Q1 2021 Starbucks Corp Earnings Call
[music].
Good afternoon, My name is Hector and I will be your conference operator today.
I would like to welcome everyone to today's Starbucks Coffee Company Conference call. All lines have been placed on mute to prevent any background noise.
After a brief introduction we will go directly to question and answer session. If you'd like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press Star then the number two I will now turn the call over to <unk> Vice President Investor Relations you May now begin your conference.
Yes.
Good afternoon, everyone and thank you for joining us today to discuss our first quarter of fiscal year 'twenty one results.
Today's discussion will be led by Kevin Johnson, President and CEO and Pat Grismer CFO.
And for Q&A, we will be joined by Ross <unk>, Chief Operating Officer and group President Americas, John Culver Group, President International Channel development, and global coffee tea and cocoa.
Also present is Rachel with Gerry Senior Vice President Finance for the Americas.
This conference call will include forward looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.
Any such statements should be considered in conjunction with cautionary statements.
This release and risk factor discussions in our filings with the SEC, including our last annual report on form 10-K, and quarterly reports on form 10-Q.
Starbucks assumes no obligation to update any of these forward looking statements or information.
GAAP results in fiscal 'twenty. One include several items related to strategic actions, including restructuring and impairment charges.
Transaction and integration costs and other items.
These items are excluded from our non-GAAP results.
Certain non-GAAP financial measures mentioned in today's call. Please refer to our website at Investor Starbucks Dot com to find their corresponding GAAP measures as well as a reconciliation of these non-GAAP financial measures with their corresponding GAAP measures.
This conference call is being webcast and an archive of the webcast will be available on our website through Friday February 26 2021.
Finally for your calendar planning purposes. Please note that our second quarter fiscal year 'twenty. One earnings call has been tentatively scheduled for Tuesday April 27, I will now turn the call over to Kevin.
Well good afternoon, and thank you for joining us today.
As I reflect on this past year clearly we have all been through a lot.
A lot of trying times in a lot of change.
And at a time when society and all of humanity are a bit fragile.
I am optimistic.
Because this year holds tremendous promise for healing.
I believe Starbucks can play an important role in that healing process, bringing people together to build connected.
Supporting our communities in a positive and responsible way.
And advancing a more equitable and inclusive world.
It was just one year ago. This week that we temporarily closed stores across China.
To protect our partners and customers from the Corona virus.
We quickly realized the need to establish a set of principles for navigating this virus to operate safely and a global pandemic.
And then shared our principles and store protocols with every market around the world.
That approach has served us well.
And I'm proud to say today, our business in China recovered in Q1 in line with our expectations and we remain on track to.
To achieve full sales recovery of our U S business by the end of Q2.
This journey has not been linear.
And because we have operationalized, our ability to monitor events in real time.
And adapt to the changing conditions store by store.
Our recovery continues to track slightly ahead of our expectations.
Since the start of this pandemic.
Being guided by our three fundamental principles.
Our 400000, Starbucks partners around the world have been well equipped with tools resources and support.
To enable quick decision, making at the store level.
The agility with which our partners navigated an unprecedentedly complex global situation.
While caring for each other and for our customers leaves.
Leaves me as confident as ever.
About Starbucks long term outlook.
Last month, when we met for our biannual Investor Conference.
We talked about Starbucks resilience there were three takeaways from that discussion that I want to iterate as we share this quarter's results.
First.
Our growth at scale agenda that we established almost three years ago has sharpened our focus.
Enabled disciplined execution.
Enhanced our ability to allocate capital to its highest and best uses and unleashed a growth mindset throughout Starbucks.
Second.
Our speed and agility have enabled us to rapidly adapt to changing consumer behaviors and strengthened our competitive position.
And third.
We have an innovation agenda for our customer experience and for store transformation that positions us well for future growth.
Now I want to share with you results from Q1 that reinforce our belief that Starbucks is stronger and more resilient than ever.
Let me begin in the U S.
Our first quarter comparable store sales of minus 5% in the U S improved from the prior quarter's minus 9%.
Even with pandemic related business disruption in the latter half of the quarter that significantly reduced our ability to offer in store seeding.
With over 60% of our U S company operated stores offering limited seating as we entered our fiscal Q1.
Comparable store sales improved in October building on the momentum we saw in the prior quarter.
When COVID-19 cases began to surge mid quarter, we adjusted our operations to grab and go in.
In alignment with our principles and in support of regulatory requirements across a number of states we.
We rapidly adapted and ended the quarter with approximately 40% of our U S stores offering limited seating.
Underpinned by our powerful innovation agenda are phenomenal green apron partners delivered a very strong holiday performance in Q1.
Building positive momentum on our path to full U S comp recovery.
Importantly in Q1, we laid a solid foundation for achieving our fiscal 2021 goals by further advancing the three business driving initiatives fundamental too.
Our growth at scale agenda.
Elevating the customer experience.
Driving relevant beverage innovation and expanding digital customer engagement.
I will now share some notable highlights from Q1 and our traffic driving initiatives for the balance of fiscal 2021.
Starting with elevating the customer experience.
We believe that many of our customers have adapted to their work or study from home realities.
Theyre Starbucks visit has evolved from the stop on the way to a destination to be that destination worth leaving home for.
Because it is safe familiar and convenient.
The work, we have done to increase throughput in drive thru.
Expand our digital reach enable curbside pickup and expand delivery capabilities was evident in Q1.
U S stores with drive throughs saw a slight improvement in out the Windows times.
And delivered positive comps throughout Q1.
They drove over half of net sales in Q1.
Increasing more than 10% from pre pandemic levels.
These results give us confidence that our targeted initiatives to unlock capacity and enhance the customer experience at our drive through locations are boosting our business recovery, while strengthening our foundation for future growth.
Our industry, leading mobile App continues to be an important tool for us to elevate the customer experience as a safe convenient and personalized way to order Starbucks.
This quarter mobile orders represented 25% of U S company operated transactions in Q1.
From 17% before the pandemic.
Providing clear evidence that our initiatives are resonating with customers.
We continue to see average ticket meaningfully higher than pre pandemic levels.
Given by group order.
A combination of increased beverage attach premium beverage mix increased customization and upsizing and an all time high food attachment all drove U S ticket growth of approximately 19% in Q1.
In addition.
Our seasonal holiday beverage lineup combined with our creative holiday marketing.
Created excitement amongst our green apron partners and drew customers into our stores.
This year, we kicked off holiday with familiar beverages, such as peppermint Mocha and of course <unk>.
Starbucks, a joyful holiday Cups, a 23 year ritual.
Pumpkin cream cold Brew has tremendous success in last quarter's lineup provided a strong prelude to the December return of the new holiday favorite Irish cream cold brew.
