Q3 2020 Starbucks Corp Earnings Call
[music].
Good afternoon, My name is Hector and I'll be your conference operator today.
I'd like to welcome everyone to Starbucks coffee company's third quarter fiscal year 2020 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question.
Please press Star then the number two.
Now turning the call over to Durga doors, Tommy Vice President of Investor Relations Mr. Tommy you May now begin your conference.
Good afternoon, everyone and thank you for joining us today to discuss how sick watch out fiscal year. Twentytwenty result, today's discussion will be led by having Johnson, president and CEO and Pat Grismer CFO.
And for acuity, we will be joined by Ross Birla, Chief operating Officer and group President Americas.
This conference call will include forward looking statements, which are subject to various risks and uncertainties that could cause actual results could differ materially from these statements.
Any such statements should be considered in conjunction with cautionary statement you know I mean should be and respect and discussion you know filings with the FCC, including our last annual report on form 10-K, and quarterly report on form 10-Q.
In addition, we estimate the impact of called it 19, I comparing actual results to our previous okay.
These fall costs, what created prior to the spread of the virus well based on information available at the time and on a variety of assumptions, which we believe were reasonable, but some or all of which make crew not to be accurate.
Starbucks assumes no obligation to update any of these forward looking statements all information.
GAAP results in this call Twentytwenty include several items related to strategic action, including restructuring and impairment charges.
Transaction and integration costs and other items.
Items are excluded from our non-GAAP results.
Oh certain non-GAAP financial measures mentioned in today's call. Please refer to our website at Investor Dot Starbucks Dot com to find a corresponding GAAP measures as well as a reconciliation of these non-GAAP financial measures with their corresponding GAAP measure.
Conference call is being webcast and an archive the webcast will be available on our website through Friday August 28 2020.
Finally for your calendar planning purposes. Please note that all four or to end. This call on your Twentytwenty earnings Conference call has been tentatively scheduled for Thursday October 29, Twentytwenty I will now turn the call over to Kevin.
Well good afternoon, and well thank you for joining us today.
It's been pretty much since our last earnings call as the entire world all of humanity has been navigating the cobot 19 pandemic through this very dynamic and challenging period.
In times of adversity values matter.
And I'm very proud of how Starbucks partners around the World have responded during this global pandemic.
United by our mission and values and guided by three simple principles.
Prioritizing the health and wellbeing of Starbucks partners and the customers we serve.
Supporting local government and health officials as they work to mitigate and contain the virus.
That's showing up in a responsible and positive way in each and every community we serve.
The dedication agility and positive energy of our partners inspires.
And for that I'm grateful.
Throughout this dynamic period I believe the combination of principal decision, making and transparency and our communication has built trust.
Trust with all stakeholders.
We provided Starbucks partners economic certainty through the shutdown while prioritizing your help.
As we reopened stores, we created say familiar and convenient experiences for customers.
We remain committed to doing so as we adapt to store portfolio to cater to evolving patterns of consumer behavior.
Including on the go consumption.
Mobile order and pick up.
Drive-thru.
And contact was pickup and delivery.
In accordance with our multiyear strategy, which has been further validated by the unfortunate dynamics created by covert 19.
We showed up in the community to provide free coffee to the frontline healthcare workers, who have been carrying for those in need.
We collaborated with our suppliers and every step of the way we supported our global license partners in markets around the world.
With a strong balance sheet, we took appropriate steps to ensure liquidity and maintained our quarterly dividend payment to shareholders, while maintaining flexibility for the future.
And we did all of this while continuing to advance our long term strategy.
Positioned Starbucks for continued success.
Trust is earned.
And building trust with all stakeholders is a very important attribute of Starbucks.
I believe the significant investments we made this quarter have inspired Starbucks partners.
Strengthen customer loyalty.
And we'll pay dividends long into the future as the Starbucks Brad is stronger than ever.
On today's call I will summarize the business recovery results that we're driving as we navigate the current situation.
And how we are rapidly adapting our business for this new reality.
My hope is that from this call you understand it take away two important points.
First.
Our recovery plan is working.
With the vast majority of stores around the world now reopened we saw meaningful improvements in both sales and profitability as the quarter unfold.
Additionally, customer affinity for Starbucks is very strong as demonstrated by improvements in our customer connection scores growth in customer loyalty and market share gains.
While we anticipate these improvements to continue our balance sheet and the strategic actions, we've taken to position Starbucks to whether a more protracted disruption in global economic activity.
And second in response to clear shifts in consumer behavior and preferences, we are now accelerating strategic initiatives.
For the future.
Positioning Starbucks for continued long term growth.
We have moved aggressively to advance our evolution of the store base to accommodate trends that we have long seen emerging in our business that we're only exacerbated by cobot 90.
When taken together these two points indicate a bright future ahead for all stakeholders of the Starbucks coffee company.
Let me begin in the U.S., where the recovery accelerated throughout Q3.
We exited the quarter with 96% of stores open.
Up from 44% at the beginning of the quarter.
With health and wellbeing top of mind.
We monitor trends and quickly adapted to support our partners and serve our customers safely and responsibly.
Through a combination of new store operating protocols and service channel.
We were able to amplify a number of contact with experiences for our customers.
Including drive through.
Entry way pickup with mobile order and pay and delivered.
And with new proprietary data driven decision tools that monitor public health conditions government guidelines customer preferences and partner sentiment in real time.
We were able to gradually and safely reopened a select number of our U.S. stores for limited seating experiences.
Expanding to nearly 30% of our U.S. company operated stores by the end of the court.
As a result weekly U.S. comps steadily improved throughout the quarter from the low point a decline of minus 65% in mid April up to minus 16% as we exited Q3.
And through all of this we posted all time high customer connection scores.
Looking specifically at the comps above 3100, U.S. stores that remained open throughout the entire quarter.
Those stores improved sequentially from minus 14% comp in May.
To minus one in June to a positive 2% comp for July month to date.
We have now develop new levels of agility, and resilience that position us well for the future with the mindset and capability to safely effectively and confidently drive our continued recovery.
We recognize that markets will experience varying levels of cobot 19 impact until new therapeutics and vaccines are developed.
And we are well positioned to navigate this phase of the pandemic.
Today customers are seeking safe familiar and convenient experiences in many aspects of their lives and in that regard our digital assets have proven to be a competitive advantage.
Within the quarter, we saw significant acceleration in the number of customers, who downloaded the Starbucks App and joined Starbucks rewards.
Totaling 3 million in the quarter and up 17% from Q2.
Additionally, engagement with Starbucks rewards customers outpaced non Starbucks rewards members.
Year over year sales growth from Starbucks rewards customers turning positive in early July.
As a result.
Starbucks rewards as a percentage of tender in Q3 rose four percentage points from a year ago to 46%.
Which is above the pre cobot tread highlighting our success in acquiring new loyalty members as well as reengaging, our existing customer base.
And finally customer usage of mobile ordering increased to 22% of total transactions up six percentage points from a year ago.
Although our digital platform continues to be a source of strength.
Disruption to the weekday morning routines, notably commuting to work in school is a headwind we are focused on across the U.S. as we continue to recover business.
We continue to see improvements in the morning peak period as well as some customer occasions shifting to later in the morning Daypart.
As we see customer visits shifting from urban cafes to suburban drive-thrus customers are also purchasing multiple beverages and food items on a single order.
