Howard Schultz
Chief Executive Officer, Interim at Starbucks
Thank you, Tiffany. I did not expect that. Thank you very much. Good afternoon, and welcome, everyone. I'm pleased to comment on the strong financial and operating results Starbucks reported today, highlighted by record quarterly sales of $8.7 billion, up 8% over last year, up 12%, excluding foreign exchange, a stunning 10% comp growth in the U.S. and North America, 5% comp growth globally. And except for China, very strong sales and comp growth in every international market we are in. We posted strong results despite challenging global consumer and inflationary environments, a softer quarter for retail overall and an unprecedented COVID-related headwinds that unfolded in China.
Credit belongs to our partners around the world who continue to successfully satisfy record demand in our stores while delivering an elevated Starbucks Experience to our customers. In China, COVID-related mobility restrictions and a spike in COVID infections following the end of zero COVID resulted in comp sales of minus 29% for the quarter, 4x worse than what we expected. Weak sales combined with the cost to support the health, the safety and well-being of our partners, our first priority, negatively impacted total company earnings by $0.06, resulting in Q1 EPS of $0.75 per share. Despite short-term headwinds, we are confident that the end of Zero COVID marks the beginning of China's emergence from three years of pandemic, puts the country on a path to reintroducing normalcy and routine back into people's lives and positions the country to resume pre-COVID levels of consumer, social and economic growth.
We also believe at the end of Zero COVID will enable renewed consumer activity in China and recovery of our business in the back half of fiscal 2023. Our view is informed by patterns of post-COVID behaviors we have seen in countries around the world as consumer activity accelerates as years of pent-up demand is released. Today, our stores in China are again open without restriction and our partners are back at work. Many have been infected and recovered from COVID. Noteworthy is that we saw a meaningful sequential improvement in sales and traffic as we move through January as people began resuming aspects of their pre-COVID lives, including gradually returning to our stores. More on China shortly. Our performance in Q1 underscores the success of the investments we are making in our people in extending our global leadership around everything coffee and in relevant innovation that together are driving sales and transaction growth around the world.
Starbucks is more relevant globally today than ever before in our history, ideally positioning us to successfully execute our ambitious growth agenda and have roughly 45,000 stores delivering best-in-class returns around the world by the end of fiscal 2025. On today's call, I will highlight the drivers of our performance in Q1 and provide an update on the progress of our reinvention initiatives. I will then provide granular details specifically around the shape of our business in China and shine a bright light on the positive correlation between increases in consumer activity in China and the recovery of our business. Next, Brady will detail the beverage, food, mobile, digital and store innovation that drove record demand for Starbucks Coffee in every market outside of China in Q1. And he will speak to our record holiday performance, the strong growth in U.S. Starbucks Rewards membership sequentially and year-over-year and the extraordinary record of $3.3 billion loaded on cards and gifted in the U.S.
We entered Q1 with roughly $2 billion globally waiting to be spent in our stores, increased Starbucks Rewards membership and card loads serve as both a current annuity and the future driver of our business. And then finally, Rachel will highlight our Q1 financial and operating performance and speak to the confidence we have in our full-year 2023 guidance despite the significant impact from China, and we'll turn the call over to the operator for Q&A.
Let me begin with North America. The record demand for Starbucks Coffee in North America, we've reported on our Q4 call accelerated in Q1 and through holiday. Despite the difficult operating environment that most retailers, particularly brick-and-mortar retailers experienced in the quarter. Average weekly sales in the U.S. company-operated stores reached a record high in Q1, exceeding the prior record set in Q4 of fiscal '22.
This is -- this next line, I think, is just -- even when I read it, I'm surprised, with eight of the 10 highest sales days in our history recorded in the quarter. Consistently strong demand drove revenues up 14% to a quarterly record of $6.6 billion and a comp sale of 10% over last year. And Q1 momentum has continued in Q2. Active Starbucks Rewards membership in the U.S. exiting Q1 totaled over 30 million members, up four million members or 15% over last year and up 6% sequentially. Loyal Starbucks Reward members drove a record 56% of tender, up 3% from last year, reflecting increased customer engagement throughout our system. Our convenience channels, Mobile Order & Pay, drive-through and delivery continue to fuel our business, delivering 72% of U.S. revenue in Q1.
