Q2 2021 Starbucks Corp Earnings Call (Tentative)
[music].
Good afternoon, My name is Devon, and I will be your conference operator today I would like to welcome everyone to Starbucks coffee company's second quarter fiscal year 2021 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. If you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the Starkey and then number two.
I would now like Chuck call over to Dirk dorsum, Vice President of Investor Relations. Mr. Watson you May now begin your conference.
Good afternoon, everyone and thank you for joining us today to discuss our second quarter fiscal year 2021 results.
Today's discussion will be led by Kevin Johnson, President and CEO, and Rachel Gerri CFO and for Q&A, We will be joined by John Culver Group, President International Channel development, and global coffee and Cocoa Brady Brewer Chief Marketing Officer Rafael.
President North America.
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.
The earnings release and risk factor discussions in our filings with the SEC, including our last 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 fiscal 2021 includes 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.
For certain non-GAAP financial measures mentioned in today's call. Please refer to our website at Investor Starbucks Dot com to find the corresponding GAAP measures as well as a reconciliation of these non-GAAP financial measures with their corresponding GAAP measures.
This conference call is being webcast and an archive of the webcast will be available on our website through Friday may 28 2021.
Finally for your calendar planning purposes. Please note that our third quarter fiscal year 2021 earnings conference call has been tentatively scheduled for Tuesday July 27th.
I'll now turn the call over to Kevin Kevin.
Well good afternoon, and thank you for joining us today.
I want to begin this call by recognizing the impressive momentum in our business.
Evidenced over this past year and further amplified by the Q2 results we released today.
While the COVID-19 pandemic is not over this momentum is giving us confidence to raise our full year guidance as Rachel will outline later.
Starbucks is as well positioned as it has ever been.
As global events have driven us to instill a new level of agility and speed into the business.
With our growth at scale agenda in place well before the global pandemic emerged we quickly set principles and established store protocols to guide us globally.
We monitor events in real time and quickly adapted to changing conditions on a store by store basis around the world working to provide safe familiar and convenient experiences for our partners and customers.
Many of US have lived this past year feeling isolated.
Protecting ourselves and our families from COVID-19.
We now share a powerful craving for human connection.
A desire to socialize and feel part of a community.
And the need to be with others and heal.
And with vaccination programs underway and in turn consumer mobility.
We have begun to see what we describe as the great human reconnection.
This is evidenced by our Q2 sales in the U S, which fully recovered in the quarter as we have previously communicated.
And the forward momentum across our business around the world as the COVID-19 vaccine distribution progresses at varying rates.
It is no secret that consumer behaviors were disrupted as a result of the pandemic.
We recognize shifts and behaviors early and our understanding of those behaviors will guide our strategy well beyond the pandemic as we believe many of these behaviors are here to stay.
Our ability to move with speed and agility.
And to be out in front of these shifts has helped further differentiate starbucks.
Positioning us well for the future.
I have previously outlined the five most notable consumer behaviors, we are laser focused on.
Which I will share with you again today.
First customers crave human connection.
They have been longing to be together again face to face feeling part of the community.
This is human nature and has always been central to the Starbucks experience.
Second.
They are looking for convenient personalized experiences that effortlessly fit their lifestyle.
Third cut.
Customers appreciate consistency, knowing what to expect at each visit.
Fourth customers seek out high quality offerings that support the well being of the planet.
And society.
And finally.
Customers are increasingly looking to support brands with strong values.
<unk> that are demonstrated by actions.
Not only have we've been adapting to and benefiting from these consumer behaviors.
But we also see a clear opportunity to further modernize and reinforce our leadership position.
Leveraging our strength in technology, and predictive analytics as well as the continued transformation of our store portfolio.
Offering experiences that will drive greater customer loyalty and weighs only Starbucks can do.
When we spoke with you last quarter markets were in the initial stages of gaining access to COVID-19 vaccines.
And we were seeing very early signs of friends and families celebrating being together again.
To heal from a year filled with economic and social hardship.
That has challenged our overall wellbeing.
Certainly not all markets are moving at the same speed in terms of vaccine distribution.
But we know that this is the key that enables all of us to once again be together.
As part of humanity.
And there is no global brand better positioned than Starbucks.
Founded 50 years ago, Starbucks was built for this moment.
Now I want to share with you results from Q2 that reinforce my optimism for our long term outlook.
Let me begin in the U S.
Building on a very strong Q1 holiday results, our second quarter comparable store sales returned to strong positive growth and a meaningful improvement from last quarter's minus 5% and.
In Q2 comparable store sales rose to an impressive 9% at the high end of our 5% to 10% guidance range for the quarter.
Once again the credit for this remarkable resilience and recovery goes to our phenomenal Green apron partners, who delivered another quarter of stellar performance in Q2, driving steady improvement, culminating in a new record for weekly sales and full U S comp recovery as we exited the quarter.
Importantly in Q2, we further advanced the three business driving initiatives fundamental to our growth at scale agenda.
Elevating the customer experience.
Driving relevant beverage innovation and expanding digital customer engagement.
Let me share a notable highlights from Q2 and our traffic driving initiatives for the balance of fiscal 2021.
Starting with the largest contributor for the quarter expanding digital customer engagement.
Digital continues to be a significant driver of our sales recovery in the U S.
Starbucks rewards contribution to the business continues to exceed pre COVID-19 levels.
And for the second consecutive quarter as displaying all time highs across key metrics.
Between continued growth in SAR member spend fueled by strength in ticket and frequency.
As well as new member acquisition, 52% of our U S Company operated sales in Q2 were driven by Starbucks rewards members.
Reflecting strong member engagement and resilience.
Total 90 day active members grew by over 1 million members in Q2 to a record $22 9 million.
Relative to the launch of stars for everyone. Just six months ago. Our 90 day active MSR member base has expanded by 19%.
A clear Testament that the program is attracting customers as we had intended.
The increase was underpinned by a meaningful uptick in conversions.
With more app downloads advancing to remember activations.
With stars for everyone customers can choose from a range of payment options offered convenience.
Flexibility and choice.
Our pioneering digital capabilities not only successfully transform our digital relationships to drive mobile ordering but also amplified convenience and safety.
Which are both very much top of mind for our customers.
We continue to leverage the advantages of our mobile app to elevate the personalization of the customer experience and deepen customer engagement.
As a result.
Mobile orders represented 26% of U S company operated transactions in Q2 up from 18% a year ago.
As we have seen each quarter, our digital channels convenience has proven successful in driving demand.
A quick comment on digital that I think is important to highlight the increasing role that artificial intelligence is playing in the growth and success of our company.
An initiative, we call deep brew.
In October 2019, I published an article on Linkedin entitled can artificial intelligence help nurture humanity.