Essentially a group or.
These dynamics have contributed to a meaningful increase in average spend per order compared to pre pandemic levels.
Leading to 25% average ticket comp growth for the quarter.
As we reopened stores to include mobile orders entryway pickup and in store to go orders.
Ticket growth moderated and transaction volume increased as the quarter unfolded.
Almost 90% of sales volumes in Q3 flowed through the combination of dry through and mobile order and pay.
In addition, with national coverage in the U.S.
Starbucks delivers transactions tripled in Q3 from Q2 levels with the highest volume in the late morning and mid day.
All of this indicates that customers are adapting their routines.
And we are well positioned to drive further recovery by simply increasing throughput and enhancing those safe familiar and convenient experiences customers desire.
As I will discuss in greater detail later that is why we are accelerating innovative store formats like Starbucks pickup and new operating protocol, such as curbside delivery.
As they align closely with the customer preferences that it evolved as a result of cobot 19.
Let me now move on to China.
We're at the end of Q3, 99% of stores had real.
With approximately 90%, having regular operating hours and over 70% having full seating.
Building on the positive recovery momentum from Q2, China demonstrated sequential improvements in monthly comparable sales across Q3.
Exceeding our expectations for the core.
In addition to comp sales recovery, we reignited new store development.
Crossing the 4400 store milestone with the opening of almost 100 net new stores in the core.
Mobile order sales mix reached 23% of sales in Q3, with 12% coming from delivery and 11% from mobile mobile order and pay.
Well above the mid teens levels, we saw a pre cove it.
As digital adoption accelerates in China, we continue to innovate in ways that deepen customer relationships and extend the reach of the Starbucks experience across a variety of digital platforms and ecosystems.
In May we launched a new we chat many program with new functionality for we chat users, including Starbucks delivers.
And in June we enhanced the Starbucks rewards program, introducing and multi tier redemption systems similar to what we rolled out in the U.S. last year.
Fueled by these new digital initiatives, we've seen strong sequential growth in active rewards members in fact.
The Q3 90 day active members increased 25% over Q2 to 9.9 million, representing 9% growth over the prior year.
We're pleased with the progress we are making in China to recover sales. However, we are reminded by the recent resurgence of cobot 19 cases in Beijing, and the corresponding actions taken to mitigate the spread.
That our new normal requires us to monitor the situation in every community.
Rapidly adapt.
And innovate in ways that continue to bring more customers into our stores and increase the frequency of those visits.
With a differentiated capabilities and strategic advantages, we enjoy in China, including our digital partnership with Alibaba and our access to emerging technologies through our co investment relationship with Sequoia capital.
We are confident that we will substantially recover our sales in China by the end of this calendar year, demonstrating the strength and resilience of the Starbucks brand and our fastest growing market.
Moving to channel development.
This has been a quarter where demand for at home coffee has soared and our channel development business has demonstrated tremendous resilience and gain market share as customers adjust to their at home routines.
In the U.S. Starbucks share of total package coffee grew significantly in Q3.
21% growth and dollar sales outpacing the coffee category, which grew 13% quarter.
Our domestic ready to drink business grew by 11% gaining two points of share in Q3.
Our global coffee aligns with Nestle combined with our ready to drink partners, including Pepsico and tinny.
I have extended our ability to meet customers, where they are which is particularly important in the current environment.
We are now and 53 markets with the global coffee aligns more than tripling, our at home coffee presence versus a year ago.
And we expect to be in over 60 markets by the end of this fiscal year.
With our near term business recovery fully in motion and delivering results.
Let me now focused on how we are leveraging this disruptive period to accelerate value creating initiatives.
That further differentiate Starbucks and fuel predictable sustainable long term growth.
Why is this important.
In every industry there are periods of disruption that create great opportunity for those businesses.
That adapt to the disruption invest in relevant ways and strengthen their differentiation and competitive advantage.
Those businesses that fail to evolve typically fall behind.
Given the strength of our brand our advanced digital capabilities and our strong balance sheet.
I believe this is one of those rare opportunities to move aggressively.
And further differentiate Starbucks from our competition.
And I will highlight three areas, where we are doing just that.
Convenient store formats.
Digital customer engagement.
And plant based menu items.
Over the years, we have demonstrated a clear track record of re imagining store formats to better serve customers.
And we're now re imagining how we further elevate the customer experience by leveraging these various store formats to create a network of stores in a community.
Think of this is blending highly complimentary store formats throughout of community that collectively better serve the expanding and shifting need states of customers in that community.
And thus increasing revenue in the trade area, while optimizing profitability and investment returns.
We had been blending store formats in suburban markets for years.
Where we have complemented traditional Starbucks stores, the third place experience with drive-thru and mobile order pickup experiences that serve customers need for convenience.
We are introducing a simple handheld device to further increase throughput and improve the customer experience and we're introducing a new curbside pickup experience that will be available in 700 to 1000 locations by the end of this quarter.
Which enables incremental customer business.
In urban core markets, where drive-thrus and curbside aren't feasible.
We will begin to reposition our store formats to create a blend of traditional Starbucks stores with new Starbucks pickup stores.
These stores are built in a smaller footprint and create a familiar and convenient walk through experience that is very relevant to customers in urban markets.
Each of these Starbucks pickup stores will ideally be located within a three to five minute walk.
From a traditional Starbucks store, giving customers the flexibility to enjoy their beverage in our store or on the go.
We plan to accelerate the development of over 50 of these stores over the next 12 to 18 months.
The view to have several hundred us over the next three to five years.
We have also accelerated the rollout of a similar concept to China Starbucks now stores.
Adding nine new locations in Q3 for a total of 15.
We are seeing first hand, the power of integrating physical and digital customer touch points to meet customers growing need for convenience.
In addition to accelerating our store transformation strategy.
We are creating new capabilities that expand digital customer engagement.
We're having great success, bringing new customers onto the app and into the rewards program.
We will build on this momentum in the fall when we introduced a new pay as you go option for Starbucks rewards members in the U.S and Canada.
This significant New addition, we'll open up an invitation to join Starbucks rewards to a much wider audience.
While nearly half of our sales now comes for rewards members, who are preloading they are stored value cards.
We have heard for many more customers that they would like an option to earn rewards when paying directly with cash credit debit and select digital wallets.
By adding this capability the Starbucks rewards, we will give customers more ways to pay and earn rewards when using the Starbucks app.
In China since we began our China digital partnership with Alibaba two years ago.
We've worked together to deliver innovative digital services to our customers and transform the coffee industry in China.
As part of our ongoing partnership.
We are expanding our reach to customers across the Chinese mainland by introducing the Starbucks now mobile order and pay feature to multiple platforms in the Alibaba digital economy, including Tao.
Digital mapping in information provider Amp.
Local services, App, Cuba and Alley pay.
Which serve a combined user base of nearly 1 billion customers.
Through these apps customers will be able to preorder and pay for their favorite Starbucks beverage and food online.
And then pickup in person at most Starbucks stores across the Chinese mainland.
Previously.
Service was only available through our Starbucks, China mobile App.
This is a significant step forward and we value our partnership with Alibaba greatly.
We are listening to our customers and continually seeking ways to make starbucks more relevant inviting and uplifting through personalized human connection.
The seamless link between the customer experience, we create in our stores and the power of the digital customer relationships.
Finally.
