The conference call for Starbucks' third quarter fiscal year 2024 results is being led by CEO Laxman Narasimhan and CFO Rachel Ruggeri. The call will include forward-looking statements and cautionary statements about potential risks and uncertainties. GAAP results will be excluded from non-GAAP results, and all numbers mentioned on the call will be on a non-GAAP basis.

In the second paragraph, the speaker discusses the non-GAAP results for the quarter, including revenue, operating margin, and EPS growth. They mention that these results are measured in constant currency and provide a website for reconciliations of non-GAAP to GAAP measures. The speaker also mentions that the conference call is being webcast and an archive will be available on the company's website. They then move on to discuss the company's results for the quarter, including a 1% increase in total company revenue and a 3% decline in global comparable store sales. They acknowledge that their performance, particularly in China, was not satisfactory but state that their actions are making an impact and they see positive signs in their US business.

Starbucks is focused on three main strategies to drive growth in their US stores: improving operational execution, launching new products, and demonstrating value to customers. The company is seeing positive momentum in core store metrics, such as partner scheduling, store issues, and inventory management. They have also made improvements in out-of-the-window times, customer complaints, and delivery uptime rates, which all contribute to a better customer experience. These efforts are part of a larger reinvention plan that aims to unlock growth, enhance the customer experience, and drive cost efficiencies.

Starbucks has introduced Phase 1 of their Siren Craft systems in their US stores, which includes process and partner-driven enhancements. These changes have shown a significant improvement in performance metrics and will be fully deployed in all US company operated stores. The company is also planning to roll out a new espresso machine and software changes to improve throughput. By leveraging their Deep Brew analytics platform, they have identified underperforming stores and have plans to improve them. Starbucks is also accelerating the pace of new-store builds and renovations, with a focus on Tier-2 and Tier-3 cities and incorporating Siren system equipment.

Starbucks is on track to deploy equipment in less than 10% of their stores by 2024 and 40% by 2026. They have also expanded their relationship with Gopuff to open 100 delivery-only kitchens and are accelerating the rollout of digital storyboards. The company is also working on enhancing the cafe experience with new seating options. These efforts have led to improvements in the partner experience and the company is seeing new efficiencies and cost savings in their supply chain. They are ahead of plan on productivity and plan to use these savings to invest in areas that drive value for customers. They are also working on building their strategic sourcing and revenue management capabilities.

The second priority of Starbucks is to increase demand through product innovation, particularly with coffee. They have seen success with their new iced coffee and cold espresso offerings, as well as their Summer-Berry Starbucks Refreshers beverages. They are also focusing on expanding into the energy category and will be launching new products, such as pumpkin spice, in the fourth quarter. Their third priority is to attract new customers and showcase the value of the Starbucks experience, while being selective with offers. Only 14% of transactions were driven by offers in the quarter, with 10% targeted towards Starbucks Rewards members.

Starbucks saw success in their Rewards program, with an increase in active members and frequency of visits. They plan to continue using targeted offers and pricing actions to drive traffic and conversion, as well as leveraging their brand and digital capabilities to intercept customers and provide a premium experience. Improvements to the Starbucks app have also led to increased order-ready accuracy.

Starbucks has seen a 10% growth in Mobile Order & Pay revenue and a 7% increase in transactions, with one in four non-Starbucks Rewards members showing interest in using the feature. To cater to these customers, Starbucks has opened Mobile Order & Pay for all, without requiring them to join a Rewards program or create an account. These improvements to the digital experience are expected to drive Starbucks Rewards membership and increase customer frequency and spend. The company is also working on rebuilding its brand perception, improving operational efficiency, reducing costs, and enhancing the partner experience. While there are challenges in some international markets, there is also significant strength in others, such as Japan and parts of Latin America. The competitive market dynamics in China are a notable challenge for Starbucks.

