SBUX - Earnings call transcript Q3 2019

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Operator

Good afternoon. My name is Hector, and I will be your conference operator today. I would like to welcome everyone to Starbucks Coffee Company Third Quarter Fiscal Year 2019 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Instructions] [Operator

turn Relations. to now Ms. conference. now President Doraisamy, begin call Investor of Doraisamy, the will Durga over Vice your I you may

Durga Doraisamy

President afternoon, and XXXX. we'll Roz and Today's us John will President, be for and for Americas; third Good Q&A, Kevin be results Pat discussion thank Brewer, Johnson, Grismer, International by Tea. Officer discuss And President quarter year by to and and Group Chief our joining Development fiscal for led and everyone, CEO; joined Group today Culver, Operating Channel you Coffee CFO. Global

call earnings should that which are could be with cautionary considered conference statements. differ subject uncertainties actual include our these and to statements in results information. conjunction risks This statements report forward-looking cause last materially our will statements risk to obligation to such of and statements SEC, from in update various Starbucks no factor Any annual the with our assumes or release any in forward-looking our filings including on XX-K. Form discussions these

results of through our their an reconciliation archive on the XXXX. our to non-GAAP investor.starbucks.com corresponding several a These to are restructuring from of actions including call available certain in other Please results. being transaction XX, items impairment at with costs, items referenced include in charges, fiscal strategic website and and items. webcast and find will GAAP excluded financial conference related today's our integration GAAP call website measures refer non-GAAP XXXX and is measures. This August webcast to be

Kevin. to call will I the now turn over

Kevin Johnson

customer first, the at we’re and on very Pat in increased strong review actions scale I’m our strengthen experience describe few the further detail moment, making key Starbucks with with focus afternoon I our good pleased brand an results and taking operating delivered but growth touch want a Well, we're to in in welcome agenda. more performance will agile our more from everyone. and the QX approach the quarter on to innovation. highlights progress with and and to a a then differentiate

strong By any measure, QX Starbucks. a was quarter for very

impact global expansion foreign and comp X% streamline base, underpinned revenues global total X% our sales growth of by XX% activities including of Excluding a store growth of the retail exchange, traffic grew comp X%. and of by

extremely Notably, X%. long-term comp of our were the two including key the markets, X% and well. U.S. performed both U.S. China, up In transaction growth comp sales growth

in the expansion experience, three performance initiatives we to strong including of time Importantly, transaction we driving driven was strong in for the by better saw comp performance all parts, digital day growth all key afternoon accelerated beverage years. three allocate customer an the contributed demand, factors; connections relationships. enhanced to The across This labor the first and work, innovation, improve in U.S. customer and new are to customer our customer simplify growth. meet comp relevant

Nitro Cold In catalyst addition which on year. by to with A be deployed in advertising the and across customer company our for be all Brew customer resonating are stores to are platform, the by remains new end growth of the that favorite beverages we beverage cold delivering improved particularly fiscal was exciting the operated customers, supported afternoon. the track U.S. experience,

including Cloud Beverages, Iced Refreshers Espresso Macchiato Starbucks performed well. and

our also digital important connection time all encouraged this is our by about customer off. the scores contributed on another reached call, the how the strengthen and high to paying in fact Continued playing more and innovation that role results. And are focus amplify I'll customer talk QX. Later in we customer is and beverage experience to the has connections, very

expand remain strong opportunity to as new market we deploy stores very China quarter, and delivered and build on capital presence. long-term a bullish we also the our

versus more XX% by Our than the total of stores at XXXX year, to China end store in grew prior QX. count

Additionally, comp an was like China's the comp in U.S. beverage growth transactions. X% innovation. Much by X% up enhanced driven including customer performance comp were sales experience and

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our at strategic on be unchanged, results home priorities scale are only Overall September. growth we but coffee Canada that The collectively, coffee on a Starbucks track the cylinders. XX U.S. outlined discipline are in including and of all performance not the remains global the is QX ago at it demonstrate is firing year to this focus we by our alliance. working, agenda markets, and and with through pleased

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to digital experience that that and Ideally addition, experience. customer relationship In is customer in-store a extending critical. the enhances customer is mobile personalized relationship

XX,XXX Starbucks retail and over craft, stores created experiential With coffee, globally, care. comfort around has

communities for world. handcraft connect. and customer, doubt, create millions Without Starbucks around an to for and life for and a each the personalized to preferred destination a Our as and Starbucks every gather, each beverages, bring a partners of hundreds day, warm of XXX,XXX uplifting experience is elevated welcoming environment customers and they

the time, higher research importance experience. our validated of as digitally relationships customers are has same and digital personalized levels more the At a convenience expect and savvy of

And more Starbucks spend, digital frequent occasions, significant relationships know and to we value customer through efficiency. increase term drive retention improve long marketing

is So year. over way anchored receive the a invested build by that and provide highly personalized the enhances systematically orders, place very past experience to customer a some digital which features digital today the program customers with significantly through Rewards Starbucks a to and that convenient offers. customer customer relevant billion our five digital over years, flywheel we've one occasions powerful engagement This enables

or year-over-year as active accelerated U.S. in rewards. have Rewards significantly With background, the program rewards which can well the we flexibility that Starbucks very been enhance redeem received XX% changes our QX customers stars million members in customers increasing members. by active XX-day to reaching as of These loyalty the XX.X growth with

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XX which the is today Uber markets. XXXX In Starbucks delivers, across expanded now we in stores in U.S. also partnership Eats, over with

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we As continue customer as for we delivery program ensure to expand, builds. quality demand refine experience a and the will

rewards have XXXX, levels. to Rewards and active China, from our spend, we our an term which ability stores. on where remains from in growth. quarter pillar XX% has core Starbucks and to to of the based enhanced in in include now driving program the XX% to in rewards on digital China, last then progress increase doubled pre-launch million In We long earn ecosystem ago, China Now December of year our redeem compared those a rewards in members growth the X.X of pace a

across the us approximately of track fiscal nearly total XX or XXXX us The to end expand China store by QX. This Ali by year. end Digital this the stores XXXX Baba puts has our partnership roughly XX% base cities delivers with Starbucks enabled to stores on of of exceed to

transaction incremental see to including key and continue lift, operational ticket in meaningful, strong performance. strong performance increased a cities, We