Our recent announcements of plant based beverage and food innovation through partnerships with beyond me impossible and only.
Reflect the fact that customers want more plant based options.
We believe that customers are embracing plant based choices because they are good good.
Good for your health and good for the plant.
We are shifting more beverage and food menu items to include plant based options.
Recent examples include cold brew sentiment almond milk bone in the us.
Okay milk versions of two signature Starbucks beverages in China.
Milk latte and oak milk much a lot today.
Early results from these innovations are very encouraging.
So we are accelerating efforts to expand these offerings for our customers and in the process, making meaningful progress against our planet positive goals.
Let me close by reinforcing two key messages I hope you take away from this call.
First our recovery strategy is working.
Evidenced by the improving business results across all of our key segments.
Second.
We have future proved our business model and reinforced our balance sheet to enable us to play off assets by accelerating key strategic initiatives.
Further differentiate Starbucks and reinforce the long term sustainable growth opportunity ahead.
Those two points.
Reinforce and optimistic view of our future.
Before we conclude this call.
I want to thank you all for joining us today.
The last several months had been quite unprecedented in regard to public health and commerce, given the impacts of cobot 19.
Simultaneously.
There is a powerful awakening underway in America to address systemic racism and social and equality.
Issues that Starbucks is always embraced believing that we have a role and responsibility to advance positive change.
That has never been more true than it is today.
Mission and values that unites Starbucks partners continue to help us navigate these complex times.
And inspire us to promote equity.
Great opportunities and build Brazilian communities.
And building upon the deliberate actions, we've taken to provide a warm welcoming and safe environment for everyone.
Our work will not end.
This is who we are at our core and it is what our partners and customers expect of us.
Hi, again, thank all Starbucks partners.
Commitment dedication and caring for one another.
Well as our customers and the communities in which we operate through this pandemic his heart warming.
You are the heartbeat of Starbucks and I'm proud to work in services view.
As always.
We look forward to bringing you along our journey to create opportunities and strengthen our communities.
Thank you for your time and attention today and for your ongoing support.
Now over to Pat.
Thank you, Kevin and good afternoon, everyone.
Let's start by echoing Kevin's appreciation for all Starbucks partners, who have worked tirelessly to deliver safe convenient and familiar experiences for our customers and to support our communities under very challenging circumstances. They are the heart beat of our company and our inspiration.
Although the impacts of cobot 19 weighed heavily on our Q3 financial results. We are encouraged by the fact that our sales and profits across all our operating segments. We covered more quickly than we expected and then our very strong balance sheet has allowed us to make significant an important investments in the business for the long term while weathering the pandemic.
For the quarter Starbucks reported global revenue of $4.2 billion down 38% from the prior year, we estimate the co bid 19 impact on consolidated revenue to be approximately $3.1 billion, primarily due to temporary store closures restricted sales channels shortened operating hours.
And reduced customer traffic non-GAAP EPS in Q3 was a loss of 46 cents down from a profit 78 cents in the prior year inclusive of an estimated $1.20 cents negative impact of Cobot 19, which includes flow through on the revenue impact that I noted earlier as well as significant invest.
So we made in response to the pandemic, which which I will outline later non-GAAP EPS was considerably better than the preliminary guidance ranges. We provided in our 8-K on June 10th driven by better than expected sales and margins.
I will first provide some highlights of segment operating results and consolidated margin performance for Q3, I will then discuss our guidance for Q4 in fiscal 2020, followed by a preliminary perspective on fiscal 2021.
At $2.8 billion revenue for our Americas segment was 40% lower in Q3 than the prior year largely due to a 41% decline in comparable store sales, including minus 40% in the US we estimate the decline in Americas revenue and operating income attributable to covert 19 in Q3.
To be approximately $2.3 billion and $1.5 billion, respectively. This equates to a low through rate on lost sales of approximately 65% for Q3, which was a significant improvement from Q2, but still materially higher than the 50% variable flipped to a rate than we typically observing.
Our business, primarily due to incremental partner support costs net of certain government stimulus program benefits as well as incremental store operating expenses importantly, both sales and profitability trended positively across the quarter with sequential improvements in each month and comparable store sales were towards the.
Better and our guidance range the us business posted a comparable sales decline of 19% in June improving from minus 43% and may restoring the business to positive profitability for the month.
Moving on to international this segment's comparable store sales declined by 37% in Q3 relative to the prior year, but exceeded the expectations. We shared last month, primarily driven by Japan's faster than expected pace of sales recovery boosted by successful seasonal product promotions the segments comparable store.
Our sales in Q3 also reflect a 2% benefit related to temporary value added tax or the 80 exemption in China. This benefit was largely offset by traffic softness that emerged in Beijing and the last two weeks of the quarter due to a resurgence of cobot 19 in that city for the month of June.
In China's comparable store sales declined 16% after excluding an eight percentage point, the 80 exemption benefit about half of which was related to a true up for the first two months in the quarter. This was a notable sequential improvement to mace comp on a like for like basis for the third quarter.
China's comparable store sales declined 19%, including the 80 favorability of four percentage points.
International's revenue of 950 million in Q3 was a 40% reduction versus the prior year, primarily due to the 37% decline in comparable store sales also contributing to the decline were lower product sales to our licensees as a result of lost sales related to the cobot 19 outbreak as well as temporary royalty relief.
That we granted our international licensees.
And there was an additional 2% revenue dilutive impact of transitioning our timeline business to licensed operations last year. These adverse year over year revenue impacts were partially offset by net new store growth of 9% over the past 12 months, we estimate that the koeppen 19 impact to the decline in inter.
Nationals Q3 revenue and operating income was approximately $760 million and $420 million respectively.
Improvement in the international Splunk to rate on lost sales up roughly 55% in Q3 from 60% in Q2 was attributable to favorable items unique to the period, primarily temporary government relief programs. The temporary extension of China loyalty program benefits during the pandemic and limited time rent cuts.
Sessions in both China and Japan.
On to channel development revenue was $447 million in Q3, a decline of 16% from the prior year when normalizing for the 21% unfavorable impact of lapping global coffee alliance transition related items that benefited the prior year, including higher inventory sales us Nestle prepared.
Fulfill customer orders channel developments revenue grew 5% in Q3 over the prior year. The growth was driven by strong packaged coffee and single serve product sales offsetting the adverse impact of Cowen 19 on the segments foodservice business.
Channel development non-GAAP operating margin was 35.6% and improvement of 120 basis points over the prior year normalizing for the 460 basis point impact the transition activities I, just mentioned channel developments non-GAAP operating margin contracted 340 basis points in Q3 there.
Traction was due primarily to a business mix shift within channel development as well as de leverage on fixed coffee manufacturing costs shared across the companies operating segments, driven by lower retail production volumes, resulting from covered 19.
At the consolidated level non-GAAP operating margin was minus 12.6% in Q3 down from 18.3% in the prior year as you would expect much of the year over year reduction in our operating margin was due to sales de leverage as well as incremental expenses to provide a safe experience in our stores.
All related to the impacts of Copel 19, we estimate this to be approximately 80% of the margin decline. The remaining 20% primarily reflects substantial and very intentional investments that we are making in the brand and to build trust with key stakeholders recognizing that these relationships are an essential.
Part of our brand and critical to our ability to not only recover from the effects of the pandemic, but also to strengthen our competitive position for long term growth.
