The paragraph is an introduction to Starbucks' First Quarter Fiscal Year 2025 Conference Call. The conference is led by Diego, the operator, and involves Tiffany Willis, the Senior Vice President of Investor Relations. Key speakers include Brian Niccol, Chairman and CEO, and Rachel Ruggeri, Executive Vice President and CFO. It mentions that the call will contain forward-looking statements subject to risks, and provides information on where to find cautionary statements and reconciliations of non-GAAP measures. The call is being webcast, with an archive available until March 14, 2025, and the next earnings call is tentatively scheduled for April 29, 2025.

The paragraph outlines Starbucks' recent efforts to revive its brand and business through the "Back to Starbucks" strategy after experiencing some challenges. CEO Brian Niccol emphasizes focusing on returning to the company's core values, improving financial performance, and fostering growth. The strategy involves enhancing customer experience, reestablishing Starbucks as a key community coffeehouse, and investing in employees, termed as green apron partners. Despite a decline in global store sales, the company earned $9.4 billion in revenue and is optimistic about future growth through strategic investments in labor, marketing, technology, and store efficiency.

During the quarter, the company refocused on its core identity as a leading coffee purveyor by reducing discount-driven transactions and removing extra charges for non-dairy milk and customizations. A new marketing campaign, Coffee Forward US, was launched to reintroduce the brand, resulting in stronger core business performance and a shift in sales toward coffee and espresso-based beverages. Efforts have been made to simplify the menu and holiday product lineup to enhance consistency and customer satisfaction. The company plans to reduce beverage and food SKUs by 30% by the end of fiscal year 2025 and aims to lead the market with innovative offerings responsive to customer trends and cultural moments.

In the fourth paragraph, the article discusses Starbucks' improved performance driven by its "Back to Starbucks" initiatives. Key achievements include increased customer traffic, growth in Starbucks Rewards membership, and recovery of market share in the US. The company emphasizes its premium value through high-quality, handcrafted beverages and aims to reduce wait times to four minutes by addressing order sequencing bottlenecks. Starbucks is investing in staff, processes, and technology, especially in high-volume stores, to meet throughput goals while enhancing customer connections. Additionally, they've improved scheduling, coffee and tea routines, and simplified beverage preparation in over 3,000 US stores.

The paragraph outlines Starbucks' initiatives to improve customer and partner experiences in their stores. They plan to launch a pilot program in 700 stores to optimize staffing and enhance service quality. The company is also investing in technology, including an in-store prioritization algorithm and a capacity-based time slot model for mobile orders. Additions include digital menu boards and improvements to the Starbucks app. Starbucks aims to reinforce its role as a community coffeehouse by reintroducing condiment bars, ceramic mugs, and handwritten notes. They have also updated cafe service standards, expanded free refill policies, introduced a new coffeehouse code of conduct, and plan to implement Clover Vertica brewers by 2025. Additionally, they are reviewing their store portfolio.

The paragraph outlines Starbucks' strategy to enhance its US store presence by doubling the store count through renovations, new builds, and closures, with an emphasis on creating warm, welcoming environments and improving customer experiences. Key initiatives include reintroducing coffee condiment bars, expanding free refills, refreshing menu boards, and improving cafe merchandising. To enhance both customer and partner experiences, Starbucks is focusing on better staffing models, increased parental leave, and promoting from within, thereby improving partner retention and engagement. Starbucks is dedicated to offering competitive pay and benefits to ensure it remains the top retail employer.

The paragraph discusses the author's recent visits to international markets, including Italy, Japan, South Korea, and China, highlighting the strong brand presence and customer experience in those areas. The author sees significant long-term opportunities, especially in China, and mentions potential short-term changes to stabilize and strengthen business there. Emphasizing the importance of learning from international supply chain strengths, particularly China's, the author expresses confidence in the "Back to Starbucks" strategy to overcome challenges. The plan aims to enhance customer experiences, partner success, and financial returns, ultimately revitalizing the brand and driving growth.

Rachel Ruggeri discusses Starbucks' fiscal year 2025 Q1 performance, highlighting that while consolidated revenue was flat at $9.4 billion, the company saw a 7% increase in net new company-operated stores, offset by a 4% decline in comparable store sales, largely in the US. Despite the overall sales decline, US ticket growth remained strong at 4%. Starbucks opened 377 net new stores globally, with a significant contribution from new US stores. The company aims to strengthen its portfolio and grow as a community coffeehouse. However, the Q1 operating margin contracted by 380 basis points to 11.9%, mainly due to increased wages, benefits, and the removal of a charge for non-dairy milk. This contraction was partly mitigated by pricing adjustments and supply chain efficiencies.