QX. and of as delivery total approximately contributed China's sales represented growth QX, I earlier, volume mentioned in to In X% sales comp

early Given results. these strong

be that confident in for Starbucks important our business vehicle are China. We will delivers growth an

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in stores in launch four May cities mobile China, expanded major order with expansion and the to approximately pay further Following and underway. across XXXX Beijing Shanghai, we've

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customer Starbucks a to is major technology in address digital leverage the economy. to growing to world's trends This fastest commitment testament rapidly

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a the week, focused enables announced in directly deliver our Company efficient partnership strategic based Brightloom also Earlier restaurant to Area a Bay loyal industry. most to very manner. retail marketing this a personalized Seattle It and on Tech with we us customers,

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proprietary on markets. focus operated This resources software to development internal our allows to company our us for continue

Now before our agenda. that scale to we call outlined a it Pat, growth turn ago I I highlight was over just that year over first the want at to

This our quarter's demonstrates enabling disciplined results through and strategy is performance further predictable consistent, execution. that focus more

this increasing meaningful targets global the expanding that three reach agenda. coffee Nestlé the growth global key By made two through against growth term all is a our and mission our our accelerating progress doing of We're foundation commitment have our Starbucks rooted priorities The stakeholders. brand values. alliance while long the with staying China, in of our for and Starbucks leveraging U.S. coffee, finest markets, We and strategic elevated true experience, to our the returns to of the good. our brand to scale and in longstanding quality unique,

the to wear elevated to deliver customers experience grateful proudly Starbucks our stores. of our green who particularly apron, millions am and day I partners, every an in Starbucks

Canada partners As many well store recent to America, in as and Asia here I've as with visits on U.S. shared Europe, the Latin

Our a to credit success is them.

our Together to leaders empowering forward next an inspiring executive and look this will managers store XXXXX come. we on team, as generations and over for of an September. conference joining this the Canada important our managers company for for in leadership enduring chapter store from I we Chicago, the build field and focus journey U.S. to with

XXXX With provide the you. to and walk Thank to Pat turn outlook. an segment update consolidated you that, to for results I'll to over and fiscal call our QX now through

Pat Grismer

revenue XX%. excluding and afternoon currency as On X% of for the Kevin total we am global basis, impact notably streamline pleased you total business grew coffee momentum related reported Alliance with as of impact sustained the ownership fourth the X% sale I Thank a consecutive interest good revenue activities translation, in of foreign our and well the everyone. Thailand, X% that the very a positive too delivered quarter. grew

led including to the prior our year. was EPS favorable net income X% and store new by global This included growth related X%. past which sales items the Non-GAAP tax revenue increase growth $X.XX comp of months versus of in $X.XX a business, growth over impact discrete up XX% XX global of retail was of of

our I consolidated our QX segment, by through performance of an by operating will you performance. now analysis take followed margin

months. segment QX, revenue Americas growth comp by delivered driven XX Our and new of X% over sales X% store comp XX% including growth transaction past net growth growth in the X%

to improvements QX growth again driven was sales the comp in benefited once in from in-store lap experience, and weaker and by performance the last year. our innovation, of initiatives, U.S. digital quarter beverage also

scores, mentioned throughput, as by level was higher as specific partner The and location rollout engagement. facilitate driven which connection enhanced in-store by as new improved changes store customer measured systems continued well to experience of levels customer that processes operational Kevin of the

with overall for our Most sales refreshment, points and one led comp in growth stronger and by cold drove QX platform, the and beverage sales contributing This driven was by food point growth beverage of the iced espresso. quarter respectively. iced coffee of six

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revenue XXX efficiencies, reserves. margin performance from operating leverage including driven by afternoon offset strength expansion all points as and This by mentioned as well to day across strong benefited and mentioned, partially growth day notably that our in Non-GAAP basis platform, to of Kevin in-store beverage wage initiatives, contributed I cold America's As experience QX, earlier. sales which of supply cost chain growth inventory saw the the we primarily parts, savings part, transaction the XX.X% improved

lapping in basis and improvement revenue operating in Americas last anti-bias driving XX margin respectively. points margin benefited recognition, year's of QX XX breakage this from and training, also year's change

CAP CAP business on a basis on Asia our grew segment in QX. fastest Moving to revenues Pacific, reported China growing X% or segment.

Thailand currency the business, of past grew store was months foreign new the driven by the X% from Excluding sale comp of and sales growth. in XX% our growth XX X% This impact revenue XX% net quarter. over X% impact the and translation,

key of our China I CAP would in now Japan. performance two quarter segment, like to highlight the third markets and

continue count prior in a rapid the We open by store XX% China, to versus new growing stores pace year. at

increase penetration our delivered well Importantly, delivery. QX a exceptionally market loyalty a as with to Starbucks high launched growth Modern helped by stores in our our China as in increased. April, and that deliver platform continued transactions, sales beverage new X% returns in Mixology also comp program Rewards new comp even X% of was as

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four As units. percentage point our to amounting These previous no release, China's noted than made comp adjustments across in comp we each case some reported in calculations a quarters, no our earnings to effect adjustments growth. China's harmonize minor comp growth business more had X reported ticket in or our to on financial statements transaction

we of saw performance LTL transaction For our and results business the our X% and strong momentum X%. These QX and the growth growth Starbucks year of Japan, were at Rewards with comp of Espresso of sales growth the beverages, fiscal in the blended start into comp by driven core Program. continued

included revenue XX XX CAPs in non-GAAP operating QX. This change favorability from the by breakage increased to margin in basis basis recognition. XX.X% points points

by mix decreased leverage technology cost were more and and basis than product savings initiatives operating offset CAPs points non-GAAP benefit, margin by this XX sales investments. Excluding as

channel of Coffee approximately development segment, which including revenue X% $XX which quarter. QX Onto to the million the a impact in XXX segment decline reduced our the in Global Alliance, by revenues of million reported

Alliance. While the it partially customer orders decline the to Nestlé prepared higher Global as directly Coffee expected, sales by of under was inventory expected than they fulfill to mitigated was