Our cold beverages continued to resonate with customers led by iced White chocolate mocha.
Iced Chai latte, and vanilla sweet cream cold brew.
With all three delivering positive year on year growth.
Food outperformed our expectations in Q1, driven by strength in breakfast wraps the impossible breakfast sandwich and holiday bakery items, such as the Snowman Cookie and of course my grandson's favorite.
Take box.
Finally.
We saw accelerated growth of digital customer relationships and customer engagement, a key highlight of the quarter.
Following our successful launch of stars for everyone in Q4.
Starbucks rewards achieved phenomenal results in Q1.
Providing a strong foundation for growth in fiscal 2021 and beyond.
Our 90 day active Starbucks rewards member base to whom we directly communicate and provide personalized offers increased by $2 5 million members in Q1 to a record 21 8 million.
Now this results surpassed our pre Covid member base, representing a 15% increase relative to the same quarter in prior year.
I'm also happy to say that this holiday season, Starbucks card Activations, the cornerstone of our holiday gift program exceeded our expectations.
Starbucks cards are a customer favorite for holiday gifting and are widely available through our stores and other distribution channels, including digitally.
The success of Starbucks cards illustrates the strong emotional bonds that we've created with customers and the relevance of the Starbucks experience even in the current environment.
As the number of active Starbucks rewards members grew during the quarter so did their engagement.
Rewards customers contributed 50% of U S company operated sales in Q1.
From 43% last year before the onset of COVID-19, and.
And up from 47% in the prior quarter.
Demonstrating our loyal customers' resilience and affinity for Starbucks anyway, you look at our first quarter results were quite strong in the U S, particularly considering the headwind we faced from the current surge in Covid infections.
I will now move on to China, Our second lead growth Mark.
Building on the positive momentum from the past two quarters.
The China leadership team delivered another great quarter, which is a testament to our ability to rapidly adapt to changing conditions.
While focusing on the customer experience, new beverage innovation and continued expansion of digital customer relationships Jeff.
As we continue to do in the U S.
Yes.
We delivered an impressive positive 5% comparable store sales growth in Q1.
But what is most remarkable about our recovery in China.
Is the rapid reacceleration of new store development.
It was our number one driver of growth in that market.
I am pleased to share that in Q1, we opened almost 160 stores and crossed the 4800 store milestone.
That equates to 13% growth in net new stores over the last 12 months.
Which is particularly impressive considering that we suspended new store development activities.
For a couple of months at the onset of the pandemic in China.
We entered 15, new cities in the quarter and stores in these cities are off to a strong start.
With customer traffic outperforming that of new stores and other cities in China.
The performance of these new stores underscores our continued confidence in the long term growth opportunity for Starbucks in China.
We continue to dramatically expand digital customer relationships in China through the Starbucks rewards program as evidenced by the number of 90 day active rewards members growing to $15 4 million in Q1, a record increase of 51% versus the prior year.
And 14% over the previous quarter.
In addition.
We achieved record sales for this years double 11 campaign.
Which grew by 86% versus last year and.
And we also set a single day retail sales record on our Starbucks rewards members night.
Engagement campaigns and additional functionalities launched through our Starbucks App and many apps boosted member engagement and frequency throughout the quarter.
In fact.
With Starbucks now mobile order and pay services available across 99% of our store base and with Starbucks delivers an 85% of our store base in China.
Mobile order sales mix hit a record 30% of the Companys, China sales up from 26% in the last quarter with 14% driven by Starbucks delivers and 16% from Starbucks now.
Rewards customer engagement continues to grow as mobile ordering has more than doubled in China over the past year.
Starbucks remains Chinese consumers first choice.
In the away from home coffee category and as the most talked about coffee brand on social media in China.
The brand is stronger than ever and our fastest growing market.
And finally, a few comments on our channel development business.
The strategic value of our channel development segment in the current environment is clear.
The availability of Starbucks products through multiple channels has secured Starbucks leadership position in the category.
Acting as a brand amplifier for our specialty coffee retail business.
The demand, we saw last quarter and Starbucks at home coffee remained high boosting our share of the coffee market outside of specialty retail.
In the U S. Starbucks share of total packaged coffee grew significantly in the quarter with dollar sales up nearly 14% nearly twice the category average.
The global Coffee Alliance with Nestle has been a powerful partnership.
And I'm proud to say that for the first time ever we finished calendar year 2020, as the number one coffee brand across the entire coffee category.
Think about it Starbucks is now the number one coffee brands ahead of all premium and mainstream choices.
In addition consumption of our U S ready to drink coffee products in partnership with Pepsico grew 18% in the quarter.
The introduction of ready to drink Nitro Cold Brew, which was the number one innovation in the category last year exceeded sales expectations.
Unsurprisingly, our foodservice business continues to be impacted in the current environment with softness in workplace coffee consumption as well as business and leisure travel.
Which was partially offset by overall strength in our at home coffee and ready to drink businesses.
With Nestle, we entered four new markets in the quarter.
Bringing starbucks at home coffee presence through the global Coffee Alliance to 66 markets and just over two years.
Overall, we are proud of our alliance with Nestle and pleased with the accelerated global expansion of the Starbucks brand.
Through our channels business.
Now before I hand, the call over to Pat.
I want to close by sharing our perspective and recognizing my Starbucks partners.
Throughout this year.
Starbucks will celebrate our 15th anniversary of the company.
And in that 50 years since $19 71.
The most important ingredient to his created this iconic company or.
Are the Starbucks partners, who share a powerful connection to our mission.
Our mission grounded in human experience and brought to life through our values and company culture.
It is those same Starbucks partners, who are navigating a global pandemic.
Caring for one another.
Creating welcoming experiences for our customers.
Showing up in our communities.
Bringing new ideas and accelerating innovation.
And rapidly adapting.
To our new reality every step of the way.
<unk> the compassion encourage necessary to transform into this new version of Starbucks.
A company that is more resilient.
Stronger than ever.
And fully committed to a bright future full of adventure.
<unk>.
And positive impact on those we touch.
And as markets around the world work tirelessly to vaccinate billions of people.
We are prepared.
For what can only be described as the great human reconnection.
Where people once again connect with others face to face.
To heal to belong to.
To reflect.
To share and to celebrate.
To celebrate what it means to be part of humanity.
And as Starbucks partners.
We are here for that great human reconnection.
Where our third place environment. Once again brings people together, if even for a brief moment.
To uplift our customers with a smile.
A personal connection.
Our handcrafted beverage.
In a place where all are welcome.
Starbucks was built for this moment.
And to my Starbucks partners around the world.
