Q4 2022 Starbucks Corp Earnings Call
Good afternoon.
My name is Diego and I will be your conference operator today.
I would like to welcome everyone to Starbucks fourth quarter and fiscal year end 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 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.
Star then the number two.
I would now turn the call over to Tiffany Willis Vice President of Investor Relations. Mr. Willis you May now begin your conference.
Thank you Diego and good afternoon, everyone and thank you for joining us today to discuss Starbucks fourth quarter and fiscal year 2022 results. Today's discussion will be led by Howard Schultz interim Chief Executive Officer, Frank Brett Executive Vice President Chief strategy, and transformation Officer, Sarah Shirley Executive Vice.
Didn't you President of Starbucks North America.
And Rachel Gerry Executive Vice President and CFO and for Q&A, we'll be joined by election Nora salmon.
Incoming chief Executive Officer.
Michael Conway group, President of International and Channel development, and Belinda Wong chairwoman of Starbucks China.
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 in our earnings release and risk factors discussed in our filings with the SEC, including our latest 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 fourth quarter fiscal year 2022 people 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 are there was no non-GAAP adjustments related to the metrics.
Further year on year comparative metric on todays call are based on a 13 week or 52 week basis to exclude the impact of an extra fiscal week in fiscal 2021.
For non-GAAP financial measures and year on year metrics mentioned in today's call. Please refer to the earnings release, and our website at Investor Starbucks Dot com to find reconciliations of those non-GAAP measures to their corresponding GAAP measures and 53 week and 52 week metrics.
This conference call is being webcast and an archive of the webcast will be available on our website through Friday December 2nd 2022.
And for your calendar planning purposes. Please note that our first quarter fiscal year 'twenty 'twenty three earnings conference call has been tentatively scheduled for Thursday February 2nd 2023.
And with that allow me to turn the call over to Howard.
Thank you Tiffany.
Well Hello from Milan.
Today has been a very special day for me and a powerful emotional reminder of the intersection of my life in years with Starbucks.
It was 40 years ago walking into beautiful streets of Milan that the inspiration for the possibilities of what Starwood could one day be an mean around the world first struck me in.
And here I am back in Milwaukee celebrating the early days of our beautiful thriving business in Italy, a country in which no unexpected Starbucks to succeed.
On the very day of our global launch of holiday and event that has become a phenomenon all over the world.
So much of Starbucks inspiration has come from Italy, and Italy, our partner's dedication to the art of coffee to the elegance and passion of coffee Kraft and to the delivery of a premium coffee experience to our customers is being executed at the highest level.
Italians have embraced Starbucks, our top selling beverage is actually a solo espresso.
Validating the quality of our coffee and the relevance of Starbucks customer experience that has defined us since Starbucks founding of $19 71.
We recently opened our 20th store in Barona to record crowds with Rome, and Naples SaaS following in 2023 mills.
Milan in Italy are reflections of the premium coffee experience Starbucks is delivering to customers in cities and countries everywhere as demonstrated by the very strong Q4, and fiscal 2022 financial and operating performance Starbucks reported this afternoon.
In Q4, Starbucks grew global revenues, 11% over prior year to a quarterly record of $8 $4 billion, driven by 7% comp growth globally, and a 11% comp growth in North America for the fiscal year, we grew global revenues, 13% over prior year.
To a record $32 3 billion, driven by 8% comp growth globally, and 12% comp growth in North America. We also grew our global store base, 6% in fiscal 'twenty two.
And ended the year with roughly 36000 stores in 83 countries today Starbucks serves over 100 million customer occasions from our retail stores around the world and across all channels delivers over 400 million customer coffee occasions globally every week.
We continued to manage the business through today's challenging operating environment more mindful than ever of the unprecedented global economic uncertainties and challenges confronting our customers.
Our strong performance in the quarter and year is particularly gratifying in that it underscores the relevance of the Starbucks brand and the strength of our relationships with our customers around the world in the face of these unprecedented challenges.
We saw strong demand for struggling coffee in Q4 and throughout the year in every market and channel in which we operate.
We are encouraged by the early signs of recovery, we saw in China in Q4, where innovation increased customer physical and digital engagement with the Starbucks brand and the relaxing of Covid restrictions drove solid positive sales momentum and sequential quarterly improvement.