This article outlined a vision for how Starbucks with leverage artificial intelligence and supported our mission.
And that vision has come to life with deep brew.
Our AI engine that is now used today throughout the company.
Deep brew personalize the offers and suggestions we make to our customers.
It is also at the center of trade area transformation, which I'll provide an update on in a moment.
<unk> is now automated daily inventory orders across hundreds of U S stores as we deploy it broadly.
It is supporting partner scheduling and optimizing it in ways that improve both the customer and the partner experience.
Deep brew drives our pandemic dashboard used by our retail leaders across the U S.
And deep root is now doing predictive analytics to model vaccination progress in key markets around the world.
Our work in AI is providing starbucks the underlying predictive models, enabling us to fuel the great human reconnection.
By freeing up partners to do what they do best connect with customers and deliver a world class customer experience.
Elevating the customer experience is another fundamental business driving initiative underlying the growth at scale agenda, and perhaps the most important of all of our priorities.
Starbucks has always excelled at meeting our customers, where they are even as transactions in the current environment has migrated from dense metro centers.
The suburbs and from cafes to drive throughs.
Company operated sales in our U S suburban and rural locations, where drive throughs are most predominant continue to gain momentum more than offsetting the impact from central business districts and Metro centers, where the recovery continues to lag.
The drive through channel has improved quarter over quarter since the onset of the pandemic.
We continue to invest in several initiatives to increase the throughput of our drive throughs, including updated operational standards.
Handheld order devices.
More efficient warming ovens.
And accelerated deployment of our more efficient Ms Draino espresso machines.
As a result drive thru saw a slight improvement in out the window times versus the prior year.
Out the window drove over 50% of net sales in Q2, increasing more than 10% from pre pandemic levels unlocking capacity and enhancing the customer experience by reducing wait times ultimately fueling our business recovery.
Last June we wrote a letter to all stakeholders outlining our plan to accelerate strategic initiatives focused on rapidly transforming our store portfolio and optimizing for shifting consumer behaviors.
This plan, which we referred to as the Americas trade area of transformation.
Has positioned us extremely well for the future.
We call. This early and in just nine months, we have already completed 70% of the strategic store closures.
Clearing the way for the development of new innovative and more efficient retail store formats over time.
The plan Leverages, new store formats, like Starbucks pickup in dense metro areas that complements our traditional Starbucks cafe formats in suburban and rural areas and also enables us to balance continued growth in high volume and high margin locations, primarily cafes with drive throughs.
We are responding to customers' increased desire for convenience.
While also improving the overall profitability of every trade area.
As the great human reconnection gains momentum and in anticipation of behaviors and daily routines continuing to evolve.
We are meeting our customers wherever they need us to be.
With the right store in the right place and at the right time yet.
Yet another key differentiator of the Starbucks brand.
As our sales fully recovered in the quarter average ticket remains meaningfully higher than pre pandemic levels.
This is true even as transactions have improved significantly quarter over quarter.
Given the shift in sales mix towards drive thru.
Where average spend tends to be higher partially due to a higher incident of group orders.
U S ticket comp growth of approximately 21% in Q2 was driven by a combination of increased beverage attach.
Premium beverage mix.
Increased customization and upsizing and all time high food attach.
The popularity of our innovative menu offerings, which command a premium price also benefited U S ticket growth.
Customers have responded extremely well to the new beverage platforms, we have introduced.
With a focus on relevant new handcrafted beverages that deliver on wellness trends offer customers choice and support our sustainability agenda, our winter and spring menus resonated and drove momentum.
Cold beverages delivered resounding year over year growth in Q2 led by Cold Espresso, Starbucks refreshes and KOL group.
Also driving our strength in cold beverages was our spring lineup, which launched in early March.
We have seen an overwhelmingly positive response to oat milk.
The ice brown sugar oat milk shaken espresso far exceeding expectations to date.
This has helped us push year over year growth of 53% and all dairy beverage sales are testament to the relevance of our sustainability agenda.
Plant based is also resonating in food with the impossible breakfast sandwich, delivering record performance, which alongside other breakfast sandwiches and cake Pops pushed food attached to record highs in Q2.
Any way you look at it our second quarter results were phenomenal in the U S and exceeded our expectations.
Importantly, affinity for Starbucks has strengthened as measured by improvements in our customer connection scores and growth in customer loyalty.
Which further reinforces the strength and resilience of the Starbucks brand and.
And healthy optimism for the future.
I will now move on to China, our second lead growth market.
The strong start to fiscal 'twenty, one continued as we entered Q2.
And while a resurgence of COVID-19 restrictions impacted customer mobility as the quarter progressed.
Our China leadership team once again rapidly adapted to the changing conditions and successfully regained momentum as we exited the quarter.
In Q2, we achieved 91% comp growth in China, including that favorability of approximately nine percentage points, which came in.
Slightly below our expectations as unanticipated pandemic related restrictions were imposed across the market.
Non essential travel was discouraged in Q2 severely.
Severely impacting our stores located in travel hubs, including during the entirety of the Chinese new year holiday the peak domestic travel season.
Which saw a significantly lower number of travelers relative to both pre pandemic.
And prior year levels.
Even as mobility impacted our comps our ability to expand our digital customer relationships in China through the Starbucks rewards program reinforces the long term position of our brand and our fastest growing market.
As we lapped the first anniversary of the pandemic I am, particularly pleased with our ability to dramatically expand digital customer relationships in China through the Starbucks rewards program.
Our progress is evidenced by the number of 90 day active Starbucks rewards members more than doubling versus prior year to $16 3 million.
Driving 72% of sales in China.
Up five percentage points from prior year.
In addition.
We expanded the Starbucks now mobile order and pay service to Wechat in Q2, making our mobile ordering services ubiquitously available to customers on both Alibaba and wechat ecosystems as well as our Starbucks App.
This enables us to acquire new customers in the wechat ecosystem, while enhancing the customer experience by allowing customers to place orders via the app of their choice.
In Q2, we also launched our flagship store on JD Dot Com, one of China's leading e-commerce platforms, offering merchandize stored value cards and seasonal food offerings among other products.
Mobile order sales mix hit a record 34% of sales in China up from 30% in Q1, with 15% driven by Starbucks delivers and 19% from Starbucks now.
Starbucks rewards customer engagement continues to grow as mobile order sales have more than doubled in China over this past year.
As COVID-19.
Related restrictions subsided late in the quarter momentum and customer mobility improved.
Particularly in residential office and commercial trade zones.
In addition, as much of our growth in China comes from our continued expansion of our store portfolio. We crossed the 4900 store milestone with the opening of 110 net new stores in Q2.
That equates to 14% growth in net new stores over the past 12 months.