We all know that our purpose goes far beyond the pursuit of profit.
This is our moment.
And I am proud to be your partner.
And grateful.
For everything you do for Starbucks.
For each other.
For our customers and for the communities. We are all a part of.
I am optimistic about our shared future.
And I want to say thank you.
Now before he walks you through our Q1 results I want to close by sharing my sincere gratitude for Pat Grismer.
He has helped lead us through unprecedented change and transformative growth at an amazing pace and his time with Starbucks and.
And he has played an instrumental role in unlocking considerable shareholder value over the past two years.
I appreciate Pat partnership with the entire leadership team at Starbucks and the lasting legacy he is leaving.
Pat as you prepare to retire.
I want to thank you and wish you the very best in your next chapter.
You leave the company and the great hands of a 16 year partner.
Rachel Ruggeri.
Who is incredibly well positioned to assume the mantle of Starbucks Chief Financial Officer on February one.
Having worked closely together for many years I look forward to partnering with you Rachel as you lead our finance function and contribute as a valuable partner on our executive leadership team.
Yeah.
Further.
As you all may have seen today.
Ross has accepted an incredible opportunity as chief Executive officer at another publicly traded company.
She will be leaving Starbucks at the end of February in her next role is expected to be disclosed in the days ahead.
In the meantime, I want to share that we're very excited for her and are grateful for her many contributions over the years and leading our operations across the America.
Ross on behalf of the entire leadership team.
I want to thank you for your leadership and wish you every success in your new role congratulations.
With these shifts I am immensely proud to have a very strong bench of Starbucks veterans, who represent the next generation of leadership for our company.
Rachel Ruggeri, succeeding pad as CFO.
And as we flatten the organization Ross and Williams President of our North America retail business and Brady Brewer Executive Vice President and Chief Marketing Officer will now be reporting directly to me.
Taking on what had previously been responsibilities of our Chief operating officer combined these three talented leaders have more than 45 years of Starbucks experience and we will not Miss a beat.
Rachel Ross, an Brady building on your passion authenticity and many years of success at Starbucks I am excited about our next phase of Starbucks growth together.
To thank all of my partners for their support as we are well positioned for the future.
And now with that I will turn the call over to Pat Pat.
Thank you Kevin and good afternoon, everyone as Kevin shared we are very pleased with our start to fiscal 'twenty, one with meaningful sequential improvements in quarterly financial results. Despite ongoing business disruption from the pandemic again, demonstrating the new level of resilience that we have introduced into the business. During these unprecedented times.
Starbucks reported global revenue of $6 7 billion in Q1 down 5% from the prior year.
Q1, EPS was higher than the guidance range, we provided on our last earnings call, primarily driven by better than expected margin recovery.
Q1, GAAP EPS of <unk> 53.
Declined from 74 in the prior year, but outperformed our guidance range as it also benefited from lower than expected restructuring and impairment costs as I will discuss in greater detail later.
Q1, non-GAAP EPS was <unk> 61 down.
Down from 79 in the prior year, primarily due to the lingering impact of the pandemic.
I will first take you through our Q1 fiscal 'twenty one operating performance by segment, followed by an analysis of our consolidated margin performance I will then share some perspective on our outlook for Q2 and the full fiscal year.
Our Americas segment delivered revenue of $4 7 billion in Q1, 6% lower than the prior year, primarily due to a 6% decline in comparable store sales as well as lower product sales too and royalty revenues from our licensees as a result of the pandemic.
As Kevin mentioned in the U S. We saw continued sequential improvement in quarterly comparable store sales from minus 9% in the prior quarter to minus 5% in Q1 as we entered Q1 October improved modestly to minus 3% from minus 4% in September.
As the quarter progressed U S comparable store sales were minus 4% and minus 8% in November and December respectively, primarily due to pandemic related operating restrictions across several states, which impacted customer mobility.
As Kevin also noted approximately 40% of our U S Company operated store base was offering limited seating at the end of the quarter down from more than 60% at the beginning of the quarter. So we are quite pleased with our comparable store sales performance in Q1 in light of these increasing restrictions.
Americas Q1, non-GAAP operating margin contracted 320 basis points from the prior year to 18, 8%, primarily due to the impact of COVID-19, including sales deleverage and additional costs incurred as well as growth in retail partner wages and benefits.
These impacts were partially offset by improved labor efficiency driven in part by order consolidation and sales mix shift as well as pricing, notably this represented a significant improvement from the previous quarters non-GAAP operating margin of 16, 7%.
Moving on to international the International segment delivered revenue of $1 $7 billion in Q1, excluding a 5% favorable impact of foreign currency translation. This segment's revenue in the quarter was flat relative to the prior year, reflecting 8% net new store growth over the past 12.
Months, offset by lower product sales too and royalties from our international licensees as well as a 3% decline in comparable store sales, primarily due to COVID-19 inclusive of a 3% benefit.
In China comparable store sales grew 5% in Q1, including the favorability of nearly five percentage points or slightly positive when excluding the impact of the <unk> for the quarter and.
In line with our previous outlook, we substantially recovered our sales in China by the end of calendar 2020, even when excluding the temporary benefit demonstrating the strength and resilience of the Starbucks brand and our fastest growing market.
In December China's comparable store sales were up 4% or only slightly negative when excluding the nearly five percentage points phe exemption benefit for the month, an improvement from both October and November when excluding each month, the <unk> exemption benefit and setting aside the mid autumn festival seasonal Shaw.
<unk> benefited October.
International non-GAAP operating margin declined by 100 basis points to 24%, mainly due to sales deleverage as a result of the pandemic, partially offset by improved labor efficiency much.
Much like the Americas. This represented a very significant improvement from the previous quarters non-GAAP operating margin of 16, 3%.
On to channel development.
Revenue was $371 million in Q1, a decline of 25% from the prior year, primarily due to a 22% unfavorable impact of global coffee alliance transition related activities, including a structural change in our single serve business when excluding the impact of these.
<unk> related activities channel Development's revenue declined by 3% in Q1, mainly driven by the adverse impact of COVID-19 on the segments foodservice business, partially offset by growth in our ready to drink business.
The segment's non-GAAP operating margin expanded to 48, 7% in Q1 from 36, 6% in the prior year normalizing for the 840 basis point impact of global Coffee Alliance transition related activities I, just mentioned channel development's operating margin expanded.
370 basis points in Q1, driven primarily by the strength of our ready to drink business.
Finally at the consolidated level non-GAAP operating margin was 15, 5% in Q1 down from 18, 2% year over year, but a substantial improvement from 13, 2% in Q4 <unk>.
