Kevin Johnson
President and Chief Executive Officer at Starbucks
Well. thank you, Greg and welcome everyone to today's call. I'm very pleased to comment on the record Q4 and FY '21 results Starbucks reported today. I'm particularly pleased that we were able to deliver these results in Starbucks 50th anniversary year and in the face of increased costs and unprecedented operating challenges resulting from the global pandemic.
Today's results reflect very strong operating and financial performance across the board with Q4 revenue growing 22% and full year non-GAAP EPS of 168% over prior year. This was a record Q4 that punctuates a very strong FY '21 performance with record highs in revenues, non-GAAP operating income and non-GAAP EPS. Our performance accelerated throughout FY '21, fueling revenue growth of 21%, non-GAAP operating income grew 139% and translated to a non-GAAP earnings of $3.24 per share, near the high end of our guidance for the year.
Perhaps more persuasively than ever, the strength and resilience of the Starbucks brand and the power and opportunity afforded by the authentic connection and the deep trust and loyalty we have built with customers around the world is resonating. Today's results demonstrate that despite the pandemic, Starbucks long-term double-digit growth at scale model remains solidly intact. Today's results also underscore the passion and dedication of our over 4,000 Starbucks green apron partners who serve nearly 100 million customer occasions around the world every week. And I am humbled by our partners commitment to each other and to our customers as we continue to navigate through the pandemic. Their resilience and service honors the company and our history and I could not be more appreciative of their efforts.
Finally, today's results demonstrate the success of the investments we have made and will continue to make ahead of the growth curve in our people, digital, beverage and food innovation, and store experiences. These investments are driving and strengthening our global business and setting us up for even greater success in the future. Starbucks longstanding view is that our partners guide this company and we applaud other like-minded companies who are following our lead. Starbucks has stayed at the forefront of investing in our people since we opened our first store in the Pike Place Market in Seattle in 1971.
We offered paid company healthcare 25 years before the Affordable Care Act, equity ownership in the form of Bean Stock to eligible part time partners, free college tuition through the Starbucks College Achievement Plan with Arizona State University and mental health support through our partnership with Lyra. Investing in our people is the cornerstone of our storied 50-year history and tradition. And these investments continue to deliver real measurable value to our partners, our customers and our shareholders. I'll be providing granularity around the incremental partner investments we made beginning last year and the additional partner investments we will be making in fiscal '22 in a moment.
On today's call, I will highlight Q4 performance in our key markets and provide detail around some of our actions and investments since the pandemic first surfaced in Q2 of 2020 that are contributing to our performance today and setting us up for accelerated growth in the future. I'll also open a window on our exciting holiday plans and several initiatives that we'll launch over the near term. Then I'll turn the call over to Rachel to provide a deep dive into our Q4 and fiscal year performance and share our guidance for fiscal '22. We'll then move on to Q&A.
Over the last 18 months, Starbucks, like most global retail operators, has been confronted with a seemingly never-ending wave of consumer and business headwinds. Many businesses in our space have not survived. From day one of the pandemic, Starbucks leaders around the world were determined to use the company's size and scale to navigate whatever challenges lie ahead with steadfast commitment to our people, our mission and values. A set of principles guided us through the pandemic. Every decision was rooted in our core purpose and reason for being.
These decisions have made the Starbucks of today stronger and better positioned to profitably grow, extend our coffee leadership around the world and create more value for our shareholders more than ever before in our history. Last year, we made significant pandemic-driven strategic investments, including providing our partners with financial support and economic certainty, avoiding layoffs, while most of our stores were temporarily closed and accelerating our U.S. store portfolio transformation by opportunistically repositioning 500 stores to better locations with more favorable economics.
This last point, we expanded our portfolio of drive throughs, introduced new store formats to meet our customers where they are and turbocharge growth in our digital customer relationships in the U.S. and China. As a result of these successful investments, we are entering fiscal '22 with strong momentum around the world. In the U.S., our largest global market, our key growth driver is comparable sales. We grew a strong two-year comp to 11% in Q4 despite variance across the country that created a dynamic set of city by city COVID restrictions, which we had to navigate. We made significant progress addressing supply chain issues and experienced an overall improvement in inventory availability as we move through the quarter by increasing production at existing suppliers, onboarding new suppliers and strategically prioritizing key holiday and Q1 merchandise.
While we made significant progress addressing supply chain challenges as fiscal 2021 progressed, we remain cautious and vigilant as we enter fiscal '22 given the dynamic nature of the situation. The recovery in Q4 surged forward as evidenced by the sequential acceleration of two-year comp growth. We exited Q4 with even stronger 14% two-year comp growth in September and closed to a record average ticket, driven by the strength of our fall beverage lineup, a shift in customer behavior towards more premium beverages and strong food attach.
