Laxman Narasimhan
Chief Executive Officer and Director at Starbucks
Thank you, Tiffany, and thank you all for joining us this afternoon. I will start by sharing an overview of our business performance in our first quarter of fiscal 2024. I will then turn it over to Rachel Ruggeri to walk through the detailed segment results.
We saw strong momentum in a highly successful holiday in the quarter with record revenue and expanded margins. We saw strong growth in our loyalty programs, sequentially increased in frequency and record spend among our loyal customers, positive traction from new product innovations, exciting momentum in China with our focus on premium, and progress on the execution of our Triple Shot strategy. We also saw some unexpected headwinds, which impacted the rate of growth. We feel very confident about our robust plans to address these challenges. While we are already seeing traction, there was an impact in the quarter, and it will take some time to normalize.
Let me walk you through the details. Our performance in the quarter was fundamentally strong. Our Q1 total Company revenue was a record $9.4 billion, up 8% year-over-year. Our global comparable store sales grew 5% year-over-year, supported by a 5% comp growth in North America, driven by 4% ticket growth and 10% comp growth in China. Our global operating margins expanded by 130 basis points to 15.8% and our overall earnings per share grew 20% to $0.90. This speaks to the continued successful execution of our reinvention plan and the durable business we are building.
We are fortunate to have built one of the strongest brands in the world, and we continue to benefit from customer loyalty. Throughout the quarter, we saw our most loyal customers around the world coming into our stores more often. Specifically, in the U.S., we set new records with our 90-day active Rewards members growing 13% year-over-year to a record 34.3 million, with tender reaching an all-time high of 59% demonstrating increased engagement. Importantly, the frequency of our most loyal customers increased sequentially, and spend per member reached a record in Q1 fueled by our holiday promotion, which significantly exceeded our expectations.
Our cold and Gingerbread platforms drove a record high ticket in the U.S. in the quarter. We also had the highest sales of Starbucks Gift Cards in our history, making us number two in gift cards sold. In total, we have an incredible $3.6 billion preloaded onto our cards in the U.S. in the quarter. In short, our growing Starbucks Rewards members are visiting our stores more frequently and increasing their spend each time that they come.
We also saw great momentum in China. We aim to be the best in the premium market in China. Our brand equity across Starbucks and Starbucks Reserve is second to none. Based on our latest brand tracker, Starbucks continues to be the first choice in away-from-home coffee, including among the Gen Z consumers. We continue to lead in brand affinity and have the highest awareness, brand familiarity, and purchase intent scores. We have the most outstanding partners in our stores with very strong customer connection and the highest retention rates in our industry. We offer distinctive global and locally relevant product innovation anchored on superior coffee with food attachments and a morning daypart that now have surpassed pre-COVID levels.
Our loyal customers, a major part of tender, are coming more often and our loyalty program is growing. We're doing all of this while offering premium physical and digital experiences delivered across our distinctive store portfolio across other physical channels and through our digital connection and doing so at a commensurate value. This ambition of being best in premium in China is in line with our long-term growth ambitions for China.
Let me now talk about the headwinds and our response. We entered the first quarter very strong globally. We had great momentum in August and September, and that continued into October, which exceeded our expectations across every measure. Beginning in mid-November, while our business continued to grow, the growth rate was impacted by three unexpected factors.
First, we saw a negative impact to our business in the Middle East. Second, events in the Middle East also had an impact in the U.S., driven by misperceptions about our position. Our most loyal customers remain loyal and in fact, increased their frequency and spend in the quarter. But we did see a softening of U.S. traffic. Specifically, our occasional U.S. customers, who tend to visit the afternoon, came in less frequently. I will speak in a moment as to how we quickly responded with an effective action plan. Finally, we experienced a slower-than-expected recovery in China, driven by a more cautious consumer. While we had a relatively very strong Double 11 holiday, the overall market weakness led to significantly increased pricing competition.
