The conference call for Starbucks' first quarter fiscal year 2024 results is being led by CEO Laxman Narasimhan and CFO Rachel Ruggeri. The call will also include Q&A with Chairwoman Belinda Wong and CMO Brady Brewer. Forward-looking statements will be discussed, and GAAP results will be compared to non-GAAP results. Any relevant updates and exclusions will be noted.

In the second paragraph, the speaker discusses the non-GAAP results and measures of revenue, operating margin, and EPS growth in constant currency. They also mention the availability of reconciliations of non-GAAP measures to GAAP measures on their website. The speaker then introduces Laxman Narasimhan, who will discuss the business performance in the first quarter of fiscal 2024. They mention strong momentum and success during the holiday season, as well as growth in loyalty programs and new product innovations. However, there were some unexpected challenges that impacted growth, but the company has plans to address them.

In the first quarter, our company had strong performance with record revenue, global store sales growth, and increased operating margins and earnings per share. Our loyal customers are visiting our stores more often and spending more, as demonstrated by record numbers of active reward members and gift card sales. In China, we are the top choice for premium coffee, especially among younger consumers. We continue to execute our reinvention plan and build a strong brand.

Despite facing headwinds, our brand continues to have high awareness, customer connection, and retention rates. We offer innovative products and experiences and are focused on being the best in the premium market in China. However, we faced unexpected challenges in the Middle East and US, leading to a slowdown in growth. We responded with a plan to address these issues and also experienced a slower recovery in China due to increased pricing competition.

Starbucks has responded quickly to challenges in the US and China by implementing targeted offers, utilizing data analytics and AI, and increasing brand marketing and engagement on social media. In the US, these efforts have led to a rebound in occasional customers, but there is still room for improvement. In China, Starbucks is confident in the long-term potential of the market and is focusing on offering new products, increasing engagement on social media, and investing in technology to serve more customers.

The company's investments have led to a more digitized store environment, increasing efficiency and enhancing the partner experience. They are also focusing on opening new stores in lower tier markets with stronger economics. The company remains confident in their Triple Shot strategy and is making progress on their first priority of elevating their brand through great store experiences and product innovation. This includes the installation of Siren System cold and food stations and Clover Vertica single-cup brewers in their stores, which will improve the coffee offering and increase partner productivity.

Starbucks continues to offer unique and romantic coffee blends, such as the Verona blend and the new Milano Roast inspired by the art and culture of Milan. They are also launching new beverage platforms aimed at Gen Z and millennial customers, as well as introducing new food options for the afternoon. The company is seeing positive customer response and strong unit economics with their new offerings.

The company's recent age class of new stores in the US have been successful, with high unit volumes and ROI. They plan to continue opening more stores and investing in purpose-built locations, including drive-throughs. The company's second priority is improving their digital presence, with a focus on mobile ordering and personalization. They have seen success in their US delivery business and are conducting a pilot with Gopuff for overnight orders.

Starbucks is expanding its mobile ordering and rewards program, with over 40% of US licensed stores now offering Starbucks Connect and a new partnership with Bank of America. The company's third strategic priority is global growth, with over 420 net new stores opened in the quarter and a milestone of 1,900 stores in Japan. The company is also addressing the impact of violence in the Middle East and the near-term situation in China, but overall, the business and brand in China remain strong.

Starbucks' revenue in the quarter grew 20% in constant currency, driven by a 10% increase in comparable store sales growth in China. The company launched 12 new coffee forward beverages, saw record digital sales, and high customer engagement. New stores continue to perform well and employee satisfaction is at an all-time high. Starbucks is celebrating its 25th anniversary in China and plans to reach 9,000 stores by 2025. The company remains confident in its long-term growth in the international market and will open two more roasteries outside the US and China.

The company's fourth priority is to unlock $3 billion in efficiencies, and they have made progress through their Triple Shot Reinvention efforts. They have invested in improving the experience for their partners, leading to a decrease in turnover and an increase in partner hours and satisfaction. They are also working on driving efficiencies in their supply chain and expenses. Additionally, the company is focused on reinvigorating their partner culture through strategic investments and support from leadership and the Board of Directors.

The CEO of Starbucks clarifies that there is no union busting at the company and they are committed to finding a positive path forward with unions. They prioritize their partners and plan to continue improving the partner culture. The CEO also mentions their strong strategy and confidence in future growth. They emphasize their focus on human connection and standing for belonging, joy, and humanity as what sets their brand apart.