These investments totaled approximately $350 million in the quarter and we're focused on three key areas first we invested in our partners as they are critical to the Starbucks experience an instrumental to our long term success for most of the quarter, including during the period of extensive store closures we provided.
Our partners with salary wage and benefits continuation as well as temporary premium pay in the us in Canada for those who worked on the front lines of our business and enhanced assistance related to personal care and wellbeing net of subsidies from certain government stimulus program benefits.
This represented about 85% of our total investments for the quarter second we supported our international licensees, who our partners and driving long term growth globally by temporarily extending more flexible development terms and royalty relief.
And third we held several strategic suppliers, whether this crisis with certain accelerated payments in effect through July and by honoring minimum supplier commitments during periods of depressed sales volumes. So they can sustain the supply of our proprietary products and services in support of our ongoing product innovation, we're fortunate that the.
Scale of our business and the strength of our balance sheet enabled us to invest as we did consistent with our mission and values as a company, while positioning us well for the future.
Our 3 billion dollar bond issuance in May enabled us to fund these investments cover our capital expenditures Prefund next year's bond maturities at attractive rates and of course sustain our quarterly dividend payments honoring our commitment to shareholders importantly, as we exited Q3, we were cash flow positive with upward mode.
Bantam setting us on a solid path to reduce our financial leverage in future quarters.
Moving onto our outlook for Q4 in fiscal 2020, starting with the metric that in our view defines recovery for our retail business comparable store sales growth globally, we expect comparable store sales for Q4 and for fiscal 2020 to decline between 12% in 17% demonstrating sustained.
Actual improvement, including across both of our key markets of the us in China.
We also expect Americans and us comparable store sales to be down 12% to 17% for Q4 and for fiscal 2020.
While the recent flare ups of Coca 19 in several parts of the U.S. underscore the persistent uncertainty in our operating environment. We expect continued improvement in our US business in Q4 bolstered by the focused actions that Kevin described in relation to our contact list customer experience digital capabilities and beverage innovation Kurt.
Lastly, with modified operations at limited cafes seating and nearly 40% of our stores as well as 4% of the portfolio remaining closed we estimate that our fiscal July comparable store sales for US company operated locations will be approximately minus 14%.
Sequentially improvement from the minus 19% that we delivered in June even as we dial back some of our US operations in response to some regional opened 19 flare ups.
Moving onto our international segment with the expectation of Cobot 19 impacts continuing to ease in the fourth quarter, particularly in Japan, We now expect International's comparable store sales to decline between 10% and 15% in Q4, including a 3% favorable impact for China's specific.
We expect Q4 comparable store sales to range between flat and minus 5%. Although this is generally inline with our previous guidance and now reflects both the new tailwind and the new headwind to new tailwind is the temporary BT exemption, which I mentioned earlier benefiting China's fourth quarter comp sales growth.
By about four percentage points, the new headwind is a combination of factors first kobin related emergency response measures in Beijing, where Starbucks currently has over 360 locations and second a prolonged slowed down in international and domestic travel impacting Starbucks locations China's airports into.
Tourist venues for the full fiscal year, we expect China's comparable store sales to decline in the range of 15% to 20%, including a 2% favorable impact and for international we expect full year comparable store sales to decline in the range of 20% to 25% in fiscal 2020.
Including a 1% favourable the impact as an indication that the continued recovery that we're seeing in this business, we estimate that China's comparable store sales growth will decline approximately 12% to 14% for the month of July when excluding a four percentage point benefit from the temporary BHP exemption.
This is sequentially better than June's result, when China's comparable store sales growth declined 16% when excluding the 80 favorability of eight percentage points, we expect to be 80 exemption will expire at the end of December.
Finally channel development. This segment's revenue is expected to decline between 5% and 6% on a reported basis for the full year in fiscal 2020 relative to the prior year as we lap certain transition items related to the global coffee Alliance that benefited the segment's top line growth in fiscal 2019.
Adding it all up at the enterprise level globally, we expect revenue to decline between 10%, 15% in Q4 versus the prior year, primarily reflecting the negative impact of covered 19, which we estimate to range between approximately $1.4 billion to $1.65 billion, we estimate the operating income decline.
Line related to cover 19 to be approximately $850 million to $1.1 billion globally, reflecting a flow through rate of roughly 60% to 65% on lost sales. In Q4. This is roughly comparable to the flow through rate that we delivered in Q3 as we expect improved sales leverage in Q4 will.
Offset by the absence of nonrecurring margin benefits that we realized in Q3 with continued sales and margin recovery. We currently expect the business will return to profitability in Q4 with EPS, improving very meaningfully compared to Q3, we now expect GAAP EPS in Q4 of six cents to too.
The one cents and non-GAAP EPS of 18 cents to 33 cents.
Current outlook for Q4, coupled with our better than expected results in Q3 yields a rates to our full year expectations for EPS in fiscal 2020 compared to our prior forecast. We now expect GAAP EPS in fiscal 2020 up 50 cents to 65 cents and non-GAAP EPS of 83 cents today.
98 cents.
Now I'd like to share some perspective on our us in China recovery curves going forward.
Based on what we've learned as Weve navigated the impact of Copel 19 for the past six months as well as the innovations and growth that we planned for next year and barring any new major and sustained weights of infection and or global economic disruptions, we anticipate that comparable store sales will substantially Rick.
Cover in China, and the us in fiscal 2021 by the end of our first and second quarters, respectively. Additionally, we expect that margin recovery for each business will trail sales recovery by about two quarters.
As we believe we are now passed the depth and the pandemic and are on a steady path to full recovery and as we successfully bridged our liquidity needs. We will now return to our normal cadence of investor updates and look forward to sharing our continued progress with our fourth quarter earnings report in October.
In summary, Starbucks sales and profits are recovering nicely our liquidity position remains strong and continues to improve and we're continuing to invest in growth and the future of our business. It has been a very challenging quarter for Starbucks as it has for many other businesses, but we believe the worst is behind US we've developed.
A new level of agility and resilience for the future. The considerable investments we've made in our partners and other stakeholders, which honor our company mission and values combined with evolving our store portfolio leave us as confident as ever in a unique strength and appeal of our brand and position us to unlock the potential of Starbucks.
And with that Kevin and I are happy to take your questions joined by Roz Brewer as target outlined at the top of our call. Thank you.
Operator.
Thank you as a reminder, if you like to ask a question. Please press Star then the number one.
On your telephone keypad in order to allow as many questions as possible. We ask you to please limit yourself to one question at a time.
We will come back for follow up question as time allows we'll pause for a moment to compile the acuity roster.
Your first question comes from line of Jeffrey Bernstein with Barclays. Please proceed with your question.
Great. Thank you very much.
Looking to talk little bit about the.
The broader outlook from a consumer perspective.
It seems like on the heels of coated.
Most consumers.
And investors alike seem like where and during a recession.
So couple of questions related to that Im just wondering if you could talk about your performance a dozen or so years ago and why maybe the brand better inflated. This go around.
Comparing and contrasting the U.S. versus China.
And then just to clarify I think you mentioned that the China comps you expect to substantially recover.
By the end of fiscal one Q.
It's a little bit of a delay from I think you were previously saying by the end of the fiscal fourth quarter I'm wondering whether you're seeing any signs of a China consumer.
Low down at all in recent weeks. Thank you very much.
