Categories Analysis, Consumer

Starbucks (SBUX) to speed up store growth and renovation plans amid high demand

Starbucks expects 75% of the new stores it will open in FY2022 to be outside the US

Shares of Starbucks Corporation (NASDAQ: SBUX) jumped 10% on Wednesday, following a strong Q2 2022 earnings report from the company a day ago. The company delivered record revenue surpassing expectations, buoyed by strong customer demand, but earnings lagged estimates. The stock has dropped 29% year-to-date and 27% over the past 12 months.

Quarterly performance

In Q2 2022, consolidated revenues increased 15% year-over-year to $7.6 billion, beating estimates. Adjusted EPS decreased 3.3% to $0.59, missing projections. Global comparable store sales grew 7%, driven by increases in average ticket and comparable transactions. While comparable sales in North America and US were up 12%, international comp sales fell 8%. Operating margin dropped 240 basis points to 12.4% mainly due to inflation and lockdowns in China as well as investments in retail store partner wages and benefits.  

Starbucks Q2 2022 earnings infographic

Revenues in the North America segment rose 17% YoY to $5.4 billion, helped by a 12% comp sales growth. International segment revenues grew 4% to $1.7 billion, driven by a 9% store growth. International comps were down 8%. Revenues in the Channel Development segment grew 25% YoY to $463 million, driven by growth in the Global Coffee Alliance and the International ready-to-drink businesses.

Stores

Starbucks opened 313 new stores in the second quarter. At the end of Q2, the company had 34,630 stores around the world, of which 51% were company-operated and 49% were licensed. The store count in North America stood at 16,926, which was up 1% from last year while the number of international stores grew 9% to 17,704.

Stores in the US and China made up 61% of the global portfolio, with the number of stores in the US totalling 15,544. On its quarterly conference call, Starbucks said it has witnessed a spike in drive-thru and Mobile Order & Pay (MOP) activity and they now collectively generate over 70% of the US store volume. Mobile Order & Pay is up 20% over last year while the delivery business is up 30% over last year. Customers are also increasingly customizing handcrafted cold beverages.

To keep up with the changes in customer preferences and the rise in demand, the company plans to make significant investments in the near term. Starbucks is accelerating its store growth and renovation plans and it anticipates 90% of its new stores to be high-returning drive-thru. The company expects 75% of the new stores it will open in FY2022 to be outside the US, as it sees vast opportunity for international growth.

China

At the end of Q2, Starbucks had 5,654 stores in China. In the wake of heightened restrictions in the country, nearly one-third of the company’s stores remain temporarily closed or are offering delivery or MOP. As a result, in Q2, net revenue in China fell 14% and comp sales dropped 23% YoY due to reduced traffic. The impact is expected to be higher in Q3. The company added 97 net new stores during the quarter and despite years of COVID disruptions, it believes it will be able to achieve its goal of opening 6,000 stores in China by 2022.

Click here to read the full transcript of Starbucks Corp’s Q2 2022 earnings conference call

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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