Rachel Ruggeri, speaking on behalf of the company, expresses pride in the significant margin expansion and double-digit earnings growth achieved in the first quarter, despite facing challenges in revenue growth. She credits the company's focus on reinvention for driving efficiencies and creating a more durable business. The company's Q1 consolidated revenue reached a record high of $9.4 billion, driven by comparable store sales growth, new store openings, and global licensed store revenue. Operating margin also expanded, primarily due to sales leverage and operational efficiencies, offset by investments in employees. EPS increased by 20% from the previous year, demonstrating the company's ability to drive growth and profitability through various strategies. Ruggeri then goes on to provide segment highlights for the first quarter.

In the first quarter, North America saw record revenue of $7.1 billion, with a 9% increase from the previous year. This was driven by a 5% increase in comparable store sales, with a 4% increase in average ticket and 1% increase in transactions. The US licensed store business also contributed to growth. The US company operated business had a 5% increase in comparable store sales, with a 4% increase in ticket from pricing, mix, and customization. Despite a decrease in traffic in November, loyalty through the Starbucks Rewards program remained strong. North America's operating margin also expanded by 280 basis points, driven by reinvention-related operational efficiencies and sales leverage. This was partially offset by continued investment in partners. The focus on staffing and scheduling based on partner preferences led to increased store efficiency.

The company saw improvements in sourcing and waste reduction, leading to margin expansion in the first quarter. The international segment had a revenue growth of 12% due to new store openings and comparable store sales, but the pace of recovery in China was slower than expected. Despite challenges in the Middle East, the company remains committed to long-term growth in the international segment. China's revenue grew by 20% with new store openings and comparable store sales growth, but there was a decline in ticket sales due to a shift in product mix and increased promotions. The international segment's operating margin contracted due to investments in partner wages and benefits, business mix shift, and strategic investments. In channel development, the company saw strong performance in its licensed stores and CPG products.

In the first quarter, the segment's revenue declined as expected due to the sale of Seattle's Best Coffee. However, Starbucks maintained its top position in the US At Home coffee and Ready to Drink market. The operating margin also decreased, but the company expects it to improve by the end of the year. The company's guidance for fiscal year 2024 remains unchanged, but they have revised their outlook for revenue and comp growth due to recent trends and a softer January performance. The new outlook includes a lower global revenue growth range of 7% to 10%, revised from 10% to 12%, and a lower comp growth range of 4% to 6%, revised from 5% to 7%. China's comp growth is also expected to be lower for the rest of the year.

The company expects to deliver strong full-year earnings growth and operating margin expansion, with a rebound in metrics in the second half of the year. Their disciplined capital allocation approach has resulted in record cash generation and allows for both shareholder returns and investment in critical areas. The Triple Shot Reinvention strategy is driving success, as seen in the strong operating margin performance in the first quarter.

The revenue and comp guidance for the company has been revised to reflect Q1 results and expected headwinds. Despite these challenges, the company remains committed to its full-year fiscal 2024 EPS growth target. They have plans in place to navigate the complex environment and are confident in long-term growth. The company's capital allocation strategy has also contributed to its financial strength. The call is not meant to address questions related to recent proxy filing. The first question from Barclays is about the fiscal 2024 guidance and the company's performance in January.

The speaker, Rachel Ruggeri, responds to a question about the company's revised revenue guidance and expresses confidence in their ability to meet the range. She mentions the impact of transitory headwinds and the slower recovery in the Middle East, but highlights the strong and growing loyal customer base, increased digital capabilities, and successful reinvention as factors that support their revenue growth. She also mentions the success in driving earnings growth through multiple levers, including revenue growth, in-store and out-of-store efficiencies.

The speaker expresses confidence in the company's ability to achieve 15-20% earnings growth by having a balanced approach and multiple strategies. They mention that the US market saw strong performance until mid-November, with loyal customers, holiday sales, brand equity, and gift card sales all doing well. The occasional customers, especially those visiting in the afternoon, have been impacted, but the company has plans to address this through increased demand, a successful loyalty program, and new product platforms to be released in the next six months.

The company is taking three actions to increase traffic and transactions: opening up their app ecosystem, implementing targeted offers for occasional customers, and continuing to improve their stores. The focus is on product innovation, particularly in the areas of beverages and health-conscious food, as well as digital initiatives such as expanding the reach of their app and using personalized communication to drive ticket sales. The company is constantly improving their personalization capabilities to stay ahead in the market.

The speaker is discussing the strategies for improving Starbucks' accessibility and increasing membership in their rewards program. They mention expanding delivery options and forming partnerships to attract new members. They also address a decline in average check in China, attributing it to cautious consumer spending and targeted promotions. However, beverage and food sales were strong and contributed to overall comp growth in the first quarter.

The speaker discusses the decline in the coffee market and the increased promotional environment. They state that the market is still evolving and there is a focus on low prices and expansion, but they are not interested in participating in a price war. Instead, they will focus on providing a premium experience and have clear strategies for growth, including beverage and food innovation, digitalization, new store expansion, and omnichannel expansion. They express confidence in their ability to drive growth in the short and long term. The next question is about the US business.

