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Younger, more diverse consumers drive Starbucks success

SEATTLE — Just over half of Starbucks customers in the United States are Generation Z or millennials, a key reason executives are optimistic about the brand’s future.

“When you walk into our stores, you see that the relevance of Starbucks is not the coffee your parents drink, but the coffee that young people choose every day,” said Brady Brewer, director of marketing for Starbucks Corp., during a call of November 3 earnings. “Our brand position right now, we have the strongest brand affinity of any out-of-home coffee brand globally, and is seen as the first choice for out-of-home coffee. So the younger you are, the stronger the affinity with the brand becomes. And the more diverse it is, the stronger the brand affinity. And so, for all of those reasons, we continue to serve a very diverse and increasingly younger customer base with those cold, personalized, plant-based beverages, and the strategy is working.”

Howard D. Schultz, founder and interim CEO, said the company has been constantly monitoring the average age of its customer base.

“Not only has it gotten younger, but that young customer, that Gen Z customer, tends to have a lot more discretionary money at their disposal,” Schultz said. “And his loyalty to Starbucks has been quite significant and predictable.”

Younger consumers are driving the growth of Starbucks cold brew beverages, which account for 76% of total beverage sales at company-operated stores in the United States, Schultz said, adding: “And customers are increasingly personalizing their cold brew beverages by adding high-margin beverage flavor modifiers to create unique beverages tailored to their particular flavor preferences.”

Additionally, in the most recent quarter, more than 60% of beverages sold at company-operated stores in the US were personalized, “contributing to the $1 billion and annual modifier net sales increase.” “, which has doubled in the last three years, said Sara Trilling, president. of Starbucks North America.

Mr. Schultz said cold drinks are in “early stages in terms of what’s coming,” pointing to continued innovation in the category in the year ahead.

“However, no one should turn away and think about the fact that our hot coffee business is not growing,” he added. “In fact, it is growing very well, but the cold has taken over. But we have important innovation plans for hot. So I think the percentage of cold vs. hot revenue, I think you’ll see the hot increase as a result of the innovation that we have around the hot platform.”

Net earnings attributable to Starbucks for the fiscal year ended October 2 were $3.3 billion, or $2.83 per common share, down 22% from net earnings of $4.2 billion or $3.54 per share a year earlier. . Operating margin contracted due to higher labor investments, inflationary headwinds and lower sales in China due to pandemic restrictions.

Net income for the full year totaled $32.3 billion, up 11% from $29.1 billion. Revenue increased 13% on a 52-week basis.

Fourth quarter earnings were $878.3 million, or 76 cents per share, down 50% from $1.7 billion, or $1.49, in the comparable period. Total revenue for the quarter increased 3.3% to $8.4 billion from $8.1 billion. Revenue increased 11% on a 13-week basis.

Global comparable store sales advanced 8% for the full year and 7% for the quarter. North American comparable store sales increased 12% for the full year and 11% for the quarter. International comparable store sales decreased 9% for the year and 5% for the quarter. China comparable store sales decreased 24% for the year and 16% for the quarter due to government shutdowns related to COVID-19.

“Our performance supports our confidence in the ambitious growth agenda we announced in September, in which we will add approximately eight new stores per day, delivering best-in-class returns around the world every day for the next three years, which brings us to nearly 45,000 stores worldwide by the end of fiscal year 2025,” said Schultz.

Channel development segment operating income in the fourth quarter increased 11% to $244.6 million, with revenue up 10% to $483.7 million, driven by growth of the Global Coffee Alliance and the global ready-to-drink businesses.

“Channel Development continued to play a vital role in differentiating, diversifying and amplifying our brand by creating occasions for customers outside of our stores,” said Rachel Ruggeri, chief financial officer. “As a result, Starbucks remains the market leader in both the total US home coffee and ready-to-drink categories.”

Fourth-quarter results demonstrate the early success of Starbucks’ reinvention plan, outlined during the company’s recent investor day, Schultz said. For the coming year, the company expects to achieve comparable store sales growth globally and in the US in the range of 7% to 9% and increase its number of global stores by approximately 7%, with more 75% of growth coming from outside the country. USA. Management also expects earnings per share growth to be at the upper end of its 15% to 20% range.

“With this powerful combination of global compensation and store growth, coupled with our Channel Development performance, we expect our consolidated revenue growth to be in the 10%-12% range in FY2023 despite an unfavorable impact from approximately 3 percentage points expected. of foreign currency conversion,” said Ms. Ruggeri. “Within fiscal year 2023, the unfavorable impact of foreign currency translation is expected to reach approximately 4 percentage points in the first half of the fiscal year, moderating to approximately 1 to 2 percentage points in the second half of the year.

“Despite the considerable pressure we now expect from foreign currency translation, which could ease, we remain confident in our full-year earnings guidance range. We have a solid path to capture strong demand, maximize the opportunities unlocked from our reinvention plan, and deliver compelling revenue results.”

Starbucks stock price rose in after-hours trading, opening Nov. 4 at $91.98, up 8.6% from the Nov. 3 close of $84.68.

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