Which is particularly impressive considering that we suspended new store development activities for a couple of months in China at the onset of the pandemic.
This week, we announced our 5000th store opening in China, Underscoring our continued confidence in Starbucks long term growth opportunity in China.
And finally, a few comments on the strength of our channel partnerships with Nestle and Pepsi.
In the U S. Starbucks share of total packaged coffee outpaced the category growing over 8% in dollar sales in Q2.
This is a sharp contrast to the overall coffee category, which declined due to a surge in pantry stocking that occurred last year at the onset of the pandemic.
I am proud to say that Starbucks remain the number one brand in total coffee in the U S.
And was the top share gainer of the coffee category in Q2 gains.
<unk> nearly one five points over the prior year.
Internationally <unk>.
<unk> products on single serve platforms, including the espresso and Dolce gusto continue to exceed our expectations.
And with the Q1 launch of Starbucks products on the <unk> virtual line.
Our outlook is optimistic as we continue to build distribution amplify the brand and grow share.
The global Coffee Alliance is now in 71 markets around the world.
Up from 48 markets in Q2 fiscal year 'twenty.
More customers the opportunity to enjoy Starbucks in many different ways.
Similarly consumption of our U S ready to drink coffee products through our North American coffee partnership with Pepsico grew more than 23% in Q2 over a 5% jump from Q1.
Q2 also marked the launch of new beverages, including the cold and crafted platform.
And new Nitro cold beverages, leveraging last year's Starbucks Nitro ready to drink platform launch, which became the number one innovation in the ready to drink category.
In summary, as you can see.
There are many reasons to be confident and optimistic about the future for Starbucks personally.
I am optimistic about the back half of this fiscal year.
But even more importantly, it is clear to me that the actions we are taking a.
Customer and partner response, we are seeing and the focus and discipline. We have brought to the business have clearly positioned Starbucks for the next several years of growth.
The growth at scale algorithm, we shared at our December Investor Day is solid.
The Starbucks brand is stronger and more resilient than ever.
We have more opportunities to reach customers than ever before and we are continuing to personalize and enhance those interactions by always delivering for our customers a unique and innovative food and beverage experience and a safe environment with a personal touch where and when they want.
As we celebrate our 15th anniversary throughout this year, we do so knowing that Starbucks third place experience is well established and core to the great human reconnection that has begun.
We are a destination for human connection.
A warm and welcoming place for all and a place that brings entire communities together.
And that is exactly what the world needs.
A place that inspires and nurtures the human spirit, one person one cup and one neighborhood at a time.
And I want to thank our over 400000 Green apron partners and 83 markets around the world who had been navigating through this complex environment.
Partners. It is you who exemplify what Starbucks has always stood for.
A company with a purpose that goes beyond the pursuit of profit.
Culture, the demonstrates care for our partners creates uplifting experiences for our customers and plays a positive role in our communities and throughout society.
And with that I am pleased to turn the call over to Rachel who will walk you through our Q2 results Rachel.
Thank you Kevin and good afternoon, everyone as Kevin shared we are very pleased with the continued momentum in our business with meaningful sequential improvements in quarterly financial results demonstrating the overall strength and resilience of the Starbucks brand as well as the effectiveness of our strategies, our innovation and our agility.
Starbucks reported global revenue of $6 7 billion in Q2 up 11% from the prior year inclusive of approximately 2% foreign currency favorability with growth driven by our company operated retail markets, particularly in the U S and with these better than expected results. We are confidently raising our outlook for the full year as I will explain.
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Q2, EPS exceeded our expectations, primarily driven by better than expected margin recovery.
Q2, GAAP EPS of <unk> 56.
Increased 28 cents in the prior year and was 15 cents higher than the upper end of our guidance range inclusive of lower than expected restructuring and impairment cost of about four.
Largely attributable to a more favorable lease exit costs.
Q2, non-GAAP EPS was <unk> 62 up from 32 cents in the prior year and 12 cents above the upper end of our guidance range, primarily driven by continued core business recovery fueled by strong U S performance.
First take you through our Q2 fiscal 'twenty one operating performance by segment, followed by an analysis of our consolidated margin performance I will then share our improved outlook for the full fiscal year.
Our Americas segment delivered revenue of $4 7 billion in Q2, 8% higher than the prior year driven by a 9% increase in comparable store sales, partially offset by lower product sales too and royalty revenues from our licensees as a result of the pandemic.
As Kevin mentioned in the U S. We saw continued sequential improvement in quarterly comparable store sales from minus 5% in the prior quarter to a very strong positive 9% in Q2 <unk>.
Transaction comp improved from minus 21% in Q1 to minus 10% in Q2 with continued strength in average ticket, which remains significantly above pre pandemic levels.
On a cumulative two year basis, which measures our growth relative to pre pandemic levels U S comp sales in the month of March grew 11% and annual average growth above our long term algorithm of 4% to 5% and a full sales recovery by the end of Q2 as we previously communicated.
Americas Q2, non-GAAP operating margin expanded 550 basis points from the prior year to 19, 9%, primarily driven by lapping of COVID-19 related costs incurred in the prior year sales leverage from business recovery pricing temporary government subsidies and the benefits of trade area.
Transformation, partially offset by growth in investments in wages and benefits for our store partners, notably this represented a meaningful improvement from the prior quarter's non-GAAP operating margin of 18, 8%.
Moving on to international the International segment delivered revenue of $1 6 billion in Q2, excluding an 8% favorable impact of foreign currency translation the segments revenue in the quarter was 34% higher than the prior year, reflecting a 35% increase in comparable store sales inclusive of.
4% that benefit and an 8% net new store growth over the past 12 months, partially offset by lower product sales and revenues from our international licensees.
In China, we lapped the first anniversary of widespread COVID-19 related store closures and as Kevin mentioned comparable store sales grew 91% in Q2, including that favorability of approximately nine percentage points.
Does that benefit was reinstated for the entire quarter to mitigate the impact of government mandated restrictions across the mainland following flare ups of COVID-19, and several key cities significantly limiting customer mobility.
On a cumulative two year basis, China comp sales growth in March was minus 5%, including 4% of that benefit.
International non-GAAP operating margin rose to $19 six from three 9% in the prior year and surpassed Q2, FY 19 margin by 30 basis points, mainly driven by sales leverage reflecting the lapping of serious severe impacts in the prior year attributable to the COVID-19 outbreak and favorably from.
Temporary government subsidies in Japan.
On to channel development revenue was $370 million in Q2, a decline of 29% from the prior year, primarily driven by global coffee alliance transition related activities, including a structural change in our single serve business and lapping additional product sales in the prior year to nestle to transition foodservice.
This order fulfillment.
When excluding the approximately 30% adverse impact of these transition related activities.