The paragraph discusses Starbucks' strategy to address Q1 margin contraction through targeted investments and efficiency improvements. The company invested in additional staffing hours and wage increases to enhance customer experience, resulting in margin pressure in North America. Marketing efforts, including TV ads, were increased to boost customer engagement, and the extra charge for non-dairy milk was removed to improve value perception, affecting margins. These efforts have led to positive customer reactions and increased brand interaction, with non-dairy customizations growing year-over-year. Despite short-term margin impacts, Starbucks is committed to a disciplined, test-and-learn approach to make investments that drive long-term growth and balance these with efficiency efforts for future margin expansion.

In Q1, Starbucks improved in-store and supply chain efficiencies, achieving savings of around 150 basis points. However, for fiscal year 2025, they anticipate higher G&A costs due to restructuring efforts in Q2, including severance and related benefits, leading to a temporary spike in expenses. Q1 EPS decreased by 22% compared to the previous year, partly due to deleverage and increased investments, though a lower tax rate provided a slight benefit. While Q2 EPS is expected to be at its lowest due to seasonal factors, restructuring, and investments, improvement is anticipated in the latter half of the fiscal year. Additional factors for 2025 include the coffee market and Channel Development segment.

The paragraph discusses the minimal impact of coffee price fluctuations on Q1 performance due to effective practices and hedging strategies. However, it notes that Q2 EPS is expected to be slightly affected, potentially decreasing by $0.01, despite hedging gains. Coffee costs account for 10% to 15% of product and distribution expenses. The company anticipates that seed price volatility will more significantly impact its Channel Development segment, potentially affecting segment volumes, revenue, and profitability. Despite these challenges, the company's balance sheet remains strong, and it is committed to maintaining a BBB+ credit rating. Efforts to prioritize shareholder value through dividends continue. The "Back to Starbucks" strategy is showing promise, as reflected in encouraging Q1 results, though further work is needed. The company's leadership expresses gratitude to partners worldwide for their dedication. Following this overview, David Tarantino from Baird asks about the sales improvements seen during the quarter, seeking clarification on whether the improvements were due to comparisons or structural changes. Brian is expected to respond to the inquiry.

In the paragraph, Brian Niccol discusses the positive changes seen in Starbucks' operations. He highlights the move away from discounting to broader marketing efforts focused on showcasing the craft and premium experience of Starbucks coffee, which has led to increased traffic and transactions among non-rewards customers. Morning sales have improved, and there's been a renewed enthusiasm among Starbucks partners in providing a quality espresso experience. The "Back to Starbucks" initiative is mentioned as generating excitement among both partners and customers, contributing to an overall enhanced experience. The operator then prompts Andrew Charles from TD Cowen to ask a question, wherein Charles inquires about Tressie Lieberman's marketing strategies and last year's $600 million advertising spend.

In the paragraph, Brian Niccol discusses Starbucks' strategic shift in marketing by reallocating budget from discounts to enhancing the brand and customer experience. He highlights a new advertising campaign that emphasizes the unique connection between Starbucks baristas and customers, such as the personalization of writing on cups, to enhance the customer experience. Rachel Ruggeri adds that marketing expenditures, as a percentage of revenue, are nearly doubling while reducing discounts, leading to increased net revenue. This approach is described as budget neutral but results in noticeable changes in the company's financial statements and operations.

Danilo Gargiulo inquires about the operational improvements at Starbucks, specifically wanting to know about the efficiency of stores in meeting a four-minute handover timeline and the performance difference between efficient and less efficient stores. Brian Niccol explains that stores are categorized based on transaction volumes and identifies a key issue with the mobile ordering system lacking a sequencing mechanism, which leads to congestion and affects service quality. While many stores show positive performance and customer satisfaction by managing this effectively, resolving the bottlenecks from mobile ordering is crucial to improving both the service experience and financial performance across more locations.

The paragraph discusses the efforts to improve measurement systems for operational processes, focusing on implementing an algorithm to optimize mobile orders, enhancing both customer and employee satisfaction. Despite being in an early stage, with the system tested in just three stores, it shows promising financial and satisfaction results. The conversation then shifts to a question from David Palmer regarding Starbucks' potential $4 billion productivity gain by 2028, primarily through cost of goods sold (COGS) improvements. Rachel Ruggeri affirms the focus on efficiencies both inside and outside the store, emphasizing continuing opportunities for improvement in the supply chain.