Despite facing challenges such as cautious consumer spending and intense competition, Starbucks has made progress in key areas such as increasing membership in their rewards program and improving customer connection scores. They have built a successful business in China over the past 25 years, with a focus on providing a great customer experience and maintaining high-quality coffee. Despite facing price competition, they have sustained competitive margins by staying true to their principles and maintaining a relative premium positioning.

Over the past 25 years, Starbucks has experienced growth in China through strategic partnerships and is now looking to further enhance their competitive position and accelerate growth through new partnerships. They remain committed to their business in China for the long term and are in constructive conversations with shareholder Elliott Management. The company's focus on innovation and execution is helping to drive their action plan and return to sustainable growth. Efficiency efforts are also tracking ahead of expectations and are expected to offset investments in a cautious consumer environment.

In the third quarter, our consolidated revenue was $9.1 billion, a 1% increase from the previous year. This growth was driven by new store openings, but partially offset by a decline in comparable store sales due to fewer transactions. However, our average ticket increased by 2%, thanks to successful promotions and new products. Mobile Order & Pay also saw positive growth, and we expect this to continue as we expand our customer base through new features. Our loyalty programs also saw strong growth in both the US and China, with new benefits being introduced. We are pleased with this growth and expect to see its impact on future earnings.

In Q3, the company's operating margin decreased due to increased promotional activities, investments in wages and benefits, and deleverage. However, pricing and efficiency efforts in both in-store and out-of-store areas have helped offset this. The company is focused on improving operational execution and efficiencies to build resilience in their business. These efforts have resulted in over 200 basis points in efficiency gains and a reduction in store operating expenses. The company's focus on stability in their stores has also led to a decrease in partner turnover and improved productivity. Efficiency efforts are also being made in the supply-chain and other areas such as G&A.

In the third quarter, the company has been working with suppliers to reduce costs without compromising quality or distribution. They have also invested in technology resources to continue growing. Despite a decline in EPS due to a cautious consumer environment and higher tax rates, the company remains confident in their ability to drive margin expansion and deliver efficiencies over the next four years. They will discuss segment results in their earnings release and then move on to discussing capital allocation and financial resilience.

The company's disciplined approach to capital allocation allows for continued investments in new stores and renovations, which have high returns and add to the business. There is still room for growth in both the US and China, with a focus on suburban and rural areas. The company's store development process uses AI to select strategic locations, resulting in high incremental revenue. In China, there is potential for high ROI and cash margins in new county cities. This investment is seen as accretive to shareholder value and the company remains committed to its dividend.

The company has a target earnings payout ratio and leverage target, which they believe will position them well in the current economic environment. They have seen progress in their action plans and are confident in their full year 2024 guidance. They thank their employees for their hard work and open the call for questions.

Brian Harbour asks about G&A and store efficiency. Rachel Ruggeri explains that G&A declined by 5% due to lower performance-based compensation and cost efficiencies. They will continue to drive leverage in G&A in the future. In-store and out-of-store efficiencies have helped support promotions and partner wages and benefits. Next year, they will continue efficiency efforts to unlock capacity for reinvestment and drive margin expansion.

The speaker responds to a question about the company's composition by stating that the 4% increase in average check was driven by multi-beverage orders in response to promotional offers. They clarify that they are not seeing as much customization or personalization, but the offers were targeted and successful. The remaining 75% of the increase is attributed to net pricing, including increases in California and promotional offers.

The company has been cautious with its promotional efforts due to its premium brand positioning. Most of the promotions were focused on increasing Starbucks Rewards membership, which has been successful in driving growth. The brand's success is grounded in exceeding partner and customer expectations, and the company measures this through quality, customization, and consistency. The company has been careful with offers, with a lower intensity compared to other brands.

Starbucks has focused on their Starbucks Rewards members, which make up 60% of their revenue. They have seen increased engagement and visits from these members due to special offers. They are also working on getting non-SR customers to join the program, as well as providing digital convenience for those who don't want to join. Despite challenges in China, Starbucks is exploring strategic partnerships to address competition and macro challenges.