XXX margin basis operating Global XX.X% result points Non-GAAP including decline point the basis a Coffee by of in to QX XXX as Alliance. an decline

expanded our ready-to-drink strength the operating in basis non-GAAP North by American this, Excluding business. points driven XXX segments margin the

of points on the Consolidated due basis a largely impact business. basis year-over-year channel down our licensing operating development to XX.X% non-GAAP margin totaled XX

operating streamline approximately activities, by points non-GAAP basis XX Excluding expanded margin and sales our unfavorable point basis strong reflecting XX initiatives throughout impact savings leverage cost supply of the chain.

partners, The favorability reserves. the attributable technology, along partially cost inventory goods retail items our with was siren in by increase and from an investments product offset to these in mix and business including of sold

a of for of $X.XX, XXXX fiscal licensing guidance to fiscal the visibility have $X.XX full year, we to range final the year of largely now We to on the $X.XX on EPS due results. to $X.XX Thailand fiscal in to market. now in our of better prior Moving our range from our GAAP much XXXX, expect our gain quarter

non-GAAP points cost year is margin. in of $X.XX operating headwind XXXX September, be fiscal onetime EPS to range $X.XX including XX of to our expected now EPS conference of a Our the this basis approximately coming the is $X.XX of about leadership and full which of

range $X.XX guidance XX% than results for quarter. driven EPS fiscal non-GAAP better predominantly is expected this the third of to of in XXXX, previous range approximately year-over-year midpoint $X.XX by our EPS the growth. non-GAAP implies to The operating increase Relative

now X% revenue the are approximately are our at of foreign X% guidance the this Similarly, in we growth to fiscal X% top range for of expecting approximately expecting high we now of comp of XXXX with sales headwinds. of Globally, fiscal fiscal of even to our X%. end X% at growth exchange guidance range X% XXXX original X% end year

for our revision expect to fiscal This XXXX level, XXXX. relative slight in moving includes a slower stores a the to still we from consolidated downward to stores moderately to region. EMEA At down pace of XXXX margin the new XXXX fiscal to unit be operating store due net guidance development

second well our fourth also Segment unchanged Coffee revenue year-over-year from the previously impact bear our Thailand note the still quarter as licensing Alliance are from was business. as level XXXX of will Please our margins quarter headwind most earnings communicated for call. Global quarter what reaffirmed and of the the fiscal on that

margin also we in We one-time comp of QX expect lap compared conference lower compared to cost lower in leadership our sales yield operating a tougher as to combined, prior to be to calls. expect discussed QX these due our in growth to the And with percentage part QX factors, non-GAAP QX. in

Moving last that in to including most below billion as adopted income the the recent with billion and expense, policy items reminder starting year the line interest leverage August. May on operating last $X with we increased offering, debt $X

at $XXX this benefited amounting non-EPS Interest considerably for XXXX expected our million. items in versus rate reduced effective XXXX the XXXX to approximately is to-date approximately to significantly $X.XX these fiscal fiscal tax fiscal have be expense in EPS year. higher have Also discrete which

XX%. range As expect XXXX and in our the both fiscal rate to effective now to GAAP a tax result, be we XX% non-GAAP of in

tax Given for the approximately are be nonrecurring will closer of nature effective of non-GAAP effective tax that XXXX our likely rate fiscal much discrete generally rate expect items we tax to XX%. ongoing

Said differently, fiscal have EPS XXXX to fiscal XXXX rate. to to contributing the our growth XX% to headwinds our the benefited growth discrete tax X% items guidance which original of effect outperformance EPS will in meaningfully our non-operating relative

share Moving on beginning from a XXXX of dividends we the through repurchases. returned and of of to returns; QX billion shareholder shareholders fiscal XXXX capital over through have fiscal $XX combination

We fiscal $XX that into returning XXXX of we fiscal will shareholder pulling billion committed activity had fiscal This XXXX. XXXX. to fiscal of reach share of remain and to billion includes billion end the the capital XXXX by of forward expect repurchase end $XX by $X planned nearly for originally

more approximately anticipated. our average per completed XXXX share of year weighted As fiscal for $XX repurchases than of Note, previously a share repurchases result a we quarter. price this volume now third share normalized the expect in were

and we practice on call from quarter metrics fiscal what provide in our was our are XXXX with other communicated capital will QX past XXXX for expenditures previously second fiscal guidance XXXX All Consistent earnings reaffirmed unchanged full including call. year October. on guidance

as focus world's potential even our compelling To quarter Starbucks by by long-term on for QX strength one strong beloved brands, most Starbucks growth the disciplined scale said as of consumer our was global and execution. a any a innovation very of the remains underpinned measure Kevin summarize,

success business. credit our As for Starbucks every our respect to partners They corner in have the ultimate greatest belongs appreciation. our always passionate our of and

Culver I of the Derga questions our and are And top you. take outlined at as your by Brewer Kevin Roz call. with and Operator? that, joined Thank John to happy

Operator

question Your Instructions] question. comes Guggenheim Matthew first proceed your Thank from with Please you. with Securities. DiFrisco [Operator

Matthew DiFrisco

that in growth in of overall overall a you the had your was Kevin, the I and your you comp? Starbucks than the Starbucks Membership. acceleration contributor have prepared could quarter? comp My a might better I nice missed My was among I but number up if U.S. say you. made Rewards how to remarks, see wondering also the digital Rewards you jump comps. the in sales know Did much Thank in members a

Kevin Johnson

in Yes. Thanks. the about tender. royalty I our comment And two XX% of about comp that digital efforts our contributed program represented did points of quarter.

members acceleration So saw us. paying for rewards the off we active is in

Operator

with Dennis Your Please UBS. with next question from your proceed comes Geiger question.