We responded quickly to these headwinds. In the U.S., we implemented targeted offers aimed at bringing our occasional customers into our loyalty program. As we've seen over time, Starbucks Rewards members develop a routinized long-term relationship with our brand that increases both ticket and transactions. Additionally, we activated new capabilities within our proprietary Deep Brew data analytics and AI tool to identify and incentivize specific rewards members cohorts. Finally, we are leaning further into our brand, marketing and factual narrative, and social media to engage these audiences where they are.
We've already seen the positive impact of these new initiatives with our more occasional customers beginning to rebound in December. However, we continue to see further opportunity to welcome back our very occasional customers. We feel good about the trajectory over the course of the quarter, but it will take time for our plans to be fully realized.
In China, we remain very confident in the long term. The market is going through a transition as we see an increase in mass market competitors, which we believe will shake out over time, and the market will emerge looking fundamentally different than what we see today. We expect a much larger and tiered market as per capita consumption continues to increase and the market matures. There are three key elements in our China strategy.
First, we are offering more coffee forward, locally relevant product innovations and we're increasing engagement in social media channels to influencers and partnerships, which are highly effective in China. These actions are increasing awareness and have led to greater customer frequency. Second, we have made significant investments in technology, increasing our omnichannel capability, allowing us to serve more customers through new occasions. These investments have also led to a more digitized store environment, increasing efficiency of our supply chain and stores while enhancing the partner experience and strengthening our unit economics in both existing and new stores.
Finally, we're increasing the percentage of new stores opening in lower tier markets and new county cities where we see meaningfully stronger new store economics. As you can see, we moved quickly to respond and implement a plan to address these unexpected headwinds. It will take time for these action plans to be fully realized. That said, we remain confident in our Triple Shot strategy and our long-term growth. So let me share some of the progress in the quarter. Our first Triple Shot Reinvention priority is to elevate our brand by operating great stores and driving product innovation. The best lever for elevating our brand is our store experience. We continue to raise the bar on running great stores with a focus on enhancing both our partner and customer experience. One example is the continued rollout of our Siren System cold and food stations. We remain on track to have approximately 10% of our stores equipped with a Siren System by the end of this year. We are a coffee Company, and we will continue to lead with coffee innovation. We're continuing the installation of our Clover Vertica in nearly 10% of our U.S. Company-operated stores in the quarter.
We are on track to have on-demand single-cup brewers installed in nearly 60% of our U.S. Company-operated stores in fiscal year 2024. This will continue to elevate our coffee offering while also making partners more productive by reducing waste and creating efficiencies in store, allowing them to spend more time doing what they do best, connecting with our customers. Just imagine a perfectly brewed on-demand cup of coffee at any time throughout the day, even decaf. This quality and the offering are like no other in the industry.
We also continue to offer coffee blends, which are distinctive and remind people of the romance of coffee. Our Verona blend is anchored in the essence of Verona, Italy. It was our tribute to the city of romance in Italy. In celebration of our 5 years in Italy, we will introduce a new coffee, Starbucks Milano Roast inspired by the art and culture of Milan. Milan's Me Art, an international modern and contemporary art fair, is the perfect backdrop to a launch in our Milan Roastery that will then scale globally. The moment will capture a love of coffee, the passion of our partners, and the dynamism of Milano.
Today, we are excited to launch the Oleato platform with Oleato customizations across the U.S. In the coming weeks, we will also launch a chocolate-covered strawberry Crem Frappuccino and a chocolate hazelnut cookie, cold brew in time for Valentine's Day. Starting this week, and continuing over the next few months, we will be introducing three new beverage platforms, each of which is squarely aimed at our Gen Z and millennial customers across the range of coffee and core beverages and compelling for the afternoon. These product innovations are examples of how we continuously elevate the brand and welcome customers back with a unique Starbucks experience.
