Starbucks : Transcript

Corrected Transcript

02-Feb-2023

Starbucks Corp. (SBUX)

Q1 2023 Earnings Call

	Total Pages: 24
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Starbucks Corp. (SBUX)	Corrected Transcript
Q1 2023 Earnings Call	02-Feb-2023

CORPORATE PARTICIPANTS

Tiffany Willis	Michael A. Conway
Vice President, Head of Investor Relations, Starbucks Corp.	Group President, International and Channel Development, Starbucks
Howard D. Schultz	Corp.
Belinda Wong
Interim Chief Executive Officer and Director, Starbucks Corp.
Brady Brewer	Chairwoman and Chief Executive Officer, Starbucks China
Frank F. Britt
Chief Marketing Officer and Executive Vice President, Starbucks Corp.
Rachel Ruggeri	Chief Reinvention Officer and Executive Vice President, Starbucks Corp.
Sara Trilling
Chief Financial Officer and Executive Vice President, Starbucks Corp.
	Executive Vice President and President of Starbucks North America,
	Starbucks Corp.

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OTHER PARTICIPANTS

Jeffrey A. Bernstein	Peter Saleh
Analyst, Barclays Capital, Inc.	Analyst, BTIG LLC
Sara H. Senatore	Lauren Silberman
Analyst, BofA Securities, Inc.	Analyst, Credit Suisse Securities (USA) LLC
David Palmer	Danilo Gargiulo
Analyst, Evercore ISI	Analyst, Sanford C. Bernstein & Co. LLC
John Ivankoe	Jon Tower
Analyst, JPMorgan Securities LLC	Analyst, Citigroup Global Markets, Inc.
Andrew M. Charles	Brian Harbour
Analyst, Cowen and Company, LLC	Analyst, Morgan Stanley & Co. LLC

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Starbucks Corp. (SBUX)	Corrected Transcript
Q1 2023 Earnings Call	02-Feb-2023

MANAGEMENT DISCUSSION SECTION

Operator: Good afternoon. My name is Diego, and I will be your conference operator today. I would like to welcome everyone to Starbucks' First Quarter Fiscal Year 2023 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. [Operator Instructions]

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

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Tiffany Willis

Vice President, Head of Investor Relations, Starbucks Corp.

Thank you, Diego, and good afternoon, everyone, and thank you for joining us today to discuss Starbucks first quarter fiscal year 2023 results. Today's discussion will be led by Howard Schultz, Interim Chief Executive Officer; Brady Brewer, Executive Vice President and Chief Marketing Officer; and Rachel Ruggeri, Executive Vice President and Chief Financial Officer. And for Q&A, we'll be joined by Frank Britt, Executive Vice President, Chief Strategy and Transformation Officer; Sara Trilling, Executive Vice President and President of Starbucks North America; Michael Conway, Group President of International and Channel Development; and Belinda Wong, Chairwoman of Starbucks China, who is joining us today from on the ground in China.

This conference call will include forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factors discussed in our filings with the SEC, including our latest annual report on Form 10-K and quarterly report on Form 10-Q. Starbucks assumes no obligation to update any of these forward-looking statements or information.

GAAP results in first quarter fiscal year 2023 and the comparative period include several items related to strategic actions, including restructuring and impairment charges, transaction and integration costs, and other items. These items are excluded from our non-GAAP results.

All numbers referenced on today's call are on a non-GAAP basis, unless otherwise noted or there is no non- GAAP adjustment related to the metric. For non-GAAP financial measures mentioned on today's call, please refer to the earnings release and our website at investor.starbucks.com to find reconciliations of those non-GAAP measures to their corresponding GAAP measures.

This call is being webcast, and an archive of the webcast will be available on our website through Friday, March 3, 2023. And for calendar planning purposes, please note that our second quarter fiscal year 2023 earnings call has been tentatively scheduled for Tuesday, May 2, 2023.

Now before I turn the call over, let me first say thank you to Howard because in our short amount of time together, I have witnessed a relentless focus on our culture while not compromising results. You have reinforced the importance of dreaming bigger than others may even think is possible. And for that, I will forever be grateful.

And so, now, the floor is yours. Howard?
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Starbucks Corp. (SBUX)	Corrected Transcript
Q1 2023 Earnings Call	02-Feb-2023

Howard D. Schultz

Interim Chief Executive Officer and Director, Starbucks Corp.

Thank you, Tiffany. I did not expect that. Thank you very much. Good afternoon, and welcome everyone. I'm pleased to comment on the strong financial and operating results Starbucks reported today, highlighted by record quarterly sales of $8.7 billion, up 8% over last year, up 12% excluding foreign exchange. A stunning 10% comp growth in the US and North America, 5% comp growth globally, and except for China, very strong sales and comp growth in every international market we are in.

We posted strong results despite challenging global consumer and inflationary environments, a softer quarter for retail overall, and an unprecedented COVID-related headwinds that unfolded in China. Credit belongs to our partners around the world who continue to successfully satisfy record demand in our stores while delivering an elevated Starbucks Experience to our customers.