Panel Development's revenue grew by nearly 2% in Q2, mainly driven by growth in our ready to drink business.
The segment's non-GAAP operating margin expanded to 46, 7% in Q2 from 37, 8% in the prior year normalizing for the 770 basis point impact of global Coffee Alliance transition related activities I, just mentioned channel development's operating margin expanded one.
120 basis points in Q2, driven primarily by the strength of our ready to drink business.
Finally at the consolidated level non-GAAP operating margin was 16, 1% in Q2 of 690 basis points from nine 2% in the prior year up 30 basis points from Q2 of fiscal 2019, and an improvement from 15, 5% in Q1 the year.
Over year increase in our operating margin for Q2.
It was primarily driven by lapping of COVID-19 impact, but also included stronger than expected sales leverage and favorability from temporary government subsidies the.
The margin expansion in Q2 was partially offset by growth growth and investments in wages and benefits for store partners.
Moving on to our guidance for fiscal 'twenty, one now that we're at the mid point of our fiscal year, we have better visibility to anticipated full year results and therefore, we are raising our full year fiscal 'twenty, one EPS guidance as well as updating a few other metrics.
The increase was predominantly driven by better than expected operating results in the first half of the year and anticipated benefit attributable to certain discrete tax items in Q4, and a slight tailwind from foreign currency translation barring of course, any new significant sustained waves of COVID-19 infections and any major economic disruption.
Yeah.
Our new fiscal 'twenty, one GAAP EPS guidance range is $2 65 to $2 75 up from $2 42 to $2 62 previously.
Our fiscal 'twenty, one non-GAAP EPS is now expected to be in the range of $2 90 to $3 up from our prior range of $2 70 to $2 90.
We continue to drive leverage in all areas of our business, giving us confidence in our full year earnings guidance.
As a reminder, our fiscal 'twenty, one GAAP and non-GAAP EPS guidance ranges are inclusive of approximately <unk> 10 for the 50 <unk> week.
Given the momentum we've seen in the U S business to date, we are raising our guidance for full year fiscal 'twenty, one consolidated revenue to a new range of $28 5 billion to $29 3 billion up from $28 29 billion as a reminder, our fiscal 'twenty one consolidated revenue guidance range is inclusive of.
Approximately 500 million for the 50 <unk> week.
Additionally, we are raising our consolidated operating margin to a range of 16, 5% to 17, 5% up from our previous guidance of 16% to 17% even as we continue to make meaningful investments in our key growth drivers.
We continue to expect our operating margin recovery lag sales recovery by two quarters, improving as the year progresses and approaching our ongoing target range of 18% to 19% at the consolidated level as we exit fiscal 'twenty one.
As I mentioned earlier, we currently expect certain discrete tax items to favorably impact Q4 tax rate in fiscal 'twenty. One based on current expectation Q4 tax rate is forecasted to decline to the high teens level, but given the nature of discrete tax items, the timing and magnitude of the favorability are subject.
To change in contrast, Q3 tax rate is expected to be slightly higher than our Q2 tax rate as a result, we now expect our fiscal 'twenty, one effective GAAP and non-GAAP tax rates to be in the low to mid 20% range.
Moving on to comp sales growth.
As sales in our two lead growth markets have returned to roughly pre pandemic levels, albeit with different customer patterns than before the pandemic. We are reverting to our quarterly sales reporting convention at this time and do not anticipate providing monthly comps going forward.
And while we continue to see strength in average ticket, we expect it to moderate as customer mobility improve and we anticipate store visitation frequency will start to normalize in the latter half of fiscal 'twenty. One therefore, we expect a corresponding shift between the mix of traffic and ticket comp as we lapped the depth of fiscal 'twenty.
Pandemic impacts in Q3.
As a reminder, our usual one year reported comps are expected to be outsized as we lap the significant Kevin negative comps from the effects of COVID-19 in fiscal 'twenty, which began in late January in China, followed by the U S. As we exited Q2, consequently until we lap fiscal 'twenty as COVID-19 related.
The impact we believe that our fiscal 'twenty, one comp should be assessed relative to pre pandemic levels. Therefore, the two year comp growth rate will be more indicative of our underlying performance.
I want to underscore that the two year comps. We are monitoring are not calculated on an additive basis, which yield distorted results when lapping large negative comps as the second year comp base is not comparable to the first year.
Instead, we are calculating our two year comps on a multiplicative basis as described in today's earnings release.
Finally to be clear, except for the updates on revenue EPS margin and tax rate that I just provided the remainder of our full year fiscal 'twenty one guidance metrics are unchanged from what we communicated with our Q1 fiscal 'twenty one quarterly earnings report.
To summarize we are delighted that our U S business has fully recovered sales as we expected while we may experience pandemic related volatility until global herd immunity is attained we have the protocols in place to respond in real time to ensure the health and safety of our customers and partners, while continuing to operate the business.
Our performance in Q2 demonstrates the relevance and success of our strategies with operating margins above the levels of two years ago.
Our cash position remains strong and we have meaningfully deleveraged our balance sheet. This year by paying off debt maturities totaling nearly $1 7 billion keeping us on track to approach our three times leverage target by the end of this fiscal year.
Going forward I want to underscore that we have a clear set of actions underway to continue to drive comp growth and profitability as we move through the year.
Importantly, though we will continue to invest in our business strategically with a long game mentality, taking decisive action to ensure that we are continuing to drive shareholder value long into the future.
Now more than ever we remain confident in the strength of our brand and the durability of our growth model, giving us continued confidence in the model shared at our 2020 Investor day of delivering long term double digit EPS growth at scale with another year of outsized EPS growth expected in fiscal 2022, as we lap this years recovery curve.
Once again the.
The real credit for excess goes to our more than 400000 Green apron partners worldwide, who continue to go above and beyond to deliver an elevated starbucks experience that experienced above all fueled our growth this past quarter and we'll continue to be a competitive advantage in the future.
Yeah.
And with that Kevin and I are happy to take your questions joined by Ross Ann Williams, Brady Brewer and John Culver as Gerry outlined at the top of the call. Thank you.
Operator.
As a reminder, if you'd 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 that you. Please limit yourself to one question at a time, we will come back for follow up questions as time allows.
We will pause for a moment to compile the Q&A roster.
Okay.
Our first question comes from the line of John Glass with Morgan Stanley. Please proceed with your question.
Hi, Good afternoon, I hope you all are well.
Can you just maybe just provide a little more color on the U S comps in the Americas comps I suspect. It's a tale of two two formats. The suburban drive thru is doing really well the central business district lagging as you indicated has that.
Begun to close have you seen any changes maybe you can just help amplifiers sort of be more specific about the two comps and the components of it have you seen any change in the morning day part I know people have shifted to later in the day or are you starting to see that more traditional mourning wash come back in the business. Thanks.
