With 34,630 stores in 80 different countries, Starbucks (SBUX 0.47%) is truly a global enterprise. Caffeine is loved by people everywhere, and by catering to this longstanding trend, Starbucks has become an $82 billion business today that generated $7.6 billion in revenue in the most recent quarter (ended April 3).
Penetrating new markets in the pursuit of growth is a strategy that many consumer brands, including Starbucks, have followed. But thanks to the ongoing coronavirus pandemic, the company is dealing with challenges that highlight just how difficult of an operating environment it is today.
Let's take a closer look at the current state of affairs for the coffeehouse giant.
Image source: Getty Images.
A tale of two regions
Starbucks' business model depends on increased consumer mobility. When people are out and about, it creates more occasions to stop by at a nearby Starbucks for coffee or a snack. That's why severe lockdown measures in China, the company's second-biggest market with 5,654 stores, has been a significant headwind hurting sales there.
Same-store sales, or comps, decreased 23% year over year, driven by a 20% fall in transaction counts and a 4% drop in the average ticket size. A whopping 72% of the 225 cities Starbucks is in have experienced omicron outbreaks. And because China has implemented a zero-COVID policy to curb the spread of the virus, about one-third of Starbucks stores in China are still closed temporarily or only offering mobile ordering. Management said they'd provide updated guidance at the investor day in September.
On the bright side, it is estimated that one in two coffee consumers in China is a Starbucks customer. That relevance demonstrates the dominance of the brand. "Our aspirations around China have never been greater, and I remain convinced Starbucks' business in China will be eventually larger than our business in the U.S.," founder and interim CEO Howard Schultz highlighted on the Q2 2022 earnings call.
As for the U.S., it's an entirely different situation. The domestic market is registering record demand as pandemic-related restrictions ease and consumer mobility rises again. Comps jumped 12% year over year, driven by 5% more transactions and average ticket sizes that were 7% larger.
Even with the major push in China, Starbucks still generates about 67% of its overall revenue in the U.S., so it is the most important market for the business today. Amid ongoing inflationary concerns, Starbucks was able to apply pricing increases successfully. And as of April 3, there were 26.7 million 90-day active Rewards members in the U.S., up 17% from the year-ago period.
The most recent quarter paints a picture of two completely different situations for this top restaurant stock.
Worldwide domination on the horizon
Although the U.S. is clearly in a much better place than China right now, Starbucks is still focused on its worldwide plans. Of all the net new stores that will open by the end of fiscal 2022, 75% will be outside the U.S. And the goal of having 55,000 locations open by 2030 seems to still be on the table. Therefore, investors shouldn't worry about the recent lopsided financial results.
Companies that have a global presence are definitely dealing with a tougher operating environment than rivals focused only on the domestic market. However, I believe that Starbucks' international ambitions, particularly in China, will ultimately be a boon for the business over the long term. Gaining access to a massive, burgeoning middle class is any consumer brand's dream, and this is certainly true for Starbucks.
Meanwhile, there's a lot of uncertainty in the short-term, but as the number of stores -- as well as revenue and net income -- continues marching higher in the decade ahead, Starbucks' share price should follow suit.