The speaker discusses the potential for strategic alternatives such as licensing in China, but also highlights the company's strong position in the market with its distinctive brands, trained staff, and digital presence. They have been entrepreneurial in exploring different options and are considering ways to further strengthen their advantage in the market.

The speaker discusses the decline in traffic in the US, mainly among non-rewards customers, due to a challenging consumer environment. They mention the success of their grocery store business and joint-venture in the ready-to-drink market, but acknowledge the impact on away from home consumption. They also note the opportunity for increased engagement among Starbucks Rewards members and maintain their position as the top coffee shop visited. Overall, the speaker sees the decline as a reflection of the current environment.

The company plans to improve communication with non-SR customers by opening up their app and targeting price investments in areas where they have supply-chain efficiencies. They have been disciplined in their pricing strategy but recognize the challenging environment. A clarification is made on the $4 billion in savings, which is a net number. The company is on track to have less than 40% of Siren stations completed in North America by the end of fiscal 2026, but there is potential to accelerate this schedule.

The company has implemented process improvements in all US stores and plans to roll out Siren system equipment to debottleneck outlier stores. They are also targeting 10% of stores with the highest customer service outages and implementing changes to increase throughput. By the end of fiscal year 2025, all stores will have Clover Vertica.

The company is taking a proactive approach to improving their stores and increasing sales. They are implementing a three-part action plan, with the first step being to fix their stores. This has resulted in a 10% growth in MOP and improved uptime. They are also leveraging the renovation and new store process to optimize costs and take advantage of downtime. The progress they are making is expected to translate into better sales performance in the upcoming quarter.

The speaker provides an example of improvements in their drive-through efficiency and product innovations, leading to increased sales. They also mention shifts in routines and disruptions in certain stores, but expect to see growth in the future due to their actions. The comp guidance for the year is a low-single-digit decline to flat.

The speaker is discussing the company's expansion plans and how they are driven by ROI rather than a specific percentage. They are focusing on Tier-2 and Tier-3 markets in both the US and China, where they see strong cash-on-cash returns. The company has a rigorous site selection process and closely monitors performance, allowing them to strengthen their portfolio through new store growth. They see this as an important part of their long-term growth strategy.

Laxman Narasimhan, CEO of Starbucks, emphasizes the importance of monitoring the overall economics to support long-term growth. John Ivankoe from JP Morgan asks about successful strategies in competitive markets around the world. Narasimhan points to Japan as an example of double-digit growth, strong innovation, and execution in stores. He also mentions successful pockets in other regions, including China and the US.

The company is focused on learning from global examples to improve their operations and become more efficient. They are investing in staffing and scheduling to improve partner and customer experience while also striving for cost efficiency and productivity. The CEO is pleased with the progress made in stabilizing the partner experience in US stores, but they are also looking to simplify processes and ensure consistency in the customer experience. The Siren Craft system is an example of this.

Starbucks has received positive feedback from partners and customers about their recent rollout of new products and value strategies. The company has been focused on delivering a personalized experience and exceeding customer expectations. In terms of recent initiatives, the company has seen success in their coffee core, with 76% of sales coming from cold beverages and a 4% increase in espresso sales. The company has also implemented value marketing and has seen strong trial and traffic, although overall traffic declined by 6%. The company is continuing to make investments to drive growth and maintain a premium brand image.

Starbucks CEO discusses the growth of espresso drinks and coffee, emphasizing the company's distinctiveness in the coffee industry and their focus on innovation and new products. He also mentions the success of their afternoon offerings, such as Pearls and the Egg, Mozzarella, Pesto sandwich, and their commitment to building platforms, such as the zero-calorie energy platform. However, he acknowledges the need to improve supply reliability for their food offerings.

The speaker, Laxman Narasimhan, thanks everyone for their time and summarizes the main points discussed during the call. He emphasizes the company's progress on their three-part plan and their focus on what they can control in a complex consumer environment. He expresses confidence in the long-term potential of Starbucks worldwide and thanks the team for their efforts and focus. The operator then concludes the call.

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