Dennis Geiger

question. the for Thanks Great.

color Just year on from up I more additional attracting wanted on you're as coming you add you. mean number and that's than coming anything kind traffic number? detail if the in there heavier more could or traffic are even other that you're just converting any on the to that focus customers the certain where newer you that incremental driving them Are network, that any number, strong initiatives that traffic coming are customers of two well. Thank customers there's and getting on loyalty as the into others? Is actually customers. more. step Lighter

Kevin Johnson

to all strong day saw have details. transaction Dennis, in growth we part. was Yes. this a Roz of very quarter share the where But kind specific I

through to Dennis you So what take want the Roz you saw U.S. in

Roz Brewer

question. for the Dennis Thanks Sure.

that in to in-store U.S. work around Just two really of the transaction seeing a biggest improvement the and The program piece the the part And business in efficiencies have beverage around months started that is XX things. done, secondly, things the we're about innovation term stores. relationships. we is addition few driven the of long result really work digital we've Those the in the ago.

have piece, looked the to inside partners work execution were the their very contributing in-store task carefully the in the at Specifically that on we stores.

stores in store hours of roughly taking the work XX out task of in number at task the of reduced We've about the level. terms

afternoon from In been addition to really that, we traffic. benefiting also have

in roughly percentage drive of Our through stores of XX% our U.S. is the stores

cold tends the customer in enjoy that shop the to seen afternoon occasional beverages. and with We they the us have

work -- work So, of and monetize that peak the we've cold beverage to relationships we've seen, improvements the that doing morning reducing relationships. task know and and we're grow afternoon combination digital pipeline with for after lot that done the we when the our the then innovation for in a And now. we beverage really to fueling need customers We have as ready customers at those store those be as what level. it's about the more well the

Kevin Johnson

that I the hours time up we've in just of stores activity. that customer mentioned that add we've facing to XX freed redeployed Roz the

what's the So customer that's partly driven connection scores as well.

Operator

Your Sara next Senatore Bernstein. Please question with from your comes question. proceed with

Sara Senatore

you lapping question would on margins very much. robust then My much the if those on expected on margins expand as have comps of the quite Thank the I markets, both strip the I U.S. in if didn't as were training, China, breakage strong and obviously very just and topline. but out

a margin of with mix redeloying So that? sort maybe seem adding when of a cost is that's you I'm labor. conservative, that guided of Any was associated any of quite just sense trying not either terms at think sort the impact Day you. I just promotional case? flattish the to or kind there. there about the labor that you delivery of Investor talk is Thank EBITDA a If couple margin get and the but is in lowing because view activity? there it feedback to labor Is of

Kevin Johnson

Thanks.

Let the China. in through you and walk the discussion Pat on margins U.S.

Pat Grismer

the Sara for question. thanks and Thank you, Kevin

our want retail activities by for the XX are led points by in in consolidated First, to margin very very reinforce do about impact exclude basis you just quarter the is with pleased performance what streamline non-GAAP our operating overall we when meaningful I expanded our margin QX. business, related of how improvements

in But our significant our and realize make stores competitive leverage position strengthening in business, our partially to was continue technology, by product interests in notably our growth. across we sustain investments and that innovation savings investments chain. term long the did that partners, offset in sales in to cost supply We our of in

of the global seems for particularly you improvement modest ex context comp as admittedly a point quarters. Streamline other basis in margin relation percent a in say X% Now the XX to sales quarter

were really would to tax to So quarter. like and funded weaker as stronger partially drivers reserves U.S. sales favor well headwind due and what I offset segments from quarters. quarter. in less some the a for leverage investments is was occupancy and as inventory tempered what in margin our previous reserves breakage On the unique from our to specifically QX less expansion QX, margin higher ability highlight business In Americas by and to basis was expense leverage inventory consolidated do higher from compared specific the reform and to depreciation

pressure from platforms deploying profitable leases renovating support brew product With to in renewing long QX from depreciation number matter transitioning near-term related three to more and term. stores, stemmed developing a on one, include both like high As reserves of inventory In cold equipment platform. respect seeing store occupancy with innovation volume efficiency write-offs product new our both inventory things. operating general efforts new existing ongoing some new Number offerings. level and stores, and margin we're expense in associated three; specifically the drive two, to beverages out food to food and improve offerings reserves nitro primarily our Mercado and and number

profitability otherwise do P&L, the essential limit growth. investments are our these depreciation we improving near-term through flow Although and investments position, competitive our occupancy expect that future to maintaining these would driving expense strong on and in

technology was headwinds So and going I'm Margin foreign mix expansion there cap product exchange by in moving within higher investments slightly were China and business to the on product slightly levels a cap margin customers, to business costs focus but the specifically segment. the quarter. our incremental the drove tempered different. frequent of lower due mixology at less evening to in particularly increased Modern day with part and dynamics waste. packaging

strongly by of are in highlighted delivery top in MLP the contributed have The a our and these Starbucks technology of China. And to initiatives China our relate competitive including results to position and as Kevin investments to key Rewards. line number investments instrumental strength

you can of QX China. that unique the powerful expect would flow were other to business you quarters differences there a we were there were through to some compared some things in limited our U.S. terms experienced margin across and as that dynamics comparing that to such comp see So and the the

Operator

with Your from proceed Bernstein comes next Barclays. with Jeffrey Please question your question.

Jeffrey Bernstein

to I kind led highlight maybe much delivery I'm like you led to in that gave which Great. Thank Clearly, are along. of a range terms of you maybe of – compare I you of know would any mix into the Roz, how opportunity that sales, it's it in was wonder in some push. assuming you little specifics XXXX. of specifics if be in but you I'm what great? terms it know investors of think in seem compare quite to China more if much. to I know an that's variability very by versus ultimately you give fiscal what check, insight coming culminated the see terms excited around contrast And what market. I by China XX can markets delivery. of offer could specific if U.S. average a of provide would China the wondering guess color further can wide national metrics you the wondering couple was led terms that you rollout the was I Miami, I I – if and incremental if can to

Roz Brewer

Jeffrey. Sure. Thank you,

beverage versus China. of the versus all, market concept the of just delivery developing off delivery in slowly U.S. U.S. overall of a is me China let sort native the a by saying start is First that

a with encouragement However, actually national bear. launch. us read this seen we our Uber enough to as week for relationship go you bring earlier Eats have through to And

to So, expanded Seattle, New Miami. San Area, Francisco markets of and L.A., you're Bay then we first Greater Boston, across our and Chicago York right, DC all, included

markets more in three Orange July; seeing County. Dallas, expansion this and Houston with launched we're in what pleased We In we're ticket.

