Q2 2022 Starbucks Corp Earnings Call
Good afternoon, My name is Alex and I will be your conference operator today.
I would like to welcome everyone to Starbucks second quarter fiscal year 2022 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'd 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 Star then the number two.
I will now turn the call over to Tiffany Willis Vice President of Investor Relations. Mrs. Willis you May now begin your conference.
Good afternoon, everyone and thank you for joining us to discuss Starbucks second quarter fiscal year 2020 to resolve.
Today's discussion will be led by Howard Schultz interim Chief Executive Officer.
Linda Wall chairwoman of Starbucks China.
Brady Brewer executive Vice President and Chief Marketing Officer, and Rachel Harry Executive Vice President and Chief Financial Officer.
And for Q&A, we will be joined by John Culver Group, President of North America, and Chief Operating Officer, Michael Conway Group, President of International and Channel development, and Adam Brotman strategic adviser on digital innovation.
This conference call will include forward looking statements, which are subject to various risks and uncertainties that can cause our actual results to differ materially from these statements.
Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factors discussed in our filings with the SEC.
Our latest annual report on Form 10-K, and quarterly report on Form 10-Q.
<unk> assumes no obligation to update these forward looking statements or information.
Got results and second quarter fiscal year 'twenty 'twenty to include several items related to strategic actions.
Including restructuring and impairment charges transaction and integration costs and other items.
These items are excluded from our non-GAAP results.
All numbers referenced on today's call are on a non-GAAP basis, unless otherwise noted.
For non-GAAP financial measures mentioned on today's call. Please refer to the earnings release, and our website at Investor Starbucks Dot com to find a reconciliation of those non-GAAP measures to their corresponding GAAP measures.
This conference call is being webcast an archive of the webcast will be available on our website through Friday June 3rd 2022.
For calendar planning purposes. Please note that our third quarter fiscal year 2022 earnings conference call has been tentatively scheduled for Tuesday August 2nd 2022.
With that allow me to turn the call over to Howard.
Thank you Stephanie.
Love and responsibility brought me back to Starbucks My Love of the company and my deep responsibility to our partners and shareholders.
In the month I have been back on travel the country and met with thousands of Starbucks retail store partners and visited all five of our roasting plants and I've learned firsthand about the unique challenges confronting the company today.
I'm also experienced the passionate relationship our partners have with the company and the enduring emotional connection our customers have to the Starbucks brand.
Colby presented unprecedented operating challenges to consumer branch Covid also drove dramatic changes in customer behavior at <unk>.
Perfect stores and systems were not designed for building the.
The challenges have been amplified by record demand for Starbucks coffee in our U S stores that has accelerated with the lifting of Covid restrictions.
Our Q2 results tell the story in Q2, our sales comp in North America grew 12% over last year 20.
23% compared to Q2 2020.
Both drive thru and mobile order and pay activity have searched together now generating over 70% of our U S store volume delivery and nearly $500 million business is up 30% in the first half of fiscal year <unk>.
Our stores customers are increasingly further customizing already complex handcrafted cold beverages.
The combination of shifts in customer patterns accelerating demand and algorithms built for different customer behaviors has placed tremendous strain on our U S store partners.
Ordinarily, we would have anticipated and invested ahead of the shifts we're seeing.
But COVID-19 disruptions interfered with our ability to make the required investments in store design operations infrastructure and technology to do so.
As a result, we've been unable to meet the relentless demand we're seeing in our U S stores as seamlessly as our customers and partners expect.
And candidly dessert.
Simply said, we do not today have the adequate capacity to meet the growing demand for Starbucks coffee.
Going forward, we will be making investments in our partners and business to literally catch up on investments we have not made.
And make further investments to position the company ahead of the coming growth curve.
We will also be accelerating our new store growth with 90% of new stores being high returning drive throughs.
Our newest class of drive throughs will integrate new store designs technology, including more handheld devices and equipment improvements that will increase efficiency speed of service and we believe liver even greater profitability in the future.
We will then incorporate the new technologies and equipment into our existing stores and provide our people with the tools and resources they need to elevate the Starbucks experience, we deliver to our customers and create even more demand in the future.
And we will be making significant investments to extend our digital capabilities and deepen our digital connection to customers and the emotional attachment or customers have to the Starbucks brand.
Returns on our digital investments are consistently among the highest returns we generate.
Which brings us to the decision we will revisit in fiscal 'twenty three to suspend stock buybacks.
Buying back stock yields us on average about a 10% return.
With Starbucks treasure trove of global assets, a 10% return is not satisfactory to me.
Throughout our history and the investments we have made in our people and business have always delivered outside returns to our shareholders.
We are so eager to show off our pipeline of disruptive innovation that we're moving our Investor day up to September in Seattle from December in New York.
The significant innovation around technology, and personalization, we will reveal our industry game changes that will further increase store productivity and efficiency.
You will see is the coming transformation and re imagination of the Starbucks customer and partner experiences the transformation will accelerate already record demand in our stores, but the investments will enable us to handle the increased demand and deliver increased profitability. While also delivering an elevated experience to our customers.
And most importantly, reducing strain on our partners.
We must re introduce joy and the customer and emotional connection back into the partner experience.
We've identified over $200 million of investment that's incremental to the significant investments we've already committed to.
And our U S company operated stores this year these.
These include further investments in training wage and equipment.
And new investments in internal communication with our people when we will launch a new partner app to communicate directly with all store store partners.
We will also be reaffirming our commitment to coffee excellence and partner education by introducing our black apron coffee master and origin trip programs and in 2023, we will introduced enhanced digital tipping for our partners.
We believe these investments will improve retention and recruiting and elevate the experience, we deliver to our partners and our customers.
Over the last month, we've realigned Starbucks U S organization to focus entirely on transforming and re imagining our core U S business.
Linda Wang will share plans for accelerated growth in China as soon as Covid related mobility restrictions there are lifted.
And make no mistake, our aspirations around China have never been greater and I remain convinced Starbucks business in China will be eventually larger than our business in the U S.
We have a big breakthrough idea around the launch of Starbucks web three <unk> and a unique platform for <unk> that Brady Brewer and Adam Rodman architect of mobile order and pay and the Starbucks digital App, who is serving as a special adviser to US will shortly tell you about.
I believe web three point O will create an authentic digital third place experience and drive substantial new revenue streams for Starbucks and be accretive to the brand.
Our web three point out strategy as a proxy for the greater ambition, we have for the company going forward.
Despite the fact that post COVID-19, our customers are not using our stores the same way and we've been operationally challenged as a result, our national retail footprint and best in class real estate portfolio is still enabling us to meet customers wherever they are and irrespective of their need state this relentless demand.