Yeah. Jerry this is Kevin I'll I'll take your questions first of all start with your second question China.
I think as we see.
Resurgence of cases similar to what we've seen in Beijing that causes a little bit of that's what's caused a little bit of the delay by a quarter in China not significantly known as about let's say four or five weeks and now Beijing is back on a on a positive trajectory, but because it was such a large market I think that thats what slow.
Down, but it has nothing to do in my opinion with the anything related to the economic it was more it's more just as a resurgence happens at a large market like that that that we.
When it happens like that what we're able to sort of turn the dial back slightly on the.
The range of customers experiences, we serve true to the principles that we outlined and we help support government local health officials as they contain.
The spread of the virus they successfully have done that in Beijing, and so then we start turning to dial back up and opening up those customer experiences.
That's a very.
Positive thing because I think as a company. We've now taking taken this playbook that was developed in China and adapted for the U.S. and we basically have embedded into our store protocols and our operating procedures. So that in 32 stores around the world. If there happens to be a flare up in a certain city or certain.
Portion of a market.
The stores in that market happy agility to basically turned the dial down at they need to return it backup if things are recovering and that puts us in a position of confidence in how we can continue to navigate the global pandemic.
As it evolves and so that was.
Contributing factor in China in terms of recession, I'll leave I'll leave the predictions of economic growth to the economist, but what we've seen is continued demand for Starbucks in fact, you look at what we've outlined the number one thing we can do to continue to grow our same store.
Comps and the recovery is basically increased the throughput in the channels that are safe familiar convenient.
And Thats why for example.
We're deploying these handheld point of sale I don't know how many of you've seen a driver Starbucks driver Theres typically cars lined up and oftentimes out into the street.
So where we deployed this handheld point of sale. We can now have a starbucks partner out there taking orders.
Walking through that line of cars, which is going to dramatically increase the throughput it drive through.
Similar enabling curbside.
We'll we'll open up.
More customer occasions for us to continue to drive.
More more transactions into our stores and so I think based on what we're seeing in terms of the demand and by being able to increase throughput in those channels that are that are viewed as safe and convenient by our customers that's going to help us on the recovery curve in terms of should should recession recession.
Every period start to had I think weve differentiated ourselves we've got lots of points of presence, we're serving customers I think the brand is strong our digital reach is strong and I think I think we're well positioned to to navigate anything that might might come our way.
Jeffrey This is Pat one thing I would say to build on what Kevin has said is that if you compare Starbucks today to where we were during the last.
Economic recession today, we have an industry, leading digital platform and a rewards program that didnt exist back in 2008, 2009, and Thats an important part of competitive advantage competitive advantage and gives us more resilience on today compared to 10 years ago.
Your next question comes from line of Sarah Sen with Bernstein. Please proceed with your question.
Hi, Thank you.
To ask a bit about the guidance. It's acted and you said that sales and operating profits are covered more quickly than expected.
To me it looks like the big differences line of profit line that the comps this quarter kind of pretty consistent maybe that guidance.
I was just curious basically went there where lie there with sort of better than expected to flow through considering how much of it was a function of discretionary investments and then.
Look at four Q, just trying to understand again comps actually made at the midpoint at the same are lower in most markets and but are you being conservative again as just trying to understand there's a lot of moving parts and if I, if I turn to reconcile the top line versus that yes. It.
Like there's there's been a little bit at the disconnect this quarter and I'm trying to figure out if it that'll happen again.
In Fourq you are even next year.
At the profit recovery might lag topline link.
Thanks, Sara Pat you won't take down yes. Thank you Sarah so in relation to Q3 compared to the expectations. We had when we filed our 8-K on June 10th.
You're absolutely right, we saw a much better low or profit performance than we did.
Improvement in sales, we did see stronger than expected sales recovery across the month, but the profit improvement was outsized in relation to the sales recovery as you highlighted and that's primarily due to the fact that as we have increasing the better visibility to the shape of our sales.
Every curve our operators are much stronger position to manage with much greater efficiency labor deployment and inventory and so as a consequence, we saw much better profitability than we had anticipated I would also highlight in particular the performance of our Japan business because they had a.
Rather strong improvement in sales and because their company on market. We saw that saw with that a significant improvement and profit for the month of June compared to original expectations in relation to Q4, I think it's fair to say that our outlook is pretty comparable.
To what we had forecasted as of that June Chien 8-K, we have narrowed the range for the us business and for the Americas generally because we have more visibility to our results for the quarters for nearly one month into our fourth quarter at the same time, we have much better visibility to our adult.
I'd to manage the middle of the TNL and so we feel very comfortable with the ranges that we've given for EPS as well in relation to next year you asked about fiscal 21 and I provided in my prepared remarks, a very preliminary perspective on the shape of our sales recovery curve, noting that our margin recovery.
I would likely land sales recovery by couple of quarters. The fact is that it's very early to predict what next year is going to look like but based on the experience. We've gained today based on how well we know our branded how consumers are responding to our plan based on the strength of our rewards program and our digital platform.
Form.
We are building operating plans for next year, the presume the levels of sales and profit recovery that I mentioned so it is on that basis that weve provided preliminary perspective, and we'll continue to keep investors updated as we go looking forward to providing more refined perspective, with our Q4 earnings call by which.
Time, we will have developed.
Operating plans for fiscal 2001.
Thank you.
Your next question comes from line of David Tarantino with Baird. Please proceed with your question.
Hi, good afternoon, and congrats on unnamed navigating through what we hope for the worst of the Covitz shock here, but.
I have a question really on the U.S. business.
And I think Kevin you mentioned the morning routine business is going to be.
The most difficult to build back.
And I was wondering if you could.
Elaborate on what the plan is to build that back specifically and and perhaps what you've seen in the markets where the economies maybe opened up earlier, if you're starting to see that business come back.
For example, in the southeast or or other markets that might have opened earlier than than some of the core markets.
Yes, David Thanks for your question or your comments and for your question why don't I, let rod describe sort of the initiatives we have focused on.
On that morning, Daypart, and then and then I'll sort of.
Wait a couple of thanks Rami handed over to you.
Thanks, Kevin Thanks, David said a question first of all morning day part into well described is important as we have seen assist in the customer in terms of how they view them mornings and we're seeing this sets to mid morning around the 930 timeframe and then another pickup in the afternoon around QEPM and because we've created.
And so many tools.
Decision driven tool that we designed specifically for labor planning, we've shifted our labor to though timeframe understanding what is shifted in the customers patterns. In every key. In addition, we're also seeing that in some of our really dense workplaces for instance, downtown areas where we.
We have stores, where there's more work from home in those geographies those have been slower to recover and so we're watching those carefully but those are also the areas those dense areas that we're bringing in our new trade area transformation work, where realigning the network of stores to increase what we're seeing.
In terms of revenue in that trade area in optimizing the profitability. So dense areas are being transformed by the new network of stores. Additionally outside of that we are doing that work to reach.
Broader level of customer base with the new design in our loyalty program and so you may have heard the announcement around our new pay as you know plans that will allow us to expand payment options and ways to earn stars and this we believe will provide meaningful impact in our business results overall.
No.
Also helping us understand that activity at the customer as we rewards and loyalty and deliberate personalized offers to the expanded.
Summer base. So starting this fall in USA, and Canada, you'll be able to download the Starbucks and sign up for Starbucks rewards, you'll be able to pay with a credit or debit card cash or less than mobile wallet to earn the stars without having to fully loaded Starbucks card within the App and so customers can link those car payment.