The speed with which our business in China accelerated in Q4, and a strong positive correlation between Starbucks revenue growth and the relaxing of Covid mobility restriction reinforces our confidence in Starbucks long term growth opportunity in China.
However, as you know over the past few weeks there has been a significant resurgence of Covid in China.
With the resurgence has come renewed lockdowns and mobility restrictions pursuant to China's strict zero COVID-19 policy, including in many cities in which we operate meaningfully reducing traffic in our stores.
We anticipate the current COVID-19 related uncertainty to continue.
And repeat the view, we shared on our Q3 call and our Investor day that while our long term aspirations for China remains undiminished, we expect a recovery of our business in the country to be non linear.
I'll spend more time on China in a few minutes.
In fiscal 2022, we drove meaningful growth in our global customer base in the U S alone. We grew our unique customers, 9% year over year and our U S customers are engaging more deeply with the Starbucks brand as evidenced by a 16% increase in U S. Starbucks rewards members.
Year over year to nearly 29 million members up 5% over Q3.
Today, Starbucks is connecting to more customers more deeply both in the U S and around the world than ever before ideally positioning us to drive further acceleration in revenues and comps in the quarters and years ahead.
Our performance supports our confidence in the ambitious growth agenda, we announced in September and which we will be adding roughly eight new stores per day delivering best in class returns around the World every day for the next three years, bringing us to nearly 45000 stores globally by the end.
Fiscal 2025.
Our Q4 results also demonstrate evidence of early but highly encouraging benefits from reinvention plan investments, we detailed at Investor day in September .
And as you will hear from Frank Brett, Our Chief strategy and transformation officer, we have clear line of sight to a full array of benefits reinvention will deliver in the quarters and years ahead. Following Frank Sarah Trilling, a 20 year Starbucks partner, who recently took over leadership of our North American business after having.
Successfully led Asia Pacific for the last four years, she will provide insights into our business in North America today, and what to expect in the quarters ahead than Rachel will highlight our financial and operating performance in Q4 and for the year and provide guidance for the year ahead, and finally, we will end the call with Q&A.
When fully rolled out Starbucks reinvention co created in partnership with our partners across the country will touch and elevate every aspect of our Starbucks partner customer and store experiences last week 2000, Starbucks leaders from across U S and Canada convergence.
It'll to coalesce around reinvention and take it back to their local markets.
I don't think I've ever seen greater engagement in over 40 years of a more positive response to any Starbucks gathering in our history.
Reinvention investments will make it easier for our partners to do their jobs better enable partners to satisfy growing demand in our stores and provide greater opportunity for our partners to engage with our customers.
Reinvention investments are already having a measurable positive impact on our business and operations most notably in terms of improved partner retention increased speed of service and an elevated customer experience.
And I'm, particularly pleased that reinvention investments are bringing coffee excellence coffee craft enjoy and a little bit of love back into being a Starbucks for Easter.
Key to Starbucks success, and the foundation of our long term growth strategy at Starbucks continued global leadership around all things coffee and espresso Hot and cold Starbucks core in.
In Q4, we continued to grow from our core innovate introduce new levels of customization and premiums Asian and extend our global coffee leadership in both the hot and cold beverage categories with an emphasis on cold coffee category. We single handedly created and are growing around the world custom.
Demand for customized handcrafted Starbucks cold beverages is so strong that today cold coffee beverages account for 76% of total beverage sales in our U S company operated stores and customers are increasingly further customizing their cold coffee beverages by adding high margin beverage flavor.
Modifiers to create unique beverages tailored to their own particular tastes preferences.
Yeah.
We also continue to introduce innovative new core hot coffee and espresso beverages and innovate around iconic platforms like pumpkin spice up 17% over last year, driven by increased customization, including cold phones as part of reinvention, we are rolling out a new.
To completely proprietary handheld KOL, former that enhances beverage quality and increase the speed of service, while reducing complexity for our partners.
The response from our partners has been overwhelming.
Our growing base of new U S customers and Starbucks rewards members combined with very strong customer response to our innovative hot and cold beverage lineup to deliver the highest net sales week in our history in September .