We're seeing in our stores to date underscores this reality.
Looking ahead.
Try and imagine thousands of vastly more productive and efficient Starbucks stores reconfigured to align with today's customer behavior and built around technology that will delivered increased speed of service improved labor management and reduced unit costs.
And elevated partner and customer experience.
Now imagine the accretive impact to our financials, when we reengineer our stores to deliver where what we're capable and delivering an arm our people with the tools and resources they need.
To once again exceed our customers expectations.
From my perspective, I understand what's needed and I'm back to lead this transformation and committed to seeing it through.
Starbucks sits alone with something few if any of our peers.
Literally half and that is unmet demand.
Companies spend hundreds of millions of dollars on marketing promotions and social media trying to create demand we have demand everywhere. We look despite having not lived up to the expectations. We set for ourselves let alone exceeding the expectations of our customers and our people since the pandemic.
The big opportunity ahead for us is to meet strong and growing demand in our stores more efficiently and effectively and to leverage technology to enhance productivity and reduce burden on our store partners.
Let me highlight just a few sources of the accelerating demand we are seeing in our U S stores and business.
Mobile order and pay and over $4 billion business is up 400% in five years is up 20% over last year.
Our $500 million delivery business is up 30% over last year.
The Starbucks card puts our brand in the hands of nearly 120 million people and used alone larger than the entire gift card category.
Starbucks customers are increasingly prepaying for their purchases and huge volumes roughly $11 billion last year and we are on track to exceed that figure this year.
At this moment well over $1 billion is loaded on Starbucks cards waiting to be spent in our stores.
And active Starbucks rewards membership in the U S grew 17% over last year to Q2 to 27 million members.
Strong underlying demand means to productivity and efficiency investments I've described represent literally low hanging fruit available to US right now and every Starbucks remains a growth company today and will remain a growth company into the future.
Two related dynamics underscore the power of the equity and established brand and support our growth aspirations consistent pricing power and strong demand for Starbucks products in CPG channels.
Over the last year, we raised price in several times to address increasing inflationary pressures, yet we experienced negligible customer attrition once again, demonstrating the new elasticity of demand for Starbucks coffee.
Even so inflationary pressures have outpaced our price increases, resulting in several points of margin compression in the short term and costing us over 200 basis points in the first half of the fiscal year in.
In Q2, we were able to absorb the incremental cost while still delivering on our EPS expectations.
In our channels business Starbucks today has the number one share in U S.
At home coffee and the number one share in global ready to drink coffee customer loyalty inside and outside our stores has never been greater.
You have to ask yourself, how many retail companies have a consumer brand that is best of class and literally the number one position in grocery and in multiple channels of distribution.
You'd be hard pressed to find any.
I could not be more optimistic or confident in the successful transformation and re imagination of our store partner and customer experiences.
Let me turn to China.
I cannot think of any other western consumer brand, let alone a food and beverage retailer that has performed as well as us in China over the last 20 years, I would say that with great pride, having been to China. So often building confidence trust and respect relationships with government officials and working closely with our Chinese team.
However, the situation in China.
This is unprecedented.
Shanghai cities four times the size of New York City is completely locked down.
Other major cities, including Beijing are experiencing new COVID-19 offerings, and implementing new mobility restrictions pursuant to China's strict zero Covid policy.
Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year.
Given the materiality and the high level of ongoing uncertainty around China accelerating inflation and the significant investments we are planning.
The only responsible course of action for us to take us to suspend guidance for Q3 and Q4.
As we move through Q3 and approach September Investor Day, we will have much greater visibility on Q4 holiday in fiscal 'twenty, three and being in a position to share details around our comprehensive post Covid, China plan with you.
I'm very pleased with the growth, we're seeing from our international business.
Excluding China, our international segment grew comps in the double digits in the quarter.
Stronger than anticipated demonstrating the strength of our diversified portfolio and the opportunity ahead.
Even including the impact of China, Our international segment still grew 4% in the quarter over last year to a record $1 7 billion.
Our international store base grew 9% over last year to over 17700 stores 50.
50% of that growth was in licensed markets, we expect 75% of the net new stores will open in fiscal 'twenty two to be outside the U S. Further underscoring the enormous global growth.
And the opportunity ahead.
Now, let me turn to a subject in the news.
Across America, there is a movement in the media and across multiple industries, including the service sector.
Whereby fellow citizens have begun turning to labor unions as a means of gaining voice representation and improve working conditions. This movement is not related to any specific company.
We are highly and tactic to the root causes of the frustration and anxiety that Gen Z Americans are facing.
Having comment of age during turbulent moments in our history.
The 2008 global financial crisis, the great recession, and now the global Coronavirus pandemic.
These young people have completely valid concerns given today's uncertainty and economic instability.
They look around and they see the burgeoning labor movement as a possible remedy to what they are feeling.
I understand the climate and I'm deeply sensitive to the needs of all of our Green apron partners.
Yet we have a very different and vastly more positive vision for our company based on listening connecting and collaborating collaborating directly with our people.
Throughout our history at Starbucks, we have led our industry and in many cases corporate America and introducing breakthrough benefits for our people.
Aon Hewitt the gold standard in benefits rates Starbucks in the 100 percentile in the retail sector.
100 percentile.
Including for part time workers, who wants stability and flexibility to achieve their future aspirations that means no retail company in America ranks above Starbucks to the benefits we provide our people.
We are proud of our history and leadership in wages and benefits and we are committed to doing even more to meet the evolving needs of our Starbucks partners in the future.
Sharing success through wages and benefits with our partners.
Is among our core values and has been for 50 years.
And our values are not and never have been the result of demands or interference from any outside entity.
It's who we are as who we have been and who we always will be.
Compare any union contract in our sector to the constantly expanding list of wages and benefits. We have provided our people for decades and the union contract will not even come close to what Starbucks offers.
We remain committed to doing the right thing for each and every Starbucks partner and that includes respect for differing opinions inclusion and embracing diversity.
Individuality.
Today.
We take further steps to modernize our pay and benefits vision for our partners with further investments and wage for Easter skills training coffee excellence and financial wellness and literacy.
And in September we will share additional initiatives, we are planning to Starbucks partners in areas that include health with student loan refinancing additional skills recognition programs enhanced in App tipping and new profit sharing initiatives.
Partners at Starbucks U S company operated stores, where we have the right to unilaterally make these changes will receive these wages and benefit enhancements. This covers more than 240000, Starbucks partners and roughly 8800 Starbucks stores across the country.
We do not have the same freedom to make these improvements at locations that have a union aware union organizing is underway.