Our work we're first And adding sure most national towards level. could that second to at software we we to the you'll that relationship areas do was together marketing timeframe encouragement efforts. additional important during the good only forward us Starbucks to not we but that also and What this execute And coming could given those coming have the that see Uber had foremost. the store very with integration between is make go and program. two

through We this the period of have minimal work. marketing pilot

of and we're pleased we're forward. in level store terms ticket and So at expediting moving

Kevin Johnson

to Sure. delivery China. want perspective of you're a your what add you on John, in sort seeing you

John Culver

seeing out Yes. connected we that you understands the and rolled last XX very much and first China using know that the we're since digitally very cities much we've Jeff, to delivery XXXX across is is was consumer that and is implementation in to seeing stores it China now the And what in seeing foremost When you September. began us has to we're what for represents is we're talked slightly state than needs ticket meaningful lift. at that what convenience. transaction sales address stores. done it's is And it look what It Kevin which of our underneath X% delivery through driven us incremental higher their about. of now a

and delivery. We've each the the fulfilling continue And daypart that XX rationalize operations premium adjusting set very really targeting. the drivers minute manage menu. Alibaba experience. that and to effect to with have how the strong obviously store are we've a as and the There part really in attach. is morning that adjusting team products. food delivery have and rates obviously lunch through gone a on Starbucks time customer better delivery we higher stronger meeting We've the and also of packaging needs store we're has our and It's introduced delivering partnership we're through this day gone orders dedicated do focused in up We delivery the and making every and within sure the and the China base in really

is obviously then Alibaba enabled frequently not platforms engage with customers which to as more only well it's the through it. the all but through much available Starbucks has app, available And delivery

what we're very XXXX. and pleased grow. XXXX to with we're continue fiscal So in to of that channel to strategic end as in track we're a we're on doing see overall this by continuing the stores And delivery. get to We're going to invest

Operator

your Please Stanley. proceed with Your with next from question question. comes Morgan Glass John

John Glass

very much. Thanks

and that you use early maybe the those don't based you is could imagine bottleneck? throughput driver of this issues baseline those My some businesses you the just U.S. items. other potential of what the digital just been? be How helped just more I run U.S. How words if order consumer's pay. a the there. get lapping mobile or slowdown can reception do First, what maybe year, real is benefit the some willingness was make think a of so question significant running could better on to the in U.S. in that you where the year. in issues comps sure had ex the last is China we into clarify and you there In mitigate

Kevin Johnson

Thanks John.

China. U.S. the take take will year. in Culver mobile on then and to order last John Pat the Let first pay comps through And you question relative Pat?

Pat Grismer

X% was This comp. last comp So think weaker when year highest U.S. year is year to and comp to lapping really consider two-year last I was at a way quarters best two comp two-year then we performance look sales the X%. comp in John, X% over that sales And the was QX. sales year in impact year's the QX you with of achieved understand in the sales in the it two the X% the of improvement eight sequential this

provided I look delivering didn't improve from clear lap, when that easy performance but QX So demonstrates to it that results. taking you the think the comp an you the are actions business admittedly evidence result when step-up at that we're merely sequentially

this step is So I at I happened business a two highlight would recent believe comps in what our you look year will think that encourage we just to in trend and most the that of change quarter.

John Culver

your digitally China on the given up this pay particularly on optimistic savvy opportunity picking presents Chinese bullish we're the mobile and question order customers. on in John Yes, and and very

we've we've here first XXXX U.S. is for stores sure we're it late we from it. introduced expanded the state quickly rolled what now know us to we in our out in basically You And announced cities XXX market. it sit and stores and May in across see in we year we that of stores to mitigating when on challenges how we learned make any in the operationalize last that had that the U.S. the

see And our enhance we experience. store in I this for to shared to tremendous the dedicated is just and use were the continue which opportunity and as we Starbucks new customer saw us there he to to delivery mobile one we up then that concept unique further expand. is can order and have come mobile dedicated That fulfilling customers stores where And and and orders. pick we're core going pay their in space in to our order. Kevin

how opportunity very with us going. going so And big monitor very a we're thus to continuing far things being and we forward. pleased closely for see it are We're

Operator

proceed Charles comes with question. Company. Andrew and from Cowen your with question next Please Your

Andrew Charles

you. with ads the Digital MSR seasonally conditions. Thank in identified and XQ are and a you've line with Was largely key in this relations largely additions active were sales same inflected award and domestic programs the record. members Were that there in to April? function in the the Great. structure XXXX historic over members in XQ changes members different non-MSR inflection convert past? source changes was that a the were seasonally on MSR the quarters tactics that quarter highest it XQ the gross And after store like MSR looks XQ the in in

Kevin Johnson

dynamics Roz there. let Andrew I'll Yes. through you take the

Roz Brewer

Yes.

a Andrew things. So, couple of

are of Just There to three program. understand did we components that go that the details make the back to April. in about changes into

and all to reward been to stars. our of XX XX part achieve stars two is visits. the members around three actually number this for -- redemption new achieve had the to then members of allows within it that In First first all reward would and visits you our past

the piece members about is second And the aspect program once of you of previously around could they stars. redeem when only reached this multi-tier think the multi-tier XXX The redemption.

can to it then tiers of XX stars Now holders. no the also for expiration part Rewards XXX at are And coffee credit and added at to such able home redeem. the last is merchandise for and Starbucks card we've five new members from their ranging redeem stars items as that you

And so for stars card expire holders. do not

change success with ready mention changes compared past had its new positive the you to base. interruption. overall on been the customer to open our So one that XXX% a program also zero for business the we to us. has I'll and minimal day from tell disruption sentiment they will early There's partners and the felt that in stores program the

conversions a is program non-SR. the success. seeing from We're So our

In non-SR addition our and about earlier. to I'll member occasional our talked members able add to that, to we're speak that I that's

afternoon beverages Joining us likely our category growing improving needed through refreshment it our the it's enjoying we so afternoon and in well. part where as drive and through day the in cold most

early we're So encouraged the by signs the of program.