Let me just repeat that in our history, we have the biggest sales week in September .
The strength of our business as we exited September coupled with a fantastic holiday lineup kicking off today with our stores turning red holiday favorites on the menu and the return.
Of our iconic Red Cups gives us tremendous confidence heading into holiday in 2023.
In North America overall, the combination of customer shifts towards premium hot and cold beverages increased customization strategic decisions around beverage food and modify our pricing and an 18% increase in food sales drove net revenues up 15% year over year.
To a record $6 1 billion.
Once again, our convenience channels drive through mobile order and pay and delivery.
Drove 72% of our total sales volume.
Starbucks rewards members drove a record 55% of tender in our U S company operated stores in Q4.
Starbucks rewards continues to deliver value to our customers enabled customer connection and drive our business and despite its global scale and growth we have significant untapped opportunities to grow our rewards program in a very unique way.
We recently launched a reward together program, enabling a select group of leading brands to partner with us by linking their loyalty program to Starbucks rewards.
Through reward together, we will engage and reward members of both brands with new benefits and experiences that will make our rewards program, even more valuable drive membership and increased customer lifetime value or.
Our first U S partnership with Delta Airlines was launched last month to an extraordinary customer response.
Both Delta and Starbucks were overwhelmed with what took place.
And in September we announced Starbucks Odyssey, our next generation loyalty model that integrates <unk> with rewards Starbucks Odyssey will enable us to connect even more deeply with customers and give our customers the opportunity to earn and purchase digital collectible assets that will unlock.
Access to new benefits of digital community and immersive coffee experience is that they cannot get in any other place.
Customer response to Starbucks Odyssey has been overwhelming you will hear more about the Starbucks Odyssey in a few weeks when our first wave of customers have an opportunity to explore this new exciting way to experience and connect with Starbucks the numbers that we will release in terms of the response will surprise many of you.
Our fast growing 6600, North American license store business posted very strong results in Q4 with revenues up 25% in Q4 and 29% for the year.
We are proceeding with the rollout of Starbucks connect across the U S license toward polio portfolio Starbucks connect enables license stores for the first time to offer the full array of Starbucks mobile order and pay and rewards benefits and as you will hear from Sara The 1600 license stores that have adopted <unk>.
<unk> connect are seeing a significant lift in business since adoption Starbucks connect enables us to continue to capture demand across our broader portfolio and will be highly accretive to our business.
The momentum we saw in our international segment coming out of Q3 continued in Q4.
With revenues for the quarter up 12% to $1 8 billion.
On a constant currency basis for the year revenues grew 9% year over year to $6 $9 billion also on a constant currency basis, we added 518 stores during the year and now operate nearly 18500 stores around the world.
We are sensitive to the challenges that the rapid increase in the value of our dollar is posing to our international licensees and remain in close contact as we work together to navigate the dynamic environment that we're all operating in.
Turning to our channels business Starbucks is the number one share in use at home coffee.
Starbucks is the number one share in global ready to drink coffee and continued growth in our global coffee Alliance with Nestle combined to deliver strong performance in Q4 with revenues, increasing 18% on a constant currency basis to $484 million for the year revenues also in.
Creased, 18% to $1 8 billion on a constant currency basis.
Now, let me begin the discussion around China.
By saying that Starbucks has been in China for 20 years and that our aspirations for our business in China has never been greater.
We have over 6000 stores in China today, and as Belinda shared at Investor Day, We will we have close to 9000 stores, we will have close to 9000 stores by 2025.
We will be opening our Starbucks, China coffee innovation park, including our largest coffee roasting and packaging plant outside the U S. In summer 2023.
To grow and drive our business.
However.
We are ultra sensitive to the evolving macro channel challenges that have surfaced regarding China, particularly in connection with the impact of the zero Covid policy.
But our strong belief in China is based on our success in the country and our commitment to playing the long game.
We are confident that when COVID-19 disruptions affecting the country abate Starbucks will emerge not only is the undisputed leader in our category, but likely the number one western consumer brand in the country for having continued to meaningfully invest in our partners.
In in our business throughout the pandemic and despite the disruptions.
<unk> immersion is going spectacularly well.