Paypal account and we believe these are the kinds of initiatives that will make a difference as we try to regained the most important parts of our business and watch what happens as the transition from work from home returns back to work from office and we'll be watching the customer patterns very carefully and adjusting we're real.
Okay.
Comfortable that we now have so many different channels to our business.
Adding drive-thrus out in those metro suburban areas near where people are working from home, it's our highest concentration of drive through units.
So we feel like this new agility and resilience that we've built into the business will allow us to look at that morning, Descartes adjusts to the transitions were seeing in mid morning early afternoon, and then bring in a new customer base additional customer base with any rewards program.
Thank you you hit the right thing the did the digital customer relationships were just keep in mind. We just added 3 million new digital customers that registered for the rewards program and being able to communicate with them personally and then as Ross said the work Theyve done on increasing throughput at drive-thru and watch.
Curbside that just opens up new channel. So that's spot on thank you Ross.
Your next question comes from line of that Sharon's that few with William Blair. Please proceed with your question.
At this time, there's no response from mid next year is line.
Is your question has been with John and I will proceed to the next question.
The next question comes from line of John Glass with Morgan Stanley. Please proceed with your question.
Thanks, and good afternoon I wanted to go back to the comment Pat you made about the margins recovering slower than sales just at a high level.
A lot of retailers out of restaurants have determined they can do more with less during this period of time and they've learned that they can make labor more efficient menus more efficient.
Why wouldn't that be the same case for Starbucks and margins it should be the opposite.
And I would also think the digital transactions are more profitable so that would sort of accelerate that or is there some embedded assumption about reinvesting into that some of these new channels I actually art as margin accretive as maybe I'm assuming.
Yes, John have to answer your question.
We do expect margins will improve gradually as we move through the fourth quarter and into next year and the next couple of quarters. We do expect margins will continue to lack prior year and although the margin impacts of partner benefits and inventory reserves are expected to subside considerably in Q4.
The leading driver margin pressure will be continued de leverage of fixed costs, such as occupancy and depreciation expense as we work to restore sales. So it's largely a function of the speed with which we can recover sales and then how we manage some incremental cost to our business because we do expect to see certain costs.
Persist.
To our new way of operating net includes cleaning supplies and the associated labor, but it is premature to see whether those costs will drive a structural change to our up in margins. We continue to innovate our operating systems and technology to improve throughput.
Efficiencies. We also expect the margin tailwind the transformation of our US urban market strategy that is rolled out that includes the repositioning of some existing assets and that will help to offset any new incremental costs and we also expect margin benefits from ongoing efforts to renegotiate operating leases. So we do expect to.
I see a combination of margin headwinds and tailwinds, but far away. The biggest driver the margin recovery will be the sales recovery. However, we do expect that there will be that lag between sales recovery and margin recovery as we continue to refine our ability to operate differently in the new environment.
Your next question comes from line of its Sharon Zackfia with William Blair. Please proceed with your question.
Hi, I Hope you guys can hear me now.
Hi, Jerry we can hear you okay perfect.
Okay.
I'll up on rapid commented about the pay as you go feature for Starbucks or is that just rolling out in the US or are you also making any modifications overseas and can you help us think about.
Where that has the greatest impact I mean is it a customer acquisition until it it's a really light in the funnel into their frequency dynamic and any kind of initial margin thoughts I know that reward is a little bit less them.
Less frequent I think and then then the regular rewards program, but any clarity around that would be helpful.
Great Good Ross.
Sure. So serin first of all the current Starbucks rewards members they'll continue to enjoy all the benefits of the current program current loyalty program and usage of the App and then those numbers continue to keep seeing what their pre loaded Starbucks card to earn two stars per $1 and they now.
I had the option to earn one star per $1 spend when you pay with the credit or debit card Castro select mobile wallet. So that is so it serves two purposes, one to expand the funnel on the customer base, but we actually believe that will get even deeper penetration with our Starbucks rewards members as well.
Well so it will it will do both of those things we're rolling this out a U.S. and in Canada.
So this program is jets to North America at that time in there that's a different program that we use in China.
Your next question comes from line of John or Bunko with JP. Morgan. Please proceed with your question Hi. Thank you. So my first a follow up on the efficiency question, then a separate one on efficiency as well.
It would be kind of be apparent that you'd be able to run stores with less operating hours. If there's a shift towards digital it there's a shift towards off premise. If you can give comment on that specifically because that's what we are hearing from other restaurant and then secondly, as we kind of think about the organization and the overall growth plan.
And that the company has what type of efficiency and effectiveness exercises have perhaps emerged beyond what you previously said on a corporate or DNA perspective, it's a poor perspective.
We think about 21 and 22 of up perhaps optimizing some of the organizational structure.
Thanks, John Rob why don't you take the part of John's question on.
What we're doing with operating hours in sort of efficiency in the store and then Pat when it should take the back half of his question on Gionee and how that all comes together on the piano Rob.
Yes so.
First of all John what we're doing to prepare for labor in the storage is critical for US as you can imagine labor being for any retailers, our greatest expense and sell being very efficient in terms of how we manage those labor hours. In addition to.
The productivity and so we have productivity tools in the store that help us manage.
When labor hours are needed we're watching thing this implies infectious rates instead, when those rates rise in certain areas, we will adjust the hours in those stores will know that we have partners available to work and we will apply them to the store and so we do have.
You know methods in place to make sure that were managing justice efficiently as possible in these uncertain times. So we have that work ongoing.
We've also.
Likely heard earlier, probably four to six weeks ago, where we.
Made an adjustment in our stores around partners, who wanted to return to the stores and those who decided that they wanted to work on elsewhere and find a new career and so we've adjusted appropriately.
However, we continue to run.
Our space done.
Store and demand in that area and we've created our own decision tools to decide what that looks like so we continue to work that like we've done in the past with a lot more visibility over what's needed to sell the demand in those stores.
And then John just to pick up on some additional aspects of our margin outlook. That's important to bear in mind that as we do innovate new channels of distribution.
At our stores for example, curbside delivery or as we anticipate the longer term growth of third party delivery those channels require incremental costs, but they are necessary in order to capture the incremental sales. So those would be a couple of examples where we see growth that may be margin percentage.
Diluted but dollar profit accretive and so no to Rob's point. The team continues to works through ways, we can improve operating efficiency in the store to help offset some of these incremental investments to accommodate an evolution in the overall shape our business.
Pat I'd also like to add that we're also working as we've talked about before to look at equipment efficiency in our stores in southern this trend it too.
It's at 4000 stores as we speak and so we continue to look at equipment, then I'll operations behind the buyer as well.
Your next question comes from line of Andrew Charles with Cowen and company. Please proceed with your question.
Great. Thank you rather than trying to get better sense of the size. The prize curbside delivery. So just curious how many stores are offering curbside pickup now in the context, how many stores that are non urban stores that have drive through in the portfolio and curious on how you see is progressing and really what limits the speed at which you can add this capability.
This obviously is a lot easier from a process perspective relative to the real estate, you're exploring some of these smaller format locations.
Roger will take Ryan.
All right Andrew Thanks for the questions. So we were intensive about 250 stores.
Really pleased with what we sign those stores with current side, which encouraged us to accelerate and we will be in close to 1000 stores in short order here. So we continue to Chris current side.