Operator

with proceed Ivankoe your Please John of Morgan. line from J.P. comes question question. with next Your

John Ivankoe

couple cycle, United right traffic The the the Do of previous the time two-year guess on about A that's as question the guess frame level should expect traffic other I that you own the of States, theme. I XXXX competition growth? has store kind around zero what same-store fiscal we in been given your change the you is the think past quarters. That's the think in comparisons based or first think of we question. about economic

essential terms much question at mean is I is but How we mentioned labor as obviously retaining ending like there And dollars labor or we the more labor more where us are look could I Should your level. and or we to to what could tell do be the inflation with Roz. in you of line go? from are week own. operating is of for there? And kind store productivity attracting secondly deployment, in brands so expect we? you've lean total know at for then less that the principles anything which per there side are at you

Kevin Johnson

have principles on labor dynamics let's your first take and John question Roz lean and Pat can the in stores. comment

Pat. So

Pat Grismer

absolutely you're right. John,

for quarters. quarter has been where comp of transaction in third was flat the two-year U.S. it last for the the Our couple

transaction across an improvement over comp XXXX. However two-year negative that really the is all fiscal the was that

do forward calls progress. going X% for growth on the I comp comp that at traffic of a coming we're would positive context X% comp we from -- believe in growth to ability confident basis that deliver model growth U.S. of say our that term least X% to our two-year in good with in So making remain traffic growth. sales one long we

seen in think results the playbook developed in-store have that the three And Roz confidence here even What us yield improved with that and track term with consistent confidence playbook steady team beverage last is consistently is on key here us what improvement results in more is digital. that model. experience, most long with that gives recent quarter demonstrating we're and will that an quarters this you've the over that right four gives the our U.S. to growth I her breakthrough elements; inflection innovation point our in ability and the deliver

Roz Brewer

we're lean seeing question principles of sort pipeline and labor about what's for your the of John, deployment. terms what to in left in

be So, our a longer first to is of stores. now. all, saying I'm there by let But me still what we're and term plan right by encouraged at yet there's seeing off done start work that

we stores. we addition of talked that up looking constantly task done First several accomplished things all, far, week at we've free We how in so do are hours in the to but per about the that. twelve we've

of we've and have we major our into handoff of high areas some expanded gone First markets plain. all that are MLP the

so drinks work the is reallocated they the earned turn doing that exchange MLP and that into crowding extended the those the from they right physical added in have are labor handoff customers we So as hours labor hours when and back We've stores were have have where hours the we facing. can spend that hours area space. are customer exchanged that and

training. And around is the work then the done other part of that we've

up pipeline What's time in more in that and now tool in the left the have in will QX year stores. to scheduling significant put progress we're train in freed have we in we so the for work XXXX. that place hit able we through And labor us, fiscal

is going with we excellence and First be introducing us foremost the which execution. actually store further help routines will and to inventory

we what is do piece second our food. with The

automated we -- hit replenishment And to over improvements a then it have of fall will and in that next and food time some allow next there our improvements. as centralized are a period quarter the where in our first, and year have of significant planning We and to pull then process, second well lastly, process stores year.

matters those So in store at us most. we are reducing and we're that in significant pipeline we the work gives store the into labor what reallocating managing encouragement have and hours back work the that

Operator

with question William Blair. comes Your proceed from next the line Sharon with Zackfia your question. Please of

Sharon Zackfia

Hi good afternoon. on a had I China. question

comp delivery the the of year to at all about think that Pay how whether acquisition the Order look over versus between past you market. Starbucks the is Rewards in most frequency? increasing it's store that When new or change or driving recently efforts customer Mobile you when comps So

John Culver

Investor total the growth revenue Yes. metrics and Sharon, XX% Day. that key What growth that with market entire transactions you the we or two given for I in John. know Around back would across then this is we the at the market the that gave seeing we're the say go to is to comp year-over-year non-comp and and an store in market double stores market total delivered digit include growth growth. strong new I'll stores

customers Rewards but we the the see and the not we And which also and so, customers experience, Starbucks we happening to Starbucks frequency. frequency continue the this Starbucks through program. in to new we customers only way as dig look brand is the into we that say, now then at on increase into attract And existing continue existing into

further have year-over-year has access Rewards it. membership to we've at moved customers enabled a to Rewards based from And when you and we look the based program moved sorry program in spend December our spend program, I'm Starbucks we XX%. into into an accelerated members enrolling active have and which easier the over Starbucks QX program We now and X.X by grown XX%

existing rewards and more a of of more program. part And customers so want the to our be

existing the where our also driving then meaningful where with live. but and in they open customers and areas stores we're they repeat new we stores attracting work as existing customers, into So

very the have about the frequency. and we're strategy this and existing we new acquisition seeing on customers that and we good that around So feel both

Pat Grismer

where in introducing add we're culture you about those you investing drinking expanding first that, Yes. would stores Arabica had Sure premium China. store growth the I predominantly that new and sell presence. comments just a new is Starbucks that teas John's our time store And well. we're in into the it's cities the just we're to tea to as consumer China We coffee. remind we've new and Many Chinese of think

us of Chinese great that in new establish number And keep we there then China. to and increasing attract to significant customers for we're long we'll digital So introduced to as relationship And a create them opportunity relationship runway we coming. life. create a for for continue do a experience and to work are a of customer them. there and dramatically Starbucks to new that from ultimately with we And customers them help relationship Starbucks. is that But the consumers

Operator

proceed Tarantino The with Baird. next question comes question. from your Please David with

David Tarantino

afternoon. good Hi,

should you. us then continue? deal was my or was with that of what you and if thinking and question of the Kevin. did as expect this strategic you clarification my Brightloom. how widely? you extend question. some Starbucks we onetime And what's that wanting behind quarter clarification, side to the whether how monetize about tell start it the implications some The Kevin, so, one engine do reserve other protect you think we digital a that Pat, to the then I something successful for nature should guess to for of brands? could of issue inventory made And more Thank And on is proprietary Just other the you about the impact you