Yes, John Let me, let me comment and then I'll hand, it over to Rachel for for some more specifics on the numbers but.
On your last part of your question in terms of day parts, we saw our two year comp growth in all day parts. So we've seen that morning.
Rich will return and we'd see positive two year comps across those day parts, which is a very very positive.
One of the things that I've been monitoring is when you look at when the FDA announced.
Emergency approval for the Pfizer vaccine on December 11th and then followed with modern on December eight Keith and then J&J on February 27th.
It's sort of mapping the actions taken by the FDA to announce availability of vaccines.
And correlated that back to watch what's happening in our stores day to day and that action alone created this wave of optimism of I think consumers customers being more and more now that they are still being cautious, but then certainly as we saw the <unk>.
Rate of vaccinations start to hit a three to 4 million vaccinations a day.
You really start to see how this great human reconnection unfolds and so we saw unfold in all day parts.
We still see stores and in our metro dense metropolitan areas recovering slower.
But I would tell you the cafes with drive throughs that we have are comping to more than make up for that we are seeing recovery, though in those metropolitan areas. It's just I think that's going to take a little longer for.
Businesses to bring employees back to work and sort of re shift those traffic patterns, but I think very very positive.
Progress on day parts and continued progress in terms of.
Both in dense metropolitan located stores, but I actually think the trade area of transformation is unlocking a significant positive upside for us.
And so maybe Rachel months, you've hit on the numbers and then Roxanne I'll, let you add other observations that you see from U S perspective sure. Thank you Kevin what I would say is when you look at the comp in the U S business in the quarter at 9% still achieved a 9% comp it really tip growth across our overall portfolio. So the overall portfolio grill.
Certainly our stores in the more metro urban areas are still slower to recover but they improved greatly quarter over quarter and of course, the outperformance in our drive through so we saw that across the board and across all day parts, which gives us confidence and to Kevin's point, what help fuel that particularly in our more mature.
Metro areas and urban markets was the trade area of transformation, where were 71% about 70% complete with that effort today as you might remember we communicated we would close around 800 stores across America and so as we've gone through that we've been able to overall strength in the portfolio as part of that effort so that.
Playing into some of the recovery as well as well as the overall.
Ability that's increased throughout the United States, and so with that I'll turn it over to Roxanne. Thank you the only thing I would add.
The introduction of our customers' mobility impact.
Impacting our AAM morning day part.
Thanks for taking the most concerned about recovery.
And given the morning day part.
We've covered compared to pre COVID-19 level. This means that as a percent.
Of Kansas.
We're seeing good morning.
Relatively in line with our pre COVID-19 trends.
This morning trend to sustain.
Thanks, Scott Becker and people return, Kevin and urban trade areas Interestingly no. We haven't seen with KKR is actually improved slightly moving from pre COVID-19 time.
Turning to current trends.
Okay.
Yes.
Thank you.
Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.
Hi, good afternoon.
I guess I am curious about the reiteration of the comp ranges for both the Americas and international it.
It seems like you're ahead in the Americas year to date.
Maybe a little bit on the lower end of international are you seeing something in the international business that gives you comfort that that full year comp range is achievable.
Great. So once you take that and then I'll ask Patricia and thanks for the question what I would say is.
China was having a good we're seeing good momentum before we entered into Q2 and then there was a resurgence of COVID-19 caused restrictions across travel across actually our international markets impacting China. Given this was an important period for it market in terms of holidays, and the Chinese new year and so as a result.
We saw.
That caused mobility issues in the quarter, which impacted performance and impacted comp as we saw some of the restrictions start to lift at the end of the quarter, we started to see momentum build particularly R&R.
Our key trade Johnson tree key trade areas for those reasons, we believe in the overall momentum.
In the market and the brand continues to be strong and we're continuing to see great growth in our digital platforms, we're connecting with customers in new and different ways. We continue to open a significant amount of new stores. So our confidence in the market continues and because of that we felt the comp range was appropriate there's a lot of volatility in our comps overall.
And so for that reason, we kept comp guidance in line with the ranges. We have provided previously that allows us to be able to keep.
Keep that level of volatility uncertainty within that range as we find our customers continued to return to our business and until our customers have a more routine activity overall and we've seen a more return to normal patterns, we think that range is appropriate.
Yeah, and I'll, just add Sharon I think clear.
Clearly the key is vaccination progress in every country around the world.
What are the things that we've done is we saw a vaccination progress.
<unk> very well across the United States and the strong performance, we had in the United States.
We're now using our deep brew AI technology to start to monitor and look at the vaccination progress of every country around the world and use predictive analytics to give us a view in correlation to how.
How thats going to pace, the recovery and the acceleration of our growth in international business clearly this quarter, we had some.
COVID-19 related restrictions in many countries in Europe, certainly in Japan, and China, and so that.
It had an impact there, but when you look at the progress we're making on vaccinations certainly in the U S. That's a proxy for what's going to happen around the world and with Max with vaccine.
Manufacturing ramping up and more vaccine available to international markets I think we're going to see a good result, John Culver.
Sure well I would just add.
First and foremost the optimism that we have that as restrictions are lifted.
Customers are become more mobile.
Our business quickly returns to normal operating levels, we saw that in China.
In the first quarter and early into the second quarter, we saw that in Japan as restrictions were lifted last year, we're seeing that now in Mexico.
Corrections have been lifted in vaccinations have improved we're also optimistic for the U K so openings occur in the UK and vaccination level approach over 50%. So all indications are that we're very confident with the comp guidance that we provided from an international perspective.
And further to that we continue.
Need to make major investments in our future.
So with current and new stores, so that when these markets open back up to full mobility that we are in a position to accelerate our growth.
Much faster.
Great that's great context.
Thanks Sharon.
Our next question comes from the line of John <unk> with Jpmorgan. Please proceed with your question.
Hi, Thank you so much so theres, obviously, a lot of discussion about the labor market in general in the United States. I mean, there seems to be increased mobility and <unk> in 2021 in terms of the workforce and also paying higher prices for that.
Workforce could you.
Comment just in terms of.
Anything on the partners that would be insightful anything that youre doing new over the next.
I guess nine or 12 months in terms of attracting and retaining and just what your overall.
Retention is at this point thank you.
Yes. Thanks, Thanks for the question.
Let me, let me sort of summarize kind of my view at a high level and then I'll hand over to Ross and.
First of all it's important to ground ourselves in what we've done for our partners over this last year.
Keep in mind a year ago.
The extreme.
Extreme.
Lockdowns that we have the U S.
We decided to give our partners economic certainty through that period. We did we did not do any involuntary layoffs or furloughs, we paid our partners whether they came to work or stay at home we increased the.