And those stores will receive the wages increases that were announced in October 21.
But federal law prohibits us from promising new wages and benefits at stores involved in union organizing and by law, we cannot implement unilateral changes at stores that have a union.
We're services required to engage in collective bargaining, we will negotiate in good faith.
Starbucks will not favor or discriminate against any partner based on union issues, and we will respect the right of Starbucks partners to make their own decisions when exercising these rates.
A question I get asked frequently frequently is how long are you going to stay.
So let me try and preempted here.
Just frame.
The enthusiasm and the optimism I have for our transformation plan going forward.
We have line of sight on what the transformation looks like and how meaningfully our plan will benefit the company and our people as together, we co create and re imagine the future chapters of Starbucks story history.
The plan I share is being designed mindfully and strategically and will be executed successfully this I can assure you.
The board and I have agreed I will stay to help transition our next leader.
We are driving towards naming the new leader in the fall.
After joining the company he or she will undergo full immersion and have the opportunity to collaborate with me for a defined but not indefinite period.
The plan is for me to completely hand over the CR rates sometime in the first calendar quarter of 'twenty three and to thereafter remain on the Starbucks Board.
Over the last 50 years, we have built Starbucks into one of the most recognized and respected brands in the world.
And we have delivered best in class returns to our shareholders since being a public company and 1990 to the.
The investments in our people and our company we discussed today.
We'll absolutely assure that despite our success in the past our best days are ahead.
We're looking forward to demonstrating what's ahead and the enthusiasm we have to sharing that with you on our Investor day in September and with that I'll turn the call over to Melinda.
<unk>.
Thank you Howard Weil, we are into the third year of navigating through the Covid in China in Q2, we encountered the most severe resurgence of the virus to date, 72% of the 225 cities, we're in experienced omicron outbreaks, including Shanghai and Shenzhen.
This more infections variant mobility restrictions and lockdowns are impulse faster and relaxed more cautiously.
Starbucks focus since the start of the pandemic has been to protect the health and wellbeing of our partners and customers provide support and show up positively in our communities. Our efforts have deepened our connection to customers and made all partners proud.
Over the last two years, we have built up muscle and agility to navigate through COVID-19 challenges with every resurgence we at new chapters to our China, Colgate playbook, strengthening our capabilities and resilience.
As we move into Q3 and continuing today roughly a third of our stores remain temporarily closed our offering delivery our MLP only and most of all remaining stores are operating under strict safety protocols that interfere with our traffic and operations as a result net revenue in China.
Declined 14% and sales comp declined 20% in Q2 versus last year after adjusting for the subsidy all from reduced traffic.
Expect an even greater impact on our Q3 results due to the timing of the Shanghai locked down and a further resurgence of the virus and other cities, including Beijing, We expect mobility restrictions to continue under the country's zero call that policy for the foreseeable future.
In Q2, we continue to invest to increase our digital connection to customers. As a result digital mix now represents a record 43% of sales a launch of Starbucks delivers on May one and January has driven <unk> and make Starbucks coffee category.
Meter on third party delivery platforms.
Main laser focused on our growth as we manage through short term challenges at our China Investor Day in 2018, we shared our aspiration to operate 6000 stores in China by 2022.
Use of Covid disruption, we remain on track to do so adding 97 net new stores in Q2 with our new stores continuing to deliver best in class returns and profitability.
We also continue to invest in smart technologies to improve our productivity and efficiency leverage our scale and deliver an elevated experience to our partners and customers. We are extremely proud that despite COVID-19 challenges, we achieved our highest ever customer connection score in March.
The enduring loyalty in connection our customers have to the Starbucks brand sets us apart from all competitors today, one in Q coffee consumers in China chooses Starbucks over any other coffee retail brand a huge lead that we have held for years and continue to build upon.
Our dreams and aspirations with Starbucks, China has never been greater.
Incredibly proud of what we have accomplished in China, while managing through the pandemic.
Our accomplishments are due to the extraordinary dedication and efforts of our 70000 partners.
No coffee retailer in China is better positioned than Starbucks to navigate the current headwinds or to resume accelerated growth once.
<unk> mobility restrictions are lifted.
With that I will turn the call over to Brady Brady.
Thank you Glenda star.
Starbucks is one of the most sought after brands in the world and by engaging deeply with our customers over 50 years, we've amassed a treasure trove of assets, both physical and digital.
Just one example, being the nearly 27 million active Starbucks rewards members in the U S.
We're activating these unique brand as a catalyst to accelerate the future of Starbucks as a global brand and in the business.
Our beginning we've nurtured human connection and serve a fundamental belief that coffey brings us together.
We brought this to life and what we've called a third place.
Place between home and work, where you can connect and feel a sense of belonging over coffee.
Now we are extending the third place concept with Starbucks into a new kind of community.
Emerging technologies associated with web III and specifically NFL.
Now enabled this aspiration and allow us to extend who Starbucks has always been at our core.
We are creating the digital third place.
To achieve this we will broaden our framework of what it means for people to be a member of the Starbucks community.
Adding new concepts such as ownership and community based membership models that we see developing in the web two <unk> space.
We will lead by aligning our initiatives with our sustainability commitment, making deliberate choices to build the community on environmentally sustainable web three platforms.
Imagine acquiring a new digital collectible from Starbucks, where that product also serves as your access paths to a global Starbucks community one.
One with engaging content experiences and collaboration all centered around coffee.
This community will further strengthen the Starbucks brand engage our partners and we expect it to be accretive to our business.
Starbucks has a history of taking leading edge technology, and innovation and making it accessible and approachable to the mainstream.
<unk> seen it with our digital experiences whether it with introducing ability to pay with your phone mobile order or even access Wi Fi long ago.
Starbucks can serve as a bridge to the future for our nearly 100 million customer occasions per week around the world.
We will take our first step toward a digital third place and our broad vision for web three with an anticipated launch in this year.
This is just the beginning of an exciting future.
Now I'll turn it over to Rachel.
Thank you Brady and good afternoon, everyone.
As Howard mentioned Starbucks performance in Q2 demonstrated strong customer demand across our portfolio. Despite continuing COVID-19 humbling.
We delivered global revenue of $7 6 billion in Q2 up 15% from the prior year, a second quarter record.
Our results were primarily driven by 18% revenue growth in the U S and stellar performance across our diverse global portfolio. We are particularly pleased with the strong results in light of the dynamic environment.
Q2, consolidated operating margin contracted 300 basis points from the prior year to 13%, primarily due to inflation, which increased over the course of the quarter significant investments in store partner wages and benefits and reduced traffic in China.
The margin contraction was partially offset by pricing in North America.