Unsurprisingly much of the year over year reduction in our operating margin for Q1 was due to sales deleverage attributable to COVID-19, as well as growth in wages and benefits, partially offset by store labor efficiencies and pricing in the Americas.
Moving onto our guidance for fiscal 'twenty, one and starting with GAAP EPS in Q1, GAAP EPS was <unk> 16 higher than the upper end of our guidance range, primarily reflecting lower than expected restructuring costs related to our trade area transformation initiative.
This upside was attributable to two things first a shift in the timing of store closures to future quarters and second a reduction in average restructuring cost per closed store.
We expect these lower restructuring cost to sustain we are raising our full year fiscal 'twenty, one GAAP EPS guidance by <unk> <unk>.
From a range of $2 34 to $2 54.
To a new range of $2 42 to $2 62.
Both inclusive of approximately 10.
For the 50 <unk> week.
Now moving to non-GAAP EPS guidance, our strong start to the year combined with a tailwind from foreign currency translation as evidenced in our Q1 results provides optimism that we have the potential to exceed our full year non-GAAP EPS guidance barring of course, any new significant and sustained.
Waves of COVID-19 infections, and any major economic disruptions, however, given where we are at in our fiscal year with three quarters to go and considering that we're continuing to see volatility from the pandemic. We believe it is prudent to provide a comprehensive guidance update with our second quarter earnings report.
By which time, we will have much better visibility to full year results.
Therefore, setting aside the updated fiscal 'twenty, one GAAP EPS guidance I just mentioned, we reaffirm all other full year fiscal 'twenty, one guidance for now, including non-GAAP EPS in the range of $2 70 to $2 90.
Again inclusive of approximately 10 cents for the extra week.
We will however provide guidance for selected Q2 metrics, given our better visibility to near term trends, which provide further evidence of recovery in line with our overall expectations in the U S. We expect to report a comparable store sales decline of approximately 2% for the month of January.
Representing a marked improvement from december's, 8% decline.
Then as we lap material adverse COVID-19 impacts in the month of March we expect U S comparable store sales growth of approximately 5%, 10% for the second quarter.
This is consistent with our previous outlook that we would achieve full sales recovery in our U S business by the end of Q2.
With a two quarter lag beyond that before we expect to see full margin recovery.
In China, we are seeing another wave of COVID-19 infections and selected provinces and a corresponding impact to customer mobility and store operating protocols. In addition, we started to lap material adverse COVID-19 impacts last week and this will continue through the remainder of Q2.
Combining these two items, we expect to report a comparable store sales decline of approximately 7% for the month of January.
Comparable store sales growth of nearly 100% for the second quarter, reflecting a very significant lapping effects in the months of February and March.
On a two year basis that would equate to roughly flat compound growth in the second quarter as we move through the one year anniversary of Covid related store closures and return to our long term growth algorithm in China.
From an EPS perspective in Q2, we are expecting GAAP EPS in the range of 36 to <unk> 41.
And non-GAAP EPS in the range of 45 to 50.
These estimates reflect the comparable store sales growth estimates that I, just provided as well as the normal margin seasonality, we see in our business comparing Q2 to our holiday driven Q1.
To be clear, except for GAAP EPS, the rest of our full year fiscal 'twenty one guidance metrics are unchanged from what we communicated with our Q4 fiscal 'twenty quarterly earnings report. This includes our expectation that our retail operating segments will deliver significant margin improvement on a non-GAAP basis as fiscal <unk>.
'twenty, one progresses, yielding meaningfully higher EPS in the third and fourth quarters than the first two quarters of the year.
To summarize we are delighted with the pace of business recovery in Q1, and the momentum that it provides for fiscal 'twenty one.
Our China market has substantially recovered although it is experiencing recent volatility and our U S business is on track to fully recover in the current quarter as we previously communicated as a result, we remain confident in the strength of our brand and the durability of our growth model I want to express my appreciation to our green apron.
<unk> partners for the critical role that they continue to play in our overall business recovery.
Before I conclude I would like to thank Kevin and the Starbucks team. It has been an honor to be a Starbucks partner and I am proud of what we've accomplished as a team to unlock considerable shareholder value over the past two years I am thrilled to pass the CFO Baton to Rachel Retiary, a key member of our senior finance team Rachel.
And I had been partnering to ensure a smooth transition and I would like to invite her to share a few words on this call. Thank you.
Rachel.
Thank you, Pat and honored and humbled to assume the role of Chief Financial Officer at Starbucks in my 16 years with the company Starbucks has never been better positioned for long term growth and I look forward to working with Kevin Our executive leadership team and of course, the partners around the globe to unlock that growth with focus and discipline and to our investors and financial analysts.
Joining us today and very much look forward to speaking with you soon.
And with that I will turn today's call over to the operator to begin our Q&A session operator.
Thank you as a reminder, if you'd like to ask a question Press Star then the number one on your telephone keypad in order to allow as many questions as possible. We ask you to please limit yourself to one question at a time, we will come back for follow up questions. As time allows we will pause for a moment to compile.
The Q&A roster.
Your first question comes from John Glass with Morgan Stanley. Please proceed with your question.
Thanks, very much and congratulations to Pat and Ross on your New ventures, Good luck and we will Miss you.
Pat or Kevin Roger All three how do we think about the dynamic between check growth and traffic growth in the coming quarters. I mean, we've never seen this kind of dynamic where traffic has fallen so much check has gone up.
Do you think do you think you can just sort of just normalizes or as a chance or is there programs to continue to get that check benefit even as tactical covers that maybe theres, an outperformance on comp basis.
How much benefit to margin how is that decline in traffic and bundling of orders benefited how do we think about the margin impact as traffic comes back but maybe.
Average has come down over time.
Yes, John This is Kevin let me, let me share a perspective on that first of all.
A big reason for the increase in ticket is group ordering and certainly as we have grab and go and customers are looking for safe familiar and convenient experiences customers are coming in and they're in their purchasing multiple beverages multiple food items.
For larger groups than in the past, which is why.
Sure.
Traffic is down in ticket is up.
That said I think as you know.
As we start reopening seating in our stores as vaccinations.
Continue to propagate around the world, we're going to see that normalize, but I do think theres going to be a long term positive.
Impact on ticket.
I do think through this through this period I think customers who have gotten.
Very very used to more premium beverages more higher degree of food attach and I think.
I actually think ticket will make will come out of this higher than it was when we went into it while transactions recovered now how long that takes I think thats a function of how.
How vaccinations unfold in different markets around the world and how quickly people get back to.
More more normal.
Foot traffic patterns in more normal work and school patterns.
And let me just ask if raws if you want to add any any additional perspective on that as it relates to the U S.
Yes, Kevin I do Theres, a couple of things here to think about.