The benefits that we gave them for COVID-19 related health benefits mental wellness benefits parental care benefits childcare benefits, we took care of our partners through this pandemic and as a result, our partners have risen to the occasion.
Certainly as we came out of this pandemic, we made a significant investment in increase of wage that went into effect in December.
And partners have applauded that and so we're in a position right now where I think.
Our partners appreciate what we've done and we have great respect and appreciation for our partners. So.
What I've read about from other other companies. We are our retention numbers are good our partners energy and spirit is high.
And so I don't anticipate us having.
Challenges when it comes to having our partners show up and be in a position to create a great customer experience in every store around the world now before I hand over to Ross and I do want to comment though in some areas in supply chain, let's take in distribution, where store deliveries now some of our partners who.
Who run the store deliveries from our customer distribution centers to stores, they've struggled a bit having being able to hire and staff to meet the demand that we have and to get enough people. So we are working with them. So I do anticipate we'll do a little bit more to invest and help our supply chain partners, whether its staff that they need.
In manufacturing, our staffing they need or distribution and transportation.
But when it comes to Starbucks I think we're in a very solid position Roxanne.
What I would add to that is currently in certain markets at certain times.
Jim. Thank you there's not a widespread issue at this time and then Kevin <unk> Levered.
We've invested ahead of the curve with our industry, leading benefits and powerful approach and I feel confident that we will continue thank you Matthew.
Sir investments required to remain.
I'm sorry.
Yes, we have obviously continue to watch it very closely over the next few months unfold.
Sure Jim.
Operating stores and the way the incremental customer demand.
And I would just add to that too is as we've invested meaningfully in our partners, we've still been able to drive our margin as we look at the back half of the year, we've indicated that our margin will lag our sales recovery by about two quarters.
And a key component of that is that we're going to continue to invest in our partners as well as equipment and other things to be able to unlock the demand that we have and that's an important note to remind what does it mean it means we're still going to see strengthening in our business will strengthen as we move throughout the quarters, but I just want to highlight that that investment continues to be.
Part of.
Why we are guiding our margins the way we are and it does include inflationary components as we open up the economy and as we move through some of these stages as well.
Thank you.
Our next question comes from the line of David Tarantino with Robert W. Blair.
With your question.
Hi, good afternoon.
Rachel I have a couple of questions about your guidance commentary the first.
I think the <unk>.
First half performance over performed or Youre ranges by on the order of something like 20 in EPS.
That is the amount of the guidance raise but it sounds like there is also some.
Tax benefit towards the end of the year. That's in there. So I was just wondering if you could clarify if there is any.
Three we should consider on why the guidance range didn't go up by more than I.
I think that's my first question and then the second.
Question is at the at the Investor Day in December.
I think the company laid out.
Plans for 20% type EPS growth, 20% plus.
Off of the 2021 base and I was wondering if that type of growth is still.
And play as you think about next year given the over performance that Youre seeing this year.
Sure. Thank you David Thanks for the question what I would say is we felt confident in being able to raise our guidance on EPS for the full year and of course, a big driver of that is our over delivery and our outperformance in the first two quarters.
But as I've mentioned, we expect that our margin is going to lag our sales recovery over the next couple of quarters that will lag our sales recovery and some drivers of that are we.
Don't see the one time benefit that we had from the government subsidies that we had in Q2. So we won't have that will start to see our ticket moderate we still believe that we'll have a slightly elevated ticket as we continued to drive food attach and premium amortization of our products as well as shifting customers.
Into your core platforms, but we will see our ticket moderate <unk>.
Impact on margin. In addition to that as I mentioned, we're going to continue to invest in our business. It is critically important as we think about how we unlock the back half of the year and we continue to grow and meet the demands we're going to have to can you give investors partners continue to invest in technology and equipment in our stores and finally, there is an inflationary component in there.
As well so when you put that together, that's what really drives our guidance now what I would say is we would expect to exit Q4. So we will strengthen from a margin perspective throughout the quarters, but we would expect to exit Q4 approaching the 18% to 19% guidance range that we gave at <unk>.
Yesterday for the long term so that will show you how the.
Our EPS will essentially strengthened with that margin and what I can say in terms of next year. We don't provide guidance for next year, but what we've already provided but I would say you can still expect outside performance in line with that approximately 20% as we had previously guided.
Great. Thank you and Rachel.
<unk> subsidy forgive me if I missed this but what was the magnitude of that and where does that fall on the P&L.
What I would say is when you think about our over performance in Q2. So if you think about versus guidance. The fact that we over performed Q2 key drivers of that is in the Americas segment and it's the government subsidies for one time government subsidies as well as the better than expected recovery in I would say fairly equal in nature.
Great. Thank you.
Our next question comes from the line of Sarah Center.
Bernstein. Please go with your question.
Great. Thank you very much.
Question about the closures.
Closures in the store.
How you're shifting that one is do you have any sense of what the sales transfer might have been from closed stores. The ones that have remained open I know there are lots of puts and takes now but just trying to figure out if there was any.
Benefit to the clinical system in terms of same store sales from closing some of these underperforming stores.
Likewise.
There are a lot of color on investments in the business and that lag between topline and margin but.
Is there a it might my sense is at the restaurant level margins that drive thru is actually higher than some of the traditional stores. So I would've thought that might be a tailwind as well.
The strawberry transformation, so just Jeff.
Those two kind of quick.
Questions on the on the face of the store base sales transfer and then margin differential. Thank you.
Yes, Sarah Thanks for the question, let me comment then I'll hand, it over to Rachel.
As you recall, we sort of outlined the fact that we're going to reposition 800 stores in North America. This year and we're about 70% through the closures of that but it's also important to note that approximately 200 of those.
New stores have been have been built and reopen so we're also in the process of fulfilling the repositioning aspect of that.
Boding very well for us because it's actually helping us improve the customer experience by having the right store in the right location with the right format.
Our customers and.
We're on track to.
To complete that as we go through the fiscal year and I think thats one of the things that's going to set us up and help us in fiscal year 'twenty two.
Kind of going back to David's question about the.
The outsized EPS growth that we look forward in fiscal 'twenty two.
Rich do you want to add some more for Sara in terms of.
Sales sales transferred thank you Kevin and thank you Sir for the question, but I would say is from Treasury transformation perspective, if you think about the America segment in my prepared remarks, I talked about the fact that Americas saw about a 550 basis point improvement on margin in the quarter a driver of that was trade area of transformation and so what.
We have seen is what we I think outlined.
<unk> or excuse me in Q1 of this year is that on a full year basis at the enterprise level trade area of transformation would be a benefit to margin of about 40 basis points.
A significant improvement in Q2 and that will still align with approximately 40 basis points on a full year at the enterprise level, but that two year transformation was a contributing factor a key part of the success of the.