We have great confidence for the year ahead given the comp momentum throughout the quarter, combined with holiday plans certain to excite and delight our customers and increasing consumer demand around the world today for everything Starbucks. Yesterday, we made an important announcement to raise wages across the U.S. in fiscal '22 to ensure we continue to attract and retain talented partners as consumer mobility continues to increase. We believe this investment, combined with our industry-leading benefits program, will enable us to remain an employer of choice. This builds on a historic partner investments and meaningful wage increases we made in fiscal year '21 and prioritized a significant additional investment to address inflation and wage compression that our 10-year partners have experienced, while also increasing our wage floor.
In December 2020, I announced our intention to provide a starting wage of at least $15 an hour for our store partners across the country. And by the summer of '22, we will have delivered on that plan. Effective in January, partners with two or more years of service will get up to a 5% raise and partners with five or more years will get up to a 10% raise, in keeping with our long-standing history of investing in our partners. And next summer, hourly partners in the U.S. will make an average of nearly $17 an hour with Barista rates ranging from $15 to $23 an hour across the country. In total, the FY '21 and FY '22 investments represent approximately $1 billion in incremental annual wages and benefits.
We continue to build a great and enduring company by investing ahead of the growth curve, not just in wages, but in training and technology and the overall Starbucks experience for both our partners and our customers. And as we have seen in the past, we expect investment in the partner experience will be accretive to profits over time. We believe the U.S. market is at a unique inflection point. Stakeholders and companies whose leaders correctly identify emerging trends, thoughtfully shape strategic action and invest in the future, will be big winners over the long term. In the quarters ahead, Starbucks will continue to target investment in high returning assets that we believe will accelerate our double-digit growth at scale model, driving long-term, sustainable and profitable growth.
We continue to build and leverage our technology first mobile and digital capabilities and accelerate growth in active Starbucks Rewards membership. We grew our 90-day active Starbucks Rewards members representing our most loyal and engaged customers by approximately 30% in fiscal year '21 to 24.8 million members. Noteworthy is that in Q4, 51% of U.S. tender for company-operated stores was generated by this loyal customer base. We continue to nurture and deepen our direct personalized digital relationship with our members with enhancements to the program like Stars for Everyone to expand reach and through payment partnerships with PayPal and Bakkt, where a customer can now reload their Starbucks card with a range of cryptocurrencies including Bitcoin, Ethereum and others by converting digital currencies to physical currency and reloading their Starbucks card.
Through blockchain or other innovative technologies, we are exploring how to tokenize Stars, create the ability for other merchants to connect their rewards program to Starbucks Rewards. This will enable customers to exchange value across brands, engage in more personalized experiences, enhance digital services and exchange other loyalty points for Stars at Starbucks. An example of this innovation is evident in the recent launch of our Canadian loyalty program with Air Canada.
Over the next year, you will see the first instance of this loyalty points exchange with other consumer brands. This approach will also serve as a foundation for a more aspirational concept for new, modern payment rails that align payment expenses with the value received by customers and merchants. We intend to be at the forefront of this disruptive innovation, which will unfold over the next few years. Finally, a rich pipeline of innovation will elevate the Starbucks experience in our stores and drive in-store productivity gains. Examples include our Mastrena 2 espresso machines that more efficiently pulls triple shots of high quality espresso. Our Deep Brew, artificial intelligence platform that has automated daily inventory management and store staffing and training improvements designed to reduce complexity in our stores.
Simplifying this workflow helps reduce the strain on our partners, resulting from the ever increased demand in our stores and enables our partners to connect and engage with our customers, which is at the heart of the Starbucks experience. Starbucks is entering fiscal year '22 with strong customer demand and solid momentum in our U.S. business and expanding and accelerating in-store channels and digital flywheel and green apron partners eager to deliver an elevated Starbucks experience to their customers. Having navigated through so many challenges over the past year, we are excited and optimistic about the year that has just begun, while remaining humble and mindful of unknown challenges.
On to China. Starbucks China extended our market leadership position in Q4 despite pandemic-driven disruptions, propelled by an accelerated pace of store development and significant growth in digital customer relationships, all while achieving record customer engagement scores in the quarter and in the year. Starbucks has built one of the most respected consumer brands in China, with one and two consumers preferring Starbucks to any other brands in away from home coffee.
Our growth strategy in the market continues to differentiate us and position us well for the long game. We continue to invest meaningfully in all aspects of our China business, including accelerated investment in our partners, the creation of award-winning, experiential store designs, unprecedented benefits like healthcare for partners and their parents, rent assistance and programs that offer career paths for young people from rural and remote provinces. Together, these investments further elevate the Starbucks brand and partner experience. We instill pride in our China partners and deepen our customer engagement and connection.