In terms of the contributors Kevin mentioned higher beverage attached to a higher food attach.
The shift of cold beverages, and what we've seen in cold beverages is a couple of things if you think about.
The decline in transactions that we've seen in our central business districts in our metro markets those areas caring single beverages.
And they were higher than average green coffee and note really at a lower rate and our ticket option. So what we're doing and beverage innovation is replacing that with cold beverages, and replacing that with plant based and so that's why we're seeing this increase included test and so we feel confident that those kinds.
Within the basin.
Willing to keep that.
Higher than what we've seen in the past.
Scott you want to take the second part of Johns question, Yes. Thank you in relation to the impact of the higher ticket on margin and how we expect that to normalize over time, but to Kevin's point, we do anticipate that some of that ticket growth will sustain and with that some margin benefit will linger, but there will be as.
Customer behavior normalizes, some reversal of some of that margin benefit, but it's important to highlight some of the other ongoing initiatives underway in our store operations to build a new levels of productivity, whether the deployment of handheld Pos to improve throughput at the drive thru and how we believe that will not only increase.
Our capacity, but deliver some margin enhancements or what we're doing to deploy new equipment, both new espresso machines as well as new ovens that helped us to reduce transaction times out the window or just ongoing operational engineering work to ensure that our operating routines as we've adopted new.
Protocols continue to achieve higher levels of efficiency in terms of how we deploy our labor. So there are a number of other activities underway that will drive new levels of productivity and unlock further margin benefit even as some of the sales activity normalizes in width that reverses some of the margin benefit that we've seen here recently.
Your next question comes from Sharon Zackfia with William Blair. Please proceed with your question.
Hi, good afternoon, and congratulations Ross.
It is.
There will be sad to see you go.
I guess I had a question on Starz for all in its probably best directed to Ross.
As you rolled that out clearly you saw the membership jump in the U S and how much of that is directly related to storage for Alan if you could kind of quantify that and then.
Any kind of quantitative elements on SM.
Essentially holidays stars for all members differ.
From preexisting cohort of members and how.
He has kind of trended and potentially upselling them to be at.
The higher level of Starbucks rewards.
Great. Thank you Sharon.
For that note of congratulations so just a little bit on SFC.
The story behind that.
We provided a core customer base the option for payment removal and we knew that was one of the most.
Significant frictions that we had in growing our Starbucks rewards members.
This strong member growth that we're seeing is not only.
Surpassing our pre COVID-19, but it's pushing well behind and you saw the number 22 million active members.
18% year over year, and it's helping us really feel the all time high that we're seeing in Starbucks rewards as they convert.
And right now our Starbucks rewards percent of tenders, reaching nearly 50, 50% is as Kevin mentioned, so we are seeing some significant improvement with <unk>.
<unk> for everyone.
So two quarter over quarter, our mobile app downloads grew by plus 5% and our acquisitions grew 13%. So we're seeing some significant movement in there in terms of how.
The conversion rate.
Everything you ask for if there is any qualitative difference between who we're seeing coming in we're just seeing just an expansion of our customer and just more left for the brand as we apply SSD and so really we don't have the exact numbers in terms of qualitatively how they differ we just.
Note that we have addressed.
Significant concern with payment removal. So we're pleased with what we see so far.
Your next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
Thanks, and congrats everybody on their new roles or the best Pat and Ross.
Question on capacity and throughput.
Going back to the mid two thousands I can think of times, when Starbucks talked about reaching near capacity levels and of course some of those.
Comments seem funny now given the fact that you've come so much further in terms of your <unk>, especially after all you've done with mobile order and pay in terms of.
Smoothing out the service for that and then the drive thru expansion has also raised that but.
Go buy those drive throughs and a lot of them look pretty full and I wonder about the post vaccine world and how much you think about capacity utilization or.
Basically coming up on these bottlenecks, particularly in the drive through as we get to a post vaccine reality could you talk about that and what what you might be working on to maximize your growth after the vaccine.
Yes, Ross why don't you take that and go through a little bit of the initiatives that we've done to increase throughput on the different channels and then and then maybe I'll comment on it.
I'll, let you take that question.
Sure. So we have quite a bit of work happening around our service experience and everything that we're seeing around the drive throughs. We have so many of our stores in the drive thru position right now first of all let me think about our future real estate.
When we look at our most productive model. It is the drive thru. So in our go forward position, you'll see an increased number of drive throughs that we're building in the central United States and across the southeast and southwest So drive through in terms of members won't grow.
Also two there are three main approaches that we have to enhance the drive through productivity first of all is to optimize the current state and that's looking at our operational standards and Thats the focus on driving our increase out the window and so that reinforcing all of our processes and so we're making sure that our belief is and operator.
Matthew ongoing work that we will do the second piece is we are developing and testing some drive through forward solutions and that includes our handheld Pos which right now we have about 300 drive thru stores with handheld Pls and we'll have 500 of those stores by the end of February and so.
We're also adding to that.
<unk> improvement to make orders more easily managed through our consolidation.
We call that our bulk buy replacement and then in addition, we're also targeting the renovation of 150 <unk> drive through constrained stores that have either issues in terms of meeting the new <unk>.
Productivity model from an engine design or removing the pastry case and getting things situated.
Ingo point of sale and other solutions and then there is a final piece.
Future drive through concept and those are things like drive through only stores that have no seating very small units.
Side by side drive through lanes that we are bringing on to the to the footprint.
We've got considerable work in this area to unlock the full potential for drivetrain.
Your next question comes from the line of John <unk> with Jpmorgan. Please proceed with your question Hi, Thank you very much I would actually like to pivot from that question in terms of.
Opportunities for the 40% of stores that do not have drive thru seating.
Seating.
Maybe the possibility of a drive through even on a relocation is it even possible within the trade area could you highlight some of the things.
That you can do to it.
Increased throughput overall consumer usage, whether on a lake COVID-19 basis, or even in a post COVID-19 basis to make that call.
Cohort of stores more productive that's the first question and then secondly, if I can sneak it in.
Considering that the transactions, which were down offset obviously by VA by ticket.
Broward, presumably are down at the store do you have a sense of how variable labor should be in other words, if transactions increased by 10% is there a type of percent that you would think labor hour should increase this as we kind of think about rebuilding the models for the out years. Thanks.
Thanks, John Ross why don't you take the first question that John asked and then Pat will follow up on the second the second question that he asked.
Yes, John Thanks for the question, so thinking of productivity and models that may not have a drive through.
Looking at everything to that we can do on the inside of the building it's.
As Pat mentioned, we have our next generation threat espresso machine that actually allows us to have a much faster pull with multiple coffee.
