average ticket and comparable transactions decreasing by 2%. Notably, the Chinese market experienced a 6% decline in comparable store sales, with a 4% reduction in average ticket size and a 2% drop in transactions.
Despite these challenges, Starbucks continued its global expansion, opening 377 net new stores during the first quarter. By the end of the quarter, the company operated a total of 40,576 stores worldwide. Of these, 53% were company-operated, while 47% were licensed stores.
The U.S. and China remain the company’s largest markets, comprising 61% of Starbucks’ global store portfolio, with 17,049 stores in the U.S. and 7,685 stores in China.
Total consolidated net revenues for the quarter stood at $9.4 billion, remaining flat compared to the previous year, including on a constant currency basis.
However, the operating margin contracted by 390 basis points year-over-year to 11.9%. This contraction was primarily due to operational deleverage and investments supporting the “Back to Starbucks” initiative, which includes wage increases, enhanced benefits, extended working hours for store partners, and the elimination of the additional charge for non-dairy milk customizations. These costs were partially offset by the annualization of pricing adjustments and supply chain efficiencies. On a constant currency basis, the operating margin declined by 380 basis points year-over-year.
Starbucks reported earnings per share (EPS) of $0.69, reflecting a 23% decline compared to the prior year. On a constant currency basis, the EPS decline was slightly lower at 22%.
The Starbucks Rewards loyalty program in the U.S. continued to expand, reaching 34.6 million active members over a 90-day period. This marked a 1% increase year-over-year and a 2% growth quarter-over-quarter.
Management CommentaryBrian Niccol, Chairman and Chief Executive Officer of Starbucks, emphasized the company’s commitment to the “Back to Starbucks” strategy, stating, “While we’re only one quarter into our turnaround, we’re moving quickly to act on our ‘Back to Starbucks’ efforts and we’ve seen a positive response.
We believe this is the fundamental change in strategy needed to solve our underlying issues, restore confidence in our brand, and return the business Financial Results to sustainable, long-term growth.”
Rachel Ruggeri, Chief Financial Officer, echoed these sentiments, expressing optimism about the company’s future trajectory. “We are encouraged by our Q1 results, which demonstrated the effectiveness of our ‘Back to Starbucks’ strategy, evidenced by our top-line trend.
Although we are in the beginning chapter and have much more work ahead of us, we will continue to prioritize shareholder value through dividends, providing a predictable return of capital while we turn around our business,” she said.
Segment PerformanceNorth America SegmentNet revenues for the North America segment declined by 1% compared to Q1 FY24, totaling $7.1 billion. The decline was primarily due to a 4% drop in comparable store sales, driven by an 8% reduction in comparable transactions, partially Financial Results offset by a 4% increase in average ticket size. Additionally, a decrease in the licensed store business contributed to the revenue decline. However, these decreases were partially mitigated by a 5% increase in net new company-operated store growth over the past year.
Operating income for the North America segment fell to $1.2 billion in Q1 FY25, down from $1.5 billion in the same period last year. The operating margin contracted from 21.4% to 16.7%, reflecting operational deleverage, wage increases, enhanced benefits, and Financial Results extended working hours for store partners. The removal of the extra charge Financial Results for non-dairy milk customizations also impacted margins. However, the annualization of pricing adjustments helped offset some of these pressures.
International SegmentThe International segment experienced a 1% increase in net revenues over Q1 FY24, reaching $1.9 billion. This growth was driven by a 9% increase in net new company-operated stores over the past 12 months and incremental revenue from the acquisition of a U.K. licensed business partner. However, the segment also saw a 4% decline in comparable store sales, with both average ticket Financial Results size and transactions decreasing by 2%.
Operating income in the International segment declined to $237.1 million in Q1 FY25, compared to $241.5 million in the previous year. The operating margin contracted slightly from 13.1% to 12.7%, mainly due to increased promotional activity and higher investments in wages and benefits for store partners. These expenses were partially offset by supply Financial Results chain and in-store efficiencies.
Channel Development SegmentNet revenues for the Channel Development segment declined by 3% year-over-year, totaling $436.3 million in Q1 FY25. This decrease was attributed to a Financial Results decline in revenue from the Global Coffee Alliance due to SKU optimization Financial Results and a reduction in global ready-to-drink revenue.
Despite the revenue decline, operating income in this segment remained relatively stable, falling slightly from $209.7 million in Q1 FY24 to $208.0 million in Q1 FY25.
The operating margin, however, expanded from 46.8% to 47.7%, reflecting a favorable product mix and lower costs related to the Global Coffee Alliance. These benefits were partially offset by higher expenses in the North American Coffee Partnership joint venture.
