STARBUCKS CORP Q1 FY2025 earnings call

• Focused on 'Back to Starbucks' strategy, including reintroducing Starbucks, delivering customer experience, reestablishing as community coffeehouse, and ensuring best job in retail.
• In the US, reduced discount-driven offers (40% fewer discounted transactions YOY), removed extra charge for non-dairy milk customizations, launched new marketing campaign, and saw shift in sales mix towards coffee and espresso-based beverages.
• Simplified menu, aiming for ~30% reduction in beverages and food SKUs by end of fiscal year 2025.
• Improved comp trends with non-Starbucks Rewards customer traffic growth, Starbucks Rewards membership/spend growth, and US category share recovery.
• Worked on four-minute throughput goal for barista-customer handoff, segmenting stores by transaction volume and investing in staffing, processes, and technology.
• Reestablished Starbucks as community coffeehouse with condiment bars back, ceramic mugs/handwritten notes, expanded free refills, new cafe standards, and targeting full rollout of Clover Vertica brewers.
• Focused on partner experience, including doubling paid parental leave for US store partners, commitment to promote from within 90% of retail leadership roles, and improvements in shift completion, hours per partner, retention, and engagement.

Total company revenue for the quarter was $9.4 billion. The North America segment saw a global comparable store sales decline of 4%, a global operating margin of 11.9%, and ticket growth in the US remained strong at 4%. The International segment had operations assessed in Italy, Japan, South Korea, and with licensed business partners, but specific financial details weren't as detailed as the North America segment. Revenue contribution: North America and International segments together made up the $9.4 billion total revenue.

• Second quarter fiscal year 2025 EPS expected to be pressured by approximately $0.01 net of hedge gains.
• Q2 EPS is expected to be the lowest on an absolute basis due to seasonality, organizational restructuring, and elevated investments.
• Back half of fiscal year 2025 expected to see improvement in EPS both sequentially and year-over-year.

• Coffee price volatility impacts the Channel Development segment, potentially affecting volumes and ultimate revenue and profitability for the business.
• Uncertainties related to successfully executing the 'Back to Starbucks' turnaround strategy and achieving expected financial and operational improvements.

Q: David Tarantino asked about sales improvement, specifically if comps improvement was comparison-related or structural, and what's driving it.

A: Brian Niccol said comps improved sequentially, with non-rewards customers responding to broad-based marketing on coffee craft and experience, morning daypart improvement, and partners embracing 'Back to Starbucks'.

Q: Andrew Charles asked about Tressie Lieberman's marketing plan and 2025 advertising spend.

A: Brian Niccol said dollars are shifted from discounting to brand experience marketing, with a new ad highlighting barista-customer connection, and marketing spend as a percentage of revenue is increasing while discounting is reduced.

Q: Danilo Gargiulo asked about operational improvements and four-minute handover timeline.

A: Brian Niccol said stores are in quartiles by transactions, mobile ordering sequencing was a bottleneck, high-performing stores are comping positively, and they're focused on eliminating bottlenecks for better connection and craft execution.

Q: David Palmer asked about productivity and the $4 billion opportunity.

A: Rachel Ruggeri said they're focused on efficiencies in stores and supply chain, with ~150 basis points of margin expansion in Q1 from efficiencies, but $4 billion target is still being worked on.

Q: Brian Harbour asked about support organization changes and G&A in 2Q.

A: Brian Niccol said changes are to increase accountability in key lines of business, creating roles like Chief Store Officer and Chief Development Officer. Rachel Ruggeri said G&A will spike in Q2 due to restructuring, but expect savings in Q4 and lap of lower performance-based comp in later quarters.

Q: Chris O'Cull asked about customer experience and employee experience interconnection, and mobile ordering algorithm implementation timeline.

A: Brian Niccol said customer and employee experiences are intertwined, mobile ordering algorithm pilot is ongoing with expansion planned, but no definitive timing yet.

Q: Jeffrey Bernstein asked about US store count doubling and growth rate.

A: Brian Niccol said excited about smaller format stores with great seats, success in Texas and Southeast, and flexibility in store execution allows confidence in doubling store count.

Q: John Ivankoe asked about menu offerings in AM and PM and siren rollout.

A: Brian Niccol said dialing back menu by ~30% to focus on right offerings in AM and PM, digital menu boards enable flexibility. Regarding siren, it's only in highest quartile stores based on transaction volume, not all stores.

Q: Katherine Griffin asked about impact of fewer promotions on ticket and traffic-driven sales.

A: Rachel Ruggeri said promotions shifted to broad-based marketing, ticket in US was 4% due to annualized pricing, attach, and fewer discounts, with positive response from broader customer base.

Q: Peter Saleh asked about siren system implementation in non-top quartile stores.

A: Brian Niccol said mobile ordering sequencing is the main bottleneck, only top quartile stores need siren equipment as most stores can operate without it by fixing processes and algorithm.

Q: Christine Cho asked about drawing younger customers back and menu/marketing strategy.

A: Brian Niccol said younger customers attracted to tea propositions like matcha latte, progress seen in all age groups with smart flavors in tea, refreshers, cold beverages, and coffee, with balanced approach.

Q: Lauren Silberman asked about staffing assessment and investment offset.

A: Brian Niccol said labor investments are targeted with precision staffing, pilot to understand labor model for customer connection, and longer-term goal is to grow margins and business. Rachel Ruggeri added labor investments are targeted, near-term impact is unfavorable but long-term accretive to business.

Q: Sharon Zackfia asked about mobile ordering bottleneck and store experience.

A: Brian Niccol said mobile ordering first-in, first-out causes counter congestion, leading to poor experience, but pilot stores show improved in-cafe and mobile order experiences with better sequencing, aiming for four-minute connection.

Q: Zach Fadem asked about four-minute throughput comparison to MOP and comp opportunity.

A: Brian Niccol said MOP had high wait times, testing time slots/promised times to keep mobile orders under 15 minutes, allowing in-store customers four-minute experience, and improving this would drive comp growth.

Q: Jon Tower asked about Q2 EPS guidance and balancing store distribution with pricing power.

A: Rachel Ruggeri confirmed Q2 EPS expected to be lowest on absolute basis due to seasonality and restructuring. Brian Niccol said innovation in food/beverage, pricing architecture, and relevance to different occasions and tastes will help balance store distribution and pricing power.