In China, COVID-related mobility restrictions and a spike in COVID infections following the end of zero COVID resulted in comp sales of minus 29% for the quarter, four times worse than what we expected. Weak sales combined with the costs to support the health, the safety, and well-being of our partners, our first priority, negatively impacted total company earnings by $0.06, resulting in Q1 EPS of $0.75 per share.

Despite short-term headwinds, we are confident that the end of zero COVID marks the beginning of China's emergence from three years of pandemic, puts the country on a path to reintroducing normalcy and routine back into peoples' lives, and positions the country to resume pre-COVID levels of consumer, social, and economic growth.

We also believe that the end of zero COVID will enable renewed consumer activity in China and recovery of our business in the back half of fiscal 2023. Our view is informed by patterns of post-COVID behaviors we have seen in countries around the world as consumer activity accelerates as years of pent-up demand is released.

Today, our stores in China are again open without restriction, and our partners are back at work. Many have been infected and recovered from COVID. Noteworthy is that we saw a meaningful, sequential improvement in sales and traffic as we moved through January as people began resuming aspects of their pre-COVID lives, including gradually returning to our stores. More on China shortly.

Our performance in Q1 underscores the success of the investments we are making in our people in extending our global leadership around everything coffee and in relevant innovation that together are driving sales and transaction growth around the world.

Starbucks is more relevant globally today than ever before in our history, ideally positioning us to successfully execute our ambitious growth agenda in our roughly 45,000 stores delivering best-in-class returns around the world by the end of fiscal 2025.

On today's call, I will highlight the drivers of our performance in Q1 and provide an update on the progress of our Reinvention initiatives. I will then provide granular details specifically around the shape of our business in China, and shine a bright light on the positive correlation between increases in consumer activity in China and the recovery of our business.

Next, Brady will detail the beverage, food, mobile, digital, and store innovation that drove record demand for Starbucks coffee in every market outside of China in Q1. And he will speak to our record holiday performance, the

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Starbucks Corp. (SBUX)	Corrected Transcript
Q1 2023 Earnings Call	02-Feb-2023

strong growth in US Starbucks Rewards membership sequentially, and year-over-year, and the extraordinary record of $3.3 billion loaded on cards and gifted in the US.

We exited Q1 with roughly $2 billion globally waiting to be spent in our stores. Increased Starbucks Rewards membership and card loads serve as both a current annuity and a future driver of our business.

And then, finally, Rachel will highlight our Q1 financial and operating performance and speak to the confidence we have in our full year 2023 guidance despite the significant impact from China. And we'll turn the call over to the operator for Q&A.

Let me begin with North America. The record demand for Starbucks coffee in North America we reported on our Q4 call accelerated in Q1 and through holiday, despite the difficult operating environment that most retailers, particularly brick-and-mortar retailers, experienced in the quarter.

Average weekly sales in the US company-operated stores reached a record high in Q1, exceeding the prior record set in Q4 of fiscal 2022. This is - this next line, I think, is just even when I read it, I'm surprised, with 8 of the 10 highest sales days in our history recorded in the quarter. Consistently strong demand drove revenues up 14% to a quarterly record of $6.6 billion and a comp sale of 10% over last year. And Q1 momentum has continued in Q2.

Active Starbucks Rewards membership in the US exiting Q1 totaled over 30 million members, up 4 million members or 15% over last year, and up 6% sequentially. Loyal Starbucks reward members drove a record 56% of tender, up 3% from last year reflecting increased customer engagement throughout our system.

Our convenience channels, Mobile Order & Pay, drive-thru, and delivery, continued to fuel our business, delivering 72% of US revenue in Q1. We continue to add high-returningdrive-thrus that attract new customers, expand our footprint, and drive new customer occasions.

Our over 6,600 store US license business posted similar strong results, with 32% revenue growth and double-digit comps across all operating segments. What's interesting to me is while grocery retailers, a representative segment within our license business, experienced traffic and spend-related headwinds across their store base in Q1, their Starbucks business proved to be the bright spot bringing incremental traffic into their stores and driving sales for us as well.

We continued to rollout Starbucks Connect, enabling licensed stores to offer all Starbucks Mobile Order & Pay and Rewards benefits, expanding the value offering we provide our customers and licensees and enabling us to capture demand across our broader store portfolio. Starbucks Connect is proving to be highly incremental, and we see great upside for it.

Cross functional teams continued to successfully execute against our Reinvention initiatives, and our Reinvention investments are having a measurable positive impact on our business, evidenced by an 8% improvement in US hourly retail partner turnover. Improved turnover correlates to more stable store environments, elimination of new hire-related costs, particularly training, and measurable improvements in productivity, speed of service, and partner and customer experience scores that we're already seeing.

Our Q1 performance demonstrates that our Reinvention plan investments are the right investments that we are making and are delivering results and creating shareholder value providing us with tremendous confidence in the revenue, margin, and EPS expectations that we shared at our Investor Day.

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