Starbucks said customers have continued returning for coffee and other items despite higher prices in the broader economy, delivering a quarterly report that beat analysts’ expectations and prompted the company to raise its forecast for the year.
In results announced Tuesday for the January-March period, Starbucks said global same-store sales rose 6.2%. The company said that increase was higher than the 4% gain Wall Street expected, based on analysts polled by FactSet, and it reported a 7% jump in U.S. same-store sales.
Starbucks attributed the strength to efforts it has been making to improve how quickly and how warmly customers are served, saying it is seeing traffic across income levels and age groups rather than only among higher-income shoppers. During a conference call with investors, Chairman and CEO Brian Niccol highlighted the idea that Starbucks can win repeat visits when customers feel the experience is distinctive and worth the cost.
“What we see with folks is, when you give them an experience that they feel is unique, differentiated, special, a little touch of luxury, it goes a long way. And we’re seeing that play out with every income cohort,” Niccol said. “We have to demonstrate to people that it’s worth it.”
Even as it signaled that higher costs like gasoline have not yet dampened enthusiasm, Starbucks said it remains cautious with its outlook. Niccol told investors that consumer behavior could shift further if costs keep rising, noting that increases can show up in multiple parts of household budgets.
“As you know, these issues continue to happen, whether it shows up in gas prices or utilities in other ways or other input costs,” Niccol said.
After the quarter, Starbucks raised its expectation for full-year performance, saying it now expects both global and U.S. same-store sales to rise 5% for the year, up from prior guidance of 3%. The company also lifted its full-year earnings forecast to a range of $2.25 to $2.45 per share, compared with previous guidance of $2.15 to $2.40 per share.
Niccol also discussed operational changes Starbucks has been rolling out over the past year, including adding employees during rush times and using technology to better coordinate in-store and mobile orders. The company said 80% of U.S. company-owned stores are meeting its target of in-store or drive-thru service within 4 minutes, and mobile order pickups within 12 minutes.
Starbucks said it has been redesigning stores to create a more “coffeehouse” feel, including adding seating, and that around 300 U.S. stores have been redesigned so far, with 1,000 additional stores planned to receive that treatment by the end of this year. The company also said it has shuttered underperforming locations and cut corporate jobs, including closing hundreds of stores in the U.S., Canada and Europe and laying off at least 2,000 nonretail employees last year.
Niccol said the leaner structure is helping Starbucks innovate more quickly, pointing to premium bakery items introduced during the second quarter such as a strawberry matcha loaf and a yuzu-flavored croissant. He also highlighted new drinks, including protein-enhanced lattes and energy refreshers, as part of the company’s effort to draw customers back to stores and to differentiate from competitors.
The company said it is not worried about growing competition from brands such as McDonald’s, which has announced its own refreshers and handcrafted sodas. Niccol said his experience has been that when a category begins to attract attention, the market leader benefits.
“What my experience has been is when the category starts being talked about, the market leader benefits. And, you know, that’s going to be us in this scenario,” Niccol said.
Starbucks’ revenue rose 9% to $9.5 billion for the second quarter, the company said, beating analysts’ forecast of $9.2 billion. Adjusted for one-time items, Starbucks said it earned 50 cents per share, also ahead of analysts’ forecast of 43 cents, and its shares rose more than 5% in after-hours trading.