He has visited and worked in stores in the us and UK quickly connecting and winning the Hearts of Starbucks partners, where every goes just this week, earning is <unk> certification in record time and store Green apron.
Lachman commitment to becoming intimate with store operations in our partner in customer experiences reflects our mutual understanding of what is most important in these early days of his joining Starbucks.
P&I engaged daily as he absorbs more and more about the company and our business and.
And the board leadership team Ni are all deeply invested in his success.
Cannot be more confident that lacks minister right CEO at the right time for Starbucks.
Today Laxman has a front row seat as we launch are all important holiday season soon along with our leadership team, who will be leading the company, bringing reinvention to life and guiding Starbucks to the next chapters of our stories history.
In closing Starbucks has never been financially stronger.
Better positioned or more confident in our future as we enter Q1 in holiday and embarked on the exciting new era of growth ahead.
With that I'll turn the call over to Frank Frank.
Thank you Howard and good afternoon, everyone.
It was just 50 days ago that we laid out our reinvention agenda.
All five major strategic shifts first training truly unified Global company second radically improving our in store partner experience.
Thirdly re managing our store operating model fourth reinvention around what customer connection means and perhaps most importantly redesign the construct of what it means to be a partner at Starbucks.
While sterile early days, we are seeing progress with several key proxy measures. For example retention has increased with turnover scores at the hourly breaston level lower by one point versus prior year at four points versus prior quarter.
Additionally, customer connection scores show a five points improvements to pre pandemic levels. All of these are early like encouraging sites.
We fully embrace at our partners are the most critical component to our longer term performance and we need to be even better at addressing their needs.
Partner, who proudly wear the green apron heck bravely sharing their stories and their ideas and our cooperation sessions and we have concentrated our efforts to jointly create solutions with our partners and for our partners.
In the fourth quarter, we continued to improve our already industry, leading benefits to a deeper position of strength with several new programs for partners representative examples of improvements include a new incentivize savings program in partnership with Fidelity designed to help partners in case of unplanned financial challenge.
<unk>.
A new student loan debt program to empower partners looking to find the best ways to address the <unk> management obligations and increase in sick time accrual ratios for our partners and updated family expansion reimbursement program aimed to assist partners with the corset growing their families through adoption.
And a leg.
We have remained committed to the critical development opportunities of our people and as a complement to doubling our partner train hours S. Howard noted we've reintroduced her iconic black apron Credentialing program and nearly 5000 partners have already earned their apron and continue in the program.
We've also launched the pilot a new partner App designed to create one digital community.
Or 270000 U S and Canada company owned and operated store partners in overtime. This new digital platform rollout partners to stay connected and what matters to the most including their schedules their benefits and continuing to use their voice to drive the co creation of Starbucks more than 1000 <unk>.
Partners have participated in our testing and are providing feedback to <unk> plans for Q2.
Obtain the right mix and number of hours is essential to a thriving partner experienced to Starbucks and we aim to provide desired hours with flexibility and predictability. We are highly focused on honing our staffing models and operating processes to ensure we can allocate the right amount of talent to each store everyday.
<unk> and advancing our capabilities to fine tune our hours of operation by store to reflect unique demand patterns as.
As part of the reinvention agenda all of these efforts Sharon comment a primary focus to grow the lifetime value per partner and are connected to the ongoing reinvention initiatives, including in store waste reduction and further acceleration of equipment rollout to enable an improved partner experience and higher productivity.
We will also continue to focus on accelerating our trade or your transformation Modernising the way technology elevates historic experience and continuing supply chain innovation <unk>.
Longer term.
Powered by our partners insights, we have a very robust agenda and improvement plan powered by a new architecture and vision of the partner experience and over time. This will translate into an even more partner centric system in the stores a firm a reputation as a frontline talent career launchpad and improve retention rate.
It's.
Finally, as part of this new phase of reinvention, we continued to lean into our centralized project management office to drive better integration, among our initiatives and more fully capture the synergies across <unk> store and customer innovations.
Together. These initiatives are designed to strengthen our business to top line growth and margin expansion and improved the partner experience I look forward to sharing more of the progress in the quarters ahead, let me now turn it over to my partner Sarah.
Thank you Frank and good afternoon, everyone and Sarah.