We're also offering new and exciting options beyond coffee, including food that appeals to different dayparts, especially the afternoon. In January, we added new menu items, including the Potato Cheddar and Chive Bakes and the Chicken Maple Butter and Egg Sandwich. These are products that tide our customers over between lunch and dinner. Importantly, our digital experience makes attaching food to afternoon drink orders easy and convenient. We've seen a very positive customer response to these new items, and we are expanding inventory to meet the strong demand.
We're also pleased with the pace of our new store openings and strong unit economics. Our most recent age of class of Company-operated new stores in the U.S. is average unit volumes of approximately $2 million with ROIs of approximately 50%. And as we continue to open more stores, growing by approximately 4% this year in the U.S. on a base of over 16,000, including licensed stores, we will further invest in purpose-built stores to meet our customers where they need and want us to be. This includes drive-throughs, which have grown by over 500 stores since Q1 of last year.
Even in the U.S., we see abundant greenfield opportunity ahead. Our second strategic priority is further strengthening and differentiating our leadership position in digital. We saw our mobile order and pay surpass a record high 30% of all transactions in the quarter, and we reduced downtime of mobile order and pay by half as we continue to find ways to deliver better customer experience. We'll continue to make the Starbucks app even better, including adding the ability to use a personal cup in ordering through the app and the rollout of more accurate order wait times. We're also laser-focused on ensuring our customers can personalize their orders in whatever way they want. One example is helping customers find products based on dietary needs.
We saw record results in our U.S. delivery business of growth of nearly 80% year-over-year, aided by our expanded partnership with DoorDash. We see significant growth for continued incremental growth as delivery represents only 2% of our transactions. Our purpose-built stores optimized for delivery and fulfillment help seize this opportunity. Additionally, we are conducting a pilot with Gopuff targeting a fully incremental opportunity for overnight orders between 5 p.m. and 5 a.m. In this pilot, Starbucks trained Barista's proper handcrafted Starbucks drinks and food inside Gopuff micro fulfillment centers, delivering to the customer's door in about 30 minutes.
To further expand the reach and impact of mobile ordering and rewards, we now offer Starbucks connecting over 40% of our more than 6,700 U.S. licensed stores, with further expansion planned for this year. We're also pleased to share that Bank of America will be our next Starbucks Rewards partner, delivering even more value to our most loyal customers. This opportunity builds the great success of our partnership with Delta Airlines that has deepened connection and engagement with our members and is one of two new Starbucks Awards partnerships we told you we would roll out this year.
Our third strategic priority is becoming truly global. Our international business represents an important growth opportunity for us over the long term. If you look at our business, excluding the headwinds, we had a strong quarter, demonstrating the momentum and resiliency across the portfolio. We opened over 420 net new stores in the quarter, a growth of 10% year-over-year, bringing total store count to over 20,600 stores with nearly 14,000 of those stores outside of China and the U.S. In Japan, we reached a milestone of 1,900 stores across the market with much opportunity ahead.
Let me address our business in the Middle East. I am deeply distressed by the violence shaking the region. As I have shared, Starbucks condemns violence against the innocent, hate, and weaponized speech. We are intensely focused on supporting our partners and the many other stakeholders affected by what is taking place. We have seen a significant impact on traffic and sales in the region and we are working with our licensees during this time to ensure the safety and well-being of our partners and our customers.
I shared earlier in my remarks how we are addressing the near-term situation in China. Overall, our business and brand in China remains strong. Our revenue in the quarter grew 20% in constant currency underpinned by a 10% increase in comparable store sales growth as the market lapped prior year mobility restrictions. As we strengthen our position in the premium market in China, let me point to a few accomplishments of the quarter. We launched 12 new coffee forward beverages in the quarter, including Intenso, which was incredibly popular with our customers, including Gen Z, fueling the morning daypart, which is now larger than pre-COVID levels.