Interesting thing about curbside for US is that it is tech enabled so you can access.
Access curbside from the App, where it is available currently in so we're continuing to roll that out and so we expected.
To see what we saw in that 250 store test trial that we've been running.
Prior to cobot. So this is an acceleration of a plan that we've already had on and so we look forward to current side too.
Again, our customers just one more contact lens opportunity.
And our partners a chance to deliver the best customer service to our our customers.
Your next question comes from line of Matt Difrisco with Guggenheim. Please proceed with your question.
Thank you just had one follow up on the day parts I guess from the text et cetera.
I mean, you're seeing growth and it seems to be shifting in the later part of the morning, but I.
I guess with a down 14 in July that's correct to assume that the afternoon day part or post 10 am Daypart.
Is meaningfully positive and then I wonder if you can comment a little bit about marketing.
One of your bigger peers today talked about having sort of entering the second half of this year with the calendar year with a war chest per marketing dollar spend what type of dollars should we think about a year over year basis.
Have you sort of deferred some to be spent.
In accrued in the first epic be actually deploy to put into the marketplace in the second out. Thank you.
Thank you Matt rise why don't you guys can take take both of those questions. Good.
Sure. So let's see your first question about day part one of the things that we're seeing also as that shit to later morning and another.
Pick up in the afternoon is we're seeing it expanded tickets. So we are seeing group ordering what we believe we're seeing larger beverage size and additional beverage and food attach and so we talked about that increase being on 25%.
What we've seen enter in our ticket expansion. So we are seeing that.
Two.
The rest of your question around marketing, we've we've continued marketing in the very beginning we ceased marketing because we had so many stores that were in transition from cafe to drive spirit, we reignited marketing you've seen it in our work with our happy hour or double start dates and then the initiation of.
Our summertime beverages, and then the discussion around our plant based menu, you'll see us coming into the fall.
With the excitement around our our work with Pumpkin Spice last nights and you'll see us market for our holiday beverage plans and then the work that we plan to data market the new loyalty program and the new loyalty program again is another way for us to have.
As new customer base attached to an app that we can speak to frequently and bring them into the store and increase frequency. So we have marketing plan on it for the remaining at the year and throughout fiscal year 21.
And just to build on what that Ross has sat in relation to our fiscal 2000 spend the to Rob's point the level of spend in Q3 was.
Markedly higher as a percentage of revenue then Q2 in part due to some of the deferral of marketing activity. We do anticipate that our level of overall marketing spend in Q4 as a percentage of revenue will be pretty comparable to our full year rate, we're not anticipating that overall level of spend will diminish going forward.
I would highlight that has a concept our advertising spend has historically been pretty low because of the strength of our brand and the amount of marketing that we attract.
Your next question comes from line of Brian Bittner with Oppenheimer. Please proceed with your question.
Thank you Pat just unpacking your comments on the 2021 same store sales recovery.
Do you anticipate store level volumes in the U.S. fully recovering.
Pre covance levels by 2021.
Or do you really need in environment to shift where employment is fully restored and and people are back to their pre covis routines are can you get back there in this new normal environment, we're living in.
Yes, Brian Thanks for your question as I said in my prepared remarks, and our preliminary perspective on fiscal 2001 presume that there will be no major second way or no major macro economic dislocation, it's nearly impossible to predict whether.
And when those might happen based on what we know today based on how we see our business is recovering we anticipated we are developing an operating plan around the assumption that our us business.
Fully recover sales meeting back to pre co bid 19 levels by the end of the second fiscal quarter.
And that would be the end of March.
Were expecting China will fully recover about one quarter sooner and then as I mentioned, we're anticipating margin recovery will add sales recovery by about two quarters. That's a very preliminary perspective, just to share with the investment community. How we're thinking about the shape of next year.
Not being able to predict whether and when some other events might happen we have to get on with our business. We have to prepare operating plans and focus our teams and continuing to deliver results were pleased overall with the progress we've seen to date, we still have a long ways to go to get back to full recovery, but we're optimistic based on the strength of our brand.
And the strategies and the initiatives that we have to drive sales and to improve margins.
Okay.
Your next question comes from line of John Tower with Wells Fargo. Please proceed with your question.
Great. Thanks for taking the question a lot of that answered already but I am curious.
How you think about.
This potential longer term shift and work from home for many consumers and.
How you think about product innovation around that specifically do you see yourselves potentially offering some new items that you wouldn't be able to if.
Consumers were not working from home is often and also even with curbside do you see potential to add some new products that you might not be able to add without that option.
Yes, John Let me comment then rather let you add anything I think look we've we've always been really clear the three things that we focus on that really drive our growth is number one the customer experience. That's that's the experience in our stores and these different channels, we're talking about number two.
Who is extending that experience at our store to digital customer relations relationships and number three is primarily beverage innovation were beverage first company and then we attach food.
And so I think that same formula works, whether you work from home you work from work.
I do think what what is the focus right now until there's a vaccine. We just realize that we've got to focus on those experiences that customers optimize around whether they're working from home or or not which are safe familiar and convenient and so our beverage innovation is going to continue to focus on all the great things, we've been doing around our cold beverage line.
Up with cold foam coffee forward beverages, our refreshers.
All of that.
Is going to is going to continue to move forward and I don't necessarily see that as being a.
A driver.
The fact that people work from home or we have curbside, we're going to continue to innovate in ways that are relevant to our customers independent of the channel by which they buy from us.
I do think is raws pointed out we're seeing larger ticket and I think part of that as a function of people work from home they make a starbucks Ron and they buy for the whole family or they're buying more group sort of orders there attaching more food.
And I think that bodes well for the innovation that we've been driving in announcing around our plant based offerings plant based is becoming a very popular whether its plant based milks or the.
Impossible breakfast sandwich that we launched in the you asked the beyond meet product offerings that we put on the menu in Canada, China and so our innovation agenda is going to continue to should to drive around the things that we know our relevant to our customers things that inspire our partners and and stay true to handcrafted beverages that what differentiates us and I think.
I think we're going to maintain.
A focus on on those things rather let if there's anything anything else you want to adder, and then patent comment too so let's go to Rob Yes.
Yes, if you things first of all although our sales mix as really tilted to a more towards lunch and afternoon. Since the onset of co that morning still remains.
Significant daypart for us so we're not walking away from that.
There are some things that were considering in terms of innovation and then there's some things that we're accelerating in them in that.
On the innovation pipeline for instance, we're going to be introducing I'd plant based protein box because we now in the afternoon. There's this extra business needed and so that will come forward quicker than planned and we're also looking at things like for instance, with current side, we're trying to bring the lobby to do.
Our side. So just recently, we added merchandise to the App. So then if you wanted to order for gift giving.
11.
One of our Serveware AMAG and nine Scott. So we've done some of those things and we'll continue to do that because we're really listening to the customer and understanding what they need and we can evolve and then we can accelerate our innovation pipeline just as quickly as we can.
Got you wanted to add something.
Yes, Thank you Rob I'd like to highlight specifically, how our channel development business has benefited from work from home and how the team is looking at opportunities to capitalize on that the the volume we were seeing an at home coffee remained elevated levels across the quarter Starbucks outperforming the category, we gained share and.
Our core strategies for at home coffee are generally the same but we are looking at opportunities to sustain the momentum that we gain as consumers adjusted there I think were routines for example.