The Americas segment in the quarter and then in terms of the investments that I talked about certainly the investments that I've been talking about are across all stores largely our drive throughs as we're trying to as we're focusing on unlocking capacity in being able to accommodate the demand, but it also relates to our cafes as well but of course more predominantly drive throughs.
That's where we're seeing the majority of our demand currently and as you might recall at our Investor day, we actually increased our comp guidance.
Based on what we had seen from the investments we've been doing so our comp guidance previously had been in the 3% to 4% range, we increased it to 4% to 5% based on these investments that we're making.
And so the fact that these investments are starting to unlock productivity and we're seeing the margin benefit from those we were able to show on a long term basis that will increase confidence subsequently increased our margin allow us to continue to expand our margin and and support our EPS growth for the longer term, so that's where you're seeing some of that.
Tailwind as we make these investments in the near term.
Thank you.
Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
Yeah.
Yeah.
Okay.
Yes, David.
David Your line is live.
Very good.
Jeff.
Alright.
At this time there is no response from Mr. Palmer.
Question has been withdrawn and were proceeds from the person in queue.
Our next question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.
Great. Thank you very much.
Just one question on the my Starbucks rewards program.
I think you mentioned that it's right just over 50% of the U S company operated sales from what I think are now 23 million members.
And that 23 million members.
Good luck.
I think based on what you last commented on maybe a year or so ago.
You have $80 million to $90 million total addressable customers that your service.
So it seems like.
23 million members spending clearly outsized relative to the average so I'm just wondering what are the initiatives at this point it seems like it's still grow in that program double digits from a percentage basis, but what are the biggest initiatives to further ramp up that 23 million member base.
Over the next 12 to 24 months.
So everything for the question I'm going to hand, it over to Brady Brewer, our Chief marketing Officer, who leads our program there Brady great. Thanks for the question Jeffrey we see a lot of opportunity with our rewards program. It is 52% of total sales in the U S and as you heard we added 1 million new active.
It's just in the last quarter alone that was on top of the $1 million in the quarter before and there are a few things that we're doing one Jim.
We want to know as many customers as we possibly can we want to personalize their experience and we want to make the experience effortless and so effortless means things like mobile order curbside delivery.
And we've looked at things like starts where everyone would you've heard us launch about six months ago trying to lower the barriers to entry. So the customers can get the benefits of the program.
Experienced the incentives and the personalized experience they get through the program and it's through those efforts that we are attracting more customers into the program.
Quickly was a program that we wanted to make it easier to join and to make purchases in the program with the pay as you go options. So lowering those barriers to entry reaching as many people with the program and then ensuring that the incentives and the services that are attached to that program to make the experience personalize and effortless, that's how we're growing the pro.
Graham and we've seen just tremendous results obviously over the last six months with.
With those programs are attracting new members and seeing them activate.
Thanks, Barry Jeffery I'll just add.
To <unk> comments, I think Randy and team have done a great job growing and keep in mind. These are 90 day active rewards members. So they are active members.
When we were at about 20 million active 90 day active rewards members. We had this conversation with the team that said look I believe we have an opportunity to double that number I'm not going to give a timeframe it might take might take a couple of years, but double that number.
And.
In doing that we've now started to apply some very creative and very thoughtful ways to get under the data that we have about customers. So that we can.
Even if theyre non rewards customers. So that we can better serve them and start to personalize offers and personalize the experience for them and so working with with technology companies that have machine learning algorithms companies like the <unk> bridge <unk> been able to help us.
<unk> continued to advance this so I think we've got a great.
Set of.
Features it initiatives that enhance the customer experience and how they want to use that mobile app to personalize the customer experience in ways that are relevant to them and for us to find new ways to reach out to non rewards customers and start to personalize our engagement with them to bring them.
Enter into becoming rewards customers and so we're going to think very broadly about this over the long term and I'm optimistic that we're doing some things that are very creative and it's just going to take some time.
Doubling that $20 million is an incredible goal so.
I look forward to the progress on that.
Alright.
Okay.
Scott.
Yes.
Our next question comes from the line of Andrew Charles with Cowen. Please proceed with your question.
Great. Thanks, just following up on the MSR program I mean, Jim.
It's very encouraging that obviously you had three 5 million more active members today versus pre COVID-19, and just kind of two questions in the progress of this first who are these new members that you're finding.
Are they skewing younger skewing to less penetrated penetrated areas of the country like yourself and then second I know, it's early days, but can you observed that trajectory of their behavior.
They seem likely to visit and spend in line with that three times average versus not remember correctly observed.
John.
Great questions Brady.
Yes.
The program has been very strong in attracting our high frequency customers and so we have a large proportion of high frequency customers in the program today and given the incentives of the program lowering those barriers to entry we are seeing a significant number of more occasional or lower frequency customers joining in the program. These days.
That's helping.
To support that two to three times average versus the <unk> versus the non MSR customer in terms of frequency, we still see that high frequency overall for the program, but what's great about seeing those occasional customers join us, but we also see that significant lift in frequency and spend from those members just as we do from the high frequency.
Members that joined so we see tremendous opportunity in bringing that occasional customers into the program, providing them with a great experience, great incentives and experiences that drive their frequency over time.
So we see that as a continued opportunity we see a lot of runway there as Kevin said and we'll continue to press on that.
And you have to come.
Thank you.
Our next question comes from the line of Nicole Miller with Piper Jaffray. Please proceed with your question.
Thank you. Good afternoon, I know this is going to sound a little out of sequence and all of this number of Suffolk Super important, but obviously you know the team and the transition I think is equally important and Rachel.
I wanted to ask you last time, but we ran out of time.
Such a unique perspective in your role.
I don't know if I get this right, but high growing up at Starbucks going away. So curious like what did you learn you come back.
Question that you are going to make in and really curious like how is the first few months and this will then for you. Thank you.
Well. Thank you Nicole for the question I appreciate it what I would say is.
Starbucks is such a powerful brand I think you see that globally, but as a person who has worked at the company you feel it and so that's I think what for somebody who has been at the company and left to come back that is the.
That is the that's the force is really what the brand means and it's less about the symbol, but it's more about the people behind it and there's just an incredible group of people that you work with partners.
And.
Yes, it's hard to replicate that and so from my perspective that is that is the driver and the customer because the customer too and I would have been is I feel that when I'm in my store and I think that resonates when you're part of the company and even in the corporate office. So I think thats a unique.
That's a unique advantage of being part of a company like Starbucks and what I can say is it's incredible to watch the growth from the company over the years and to be in a position where I get to work with such an incredibly talented group of leaders to help shape. The future of this growth I think.
Its an enviable position, but it is humbling at the same time and so I feel grateful for the opportunity, but I appreciate the question.