Pat Grismer

by food where platform reserves year a transitioning our the inventory primarily fresh new the earlier the we're issue to and over the I respect platform or so. in U.S. was next of the in with driven Mercado primarily David, as to process business mentioned food

some commitments were business, our third So an the part third as reserves there level in quarter. in that obligations and more We're ongoing were resulted taking our of fourth not but elevated in some quarter. the reserves reserves anticipating take inventory those basis that do in on supplier We other reserves our quarter. on

Kevin Johnson

it. And David in growth digital. plays I that for looking on answer sort we're accelerate your and to of Brightloom recognize for always innovation the question a business ways certainly role important on your and question new We and about digital context little give our drive

app increase a Starbucks experience, delivers entered of That has the has our launched accelerated Starbucks build little Digital ago embedded relationship mobile was that digital in than Alibaba it enabled kitchens and us stores. star flywheel China homes example, progress that we to the in For less with reach China. year a the into partnership

I to digital say for or a flywheel license global working been the find to services last year way provide we've to our so partners.

and of the Asia. Because technology that XX Latin approximately partners companies and stacks keep brands, Starbucks to in America large are we digital manage to EMEA, different different to mind operate stores tech there and partners most had experience Southeast of those run creative they find way a Starbucks also those throughout multiple deliver stacks. Now who license the have consistent brands multiple restaurant run diverse each and

why new company That's elements license Brightloom. company and create flywheel. a to specific software called we of restaurant is of called tech the the the Starbucks formerly tech merger Brightloom of partnered Eatsa digital a

those managing that certainly things generally available ordering elements engine things are loyalty and elements Starbucks. specific our are Now like other the are proprietary and for personalization still to

received venture new rather we but to return this those of digital that Starbucks the didn't with So equity flywheel stake the invest elements license in software cash specific license. an we for in

A board of focus that stage license that see customers an our as Brightloom on partners sort from Brightloom they're global early going to commitment and serve. the

the the license position So in broader based to Brightloom partners platform. be industry as cloud a who going well restaurant service is as those to software need Starbucks merchants same

established partners think I a this our team and in Starbucks to team. of that to focus for of we digital to to license globally. the enables leverage It gives Alibaba China in bring capabilities our digital aspects strategy China proprietary China to R&D now house to with outside technology continue allows supplement continue flywheel to markets us operated digital So company and our our flywheel solid the on us the the our partnership

around partners. get license this think next strategic a think our a seat flywheel So a services solution front row is we move really have and of on to generation innovation we international digital to Brightloom that from

Operator

question with Your Jefferies. Andy your question. with proceed next Please from Barish comes

Andy Barish

are you're meaningful Wondering comp you you whether in a willing with or the you delivery it in some in been expect kind on share what areas on And XXXX? the some a U.S; if contributor early to haven't large to of out. levels seen Uber the the of of And maybe you incrementality urban in started you've impact expansion of markets you not Eats? be seeing yet

Kevin Johnson

to Roz, take you want that?

Roz Brewer

Sure.

So, we're couple we're by things. One, the a of incrementality Andy encouraged that seeing.

We've the per attach us food ticket. has We're at We made seeing expanded helped a We're our quality ticket. which level advancements of tremendously. upon some in significant are beverage delivery. seeing seeing packaging

We're do that we've dollars for So, we this far we're marketing get in what long think by expand as encouraged seen us encouraged could we run. it. so behind what the and

Operator

with Bittner your Oppenheimer Brian Please from proceed comes question next with question. and Company. Your

Brian Bittner

Thank you. A guys. the question question U.S. Hi about China and sales about sales.

On could that beverage little more finding the about that's product. talk doing lot selling it's to what accelerate the of bit you U.S. are we're rollout a comp for leading the just Nitro this a comp U.S. and the really stores out just

acceleration you in in you China? from really outside what big seeing looking a much in was quantifiable -- the been have really have the only were overall talked coffee you to market done have the doing? are that And So last question better. arguably your there. yet, the interested China, on related accelerated really trends nice And Or And we headwinds is guys. for up you've really competitive Nitro? seeing the any competitive year idiosyncratic headwinds Thanks comments

Kevin Johnson

Thanks Brian.

over then second the and to as hand take one John well. the on let I'll Roz first one then me Let comment

Roz Brewer

been the for Brian. Sure, of experiencing you've growth Nitro, beverage contribute about quarter. on sales to our outages did total unfortunate but any that It's XX% growth

got we've demand in for here So of good terms the in news Nitro. receptivity

In with to cases equipment. advancements new accommodate us making rooms install behind what happen bar have and in Nitro. are back need requires it to most our the we We to

more so of XXX% our this better And we stores now more and stores that seen probably early the as right rolled getting stores as go at day we space then in out And on of in for making of and year we bore we're by the every XX% this. learning happening be we're go. our and and And as execution of Nitro. is learning get we've end August growth better we're we the and should a and and attraction by full

Kevin Johnson

surprise also industry, And for I the opportunity And to Brian industry the what's the addressable and also is certainly coffee. China's argue tea certainly that think market growing would more addressable large a represent competitors I for culture, but a to when addressable large and drinking China more it's focused is competitors. consumer. coffee very the no in good growing try market That's of And attract the at about actually Chinese good going on of by for market the coffee for good accelerates adoption Starbucks. because

the that us as evolves, market differentiate stay on Starbucks know the You from important others. to key for focused elements it's all

needs Coffee, warm serve, for we we've over of third know relationship the each Comfort, in and welcoming environment that premium customer experience experience we state new year, can where people the around the our connect coffee It's extended beverages that customer. where third craft convenience. tea. capabilities and digital Arabica personalized amplifying place the You place fact that and really craft, important also coffee the we over the what you've customer enabling seen last connection, create place this

third it needs the to And of Starbucks of is coffee extending the and in state is that convenience. and craft it place and differentiation that, it

to You China. on that and stay anything feel of I that working to China's know, exactly think have results to model. else a The contributor John, position And large you to performance continue add? we've seen. -- going going we're our we've growing direct want strategy is we like steps great the taken to we're further differentiated focused market in that's and the

John Culver

they this hit building out the in the in that focused successful true customers would Yes, us other think to a the people purpose China around and really our that's would team Kevin term, connection, it the our travel you whether and of around that the for China I just very differentiator is see and -- made long on and and with or versus the there to growth on which a with opportunity whether we and in the that our to interact for centers competition, it’s us add And pride partners all, what enduring for and China world. customer our company XX for markets their driven know in just it agenda you I Kevin is, only build I but those that's China. have operate point

can we the if any us, that competitor us is elevate for significant market our point who for operate to can that feel in coffee So our elevate of customers, versus continue we in. for partners continue to and that differentiation experience the we a any

Brian Bittner

Well said, John.