We continue to add high returning drive-throughs that attract new customers, expand our footprint and drive new customer occasions. Our over 6,600 store U.S. license business posted similar strong results with 32% revenue growth and double-digit comps across all operating segments. What's interesting to me is while grocery retailers are representative segment within our licensed business experienced traffic and spend related headwinds across their store base in Q1, their Starbucks business proved to be the bright spot bringing incremental traffic into their stores and driving sales for us as well. We continued to roll out Starbucks Connect enabling licensed stores to offer all Starbucks Mobile Order & Pay and Rewards benefits, expanding the value offering we provide our customers and licensees and enabling us to capture demand across our broader store portfolio.
Starbucks Connect is proving to be highly incremental, and we see great upside for it. Cross-functional teams continue to successfully execute against our reinvention initiatives and our reinvention investments are having a measurable positive impact on our business, evidenced by an 8% improvement in U.S. hourly retail partner turnover. Improved turnover correlates to more stable store environments, elimination of new hire-related costs, particularly training and measurable improvements in productivity, speed of service and partner customer experience scores that we're already seeing. Our Q1 performance demonstrates that our reinvention plan investments are the right investments that we are making and are delivering results and creating shareholder value, providing us with tremendous confidence in the revenue, margin and EPS expectations that we shared at our Investor Day.
Let me turn to international. Outside of China, the momentum we saw in our International segment exiting Q4 continued in Q1. Excluding China and foreign currency translation, revenues for the quarter are up 25% and comps were up 11%, fueled by recovery consumption in Japan and a rebound in tourism activity across our EMEA markets, following the lift of COVID restrictions. One great example is Alshaya. Alshaya is our license partner in the Middle East for the last 23 years and among our largest international licensees with over 1,800 stores across 13 markets. They reported their strongest quarter with the Starbucks brand ever in Q1. We added 370 new stores in international in Q1 and now operate 18,700 stores across 84 markets, 43% company-operated and 57% licensed.
Strong growth in our international license business reflects the outside returns the Starbucks brand delivers to our licensees, driving increased investment by our licensees in our business and growing customer engagement with our Starbucks brand around the world.
Turning to channel development. The Starbucks brand relevant innovation and seasonal moments are resonating with our customers and driving sales and occasions around the world, resulting in a 15% increase in channel revenues in Q1 over last year to $478 million. We continue to hold the number one dollar share in U.S. at-home coffee and in Q1 outpaced dollar sales growth in North America ready-to-drink category overall, again demonstrating the unique power of the Starbucks brand. In China, Starbucks received the ready-to-drink new product launch of the Year award for the introduction of Bottled Frappuccino Oat Latte. We will continue to delight our customers with exciting new beverage innovation in the months ahead, including with the launch of Starbucks ready-to-drink Pink Drink inspired by the overwhelming success of Pink Drinks served in our retail stores and certain to become a customer favorite, especially with our young customers and our Gen Z audience.
Let me begin the discussion around China by saying that Starbucks has been in China now for over 24 years, and that our confidence in the future of Starbucks business in China and our aspirations for the market and our partners has never been greater. We exited Q1 with almost 6,100 Starbucks stores across 240 cities, and our newest class of stores continue despite the challenges we've had to achieve best-in-class returns and profitability. And we remain on plan to have 9,000 stores in China by the end of 2025. Our belief in China is based on our leadership position in the market, our relationship with our partners and the trust that we have among our Chinese customers and the market and our brand position. Since 2020, our Starbucks China team has been navigating the most acute COVID-related mobility restrictions and disruptions anywhere in the world, while at the same time, developing the flexibility to execute under any COVID scenario.
By leading in together in service of their customers and fellow partners, our China team has navigated every challenge obstacle and volatility that COVID had put in their way, building more capability, flexibility and operating muscle with each unexpected test. That flexibility and operating muscle, coupled with deliberate investments that we've made throughout the pandemic, supported our business in Q1 and will increasingly drive efficiency, productivity, profitability and shareholder value and enable us to deliver an even more relevant and elevated Starbucks experience to our partners and our customers in the years ahead. As I shared on our last call, our recovery in China gained momentum in Q4 of 2022 despite severe mobility restrictions in many of our larger cities. We saw sequential improvement in all key operating metrics driven by the success of mobile and digital technology investments and expanded delivery capabilities built during COVID that made it easier for our customers to engage with us and better enable us to serve them.