Q2, EPS was <unk> 59 declining 3% from the prior year consistent with our expectation.
I will now provide some segment highlights for Q2.
North America delivered revenue of $5 4 billion in Q2 up 17% from the prior year and also a Q2 record primarily driven by a 12% increase in comparable store sales comprised of a 7% increase in average ticket and a 5% increase in transactions.
Strong performance of new stores over the past 12 months and the accelerated recovery of our licensed stores also contributed to this compelling level of revenue growth.
U S comparable store sales were 12% despite significant store our modifications in the early part of the quarter.
The sustained momentum across our core platform and food attach coupled with the return of winter favorites and newer offerings such as the pistachio Latte all contributed to the strong results.
Our average ticket continued to grow reaching an all time high driven by strategic beverage pricing and another record breaking quarter food attach with fluid sales, increasing 25% from the prior year.
We continue to engage with customers, where and how they prefer as our drive through Windows mobile order and delivery channels collectively accounted for 75% of U S company operated sales in Q2.
If convenient order channels and compelling product offerings cannot be easily replicated at home.
Our customers continue to make Starbucks a part of their daily routine fueling growth across all day parts and drive throughs and cafe with specific strength in suburban and rural areas.
Underpinning the enduring demand is our continued focus on digital customer engagement with Starbucks rewards members delivering 54% of the revenue in our U S company operated stores the highest level of engagement on record up two percentage points from the prior year.
North America's operating margin was 17, 2% in Q2 contracted 260 basis points from the prior year due to inflation investments in labor, including enhanced store partner wages and new partner training as well as the lapping prior year government subsidies.
These margin headwinds were partially offset by pricing and sales leverage.
Throughout the quarter, we executed our plan to offset near term margin pressures by accelerating price increases, reducing spending discretionary cost areas and activating through put initiatives across our operations.
These actions helped the company deliver Q2 profitability as planned despite higher than expected COVID-19 isolation today, and ongoing inflationary headwinds, which increased considerably over the course of the quarter.
Moving on to international.
The segment delivered its highest second quarter revenue ever reaching $1 7 billion up 4% over the prior year. Despite the impacts of COVID-19, Lockdowns in China.
The growth was primarily driven by a 9% increase in net new stores over the past 12 months and strong sales growth from our international licensee, including the conversion of our Korean market to a fully licensed business.
Growth was partially offset by an 8% decline in comparable store sales, including a 3% decline attributable to the lapping prior year VAT benefit as well as a 3% unfavorable impact from foreign currency translation.
Excluding the VAT impact international comparable store sales declined 5% and excluding China International comparable store sales increased meaningfully.
Shifting to China as you are aware and as blended discussed China continues to battle, COVID-19 resurgence and navigate through prolonged lockdown.
Although China's comparable store sales improved sequentially in January traffic lessened considerably in February and March as Omicron cases search and Lockdowns were implemented leading to a comparable store sales decline of nearly 50% in the last week of March as we exited the quarter.
As a result second quarter comparable store sales declined 23% in the market or 20%, excluding the impact of lapping the prior year that relief.
At the end of Q2, roughly one third of our stores in China remains temporarily closed or offered mobile ordering channels only.
A sizable number of these stores were high volume stores located in tier one cities, including Shanghai with the balance of active stores operating under elevated Covid safety protocols.
Despite the considerable near term headwinds, we remain focused on executing against our growth strategy in China.
As Belinda shared given our portfolio of healthy fundamental expanding digital footprint and record customer connection coupled with vast opportunity ahead, we remain very optimistic for our future growth in China.
Outside of China, the recovery of our international markets gained momentum across our global portfolio in Q2 with many of our license markets achieving record revenue levels in the quarter with revenue growth for this segment outside of China, reaching 23%.
Once again, demonstrating the underlying health of our business as mobility restrictions subside.
Operating margins for the International segment was 13, 1% in Q2 down 600 basis points from the prior year, mainly driven by strategic partner investments lapping higher prior year, Covid relief, including government subsidies as well as higher product and distribution costs from sales mix shift, partially offset by sales leverage across.
The P&L.
Strong performance of our international market outside of China helped to offset the significant sales deleverage in China.
As the adverse impact from China Lockdowns intensified in the last few weeks of Q2 and amplified further as we entered Q3, we expect China's results to continue to be a headwind throughout the current quarter.
Moving on to channel development.
This segment's revenue grew 25% to $463 million in Q2, primarily driven by growth in the global coffee alliance as well as to strengthen our international ready to drink business.
The segment continued to amplify the Starbucks brand led by the growth of our U S. At home coffee under the global Coffee Alliance, which continued to see strong performance driven by the Starbucks Nespresso platform fueled by the virtual line.
We had an exciting innovation launches in a ready to drink business, including Starbucks by the energy in the U S and new chilled Cup offerings in our international markets.
The segment's operating margin was 42, 7% in Q2 down 400 basis points from the prior year, primarily due to business mix shift driven by growth in the global Coffee Alliance.
Moving onto our guidance for the balance of our fiscal 'twenty two year.
Given the uncertainty around further mobility restrictions and lockdowns in China, resulting from the government's strict Europe COVID-19 policies as well as increasing inflationary headwinds, it's become increasingly difficult for us to predict the back half of the year with reasonable accuracy.
As Howard mentioned, we believe the only responsible thing to do is to spend guidance for balance of this fiscal year.
However to provide additional insight we believe our results for the balance of the year will be significantly pressured with heavier pressure in Q3.
From a capital allocation perspective.
Although we suspended share repurchases for the balance of the fiscal year, we returned more than 5 billion between share repurchases and our quarterly dividend during the first half of our fiscal year.
We expect share repurchases made earlier in the year to contribute at least 1% to our FY 'twenty to EPS growth.
We will provide a comprehensive update on our business outlook and our capital allocation commitments for FY 'twenty, three and beyond at our Investor Day in September However.
However, as Howard mentioned, we are confident the investments we are making in our partners our stores and our brand will deliver significant returns in excess of historical levels, resulting in accelerated long term growth.
To summarize the two key takeaways from my prepared remarks today.
Our Q2 performance underscores the strong customer demand across our business and around the world.
We remain committed to the growth opportunity ahead in all channels and markets, creating and delivering exceptional value to all our stakeholders our partners, our customers and our shareholders long into the future.
Once again, the real credit for our success belongs to a green apron partners around the world, who continue to go above and beyond to deliver an elevated Starbucks experience everyday that experienced drove our growth and will continue to be the heart of our business as we re imagine the future of Starbucks together.
With that Howard Belinda Brady and I are happy to take your questions joined by John Culver, Michael Conway and Adam. Thank you.