And thanks for taking my questions. Thank you.
Thanks, Nicole Howard.
Our next question comes from the line of Brian Bittner with Oppenheimer. Please go with your question.
Hey, good afternoon, Thanks for taking my question.
Kevin I know that you are bullish on on coffee demand trends in general in the U S and the ability for the market to grow at a favorable CAGR moving forward.
Is there a way to possibly perhaps frame up this market share grab opportunity that could unfold in the U S. As we storm out of COVID-19 I. Obviously realize you are laser focused on your own idiosyncratic drivers, but do you have any data or insights to frame up how your market share is trending.
Or insights into the competitive supply situation going on around you, particularly maybe in your urban trade areas.
Yeah, Brian Let me, let me just start with kind of how I think about.
The share position that Starbucks has.
How.
How that's unfolding through this pandemic and as we emerge from it.
I think.
Couple of thoughts the thing that we have the most measurable is on a quarterly basis is looking at.
Sales of start the Starbucks coffee down the aisle at CPG and.
Coffee, whether its royalty ground coffee single serve ready to drink beverages, and what we've seen is consistent share gains through this through this pandemic and even into this quarter I mean the.
They are ready to drink share that we gained.
Both in the U S and China is significant.
The global Coffee Alliance with Nestle has now taken us from fundamentally two markets to over how many markets Stuart Miller.
71 markets around the world.
And just take North America, a big a big market North America.
Our growth revenue growth.
8%, where the category decline John why don't you comment on that and then let me go back to specialty coffee retail.
What I would say Brian is.
Holistic strategy on how we capture the consumer and attract them into the store.
<unk>, Brian whether that's through our retail stores through down the aisle service ready to drink.
Holistic strategy and I would say that over the course of the last year, we have seen that really come to fruition right now.
Talk about the resurgence of customers coming back to our stores and stores reopened we've seen the growth of package coffee down the aisle. During this time not only in the U S. But also internationally the growth as singles or internationally as well being on an espresso platform Dolce gusto platform.
Security platform.
Yes, Sean.
Foodservice is going to continue to play a very important role. We just opened our 1000 food service locations in China discussed this.
This past month and we are.
Going to continue to expand in that way so.
Our holistic strategy.
On April two in the U S. Now will be the number one brand nationally I don't in terms of share we've actually grown that share and expanded that number one position in the quarter versus Q1. So we are seeing our customers who have loved Starbucks.
Thanks.
Can you to consume more coffee and to continue to want to experience. It in unique ways very humbled by that yes. Thanks, Joseph So Ryan you can see that on our channels business.
Every quarter, we get the number we get the measurement on our specialty coffee retail we tend to look at <unk>.
Zero monitor and other longer term.
Data sources to give us a sense, but.
Right now the volume of customer occasions that a return to our stores in the U S is phenomenal and its exceeded our forecast.
Our projections in the U S and Ross Ann and her team have adapted rapidly to that but the thing. We're most focused on is how we have rapidly adapted to shifting consumer behaviors that I outlined in my opening comments.
How in doing that we extend and enhance the attributes that differentiate starbucks from everyone else.
And how we then.
Great a great experience for our customers in the stores.
And the way we do that.
<unk> transformation is one is one important initiative, but the work we do to elevate the customer experience.
Deliver relevant and exciting new beverages and to extend and enhance digital customer relationships are the three key things and when you look at what's happening in each one of those areas.
There's so much positive.
Activity in initiatives and accomplishments and then customer response to those things that I just believe that we're hitting on the right notes.
And at this point I look and say, we're going to have a two to three year tailwind just simply by watching vaccinations.
Progress around the world this great human reconnection will happen probability one point.
So we are positioned for that and we're trying to we're working to enhance and differentiate the brand in ways that are meaningful to us we're going to take care of our partners. Our partners are the heartbeat of Starbucks.
And to the occasion, and so specialty coffee retail where we've set the brand.
$100 million customers, we come to see us and that's where we establish the brand and then we amplify it.
Through our channels and I think in both specialty coffee retail and channels.
It is happening and so.
We will give you more as though as we get more data on share gains but.
I can just feel it incentives as I look at our data our numbers are in our stores and sort of watching what's happening.
Thank you.
Our final question comes from the line of Chris Growe with RBC capital markets. Please proceed with your question.
Hi, Thanks for taking my question.
Just wanted to follow up on the commentary earlier around ticket and how moderation there will perhaps affect margins going forward, but are you seeing anything in the current trends that would suggest that some elements of the still strong ticket could remain sticky even as traffic continues to improve surface increasing mix of premium beverages or.
Or a higher food attach.
Rachel will take that sure thanks, Kevin Yes.
What I would say is we definitely I mean, as we as we start to comp.
Severe part of the pandemic from last year will definitely see the construct of our comp shift and it will return to more of a pre pandemic level, where you see greater transaction and maybe a lower ticket. So we will definitely see our ticket moderate from the high Twenty's, where we've been but we believe that some of that will sustain now not too.
The degree that it has been but if you look at some of the behaviors that have driven that the behaviors that have driven it today or the fact that we have higher beverage attach from group orders multiple orders some of that will probably moderate as people start to.
I'll go back into the offices and we have more single.
Visits and single item purchase.
But we've had an all time food attach. This this quarter was an all time record attach on our food and Thats, because we are putting forward products that our customers love and enjoy and so they'll continue to if we continue to innovate in areas that.
Irrelevant for them, we continue to see that that will have that will drive food attach. In addition to that we're seeing across the board growth in Coles and some of that is from our promotional offerings as well as some of our core offerings and I think that focus in that area, which is more premium for us in nature is where our customers are gravitating and so that will also.
The sustained ticket I just think the issue will be that it will moderate from where it is today, but we have belief that some of those David that I just spoke about R&D sticky.
Great. Thank you.
Yes.
And with that ladies and gentlemen. This concludes our question and answer session and I would now like to turn the call over to Kevin Johnson for closing remarks.
Well. Thank you again I got to say, Brian got me all like energized about what we're doing and so as we close today's call I think it is important to reinforce one key message and that message is that Starbucks is me.
Meeting this moment.
This moment of the great human reconnection, and we anticipated the shifts in consumer behaviors, we accelerated our long range plan and we are well positioned to differentiate ourselves even further with a new level of Brazilians speed and agility and I've got to say.
Say as Rachel was commenting the strength of this brand and the increasing opportunities for us to offer convenient elevated personalized experiences for our customers around the world makes me personally very optimistic for the future.
Our long term growth model is solid and so thank you for your questions. Thanks for joining us today and have a great evening.
This concludes Starbucks coffee company's second quarter fiscal year 2021 conference call. You may now disconnect your lines.