Starbucks continues to be in a strong market expansion cycle and as such, much of our growth in China comes as we aggressively expand our store footprint and introduce more customers to the Starbucks experience. We expanded the store footprint with 225 net new stores in Q4 and we are going deeper and broader, deeper into existing cities and broader by opening in new cities. For the full fiscal year, we opened a record 654 net new stores and ended the year with 5,360 stores in 208 cities throughout China. As we noted on our Q3 earnings call, our recovery in China will not be linear.
In Q4, we experienced COVID related restrictions that constrained customer mobility in 18 provincial level regions. At its peak in mid-August, approximately 80% of our stores in China were impacted by the pandemic with some stores fully closed or operating at different levels of elevated public health protocols, such as mobile ordering only, limited seating or health stations. Our recovery momentum was below expectation and pushed our two-year comps to a minus 10% in Q4. Cities with local COVID cases were impacted the most with stores relying on transportation and tourism also materially impacted during the quarter.
Notably though, much like the U.S., China two-year comp also accelerated in the month of September as we remain optimistic for the recovery. Despite these strong headwinds, China grew revenue 11% year-on-year. While our overall reported comp growth was minus 7% for Q4, if we exclude the lap of a bad subsidy we received in fiscal year '20 along with the stores and cities that experienced local COVID cases or were in transportation and tourism zones, our core fleet of stores comp was positive. Starbucks business and operating margins remained strong and our commitment to China and our confidence in our long-term growth strategy in China is unwavering.
In addition to expanding our portfolio of stores in China, we also expanded our digital footprint of 90-day Starbucks Rewards active members, reaching an all time high of 17.9 million in Q4. This represents a sequential increase of 5% over Q3 and an increase of 33% over prior year. Frequency of purchases by our Gold members remained at pre-pandemic levels despite the mobility limitations in the quarter, demonstrating the effectiveness of our efforts in up leveling member engagement. One example was our Start Dash gift with purchase campaign. This successfully lifted member frequency and spend and evolved into a highly anticipated activity for members to earn limited availability to Starbucks 50th anniversary merchandise. With operations heavily impacted by COVID-related safety restrictions in the quarter, we are laser focused on what we can control in China, while continuing to elevate our partner and customer experiences to further elevate the Starbucks brand and build on a loyalty that will continue to drive our long-term growth.
Including the U.S. and China, Starbucks presence in 84 markets around the world provides us with a unique perspective on the global recovery from this pandemic. There is no doubt that we are seeing continued recovery in our markets. Latin America grew system sales by 113% in Q4, driven by a strong recovery in Mexico. EMEA posted system sales growth of 52% in the quarter and Japan navigated through a challenging quarter turning the corner towards renewed growth. We see positive signs in many other markets, as well as reinforcing our belief, that pandemic related headwinds are temporary. In addition, our strategic channel partnerships with the North American coffee partnership with PepsiCo and our Global Coffee Alliance with Nestle are on plan and have propelled Starbucks to number one share positions in the U.S. and throughout many other markets around the world, further underscoring the strength and resilience of the Starbucks brand and illuminating the decade long runway of growth ahead.
As we enter fiscal year '22, we are fully prepared for a record breaking holiday with strong growth plan around the world and a holiday campaign designed to build genuine human connection as only Starbucks can, at a time when human connection is more important than ever. In addition to new and iconic seasonal products, we are integrating brand building and transaction driving marketing programs to demonstrate our values and touch our customers' hearts. We're prepared with inventory this holiday and we are also anticipating that nearly $3 billion will be loaded on Starbucks Cards this season by leveraging our digital and out-of-store distribution channels and creating a promotional presence in drive through lanes where we have seen significant channel shift during the pandemic. We are ready for this holiday.
In closing, Starbucks strong performance through the recovery is a direct result of the hard work and dedication of our partners, as well as the investments we made both before and during the pandemic. We remain confident in our future and steadfast in our commitment to deliver long-term value to all stakeholders. This confidence supports the plan we announced today to return $20 billion to shareholders over the next three years through dividends and share repurchases. I'm particularly pleased that hundreds of thousands of Starbucks partners, who are also Starbucks shareholders through our Bean Stock program will also benefit from this plan.
50 years ago, Starbucks was founded as a different kind of company, a company that would balance profit with social conscious and embrace the ideal they're doing good for one another and for society, would actually be very good for business over the long term. Our performance in 2021 demonstrates the wisdom and correctness of that founding principle. As we enter our second 50 years, we continue to honor our history and heritage just as we boldly re-imagine our future.
And with that, I'll now turn the call over to Rachel. Rachel?