Our digital channels accounted for a record 52% of sales, up 4 percentage points quarter-over-quarter. Our Starbucks Rewards gold member frequency increased by nearly 10% over the prior quarter, with total member engagement setting a record 73% of tender, demonstrating the stability of our most loyal customers. Our new stores continue to deliver attractive returns on both the top line and profitability with further strengthened unit economics in stores opened in new county cities. And our turnover amongst full-time store partners reached a record low in the quarter, coupled with an all-time high partner satisfaction score.
Early this month, we celebrated our 25th anniversary in China. With nearly 7,000 stores, we have built a durable business. We have built a terrific brand, and we are well on track to hit our 9,000 store target by 2025 and continue to have full confidence in the market opportunity. We continue to see enormous potential in China's premium market, and no one is better positioned to lead in this space.
Even as we navigate a dynamic environment, we remain confident in our long-term growth in our International segment. As part of elevating our brand across the International segment, along with a second Reserve store in India, we will open two additional Starbucks Roasteries that celebrate coffee, art, and design in markets outside the U.S. and China. We will announce these locations and opening timings in due course.
Turning to our fourth priority. We're focused on unlocking $3 billion in efficiencies, and I'm pleased to say that we're making steady progress. Our Triple Shot Reinvention efforts delivered 130 basis points of margin expansion in the first quarter of the fiscal year. As you heard me say often, the key to our success is the experience that our partners create for our customers. We're investing in a better experience for our partners to advance our business to a more balanced growth model as we unlock efficiency. In the quarter, we have seen the effectiveness of the Reinvention driven investments we have made in in-store operational efficiencies such as standards, equipment innovation, and scheduling improvements, leading to a more stable environment for our partners.
Turnover has decreased by 5% year-over-year and is now well below pre-COVID levels. Average partner hours increased 10% leading to a 14 percentage point increase in partner sentiment related to scheduling, specifically preferred hours, which we know is important to partners. We are listening to our partners and investing to make their experience better. Of course, we have more work to do, but we are proud of the progress we have made today. Outside of our stores, we're working to drive efficiencies across our supply chain and expenses. I am pleased with the progress, and we remain on track to unlock $3 billion dollars of efficiencies over the next three years.
Our final priority is reinvigorating our partner culture. In addition to the investments in partner experience, we're focused on partner culture. Our leadership team and Board of Directors have been deeply engaged in putting the partner experience at the heart of the business. An independent assessment found that our strategic investments, greater on-the-ground support, a dedicated labor relations team, and more bespoke management trading are having a tangible impact on the commitments we have made to our partners. The assessment was also clear that there has been no Union-busting playbook at Starbucks.
I want to be clear in my view on the matter of unionization at Starbucks. We believe in a direct relationship with our partners. Adding the 4% of our stores in the U.S. where our partners have chosen to be represented by a union, we are committed to finding a constructive path forward with those unions. I care deeply about our partners, their experiences and safety at Starbucks, and their futures. Our partners remain core to the success of our business, and I am proud to be restitching the fabric of the green apron for all partners. Going forward, we plan to continue to focus deeply on reintegrating our partner culture. It's a priority for me, and I'll continue spending time each month working up close shoulder to shoulder with partners in stores.
I did this during my visit to India earlier this month, and I will continue doing it to stay grounded in the realities of the business, good and not-so-good. I'm also proud to have earned my Coffee Master Black Apron along with my executive leadership team. A deep connection to partners and to coffee is a top priority for me and for every leader at Starbucks.
As we look ahead to what is brewing for Starbucks in 2024, I had great optimism. We have a strong strategy, our refreshed mission, values, and promises are underpinning everything we do. We have many strengths to build on and a clear plan to navigate this dynamic environment. While it will take time, we are confident we have significant headroom to further grow top line and bottom line in the long term and invest in our partners and the business by delivering strong shareholder returns.
Finally, before I turn this over to Rachel, I want to remind everyone that Starbucks is focused on human connection. We stand for belonging. We stand for joy. We stand for humanity. That is what differentiates our brand and our business and has for the last 52 years. We believe this has never been more important in the world.
And with that, Rachel?