The paragraph discusses Starbucks' strategy for margin expansion through efficiency improvements as part of their "Back to Starbucks" strategy. They mention the potential $4 billion in efficiencies but emphasize that the exact figure is still being determined. The text then shifts to a Q&A session where Brian Harbour from Morgan Stanley asks about management changes, specifically in the support organization. Brian Niccol responds by highlighting the introduction of new management roles, such as a Chief Store Officer and Chief Development Officer, to increase accountability and improve operations in key business areas. Additionally, Rachel's comments suggest potential reductions in general and administrative (G&A) expenses in future quarters as these changes are implemented.

The paragraph outlines a discussion regarding operational efficiency and financial projections for a business. It mentions efforts to drive accountability and efficiency in support centers to aid stores, which will evolve in the coming months. Rachel Ruggeri talks about financial expectations, predicting some cost savings in Q4 despite higher general and administrative expenses (G&A) this year due to lower performance-based compensation from the previous year. The discussion transitions to a question from Chris O'Cull about improving the partner and customer experience, suggesting that the two are interconnected. He also inquires about the timeline for changes to the mobile ordering algorithm, and Brian Niccol agrees with the importance of the issue.

The paragraph discusses a pilot program aimed at enhancing customer interactions by optimizing the sequencing of mobile and cafe orders, which allows partners to deliver drinks with a personal touch and efficiency. The process reduces stress for employees by using an algorithm to manage order flow, benefiting both mobile and cafe customers. The company plans to expand this pilot and test additional features like time slots. The speaker expresses optimism about learning from these tests to determine the best rollout timetable. Following this discussion, the operator invites Jeffrey Bernstein from Barclays to ask a question about unit growth in the U.S. economy, noting its potential as a consistent driver of revenue.

The paragraph discusses the potential for significant growth in the store count of a company in the US, specifically mentioning the possibility of doubling the number of company-operated stores, which is already over 10,000. Brian Niccol, the speaker, expresses excitement about the company's ability to execute smaller format stores, which maintain quality and deliver a good customer experience, and mentions that successful growth has been seen in regions like Texas and the Southeast with strong economic performance. He also highlights the importance of the company's flexible execution strategy, which includes drive-thru, cafe, and mobile ordering options, allowing for expansion into new trade areas. Niccol expresses confidence in the brand's potential for expansion, suggesting that mobile ordering will further enhance their growth strategy.

In the paragraph, John Ivankoe from JPMorgan asks about the possibility of Starbucks having different menu offerings in the morning and afternoon to focus on speed and customization. He also inquires about the rollout of food warming cabinets to speed up drive-thru service. Brian Niccol responds that Starbucks is reducing its menu by about 30% to focus on appropriate offerings for different times of day, facilitated by digital menu boards. He acknowledges that hot holding equipment can enhance transaction speed depending on store volume, regardless of drive-thru presence.

The paragraph discusses a strategic shift away from heavy reliance on promotions and towards a traffic-driven, same-store sales growth model. Katherine Griffin from Bank of America inquires about the impact of reduced promotions on revenue, to which Rachel Ruggeri responds by highlighting their focus on a mix of marketing strategies. Ruggeri notes that this approach has led to positive results, including growth in morning sales and an increase in non-rewards customer transactions. This shift has restored non-rewards customer growth to levels seen a year ago, reinforcing confidence in the new strategy.

The paragraph discusses the impact of ticket changes in North America, where ticket prices increased slightly over 4% due to annualized pricing and reduced discounts. However, this was partially offset by a shift toward lower-priced items and the removal of certain pricing strategies. The speaker also mentions the ongoing strategy of adjusting discounts to strengthen the overall market proposition. Additionally, in response to a question about the "siren system," Brian Niccol explains that this system will be implemented only in the highest quartile of stores. They discovered that most stores don't need this system to achieve the desired four-minute coffee preparation time. The main issue was not capacity but rather the process and algorithm for sequencing orders. Only the busiest stores require additional equipment.

In the paragraph, Brian Niccol discusses the strategy of broadening the coffee business's customer base to include both younger (Gen Z) and older demographics. He identifies a trend where younger customers are drawn to tea options, such as matcha lattes, which have gained attention on social media. Niccol emphasizes the goal of enhancing the customer experience through ongoing learnings and test-and-learn approaches to cater to different age groups, aiming to win their loyalty in the North American market.