Greater.
As a reminder, if you'd like to ask a question 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 questions as time allows.
Your first question comes from Sara Senatore with Bank of America.
Thank you very much.
And we will come back Howard I was hoping you could talk a little bit more about the investments youre, making in I guess two fold one is.
As you point out Starbucks has been ahead of the curve.
On certainly on wages. So is this about putting more hours and I know you talked about training.
Can you give a little bit more color.
What that means in particular.
Look at your transactions in the U S or North America, they are still down versus what we saw in prior to the pandemic. So.
Just trying to get a sense of is it.
That these are more complex orders or how should we think about any color ahead of what you'll talk to us more about in September .
Sure.
Sarah.
As I mentioned in my remarks over the last few weeks I've pretty.
Pretty much a crisscross the country and meeting with Starbucks partners.
Listening very carefully to their concerns their suggestions and what we really are calling a co creation for the future of the company.
I think it's important to understand that the business as I mentioned has changed dramatically in terms of mobile order and pay cold beverages is now almost 80% of the business.
And the equipment in our stores and the layout of the stores.
Have not been designed for the way customers are using our stores today and that has put enormous pressure on our people. So the first thing we must do is give them new tools.
And there will be upgrades and equipment that will be sequentially brought into the stores to.
To try and relieve them of the pressure Thats one investment on the equipment side.
There'll be there'll be.
A fair amount of investment in technology to do everything we can to upgrade the algorithms of labor scheduling and there will be upgrades and the digital app itself to be able to provide customers with a more accurate method of when their beverage is going to be ready.
And then there's the wage piece and I think.
As I said, we've always been ahead of the curve, but I think we haven't done it up and I think it's we have to recognize that there is a lot of pressure on our people.
We want to do everything we can and so we've got a raise wages again and I think if you think about.
Starbucks Starbucks has been probably quince essentially the most experiential brand over the last 2030 years and that experience comes to life as it relation because of the relationship that our people have with our customers if.
If we want to exceed the expectations of our customers we have to exceed the expectations of our people.
And so <unk>.
During during Covid and post Covid, our attrition rate like almost every other retailer has gone up significantly.
If you look at where we can really.
The much more efficient as if we can provide our people with better training better wages better equipment behind the counters that give them the tools and the resources the self confidence and self esteem to do their job we will lower.
Attrition and our retention rate will be much greater that alone is a significant level of ways in which we can take money out of the P&L and money out of the store economics, So I think.
We put it in my language I mean, you have to ask yourself is starbucks half empty or half full.
Starbucks is completely full look at the assets we have looked at how many customers are reaching out to Starbucks every day.
The demand is accelerating and that's despite the fact that we're not doing our best as I said in my remarks, just wait until we upgraded the system upgrade wages give our people the tools and confidence and once again youre going to see us recording.
Kind of store level economics, we have in the past the other thing I'd say is that the inflationary issues, which are significant and growing.
That's an anomaly in America, we all know the inflation's a problem, but it's going to come down and the other issue is China.
We are so well positioned in China.
For the future and the China restrictions are going to abate and Theres no consumer brands that I can identify that is better positioned than we are to take advantage and as I said in my remarks in China business has got to be bigger than the U S. So as the class is.
The glass half full your indebtedness.
Thank you.
Your next question comes from Andy Barish with Jefferies.
Hey, Howard and team welcome back Howard.
Just a quick.
Question on the areas of input.
Jason that Youre seeing now I understand that.
Future.
Need for equipment and training and wages, but.
Where specifically are you seeing.
The in place and accelerating at this point if we could.
Sure Andy Thank you for the question Rachel.
Our answer to that is as we've talked about in Q2, we saw inflationary pressures elevate in Q2 versus Q1 that was related to a number of factors some of them COVID-19 related but as we've seen going from Q2 and for the balance of the year, we're seeing increase scenario.
Kris and inflationary pressures across our supply chain, both in labor as well as freight and then across our commodities and I would say it.
Equal caf between commodities have between our supply chain with rate being the bigger factor of the issues in the supply chain. So that's what we're seeing continue to elevate.
Thank you.
Your next question comes from Andrew Charles with Cowen.
Great. Thanks, so much Howard I appreciate the remarks, very thorough and passionate.
Obviously, not selling Yogi berra, but I'm sure. There's a lengthy short list of candidates to be a successor for you can you talk a little about the pedigree and characteristics that you and the board are looking for in your successor.
I wanted to be very careful because I want to be sensitive to the people, we're talking to and be respectful of all the candidates.
Obviously, we want someone who as domain.
Cultural experience in terms of the sensitivity of the values and culture of Starbucks Coffee company.
The person really needs to understand.
What it means to put on the green apron and work behind the Starbucks calendar and be able to enhance and preserve the culture and values that have been that we hold so dear at Starbucks.
One needs to have global experience, we're a global company.
And obviously, we're looking for a servant leader and someone who is going to be here for the long term.
There's no shortage of people, who would like this job and I think the board and I have been very encouraged by the fact that we've been able to talk to.
Wonderful wonderful candidates, who really bring a lot to the table, but we're being very judicious and very careful.
But we're going to find the right person.
I've committed to the board that I will do everything I can.
Can.
To ensure a soft landing and good immersion.
And then I will stay on the board to help the company and help the new CEO .
Thank you.
Your next question comes from Jeffrey Bernstein with Barclays.
Great. Thank you very much and welcome back Howard.
Just one clarification and then a question the clarification I know you mentioned $200 million of incremental investment on the conference call.
Yes, I see the press release is talking about.
Upwards of $1 billion for the fiscal year. So I just wanted to reconcile whether the $1 billion is all inclusive of prior investments as well as the $200 million.
Otherwise my question Howard was just as we look to fiscal 'twenty three.
It seemed like Youre in somewhat of an unusual position kind of echoing the last question.
Returning as CEO , but.
Looking to hire a new CEO in the fall I'm just wondering how do you walk that fine line.
Stabilizing the business today, but being sensitive to not offering.
Too much of a new strategy or making major structural changes, which I would think would be something the new CEO will be.
Came to establish thank you.
Yeah.
Rachel the question on the investment first sure. Thanks, Geoffrey so from an investment perspective, the more than 200 debt.
<unk> shared in his prepared remarks, that's in relation to we've already made investments this year and that's incremental to the investments we've already committed to this year. So if you recall, we've already committed to investments on wage some aspects of training as well as labor. In addition to that we're having another round of investments on top of that that will be really.