And then also two we have our new warming ovens and those have also an improved operational time than standard improvements. It's also important that we talk about the work that we're doing with deep grew in this and deeper with our work that allows us to apply.
Two our equipment and the processes in the store and that's improving productivity within the store. So there's considerable work that's happening in our cafes.
<unk>.
And you'll see those things rollout over the next several quarters here.
Okay.
John John as to your question regarding variable labor, what we focus on is flow through on variable sales and is particularly important as we expect continued sales recovery and then back into growth in the back half of the year and even as we continue to make significant new investments in the middle of that.
<unk> in order to unlock future growth opportunity, we'd fully expect.
Very meaningful sales leverage that comes with what we target as an approximate 50% flow through on those variable sales and that includes what we derived by way of leverage on fixed labor. So there is a variable labor component that is embedded in that calculation, but importantly, it acknowledges that there is a fair.
A portion of our total cost structure inclusive of labor that is fixed in terms of how we operate these stores. So as we recover sales and further built from that point, we anticipate margin expansion as a consequence of sales leverage that helps to offset the impact of the additional investments, we're making to unlock future growth.
Your next question comes from the line of Sara Senatore with Bernstein. Please proceed with your question.
Great. Thank you I wanted to ask about China.
Obviously that was a very.
A strong 5% comp I was wondering if you could just talk about in the past is in the context, you've given for potentially slower China comp for <unk>.
Competition then also.
Pension Ali opening new stores.
Yes.
And sort of cannibalization if you will.
A year ago, if I look back at kind of a 3% comp and 16% unit growth now, 5% comp and 13% growth could you maybe talk about.
How much of this complex certainly been very strong, especially considering.
Even in flat, even ex that how much of that.
My bet would be a function of less cannibalization versus less competition.
Yes.
And related to that I think need and economics are still very good, but maybe down a little bit from where they were so just trying to understand what the sort of competitive and operational environment look right now.
Sara Thanks for the question, maybe John I'll have you talk a little bit about what's happening in China, and new store growth and how we continue to drive China and then let's go to Pat Pat can reinforce our view on the long term growth model for China that we outlined at the Investor The Investor Day in December Okay. Thanks for the question Sarah clearly.
We're very proud of the work the team in China has done to navigate.
<unk> situation and the current surge that we're seeing in the market to basically substantially recover.
In line with our expectations for the quarter and deliver a 5% comp top line growth rate of 15% and an acceleration of new stores to 160 in the quarter.
Is really remarkable given the current environment that we're operating in we continue to be very optimistic about the long term growth opportunity and the continued recovery that is going to take place throughout this fiscal year, our new stores continued to perform very well as I said, we opened one.
<unk> hundred 60 stores, 13% growth over the last 12 months and that includes a time period, where we slowed down or halted all store growth as we navigated the COVID-19 crisis, beginning last year at this time.
We're seeing really strong performance and uptick with the Starbucks now expansion were opened in 24 cities Im sorry opened 24 stores in nine different cities in the quarter and we have a total of 40 stores and we will continue to expand that concept and then the last piece beyond the store pieces.
The acceleration of digital and the digital footprint and Kevin hit on this a little bit in his comments, but this is also fueling the growth.
During the pandemic as we navigate our 90 day actives increased to $15 4 million.
Members, that's 56% increase over the previous year.
That's 14% increase over the previous quarter, which is great and then clearly mobile order sales mix at 30%.
With MLP at 16% and deliver that.
14% is strong growth. So our total mobile order sales are now two times, what they were last year at this time. So clearly we have put in place a model that has been able to navigate.
The pandemic environment, and we feel very optimistic in delivering the <unk>.
Delivering the guidance that path forward.
Achieving the 100%.
100% comp for the second quarter and relatively flat growth on a two year basis the market. Thanks.
Thanks, John and Sarah to build on what John has said to put into perspective, how we're thinking about comp growth in China long term you may recall at our December 2018, Investor Conference, we guided China comp growth of 1% to 3% in recent quarters. We have delivered in the low single digits and we acknowledged at the time that as a consequence of a more tempered pace of.
Growth in the broader economy intensified competition in the sales transfer that comes from an aggressive pace of new unit development that 1% to 3% was a reasonable expectation fast forward to our Investor day, just a couple of months ago, where we updated that to a new range of 2% to 4%.
I'd say in relation to the factors I mentioned no material change to the economy competition or sales transfer, but importantly, as John mentioned significant improvements in our digital capability and how that is all resonated with our customers in China, which underpins our confidence in raising that long term comp.
Guidance range for China, too this 2% to 4%, which we believe is quite powerful in the context of very aggressive unit development given the strong appeal of our brand and the outstanding unit level economics that deliver superior returns for us in China.
Sir just one other thing that I would just add as well as Kevin hit on this a little bit in terms of the strength of the Starbucks brand in the market.
And clearly we are the clear leader in terms of brand affinity and visitation.
<unk>, all coffee houses, where the first choice and away from home handcrafted coffee beverages for customers and as a matter of fact, one into consumers prefer Starbucks versus anybody else's coffee in the marketplace. So we feel we're in a very strong position from a consumer standpoint and the customer.
Sector to really emerge out of.
The challenges that we're facing in a very strong way and that gives us confidence for the future.
Your next question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.
Great. Thank you.
Scott Congrats on the retirement and Rachel Congrats on your new role.
And Ross based on the headlines coming out now I guess look forward to seeing you at Walgreens fulfilling.
Fulfilling lots of Starbucks coffee.
Jim.
My question is on the.
Labor side of things, which seems to be very topical and.
I'm happy to hear you guys talk about ongoing efficiencies.
But when people talk about labor lately. It seems like there's a lot of opposing forces. Obviously, you have the national minimum wage potentially going up on one.
So then you have the elevated unemployment.
Which historically implies ample labor and therefore, managing your cost better. So I'm. Just wondering if you can provide any thoughts in terms of your labor cost and maybe employee availability outlook. I know you guys are an employer of choice, but your ability to offset the pressure, whether it's cost saves technology menu pricing, how you kind of think about those offsetting forces.
Labor cost perspective, thank you.
Yes, Jeff Thanks for your questions let.
Let me, let me kind of lead off with a perspective, and then I'll hand over to Pat to put.
Some numbers around it but fundamentally look we believe in investing in our partners. It is our green apron partners, who create that experience for our customers and so we know when we invest in our partners.
And.
Put them in the position to do the best job, they can and serving our customers that our customer connection scores go up.
Traffic goes up and our sales go up Theres, a direct correlation between investment in partners customer connection scores and traffic increase and I think that's the first thing to note. So.
Why you saw us make a fairly significant increase in wage wage and benefits here in the U S. As we.
