While the numbers in Starbucks' (SBUX 0.93%) fiscal 2017 first-quarter earnings release on Thursday helped investors put some figures and trends behind the company's growing revenue and profits, Starbucks' conference call had some nuggets of its own. During the call, management gave investors insight into the company's congestion problem, ongoing digital flywheel efforts, and success in China.
Here are the must-see quotes from the conference call.
Image source: The Motley Fool.
A positive spin on its same-store sales
While the market has focused on Starbucks' lower-than-expected global same-store sales growth in its first quarter, it's worth noting that the figure -- at 3% -- is still solid, particularly amid a challenging environment for restaurants and retailers. Starbucks' CEO Howard Schultz emphasized this point in the company's conference call (via an S&P Capital IQ transcript):
I think it's important to understand that the 3% comp figure we reported reflects the continued relevance and appeal of the Starbucks Experience and how Starbucks continues to outperform by significant margins anyone else at scale in the retail and restaurant sectors. The fact is Starbucks is engaging more deeply and more frequently and expanding our base of loyal customers everywhere in the world more effectively and reliably than ever before.
Starbucks' mobile problem
One of the reasons management cited for its lower-than-expected same-store sales was congestion at the pickup counter, thanks to rapid adoption of mobile ordering, which drove some customers away. But Starbucks CEO Howard Schultz assured investors it can quickly address this issue:
We are now laser focused on fixing this problem. But the nature of it, too much demand is an operational challenge we had solved before, and I can assure you we will solve again.
The company said it now has just under 13 million active Starbucks Rewards members in the U.S., up 16% year over year. Further, Starbucks said it now has about 1,200 stores with 20% or more transactions happening on mobile devices at peak hours, up from just 13 stores a year ago.
Solving this issue is particularly important because Starbucks' mobile customers tend to spend more. For instance, the company said total Starbucks Rewards members' spending increased 21% year over year thanks to early traction with its recently launched personalization capabilities.
New features for Starbucks' "digital flywheel"
In Starbucks' recently announced five-year plan, the company said its "digital flywheel," or its growing mobile capabilities such as mobile payments and loyalty programs, is key to the company's growth opportunity. This is why Starbucks recently unveiled plans for its mobile app to enable customers to place their orders with voice commands, or through a messaging interface.
Image source: Starbucks.
Now Starbucks is ready to begin rolling out these features, betting they will help the company tap into a large lunchtime opportunity. Starbucks' chief operating officer Kevin Johnson, who is slated to take over the CEO role in April, explained:
As we discussed at Investor Day, we have a growth opportunity in the lunch daypart, with innovation around a fresh, healthy lunch concept that will be tested in the Chicago market this summer in Starbucks stores. Digital Flywheel innovation is a critical part of the plan. In addition to ongoing improvements in personalization, including increasing triggered offers based on customers' recent rewards activity, we are also rolling out suggestive selling that will recommend items to a customer during the order process. The voice-enabled ordering capability we demonstrated at Investor Day will begin deployment in the coming months.
The opportunity in China is significant
China remains key to Starbucks' growth potential. Not only does the country represent an enormous addressable market for the company, but Starbucks' stores and brand are seeing incredible success in the market.
During the call, Schultz said the company is firing on all cylinders in China:
Perhaps nowhere in the world is the power of the Starbucks brand and the size of opportunity that lies ahead for us more evident than in China, a country we first entered 18 years ago and where our business has never been stronger or more robust. ... And we're convinced [more] than ever that Starbucks is just getting started in China...
The company now has over 2,600 stores in China and is opening a store every 15 hours -- a rate management expects to persist for years to come. The company plans to have opened 5,000 stores in the country by 2021.
All of these topics -- same-store sales, mobile pay and ordering, new features for Starbucks' digital flywheel, and rapid growth in China -- should be watched closely throughout 2017. If Starbucks can navigate these opportunities effectively, the company can further strengthen its brand and competitive position.