The paragraph discusses a balanced approach to attracting younger customers by offering a variety of drinks, including tea, refreshers, and both iced and hot coffee, aiming to create a "third-place" experience with customizable handcrafted drinks. The company is making positive progress in these areas. In the Q&A portion, Lauren Silberman from Deutsche Bank inquires about partner investments and staffing levels in U.S. stores. Brian Niccol explains that labor hours were added to 3,000 stores to address understaffing and enhance customer service. A pilot program is being launched to better understand the necessary labor model for ensuring a great customer experience and optimizing store operations.

The paragraph discusses Starbucks' strategy to enhance its brand experience by focusing on delivering a unique, personalized customer experience, such as writing messages on cups and bags, which partners and customers appreciate. This approach aims to differentiate Starbucks and reinforce its premium value. By aligning its business model to support this experience, Starbucks plans to grow its business and margins. The emphasis is on creating a compelling brand identity that not only satisfies current customers but also drives future business growth, with labor investments being carefully targeted through a precision staffing model.

The paragraph discusses the near-term unfavorable impacts of certain investments, emphasizing that these will be beneficial in the long run by driving traffic and enhancing business performance. The focus is on precision staffing and making investments based on specific store needs to increase traffic. The speaker highlights the importance of balancing investments with operational efficiencies to achieve future margin expansion. Sharon Zackfia from William Blair questions how different channels in North America, like walk-in, drive-thru, or mobile, align with staffing and production. Brian Niccol responds by noting the challenge of mobile ordering due to its lack of sequencing, unlike the controlled access of drive-thru channels.

The paragraph discusses improvements in managing the customer experience at a coffee store, highlighting challenges and solutions related to mobile orders. It explains how mobile orders can cause congestion by arriving faster than customers, disrupting the in-store experience. A recent pilot showed success with less congestion, allowing in-café customers to enjoy their "mug hug" moments without hassle. Mobile orders are now timed to sync with customer arrivals. Additional enhancements include a coffee condiment bar, allowing for customer customization, and a more efficient brewed coffee operation at the point of sale. These measures aim to create a smoother and more enjoyable experience for all customers.

The paragraph discusses a company's efforts to improve customer experience by addressing delays caused by mobile ordering, aiming to ensure all transactions take four minutes or less. The speaker expresses excitement about recent progress and believes that by enhancing technology, the brand can offer a premium, crafted, and human-centered experience. Addressing the issue could significantly boost comparable sales. A question is posed to Brian Niccol about the current status of mobile order pick-up (MOP) wait times, improvements, and how achieving transactions under four minutes could impact sales.

The paragraph discusses a strategy Starbucks is testing to improve customer experience by managing mobile order times. By keeping mobile order wait times between 12 to 15 minutes, they aim to satisfy mobile customers and ensure in-store customers have a quick, approximately four-minute experience. This approach is intended to create a harmonious environment where staff can provide quality service and connect with customers, enhancing the overall atmosphere. Starbucks aims to offer a welcoming space for those who want to relax while also efficiently serving customers who need a quick service.

In this segment, Jon Tower from Citi poses a question and seeks clarification regarding earnings and pricing strategy. Rachel Ruggeri clarifies that the company's earnings and margins are expected to be at their lowest in the second quarter due to seasonal factors, organizational restructuring, and increased investments. However, improvement is anticipated in the latter half of the year. Regarding pricing strategy, Brian Niccol emphasizes the need for innovation to balance their global market leadership, premium pricing, and plans for expanding their store base in the U.S.

The paragraph discusses Starbucks' commitment to innovation in food and beverages to maintain brand relevance and appeal to various customer preferences and occasions. The focus is on balancing premium experiences with accessibility in pricing. The company values its global partners and is dedicated to creating systems that ensure a special experience for customers worldwide. The speaker is inspired by the brand's impact and expresses gratitude to the partners for their contribution to making Starbucks special.

In the first quarter of 2025, Starbucks met its expectations but acknowledges more work is needed to achieve its goals. The company is focused on building a Starbucks that embodies love and purpose, enhancing the customer and partner experience, and positioning itself for future growth. Leadership is committed to quickly executing plans to create economic opportunities for partners, provide valuable customer experiences, and ensure long-term returns for shareholders. The CEO expresses optimism about the company's direction and thanks participants for joining the conference call.

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