Went into this fiscal year.
Second then we find ways to help offset some of that in two ways number one is just productivity.
And throughput.
We have a 20000 square foot Trier Center, we call it our Trier center in thinking of it as a silicon Valley Incubation lab right downstairs here in Seattle and we.
We have some of the world's best human centered design engineers that work down there with our partners to.
To find ways to help them improve that productivity.
Oftentimes it has to do with the store layout oftentimes it has to do with the equipment what kinds of ovens whats the how can we make things.
Easier for partners to do their jobs and so that helps offset some of that increase in wage and then the other is automating administrative tasks things that whether it's <unk>.
We've got deep brew, helping automate inventory management stores, helping reduce the amount of time that partners have to count inventory and fill out forms.
And now technology is playing a role doing that.
Other examples.
<unk> two machines that were putting in our stores.
Have.
Our instrumented with Internet of things sensors in them and those sensors every shot of espresso since telemetry data back to our data center and through machine learning, we can predict when a when it is one of our Australia machines needs to be maintained or needs to be.
Cleaned are calibrated and by doing that we prevent this situation where perhaps a partner comes to open the store in the morning, and one of them Australia machine is down so technology to automate administrative tasks that help help provide the best environment for our partners to do what they do best which is handcrafted pan crafted beverages and connecting with our customers.
And then the way that we get productivity by just thinking about the.
The human centered design experience, we create for partners in the stores that helps to offset the increase.
Pat I'll hand to unit to help out a little bit more numeric around that thank you Kevin.
What I would add is that much.
Same way I talked about China is how we're thinking about the U S in relation to improved comps on the back of investments, we're making in the brand with investments in our store partners being a critically important investment and to put that in numerical terms a couple of years ago. When we guided at our Investor day at the time.
A 3% to 4% comp expectation for our U S business more recently at our Investor Day, we raised that to a range of 4% to 5% and that is entirely the result of our confidence in the returns that we will get on these investments led by investments in our partners, but also significant.
<unk> and our digital platforms and what that does to unlock the full sales potential of the Starbucks brand, yielding significant sales leverage that not only pays for these investments but enables what we continue to expect by with modest annual margin expansion, which is a fundamental part of our.
Ability to convert revenue growth long term at a 10% to operating income growth of 9% to 11%. So as Kevin mentioned all of these things work together investment combined with productivity.
Two combined further with sales leverage to land the ongoing margin expansion that forms a fundamental part of our overall earnings growth model.
Your next question comes from the line of Andrew Charles with Cowen. Please proceed with your question.
Great. Thank you just to echo everyone else patent Ross best wishes on your next chapter and Rachel Good luck in your new role as well.
Kevin a question for you following the announcements that Ross and Pat will be the part in the coming weeks, while the business will be in the very capable hands of partners that have been with Starbucks over 15 years, where are you going to be leaning into the near term to help ensure continuity in the recovery.
Yes, Andrew Thanks for the question certainly.
On the CFO side, Rachel Rachel has been a long term Starbucks partner in our finance organization and supporting the America. She is fully up to speed on the on Starbucks and all things related to driving driving this business and so.
Great confidence, there and Rogers organization as I flatten the organization I'm Gonna take Ross and Williams and Brady Brewer direct to me.
Ross and it's been running running our U S. North American business now for over two years doing a great job on that and Brady as a chief marketing officer. So.
Certainly I think that stability of leaders.
Running North America, and the stability of Rachel and her knowledge of the Americas and stepping into the global CFO role gives me great confidence in.
I'll say this we've got a very strong bench of talent and Starbucks.
And what Youre seeing is the next generation of leadership stepping into these roles and I've got great confidence in them.
So certainly I'm going to continue to do what I do which is we work we work as a leadership team.
We work together as a team based on trust transparency and teamwork and these leaders.
Ross and Brady had been on the executive leadership team now for over a year Rachel will join us on the leadership team, but we.
We won't Miss a beat.
We're very grateful to both Pat and Ross for their contribution because not only did they contribute but they also built great successors in their roles and I'm very grateful.
Your next question comes from the line of David Tarantino with Robert W. Baird. Please proceed with your question.
Hi, Good afternoon my question for Pat.
And it's related to the upside in your Q1 earnings performance relative to the guidance Patrick.
Could you maybe unpack the factors that drove the upside.
Relative to what you were thinking at the start of the quarter or whenever you gave the guidance and then also can you give us some perspective on whether that upside reflects maybe benefits that are coming in earlier than you anticipated or greater than you anticipated and I guess the context of that second part of <unk>.
Should we think about this flowing through to the 2022 outlook.
For example.
Yes. Thank you David So we were very pleased with our Q1 result, with non-GAAP EPS exceeding the midpoint of our guidance range by approximately eight.
Picking that apart about five cents of that favorability was driven by our business segment performance, including better than expected margins in both the Americas and international another two we.
We'd attribute to favorable foreign currency translation and the remaining <unk>.
Attributable to a lower than expected tax rate, which is driven by unplanned discrete tax benefits.
As to the business performance, we do expect that momentum to sustained balance of the year. So as I mentioned in my prepared remarks.
We believe that it is possible that we could deliver full year results ahead of the guidance. We've given however, when you consider where we're at in our fiscal year with three quarters to go.
And when you also consider the continued volatility in the operating environment.
To hold at this stage and that's what we've chosen to do we've decided to hold our full year non-GAAP guidance until we close Q2 and a half half of the year under our belt. We will then have much better visibility to the back half of the year and can make a more considered call on what guidance update may be appropriate at that point.
In time, but we are very encouraged by what we've seen thus far even with the recent volatility we've seen in China, we could not be more delighted with the accelerated recovery we've seen in our U S business going from a minus 8% comp in December to a minus 2% comp in <unk>.
January well on our way to achieving the full sales recovery that we outlook for the U S business by the end of our second quarter fully expecting the quarter to come in at 5% to 10% sales growth that's comparable sales growth for our U S business. So when you add it all up Theres every reason to be optimistic it's just a matter of prudence again, given where we're at.
And our year and the fact that the pandemic is still impacting our business in different ways, but we're really pleased with the resilience we've built into our business and that's reflected in our results.
Your next question comes from the line of Dennis Geiger with UBS. Please proceed with your question.
Great. Thanks for the question and congrats to all on new opportunities in your new roles.
Kevin and Ross I think you talked about the strength in food and a higher food attach I think generally foods has been a pretty strong contributor to sales and comp for the last several years now, but it felt like maybe food has been a little bit de emphasized over the last couple of years given the increased focus on beverage wondering if you could based on what you've seen recent.