We're focusing on accelerating ecommerce based on the shift in shopping patterns and meaning consumers evolving needs. We're also looking at premiumizing category, expanding consumption and driving loyalty through our channel development business as well.
Thanks.
Your next question comes from lineup, Chris Ocull with Stifel. Please proceed with your question.
Thank you Rob would you help us understand the potential sales lift for a store that adds curbside and maybe describe some of the other initiatives that you believe could have a meaningful impact on capacity in throughput and then Pat do you expect to benefit from the qualified payroll credits to be smaller in the fourth quarter than they were in the third.
Ross once you take the first part than Powell comment.
Sure, Let me start out Chris about Chris Your question around Curbside and what would we expect.
In terms about side there, it's encouraging what we saw and our trial dates and so and we know that contract less experience.
For our customer is.
More present than ever so we we believe in this new channel for us, but it's really too early for up to tell what the real benefit will be but we'll come back you existing grows we'll let you know how that's working for us in terms of capacity in what we think that help for instance, I drive through this new handheld.
That capacity that we are creating allows us to do what a lot of retailers come a best in the line actually and so were able to get out and get outlets stores get out in that line.
I put in order in Q, much faster and get those out the window times on down and get the beverage and food items to the customer much quicker.
We're also doing.
Work that that handheld will enable if you want it suggests.
The line began to get long if you were picking up.
And trying to walk into the store so between handheld and curbside, we celebrate going to be able to deliver a different customer service and it will unlock and enable some efficiencies that we need and speed.
And so where we're looking at those two assets in key drivers.
And Chris in relation to your question regarding the government stimulus program benefits the Lions share of our investments in Q3 was around catastrophe pay a form of partner support and care and Thats, where the government stimulus program benefits kick in on helping to us.
Offset a portion of that so for Q4 since we have effectively sites that are captured the pay I'm, we're not anticipating significant.
<unk> expense in Q4, and as a result, we would not anticipate significant government stimulus program benefits by way of payroll tax credits.
Your last question comes from line of Dennis Geiger with you'd be US. Please proceed with your question.
Great. Thanks, Kevin you talked some about how solid customer demand remains and perhaps it sounds maybe little change from pre co good levels and and therefore, I think you're highlighting the importance of throughput and operations to continuing to drive sales. There anything more you can share with respect to existing customers using the brand a little bit less.
Now that there that theyre Brent the routine has changed perhaps offset by new customers that you gain or that have become heavier users in the over the last few months, which ultimately is that a net benefit because the new customers become sticky existing customers returned to their routines anything more there.
Metrics to share just kind of how you're thinking about about that customer dynamic. Thanks.
Yes. Thanks, Thanks the question.
I'll start by saying that throughout this quarter, we have navigated the pandemic in a way.
I consider very consistent with Starbucks mission and values and in many ways. We navigated this by prioritizing the safety in the health and wellbeing of our partners in the customers we serve.
And unlike many many others in the industry in April.
Yes in April we closed all our stores with the exception of Drive-thrus and that was clearly to provide a safe.
Environment for our partners and as well as a contact was experience for us to handcraft beverages and food items for our customers during that period, we had significant demand through the drive it was quite amazing the lines and the amount of time the customer wait in line to drive through to to get their Starbucks and so that was the.
First indication that there's a very.
Powerful customer affinity to Starbucks, even even in a global pandemic now as we start reopening stores in may and customers, we began to too with mobile ordering and contact was entryway pick up we continue to see customers.
Coming back to us clearly the priority or the customer behavior was around safe familiar convenient experiences. So that's why I think we saw such a dramatic increase in the number of app downloads in and customers that joined the rewards program.
Because that is the safest way to order you order on your phone and then you can pick it up contacts or you could get it for delivery.
And so that was a another indication so we quit with figure out if we launched curbside, we're going to get more customers. If we put handheld point of sale. It the drive through lines, we get dry through when we open.
Our stores four to go orders or even limited seating.
We see customers come back.
And yet at the same time, we stay true to the principles that we outlined which is prioritized the health and wellbeing of our Starbucks partners the customers we serve.
To to also support government local health officials as they work to contain the spread of the virus and third is to just show up in a positive and responsible way in every community we serve.
Now when I look at the data our customer connection scores are at an all time high.
And part of that is I believe the way that we've navigated. This has built trust. It's Bill Trust in our Starbucks partners that were always going to do the right thing we put people ahead of profit.
Whether whether it was providing economic certainty for our partners are ensuring that our customers had state ways to interact with us.
I think that that deposit in the reservoir of trust.
Is building and strengthening customer affinity obviously the deployment of mobile reach is building more customers that become sticky they build that relationship with Starbucks, we can communicate with them. We can we can serve their needs. We can personalize that experience for them.
And then the investments, we're making to make it easier for customers to have those experience is just is continuing to to unfold than we saw that certainly in the month of June where where we saw.
Very good response from customers that helped US you know exceed.
Expectations on what we would see in sales and then that's continued into July two two to progress so.
When I look at the fact that are our share in in the month of June we gained share in the month of June and I'm confident that we're on a path to continue to gain share. So theres any question.
Closing stores was going to create you know a longer term lots of market share is proven because we saw clearly the month of May we did we were even on share in the month of June we gained share and I suspect as we keep doing these things were going to continue to gain share.
And in the process customer connection scores are at an all time high and our customer affinity that we measure on regular basis.
Is also very strong so I think we have line of sight visibility to what our customers need and want and as we deliver it that they respond and I think the plans that we haven't placed an accelerating the strategic initiatives are right in the sweet spot.
Customer shifting customer behavior. So.
I think about this is the investments we made this quarter. We're playing the long game. This is about building trust with our customers and then.
Positioning Starbucks for long term sustainable growth and I feel very good about the fact that we're now in a position where weve operationalize the store protocols and we know how to we know how to adapt very rapidly and we do that with distributed leadership 32000 stores around the world. There's 32000 store managers each one of them.
As paying attention to what's happening in their community. They have the playbook, they know how to adapt and so.
We're in many ways where back in March April people describe this is we're navigating a crisis. This global pandemic will today. We're not this is not a crisis any longer in my opinion, we are navigating a global pandemic, but we know exactly how to do it thats woven into the fabric of how we operate and partners are rising to the occur.
Agent so.
So I feel very good about where we're at I feel very good about the strategic initiatives and the data that we see on customer response is spot on so that's that's where we are you know from where we were 90 days ago. When we spoke we spoke with you last on the earnings call and.
It's all credit to our Starbucks partners, they've done a phenomenal job.
And that was our last question today I will now turn the call over to Kevin Johnson.
Let me just thank all of you for joining US today My hope is that through this discussion.
We've been able to give you a sense of the confidence we have in our ability to navigate this global pandemic.
Our recovery strategy is working and we're accelerating the strategic initiatives that further differentiate starbucks for the future.
We're doing this in a way that is true to our mission in our values and we're on the front foot right now.
But also acknowledging that like everyone else in this world. We've got we've got to monitor and adapt and be agile.
But.
I'm very proud of my Starbucks partners and how they responded and I just want to take an opportunity to thank all of you our stakeholders for your support and we look forward to the continued dialogue. So thanks everybody.
This concludes Starbucks coffee company's third quarter fiscal year 2020 conference call you may now disconnect.