More than half of the 1,500 new coffeehouse locations Starbucks Corp. plans to open in the United States over the next five years will be drive-thrus, company officials said Thursday in a first-quarter earnings call.
The Seattle-based company also reported a 13-percent increase in profit for the quarter that was boosted by the strongest holiday season in its 42-year history, with an estimated 1-in-10 U.S. adults receiving a Starbucks gift card.
Starbucks chair, president and chief executive Howard Schultz said the record results were delivered despite a backdrop of lackluster consumer confidence and a weak global economy, “demonstrating the strength, unique resilience and increasing relevance of our global business and brand.”
Drive thrus drive profit, growth
Starbucks plans to add 1,300 new units globally this year, including about 600 in the Americas, mostly in the United States, about half of which will be licensed. Another 600 locations are scheduled to open in the China/Asia Pacific region, about half of which will be in China.
U.S. growth will focus on drive-thru locations, which the company said has become a highly profitable format. About 60 percent of the 1,500 U.S. units planned in the next five years will have a drive thru.
“Drive thrus create incremental revenues and profits compared to traditional stores and represent a fast-growing and highly profitable format for Starbucks, comprising just over one-third of our U.S. company-operated stores but contributing nearly 45 percent of our U.S. retail profit,” Schultz said.
“We are investing in this high-margin store format with innovations that will elevate the customer experience of our brand by enhancing drive-thru efficiency and consistency of service,” he added.
Starbucks plans to remodel about 1,400 U.S. units this year, and about 500 of those locations will receive a major overhaul.
Strong holiday season boosts revenue
For the first quarter ended Dec. 30, Starbucks reported net income of $432.2 million, or 57 cents per share, compared with $382.1 million, or 50 cents per share, a year ago.
Revenue increased 11 percent to $3.8 billion for the company.
Global same-store sales rose 6 percent, driven by a 4-percent increase in traffic and a 2-percent increase in average ticket.
During the quarter, the company opened 212 new units globally, including its first three locations in India, for a total of 18,278 units worldwide.
Starbucks also completed its acquisition of the Teavana retail tea chain. The company plans to open about 30 new Teavana units this year, moving the mostly mall-based brand to urban locations.
In the Americas region — which includes 12,983 units in the United States, Canada, Latin American and the Caribbean — same-store sales grew 7 percent based on a 4-percent increase in transactions. Average tickets rose 2 percent.
Net revenue for the region was $2.8 billion, rising 10 percent over the prior year’s first quarter. However, expenses related to the company’s global leadership conference, litigation, and the impact of superstorm Sandy in the Northeast negatively affected margins.
Holiday sales were brisk, boosted by a “12 Days of Gifting” promotion, the return of Starbucks’ Christmas Blend and Starbucks’ gift cards, “perhaps the single most-given gift,” Schultz said.
Despite the recession, the company sold $2 million of its limited-edition Steel Cards for $450 each, which sold out in six minutes after being offered on the luxury retail website Gilt.com, Schultz said.
Starbucks chief financial officer Troy Alstead said momentum has continued into the first few weeks of January. The results reaffirmed the company’s confidence in aggressive growth plans for fiscal 2013.
The China/Asia Pacific region led the way for same-store sales growth with an increase of 11 percent during the quarter. Net revenue was $214.1 million, rising 28 percent from the prior year, for the 3,419 units there.
Europe, the Middle East and Africa, or EMEA, with 1,876 units, remained the only region with negative same-store sales, which declined 1 percent in the first quarter despite a 2-percent increase in transactions. The average ticket there dropped 3 percent, which Schultz blamed largely on weakness of the economy in the United Kingdom.
Revenue in the EMEA region rose 1 percent to $306.1 million for the quarter. The company has closed some underperforming units in the United Kingdom and sold Starbucks locations in Ireland and in U.K. airport locations to licensed partners.
Starbucks’ channel development segment, which includes packaged coffees and bottled beverages, as well as the increasingly popular single-serve pods, reported revenue growth of 13 percent, to $379.8 million.
For fiscal 2013, the company expects mid-single-digit increases in same-store sales, with improving margins in the Americas and in Europe. Overall, the company expects earnings per share to be in the range of $2.06 to $2.15 for the year.
Company eyes more growth channels
Following the acquisition of the La Boulange Bakery brand last year, Starbucks has been testing a new bakery menu in 40 San Francisco locations.
Schultz said those units have seen increases in sales of pastries and food overall. The La Boulange menu will be rolled out to more Starbucks locations in the Bay Area, as well as Seattle, Los Angeles, Chicago and New York before the end of the year.
The company also plans to build on its single-cup business, including the sale of new Verismo single-cup brewers launched in September. Starbucks has sold 150,000 machines so far.
Schultz described Verismo as a platform with “multi-billion dollar potential” that will include new pod products and more machine variations with different functionalities and styles.
The home brewers have not cannibalized in-store sales or other packaged coffee products, he said, and the company plans to continue to “transform the single-serve category.”
Starbucks is also planning a new line of iced coffee beverages in “iconic” glass bottles that will be available nationally by April, in partnership with PepsiCo.
Starbucks president of channel development and emerging brands Jeff Hansberry said one in five beverages purchased in the brand’s units is iced coffee. “People drink iced coffee now year round,” he said.
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