To further wage investments, but also modernizing our training and our collaboration as well as celebrating coffee and coffee excellence as well as some equipment and other innovation in our stores to help with overall store productivity and improving our store operations. So the collective nature of that gets to about $1 billion in this year alone.
In terms of your question I think.
It's a question that.
Spoken to the board about a fair amount to ensure the fact that.
The strategy that we are now engaged in and the investments that we are focused on.
Are the right ones, regardless of who the next CEO is going to be and.
And I think the lens in which we're making all these investments.
<unk> is 100% through the lens of.
What can we do to exceed the expectations of both our customers and our people.
And if you look at the demand of Starbucks the strategy as we are all focused on one thing right now and that is to re imagine and rebuild and restore belief and trust with our people.
And do everything we can to rebuild the core U S business post COVID-19.
Any CEO thats going to comment is going to understand that the core business of Starbucks is under significant pressure primarily because of the demand. We have in addition to that I think the next CEO is going to be a creative person is going to understand that the equity of the Starbucks brand.
<unk> has real legitimacy and relevance outside of our stores in the world. We're living in today, our customer base is getting younger they are digital natives and they expect starbucks to be as relevant outside of our stores as we are inside and what you heard Brady talked about in Adam's arrival here in terms of web three <unk> in the NFC platform.
The new CEO , obviously needs to have an understanding of the grass.
And our conviction on the fact that we can play in multiple theaters that could be accretive on their own merit and complementary to our retail business and have done really really well and we think we can.
It can be a bounce back to creating incremental traffic and revenue not only in its core business.
In terms of retail, but our new business, that's going to create incremental revenue unto itself.
Thank you.
Your next question comes from John <unk> with Jpmorgan.
Hi, Thank you.
How are you Howard.
Obviously.
The core buyback.
Very symbolic.
You mentioned <unk>, obviously got a lot of the Crimson.
It was announced that thankfully and I am curious on Capex that was previously guided at around $2 billion.
Core billing and a class I mean, Rob talked about.
<unk> stepped up.
But it's hard to call Doug Congrats concluded in fiscal 'twenty three.
We've drawn down further.
So I just wanted to.
Got a little bit more.
In terms of your highest returning.
Good morning.
As opposed to being driven by Cal water.
We're not really something that you want to work with.
Symbolically converted.
Not just because the importance of a care order if they feel like that was something that you would progress incrementally because some of the capital that you can perhaps opex for the business going forward absolutely worked drawn because some of that.
Looks like you have currently.
Well, John first off you and I am probably the oldest people on this call.
For those of you who are not familiar with John's career and with US I think since the IPO with 92 so.
Johnny I think you've seen this movie before.
Listen the the decision to suspend the buyback was not symbolic.
We're not making symbolic decisions, we're making strategic decisions that we think are the best interest of our shareholders and the investments that we're currently making are going to drive a better return than the current way in which we look at buybacks, which is 10% 11% and.
For example, if we increase retention of 10% to 20%.
Investments, we're making are going to be significantly greater than that.
Right about the balance sheet, but I wanted to be very conservative and I certainly wanted to send a signal to the market that we're playing the long game.
Not in the short run.
Always been.
Always embraced building a great enduring company, that's where we are today Starbucks best days are ahead of us never been more enthused. We're proud we're optimistic and this is the right decision to make rich do you want to ask one yeah, and if I could just add to that the decision. We made around suspending our buybacks was related to FY 'twenty. Two so we'll come back at Investor Day in September .
I will provide a more comprehensive capital allocation strategy for 'twenty, three and beyond so I think it's important to consider that when you think about the decision. We made I also would say just to punctuate <unk> point is that we have the opportunity as we've looked at the back half of this year remember that we've already repurchased $4 billion. This year and so we've been able to between buyback.
And dividends returned about 5 billion to shareholders, we've leveraged that as a way to create value, but as we look at the back half of this year and we look at the priority of our investments what Howard talked about in his prepared remarks investments in technology investments and digital investments in our stores. They all have an outsized return relative to what we can do with buybacks perfect exam.
All of that is very well, our new stores and the return we see on our new stores are recently, we've seen our new stores.
You asked how the ROI of about 55%. So we have a significant opportunity ahead of us as we think about really not only strengthening the business, creating more value over the long term and I think youll see a lot more about that at Investor day in September ratio before we get another question.
You don't mind, Michael would you just take a few minutes because theres been a lot of chatter about China's impact in international and just give us I know you just got back from Japan, and Korea, just talk a little bit about your trip and international in General Yes. Thanks Howard.
Seeing very strong recovery across many of our international markets outside of China.
As restrictions are starting to lift around the world I was just in Japan, and Korea, which is our number three and number four markets globally and I can tell you customers have backed out they are starting to return to their routines and theyre starting to return to our stores.
And many of our key markets, Japan Korea, the U K, Mexico, our average store sales are actually higher than our pre COVID-19 corporate averages.
Averages.
As you heard our international markets had a strong rate of 22% when you exclude China and we have strength across all the regions. Just so for example in Latin America, where we just know what we just achieved 500 stores.
We had strong momentum and a system comp of more than 40% in Q2 in EMEA, Our U K comps grew at 67% representing the highest Comping company operated market in Q2 as traffic continues to.
Come into Central London, the Metro areas, and we are increasing drive throughs in that market and at a significant rate and Asia Pacific year over year, our revenue grew more than 50% with Korean leading the way and then in Japan, our third largest market globally, we had double digit comps as customer engagement engagement is increasing.
And this is despite the fact that there was <unk> and Lockdowns early in January and into February .
And these markets are starting to ease restrictions Korea just on Monday.
The math mandates and so customers are coming back to our stores. So I'm excited about the growth potential in front of us as the recovery continues our licensed partners are seeing the strength of our brand the committed to investing in our brands and as evidenced by the store growth that we're seeing and then we have tremendous runway for growth. When you think about the opportunity with the digital flywheel.
And we're working hard to expand that to build loyalty and frequency with our global customer. So we expect the international momentum to continue as more and more markets start to relax restrictions and customers will come back to Starbucks. Thank you Michael Thank you.
Your next question comes from Jared Garber with Goldman Sachs.
Yes.
Alright, thanks for taking the question.
Howard if I could ask a question just on sort of the multichannel means and with consumers sort of interact with your brand now you highlighted in the call that there are several different set of service channels now do we think about it.
Consumer coming into the store themselves and then you've got the high penetration you said about 80% of sandwiches delivery drive through or mobile order and pay can you help frame, maybe how youre thinking about Starbucks of the future and how maybe the actual in store operations will shift from how they are today.
Serve that multichannel need thanks.
Thank you Evan give that debris celebrity Hello, Jared, Yes, we're really looking at this and asking ourselves three questions. One is on.