The speaker asks about a slowdown in traffic with occasional customers and if promotional activities are targeting them. The CEO responds that there is no slowdown in loyal customers and an increase in frequency and customization. They are working to bring back occasional customers with the right offers, innovation, and in-store experience. The next question is about operating margin expansion in the Americas segment, which was driven by leverage on the store operating expense line. The speaker asks for clarification on this and the CFO explains that the line item was flat or slightly down year-over-year, and they are working to sustain this performance.

The store operating expense for the company is largely influenced by their efforts to improve in-store operational efficiencies. This includes focusing on operational execution, investing in equipment, and improving scheduling to provide more hours for their employees. These efforts have resulted in lower turnover and a more stable environment, leading to a better experience for both employees and customers. The company sees further opportunities for improvement in scheduling, staffing, and out-of-store efficiencies.

David Palmer asks a big picture question about Starbucks' growth strategy, noting that US cold beverage sales have increased while hot beverage sales have declined. He suggests that this may be due to a shift in customer preferences towards cold drinks, particularly among younger generations. Brady Brewer responds that they do not see a tradeoff in frequency between cold and hot beverage customers, but rather a shift in generational taste preferences. He believes that younger customers are drinking cold coffee every day, rather than hot coffee to start their day.

The company has seen an increase in their cold beverage portfolio and believes that there is still room for growth in this area. They are also continuing to innovate in hot beverages and are not seeing a trade-off between the two. They are confident in their unit growth in both the US and China and do not believe it will have a negative impact on same-store transaction growth.

The speaker is addressing a question about the company's growth in the US and China. They mention that while there has been slower same-store transactions in the past, the company's revenue and unit volumes are still growing. They see a lot of opportunity for growth in the US, especially in areas where the population has shifted. They also mention plans to build more purpose-defined stores in the US. In China, another speaker will address the question.

Belinda Wong discusses the long-term growth opportunities in China, with the company only present in 857 cities out of nearly 3,000. The company plans to accelerate its expansion into new county cities and is on track to reach 9,000 stores by FY '24. Laxman Narasimhan praises the business for using the COVID pandemic as a time to reset and improve its supply chain through digitization.

The speaker discusses the strong performance of the company in China and attributes it to their ability to deliver value and provide a premium experience at a low cost. They also mention the team's efforts in building a strong business over the past 25 years. The speaker mentions that the team is prepared for the market to improve and expects even better performance. When asked about the change in China same-store sales guidance, the speaker explains that it is not due to seasonality but rather the progression of the business and lapping COVID impacts from the previous year.

The company is looking at Chinese New Year as an indicator of consumer behavior and has factored it into their assumptions. They expect a recovery and stabilization in the back half of the year, but the Chinese consumer is cautious and the recovery may be choppy. The company has already led in the premium market and is adapting strategies to reach customers through social media. The first quarter saw some customers lapse, but there was no specific demographic that was impacted. The company is also working on three new beverage platforms, but there may be trade-offs in terms of speed.

Sharon Zackfia expresses concern about the potential impact of new beverage platforms on Starbucks' throughput. Brady Brewer reassures her that the company has a disciplined approach to introducing new products and that the three upcoming beverage platforms have been carefully designed to be operationally efficient and appeal to specific occasions and customer demographics. Starbucks attracts a wide range of customers, including both occasional and frequent customers.

The company has revised its revenue growth guidance for the year, but is maintaining its EPS growth guidance. They expect a rebound and stabilization in the back half of the year, driven by revenue growth from a loyal customer base and success in digital and reinvention. This gives them confidence in the flow through from the revenue growth.

The company expects to see continued strength in their operational efficiencies and cost savings, which will help drive a 15-20% increase in earnings for the full year. They have already demonstrated margin expansion in the first quarter and expect to continue benefiting from revenue growth and sales leverage in the second half of the year. There may have been some cost savings pulled forward into the next fiscal year, but overall, the company is confident in their ability to maintain strong earnings growth.

The company expects to see benefits from operational efficiencies and investments in areas such as G&A and reinvention, which will help them reach their earnings growth commitment. They have a systematic approach to innovation and productivity and have visibility for multiple years. They will continue to invest in the business and have opportunities to make themselves more efficient. There is no impact from a buyback and they are confident in their ability to meet demand.

The speaker notes that their buybacks are expected to be small in comparison to their earnings growth. The operator then ends the call and the speaker reiterates their confidence in their long-term growth and the strength of their brand. They also mention that Starbucks is a different kind of company operating in a different world and they will continue to provide a place for people to come together and find joy. The call ends.

This summary was generated with AI and may contain some inaccuracies.