The direct positive correlation we saw between increased consumer activity in China and sales in our stores and the speed and consistency with which our business was accelerating, gave us great confidence moving through the quarter. However, in September, a new wave of COVID spiked resulting in further increased mobility restrictions, new mobile, digital and delivery capabilities enabled us to partially offset the reduction in store traffic in September. However, in early December, Zero COVID was lifted and COVID infection spiked across China, resulting in a dramatic decline in consumer activity across the country and causing the most severe COVID disruptions any retailer had encountered. For us, at its peak, nearly 1,800 Starbucks stores were closed during that month. As a result, comps in Q1 declined 29% with a 42% comp decline in December alone.
But like consumers everywhere, our customers in China are creating a full return to familiar pre-COVID routines and lifestyles and huge consumer demand in China is waiting to be unleashed. Early indications are that it is beginning to happen in our largest cities now with many Chinese recovered from COVID, people returning to work, border and travel restrictions lifted, mall traffic and retail store activity on the rise and consumers reintroducing social activity back into their daily lives. We saw the strongest level of sustained customer activity we've seen in years in the run-up to and during Chinese New Year festivities. As Rachel would share, we are expecting the second half of fiscal 2023 in China to be stronger than the first half but uncertainties remain and the better part of valor is to remain cautious around precisely when our recovery in China will take full flight.
However, when it does, pattern recognition, the return on pre-COVID routines and the adoption of new post-COVID routines will become self-evident in China, and customers will flock to Starbucks stores to enjoy moments of reconnection their favorite Starbucks beverages and the premium Starbucks experience our partners in China deliver. And Q1 headwinds will shift to tailwinds. We've seen this pattern repeat in markets around the world, including the United States. Despite the challenges and the uncertainties of the last three years, Starbucks' commitment to China and to our partners and business in China has never wavered. Almost 25 years after entering the market, I remain more confident than ever that we are still only in the early chapters of our growth story in China, and I'm looking forward to being with our China partners for the first time in years when I visit the country this Spring.
Laxman's immersion continues to go spectacularly well. He and I engage daily as he absorbs more about our company and business and he wins the hearts and minds of Starbucks partners everywhere. Only weeks from now, Lax will take full control of the company and together with our leadership team, bring reinvention to life, guide Starbucks into a new era of growth and begin writing the next chapters of our storied history. I cannot be more confident that Lax is the right CEO at the right time for Starbucks. And Starbucks Coffee Company domestically and around the world is in great hands with him as the CEO.
This -- my last earnings call is very special for me and a powerful emotional reminder of the intersection of my life at Starbucks. It was 1983, walking the beautiful streets of Milan at the inspiration for what Starbucks could one day be and made first struck me.
40 years later, I'm not sure where the years have gone. 40 years later, we have over 36,000 stores around the world, serving over 100 million customers each week. Along the way, we have created opportunity, cared for and improve the lives of millions of Starbucks partners and made progress against my goal of creating a different kind of company, a company steeped in humanity, humility and respect, where everyone is welcome, and we embrace the belief that our differences make us better and stronger. And a company unlike any company, my father ever got a chance to work for, but there's much more opportunity and much more work ahead. Finally, while Starbucks has launched many successful coffee beverages over the years, my Starbucks journey will come full circle when I return to Milan later this month to introduce something much bigger than any new promotion or beverage.
While I was in Italy last summer, I discovered an enduring, transformative new category and platform for the company, unlike anything I had ever experienced. The word I would use to describe it without giving too much away is alchemy. We won't unveil details today, but it will be a game changer, so standby. Many people have asked me if my final earnings call as Starbucks CEO is bitter sweet, it really isn't. Starbucks business and brand, the quality of our coffee, the relevance of the Starbucks partner and customer experiences have defined us since our founding in 1971 and have never been better or stronger. And our future has never been brighter. It will be my pleasure to take a front row seat as Laxman leads Starbucks into and through the exciting new era of growth ahead.
With that, I'll turn the call over to Brady.