On the foundation of the Starbucks experience with which is us knowing our customers by name knowing their favorite drink, we're asking ourselves how can we do that in the digital space. Knowing every single customer personalizing the experience and then making that experience absolutely effortless for the customer increasingly that's what customers are seeking.
And effortless personalized human connection and Starbucks and so we're seeing that play out in the drive thru, we're seeing that in our delivery growth as Howard mentioned growing 30% year over year and with MLP now 25% of our business. Obviously, we're seeing that there. So it is about how does Starbucks unlock that magic connection which one.
Starbucks, Canada between connection and convenience and because we've been successful with that so far that's why we are seeing customers adopt those channels. So quickly and so holistically, but I'd say, we're just getting started.
Thank you.
Next question comes from John Glass with Morgan Stanley .
Thanks, and Hello, everyone I wanted to come back to the idea of the investment needed to two.
To re imagine the Starbucks experience first Rachel I understand the $200 million is probably within 2022 do you think 2023 at a high level is still a reinvestment year in the business and you made a comment about seeing returns in excess of historical levels over time I wasn't sure. If that was a comment that you believed that ultimately margins.
Could achieve or exceed your historical goals of 18% to 19% or what does that comment broadly mean about excess returns versus historical levels.
Sure I can speak to the more than $200 million at Howard shared in his prepared remarks relative to FY 'twenty two in terms of what we're expecting for FY 'twenty three in FY 'twenty four.
We have near term pressure in our business and thats between the pressure, we're seeing in with inflation as well as what we're seeing in China and then the investments we're choosing to make but while we're seeing near term pressure. We have line of sight to a very solid path of accelerated growth in the future and we're excited to share that with you at Investor day, So at Investor Day, we will provide.
More about our business as well as our broader more comprehensive capital allocation strategy for 'twenty three and beyond.
I think just to pick up on that.
Yes.
We have been a growth company.
We believe that Starbucks will maintain our position as a growth company and given the.
<unk>, we have and the capacity restraints.
It really says we should be opening more stores. So I think youre going to see our Investor day, which we're very enthused and twos to move up from December to September we want to accelerate growth.
Thank you.
Your next question comes from Lauren Silberman with credit Suisse.
Hi, Thanks for the question. So Starbucks is well regarded as one of the best companies with leading comp and benefits very front footed in terms of investment.
As <unk> spoken to partners across the U S sentiment towards the brand differ across markets are based on the tenure of the employees can you just talk about the different factors, there or partners relatively consistent and what theyre looking for.
Because we are.
In a situation, where anything we say or might say could be misinterpreted by.
Outside attorneys that are trying to find ways in which Starbucks is at fault I wanted to be very careful here.
My prepared remarks, it needs to be what we're going to say regarding the union issues.
My comments.
And the emotional relationship that I had.
In these meetings with partners across the country were.
Really quite extraordinary.
Love that people have for the company.
The challenges that they've had personally and professionally as a result of COVID-19.
The responsibility that they feel Starbucks has which we agree with.
To do everything we can to make their lives better.
But I don't want to go any further than that because I think the the investments we're going to make for our people as a method to do everything we can to exceed their expectations and we will speak more about that in September .
And I just want to say, we're moving up the Investor day from December to September because we are quite enthused and excited to kind of move it up and share with you our plans for the future accelerated growth new store ideas technology, all the things, we're going to share with you, including the relationship that we'll have with our.
Our people and I think just thinking out loud I think we should have some of our people.
Who are tenured managers of Starbucks and tenures Green apron partners there to talk to you about their experience with the company, which I think youll find quite interesting.
Thank you.
Your next question comes from Peter salary with BTG.
Alright.
Great. Thank you for taking the question.
Howard you mentioned additional wage increases and investments. They also mentioned some enhanced tipping options.
That are coming can you talk about that decision and maybe the timing and what you expect the consumer response to that to be.
Sure Brady help me out the digital tipping opportunities, perhaps the number one.
Single issue to provide.
More cash in the hands of our of our people.
Right now the only ways our people can get a tip is on the Starbucks card.
And so there was a missing out on a significant amount of money.
Because customers want to give them a cashless tip don't have the ability to do it because they're not paying on the Starbucks card.
That has been one of the most requested opportunities from our partners in the meetings I've had around the country and this is something we're going to accelerate as much as we can.
Maybe you want to take that sure. So yes, I mean, I think on the tipping side of things, we're adding functionality throughout the year.
We've got a lot of people working on this as Howard said its one of the top requests currently a customer can tip using the MLP experience, but we don't have the ability in many other parts of our store experience. When a person is paying with a credit card a stored value card or the app in our cafe and in the drive thru. So that's what we anticipate.
And very quickly against to bring that functionality to our partners.
Just to add on the wage.
Majority of the wage investments that Howard talked about just specific to wage war part of what we already committed to earlier this year, but in addition to that as we've made the move on wage for the majority of our hourly.
<unk> a brief test and we've also.
<unk> two addressing compression in 10 years and this most recent move as well so that would mean that every one of our partners will also had an increase this summer.
Can you just repeat that every Starbucks.
The person who was a non manager at Starbucks will be getting a <unk>.
Increase in <unk> that's right.
Thank you your.
Your next question comes from David Tarantino with Baird.
Hi, good afternoon, and welcome back Howard.
I guess my first question or first part of the question is a clarification you mentioned over 100 $200 million of investments have been identified.
That seems a little lull in relation to kind of your ambitious.
This is about transforming the company.
Clarify whether that's just the starting point.
More in mind or whether that's the total of what Youre thinking and then secondly.
Hi, guys.
Theres any directional commentary you can offer.
What the longer term margin outlook might look like including these investments relative to the prior targets that the company had.
Before you return.
Sure.
I think given the investment question I'll give it to Rachel.
The margin question, that's ratio as well, but clearly the inflationary number which is quite stiff.
Is going to abate and when it does we'll be in a great position because we will do we will have done things to handle the demand, which we're having trouble doing now Rachel Glaser, Let me just speak to that more than 200 million that Howard addressed in his prepared remarks is on top of the commitments. We've already made earlier this year largely related to wage.
So the combination of that is about $1 billion in this year alone and so certainly we will have further investments that we'll make over time that we'll share with you at Investor day, but I think it's important to remember that.
A little more than $200 million on top of the commitments. We've already made so it's a pretty pretty big broad investment when you look at it from that perspective and relative to margins.
As Howard spoke about we expect that some portion of inflation will essentially abate. In addition to that I think what's really important and the pressure we're seeing in the back half of the year is that's largely pressure from what we're seeing in China and the amplification in Q3 and just to give you a perspective, what we're projecting for the balance of the year.