In the last few quarters, specifically Theres last quarter does it change and maybe how youre thinking about customer behavior is changing going forward does it change at all how youre thinking about the food opportunity going forward from here, whether it's anything different on innovation potential partnerships or just leaning in a bit more on on that opportunity.
Yes. Thanks for your question, let me, let me share a perspective, and then Rosalind unit to add a bit more from from the U S perspective, but.
Dennis strategically we are a beverage first company we are in the business of hand crafted beverages personalized for each and every customer around coffee and tea and if that experience we create around handcrafted beverages and that's why we amplify we talk about our innovation, it's around customer experience it's around <unk>.
Isn't new beverage innovation and its around digital customer relationships.
And by focusing and understanding that we are a beverage first company that what we do is create that experience around those handcrafted beverages has been very important in the growth that we've been driving and so we talk about that a lot. We focus on that a lot because that is at the end of the day, what is a significant differentiator for Starbucks.
<unk>.
Now, we then attach food and so nothing too is not important but we're very clear strategically. The most important thing is to be on the front foot and innovate and drive those relevant beverage platforms, and then and then differentiate through the fact that our Starbucks partners in our stores handcraft. Those beverage was personally for each and every customer and then we attach.
Food.
Now when we attach food.
Our R&D teams have been very thoughtful about how to how do we how to have the food menu.
To be relevant to the day parts and to the beverages that we sell and they've done a phenomenal job with that over the years.
And if I were to say what is what is the probably the most dominant shift in consumer behavior is this whole shift to plant based and that is that is a shift both in beverage and food.
On the beverage side. This is why we have introduced.
All the alternative milks.
It's almond milk soy milk oat milk.
All of that's important and then on the food side, you'll see what we've done with things like the impossible sausage breakfast sandwich, and Youre seeing more and more plant based proteins and our food and our food menu.
And in fact, we have one.
One Starbucks store here in the Seattle area that we've gone to a 100%.
<unk> based food menu, we use that as sort of a test area when we innovate great things here.
Here in our support center, the Trier Center, we test in that store.
So if I think about both beverage and food the number one trend that I would highlight there is just the consumer shift in consumer preferences around plant based in.
<unk> behind you you might have some additional numbers and color to add to that but I think at a macro level. Those are the two most important points I think Dennis.
Yes.
Kevin I think you hit it pretty strong there in terms of Thats really aligning with customer preference will say that the work that our team has been doing.
Around our digital platform and getting to know our customers better than we've ever known them before we're understanding how their preferences are trending. What this is also allowing us to do is to make great coffee as well because now we're learning how to match pair coffee with great food and beverage items. So that we bring together both a suit and.
Beverage combination so the work ahead of us by no means minimize it seemed actually we see it as a golden opportunity, perhaps suggest further expand our presence and create quality food attach items to go along with great coffee.
Your next question comes from the line of John Tower with Wells Fargo. Please proceed with your question.
Awesome, great. Thanks, Jeff.
Quickly a clarification on a question first a clarification on the slower pace of store closures that had I think you'd mentioned earlier in the transcript.
Sure.
Is there an expected revenue impact in 'twenty, one and the 40 basis point margin benefit still stand from those closures and then my question is on the China loyalty members in the past.
Obviously very impressive growth here and I was hoping maybe you could offer some insights into how customers in that market are using the brand now versus the past, perhaps differently youre seeing either day part changes or ticket growth and I know, obviously COVID-19 might be.
Muddying the visibility here and exactly understanding what the trends are but if you could offer some insights and debate part usage ticket growth, obviously frequency changes around the platform that would be great.
John Thanks for your questions, we'll have Pat take the first clarification that you asked for and then John Culver will comment on China loyalty member behaviors.
Yes. Thank you Kevin So John with respect to trade area transformation progress as of the end of Q1, we have completed approximately one third of the store closures included in our trade area of transformation initiative and expect to complete the majority of remaining closures by the end of this fiscal year as originally planned.
So there has been a bit of a delay relative to what we had anticipated at the beginning of the year and thats entirely a function of how thoughtfully. The team is continuing to refine.
The store closure plans based on how we read the impacts we're seeing from stores as they are closed in terms of both sales transfer and margin with a view to continue to optimize as we go but we're as committed to that program now as we were starting the year and even back to Jim when we first announced it and then subsequently <unk>.
Spanned at the program as to the margin impact we continue to expect about a 40 basis point.
Improvement to our consolidated margin of our enterprise margin on a full year basis, so even with a slight delay to some of the closure activity. We continue to expect meaningful margin expansion as a result of this initiative.
And John to your question on China, and the digital on what we're seeing a little bit deeper dive on it first off the day part of impact, we're really seeing an uptick in the morning day part.
But pretty much the recovery is taking place across all day parts consistently put from a digital and mobile order and pay perspective.
We are seeing an uptick on the morning side in terms of the ticket.
As it relates to digital we are see ticket consistent with what we've seen previously generally in China, our ticket runs a bit higher than the U S. Under normal circumstances that is because the group ordering and I would say our ticket is living up to that.
Living up to that historical performance. The other aspect that we receive is social gifting and social gifting is a big piece of digital in China, We've introduced that as part of the rewards program and we're seeing a nice uptick in that as well so.
Very pleased with the progress the team is making there and we're going to continue to invest and double down on our digital footprint in China.
The last question comes from Chris <unk> with Stifel. Please proceed with your question.
Thanks, and thanks for fitting me in.
My question is related to the plant based beverages is the shift to plant based beverages are positive for margin on the beverage side or does it compress the profitability relative to milk based drinks.
Equal and how this continued optimization of the supply chain impact that dynamic over time.
Yes. Thank you for the question, Chris I would say that from a margin perspective currently the impact is a little bit of a push because while there is incremental cost associated with those alternative milks, we do charge a premium and so that helps to mute the impact to margin I would say much longer term at <unk>.
To be seen.
A lot of it will depend on how consumers increasingly migrate to those alternative milks not just in our business, but broadly in a way that supports increased production, which should over time reduce the cost and then we have the opportunity to reevaluate whether at some stage. It makes sense to change our pricing practices I would.
Say generally speaking our goal is to maintain if not expand our margins over time.
That was our last question today I will now turn the call over to Mr. Johnson for his closing remarks.
Well I want to thank you all for joining us today and I also want to invite you to join US on March 17th for our annual meeting of shareholders. It will be a virtual meeting.
We will celebrate Starbucks and reflect on our journey over the last 50 years since the founding of the company and 1971, while at the same time looking forward to a very bright future and we hope you enjoyed that you join us for that virtual meeting and look forward to.
The thing you are participating with you on March 17th Thank you everybody.
This concludes Starbucks coffee company's conference call you may now disconnect.