STARBUCKS CORP Q2 FY2025 earnings call

• Focus on customers and partners: Launched Shift Marketplace update to increase shift completion, leading to more customer connections. Partner engagement is up, turnover is low. - Coffeehouse improvements: Evolving design to reestablish third place experience, scaling green apron service model to over 2,000 US company-operated locations by end of fiscal year, pausing certain equipment rollouts, focusing on labor and technology for better throughput. - Menu innovation: Reintroducing Starbucks Experience with brand campaigns, new ads, social media engagement; rationalizing menu, testing and scaling new products like Summer-Berry Refreshers and Iced Horchata Oatmilk Shaken Espresso. - International: Leveraging local execution, localizing marketing, China making progress with product changes like true taste sugar-free beverages and new price points.

Total company revenue was $8.8 billion. Global net new store growth was 213 coffeehouses. Global comparable store sales declined by 1%, global operating margin was 8.2%, and EPS was $0.41. In North America, partner engagement is up, turnover dropped to under 50%, transaction declines are slowing, quality transactions are increasing, and the customer experience is improving; Canadian business returned to positive comps. Internationally, eight of the top 10 international markets returned to flat comp or comp growth; UK posted positive comps, Middle East had positive transaction comps, Japan had 16th consecutive quarter of comp growth; China's comparable store sales were flat with positive transactions and expanding margins.

Third quarter FY '25 top line expected to follow normal seasonality. Back to Starbucks strategies will take time to fully implement in over 17,000 US stores.

Tariff environment dynamics, coffee price volatility.

Q: Follow up on labor and order sequencing over equipment. Any numbers on labor investment and CapEx?

A: Brian mentioned starting with 3 stores on algorithm, 5 on labor pilot, and will be in roughly 1,500 stores by May, over 3,000 by end of fiscal year. Transactions responding to improved speed and service.

Q: Margin down in North America, is it a macro issue or different economics?

A: Brian said previous labor investment with equipment didn't solve customer experience; staffing, deployment, and technology now do. Seeing improvements in non-Rewards customers and transaction quality.

Q: Portfolio evaluation, slower unit growth near term?

A: Brian said resetting renovation and new build costs, will slow down building now, ramp back up when design and build are nailed down, still believe in doubling store count with right build and cost.

Q: Menu simplification and innovation sequencing?

A: Brian said simplifying frees up for platform innovation. Percent of stores with positive transaction comps increased. Using stage gate process for innovation.

Q: Macro recession, levers to protect US traffic?

A: Brian said best offense is great third place, drink, and barista; innovation pipeline has news that cuts through any environment.

Q: Mobile order sequencing algo early thoughts?

A: Brian said pilot in over 400 stores, reduced in-store time by 2 minutes, drive-thru under 4 minutes, good for customer and partner with behind-the-scenes technology.

Q: ROIC framework at Starbucks?

A: Cathy said focus on durable growth and good return on invested capital, using zero-based budgeting to get after stranded costs.

Q: Labor pilot deployment across US? Incentives for store-level labor?

A: Brian said rolling out across all US company stores, varies by store type. Examples from Chicago and suburban stores show positive results.

Q: Drive-thru and menu split?

A: Brian said siren system targeted for stores with high drive-thru mix. Aperitivo menu for afternoon to take advantage of capabilities.

Q: China near-term changes, stabilized transaction declines?

A: Brian said Molly and team implemented marketing, product innovation, and price changes; flat comp with positive transactions, momentum building.

Q: Pricing, coffee prices impact on margin?

A: Brian said intention to not move pricing in 2025. Coffee prices are a small part of product and distribution costs, team does well with sourcing, hedging, and warehousing.

Q: Return on advertising investment?

A: Brian said brand first choice is highest since 2023, non-Rewards customer transactions improving, marketing taking hold.