Typically what we typically see from China in terms of market contribution on a Y will be half of what we typically expect as the market returns and mobility increases we know that the growth rhythm. There is strong we believe in the opportunity ahead and that will also give us further opportunity as we think about that into the <unk>.
Sure I think when you think about those two aspects and the investments we're making today that will return investments in retention investments in recruiting investments and our ability to make our store operations improved that's going to lead to greater partner engagement and partner engagement leads to better customer experience overall, we know that.
<unk>, it's more express for 50 years, its going to be the key to what we deliver over the next 50 years and it is critical to our growth. So I think the combination of all of that gives us line of sight to the fact that we firmly believe we will be able to have a path to accelerated growth.
Future, which we'll share with you at Investor Day.
Okay. Thank you.
Thank you.
Your next question comes from Sharon Zackfia with William Blair.
Hi, Good afternoon, I guess a question on the unmet demand that youre seeing in North America, or specifically the U S. Can you talk about kind of where youre measures of productivity, our throughput our relative to pre pandemic, particularly given the breadth of turnover that you've seen.
Yes, Sharon this is John I think what we're seeing is that as we get our stores operating at full capacity and as we come through Covid early in the quarter. We've now increased hours of operation and at the same time also increased to full staffing levels.
In our stores and having all channels open so we're getting a much better read on how our productivity is progressing clearly we measure on drive through out the window time clearly in the stores, we measure items sold per labor hour and there are other measurements.
That we track as well we watch all those things very closely I think one of the things I would just also highlight on the investments we're making.
For the remainder of this year is a big investment on training for our partners and one of the things that we heard loud and clear in these listening session in co creation sessions was they wanted more training and today, we offer about 23 hours of training to our new barista entering our stores and we're going to push.
That 40 hours beginning.
End of June and that will significantly enhance their skill sets make them more confident and preparing the beverages and ultimately.
Make them feel successful reducing.
Overall.
Complexity of doing the job and ultimately fueling successful so.
Ultimately, we do feel that will help increase productivity, but it is all about enhancing that partner experience, giving them the tools that they need to be successful and making sure that.
We're investing in them and then you've got the equipment aspects as well, we've got significant investments that we're making around.
The midstream the machines around the Mary <unk> ovens around handheld order points for drive thru.
And also the investments we're going to make on the cold beverage station.
To increase the capacity of the cold beverage work area for our partners going forward, which will help improve productivity as well.
Thank you.
Your next question comes from David Palmer with Evercore ISI.
Thanks, Welcome back Howard I think John was actually touching on.
The question I was just going to ask about which is around capacity constraints I'm wondering if you could maybe touch on what youre seeing in terms of service times or anything any metrics that would sort of prove to you that there is an opportunity a room for improvement.
And I got a sense from your answer just then and before that that you think a lot of this is going to be solved more on the capital investment side with new machines. For example in sort of Reconfiguring, how the cold beverage area works.
Do you think there is also going to be more expense type investment labor you mentioned that people would be coming out of the handhelds and the drive through any sort of breakdown on how you see this investment playing out thanks.
What we'll see is we'll see a an investment from an expense standpoint.
Obviously training, which I highlighted earlier, which we think will have significant positive impact for our partners.
And making them better prepared to do their jobs number two the equipment investments, although those will be capitalized. They will also have some expenses. We go through and do installations. When we do the renovations in the stores that portion would be capitalized although there will be some expense allocation.
To that as well and then Howard and Rachel touched on some of the digital investments we want to make in the stores.
Not only for customers, but for our partners and from a partner standpoint, it's all around automating the ordering system, we have automated ordering rolled out completely across the U S for our food and merchandise. We're in proof of concept testing right now for beverage items that are in the remainder of the items.
And we anticipate that that will also be an unlock to help improve.
The partner experience to reduce complexity and to allow our partners to focus on our customers and then the last thing I would just say as it relates to.
The productivity measures.
We believe very strongly that as we've come through Covid, we experienced significant challenges on staffing in stores.
And as we progressed through the quarter in Q2, and as Covid East staffing levels normalized hours of operation began normalizing as well in all channels were open productivity began coming back into the stores and that was signified by the strong performance.
<unk> from a comp perspective that we saw in the quarter to deliver a 12% comp as well as see the increase of attach of food at.
Our record levels signifies that our partners are doing the heroic work to meet the demand of the customers and what they're seeing in their stores and I just want to acknowledge all of our partners across the U S for the tremendous job they are doing.
To exceed those expectations of our customers.
Thank you.
I will now turn the call over to Howard <unk> for closing remarks.
I guess this is my opportunity to close the call.
Our intent today was to provide a comprehensive overview of what we've done in the last five six weeks.
And also to give you a sense of the passion and enthusiasm and optimism we have about the future of the company.
Clearly there are things that are not in our control right now the situation in China.
Level of inflation.
Things that we didn't plan on that we're managing through.
But when you take inflation out and you take the problems in China, both of which we believe are going to abate we're.
We're going to be really well positioned to take advantage of the position we occupy in the marketplace and that is from a global perspective.
You heard Mike will tell you how strong our business is international excluding China.
You heard me talk about the strength of our CPG business, which demonstrates the strength of our brand outside of our stores.
The other thing, which I did not mentioned as one of the metrics that have always been concerned about was whether or not our customer base is getting younger that we were staying as relevant as possible with young people.
Exactly where we are our customer base is getting younger and that to me says so much about the strength of the brand in terms of our 50 year history.
And so as we head into the summer and holiday season, and the Investor Conference.
We're going to be well positioned to really share with you. The plans we have for holiday in fiscal 'twenty three and beyond.
For those of you who have known me a long time and many of you at <unk>.
Followed the company for many years you were around in 2008 now this is not 2008 when it came back in 2008, one of the main issues was we had to create demand we didn't have to move.
And so the demand that we have right now is such a blessing such a gift and so what we have to do is harness the issues that we have to deal with in terms of capacity exceeding expectations of our people.
And I've been here long enough to understand what the challenges are and long enough to understand the extraordinary opportunities Starbucks has.
In the marketplace domestically and around the world, we have challenges, but we have the experience and the know how to address them and most importantly, we're taken along we're playing the long game, we're making the investments ahead of the curve and we are going to accelerate growth and for those investors who have faith in us in 2008.
I hope that you understand that the glass is clearly half full and we are going to be back to where we always have been and that is delivering the kind of financial results you've come to expect those fronts. Thank you very much.
This concludes Starbucks second quarter fiscal year 2022 conference call you may now disconnect.