Operator

proceed next comes from Francfort Bank with Please Gregory your Your of question question. America. with

Gregory Francfort

it way headwind guess is, rolls a going that margins? in Hey a can and to I'm through when years, pretty up appreciate five that's framing prices as question. rolls I lowest be Thank at out is tailwind -- Can guys. point through Thanks it guys and from help you far. maybe the I or there you know can P&L frame for the your it. coffee here looking you their that I'm very hedge much

Pat Grismer

This Pat. Thank Gregory. is you,

all in global for green coffee XX% to coffee expected of our sold. First our put goods account to purchases perspective, prices about cost of are of

So it's not for a meaningful mover or us. a move

our we not close we've this of a the you've have we're are We on big next for have pay seen It based that for as way majority needs something taken. going coffee of anticipating the by XXXX attention we positions well. to you fully and is but volatility XXXX price locked locked fiscal fiscal to, what year is that or impact know on

Operator

Morningstar. Your next from question comes Hatovi [ph] with question. Please your proceed R.J. with

Unidentified Analyst

way had Thanks. into things, wondered customer or the labor specific a if and any a whether lot factors experience had follow question discussed I other I've but that went that, about reallocating qualitative re improvement scores, have peak you you're whether or improved of how that measuring around seeing anything be satisfaction quantify help and us to throughput it that? hour in might so put to some context financials around you just that the any stores up

Kevin Johnson

Yes.

customer on how And which you of the motivated set those let engagement engaged feel what what indicator you Partner about I'll you're of scores, a is comment and there and partners think an know sort way things scores. of sort and doing is they're and inspired, look that of metrics Roz, at. connection we You driving. they our

Roz Brewer

we scores Yes, we connection are because score. customer from repeat at directly increasing. higher will know customer those know We look that see we visits when connection

see did So scores. this customer quarter, we record connection

The us work basis. our for while but growth not one-to-one around the bringing that repeat customers SR other metric, growing when doing watch speak it's non-SR we're members you that thing to to our members customer and on a us to connection a our really see them on and

They large do stores. with you they So know able customer loving speaking freeing many up more the our at point from time time and I'll perspective, do much innovation beverages between the to only on being we're in know personal are our and right handoff building don't question, limited into. you by will more are the Starbucks love but offer be moved and get work base of these purchase. advertise, personalizing drink. now And they're to just we understand about how right a the partner the to we've promote, know customization to they They're What much to much plan in groups so that what that we that talk, from customer. have excited stores, digital brought having tell we're a eye relationship the not hours contact, whole They're a they partner you now. partners our we one-to-one better that beverage

So see it's it be make an into the stores exciting task customer. time and you'll them everyday they're that we're to that to do sure when our partners and and stores to the the for takes with work they can you with understand working our alleviate what in walk engaged and best that

Kevin Johnson

what stores through engagement the in partner and of thoughtful more scores. and in about a connection supported and for time how connect through we step them our feel administrative really of lot partners, stores credit to we to scores, I those the want for team list her that tasks partners that our automate in our be with things more Yes, customers, simplify that and gives that could get customer comes the Roz some how done they've could to back

to who special metrics. could it day, and stores. for our partners We the we that metrics of the customers can end in then Starbucks goes actions create that the come of They the that take our at look care move But at so, wear experience back And it. those probably green apron.

Operator

with Lauren Your comes question Credit last from Silberman Suisse.

your question. ask may You

Lauren Silberman

thanks. Hi,

going terms to Thanks. Just of change you back And program the among you the well from frequency frequency large. successfully when any Did any higher talked see longer historically. in seeing change, what loyalty and rolling change in increased it then program we've went term like spend behavior U.S. and relative are the pushback among by Rewards in Reward the seems to the in about newer cohorts members?

Roz Brewer

the Sure, Lauren. question sure. Thanks for

I So, seen in last innovation, what that first forward of quarter, would has brought long do to a are the in us. all our with with term tell customers you more stores. they we've this shopping the beverage we've that lot

our term members seeing with as dedicated we're our members. growth long So

customers And non-SR is then visit on at still hours segmentation. adjusting and know them, with the our some look are doing but in that's stores. it learning of our schedule we allowing schedule, time you new customer labor And about to us we're work

the to So we're new XX in afternoon and labor is because about that we the we're iced recently business their teas refreshers tool, cold actually as learning a learning them, part, and installed more scheduling the we're days. it grateful just give we've business, preference really introduced customers for already have the these our past moving in beverage day and

this and the continue still bring fully as more learn we're group is we back So learning, and to program place. those in we'll learnings to

Kevin Johnson

all I Thanks take wanted thank the you to for us Roz. Thanks joining this to question. today. opportunity for

Growth on we is at then You know growth discipline. enabling us -- with outlined year is executing reflecting this at about focus Investor Scale Conference agenda long-term our in at alignment consistent, this our in really really sharpening to our This in Starbucks, predictable deliver December. and past is growth the algorithm with

rather, victory company team, As this you what our This results. on laps Starbucks. can to of a QX, a staying to partners, takes and after we our focus what true and take is expect customers we is enduring and care great do serving delivering taking not but mission quarter from our leadership like it an values, build

Durga? I'll call that turn for a with Durga over And the to announcement. brief

Durga Doraisamy

fiscal for conference Again, quarter Everyone for has October great fourth Kevin. would you planning Wednesday, please call note year Thank purposes, and XXth. been XXXX October you, a your scheduled be have XXth. Thank and our Wednesday, tentatively that evening.

Operator

fiscal This year Starbucks third coffee XXXX conference call. companies’ quarter concludes

now disconnect. may You

Starbucks (SBUX) 25 Jul 192019 Q3 Earnings call transcript