They're killing me that's all I need today for my first earnings call in my new role, leading and all I can ask a business.
While I'm relatively new to this particular raw on the 20th partner and most recently served as senior Vice President in Asia Pacific.
Over my Starbucks color I've touched nearly every aspect of the business.
Served many leadership position across the variety of functions, including for development retail operation product and marketing.
And I'm looking forward to applying wellness breadth and depth and my experiences to this next phase of growth.
Okay.
To build on some of the comments in second hour, we continue to see very healthy growth and or North America does that.
Has been highlighted Investor day, we saw the highest net sale fleet of all time with the launch of our fault right now and I just need to share. This subsequently led to an incredibly strong September with a three <unk> in our history.
Are strong quarter comparable sales of 11% and revenue growth of 15% were largely driven by a record breaking for lunch, coupled with continued strategic pricing action and increased speed attach as well as a shift to more premium beverages.
Demand for personalization in both accompany upgraded as well as license business S.
Elevated from pre pandemic levels, we maintain ticket calm strength and our company operating business, 10%, representing our fifth consecutive quarter at increased took it comes.
These results reflect the continued strength and demand for Starbucks.
Our customers settle into their new normal routine and behavior.
We fully expect the momentum for my record fall launch to continue as are highly anticipated holiday at Starbucks launched just today.
Includes some great <unk>.
What gives us further confidence in the holiday season, it's strength, the Starbucks brand, taking under a diverse customer grid.
More than half are you guys customer base, <unk>, reflecting relevancy Brown lab cross generational trends, we see with diverse customer cohorts as well.
We are incredibly pleased with our momentum in the business and the reinforcement of our strategy and the following key area.
First we've established sustained relevance day at the Starbucks brand and customer loyalty.
In fact, Starbucks is consistently quarter over quarter the leader in market share first choice and past 30 days indications that comes in away from home coffee occasion as measured by a brand equity tracker.
We're also pleased to share the customer connections for it's an increased five point versus pre pandemic level.
The strength of the brand is further illustrated by the success at our iconic Pumpkins platform, which group, 70% year over year and continues to resonate with customers, who loves the classic pumpkin Spice latte.
Well as newer edition such as the pumpkin cream quote modify.
Second or cold customized could average strategy is working.
We're seeing growth in both hot and cold and increasing customization.
In queue for more than 60% of beverages sold in the US company operated business or customized contributing to the 1 billion and growing annual net sales for modifiers, representing breath or two accidents first fiscal 2019.
Let's see I need the reinforced our unique position in providing experiential convenient as evidenced by all time highs and Starbucks rewards engagement and there's more order in K orders.
The Starbucks rewards program and the U S. You 90 day active members.
Ending F Y 22, with nearly 29 million members. This.
This represents growth is 16% year over year and 55%.
A R U S company operating revenue in the quarter up nearly 4% prior year, representing the highest per cent of tender.
Molar and pay surpassed 26 per cent in queue for for the first time in a quarter.
Finishing fiscal year 22 at 25 per cent of total transaction.
What incredibly optimistic about our continued momentum digital following the unprecedented interest in Starbucks Odyssey.
The integration of N S teeth, with our industry, leading loyalty program.
And accessible went through community. It brings unique aspects of our branch of life anyway.
We also experienced a wildly successful launch of reward together with Delta with this partnership Ah rewards members are able to earn miles faster through their everyday purchases at Starbucks and then even more stars on days when they travel with Delta.
The initial response from customers has been extraordinary and beyond expectation and this is just the start.
Importantly, we finished the year with nearly 25% of our newest license portfolio alive was Starbucks connect allowing us to create seamless digital experience across our stores getting customers more ways to connect with their brands furthering the value of the rewards experience.
As part of a reinvention and as we shared at our September Investor Day, we're investing in equipment to innovate for an improved partner and customer <unk>.
You completed the deployment at Starbucks called <unk> and it ruled out from Australia to suppress the machine and new warming ovens to nearly 95 per cent and 72 per cent, respectively of our stores across the U S.
This equipment collectively supports improvement and a triplet drained those peak and full day, while providing the foundation to support elevated partner customer experiences as we further reinvention plant investments and productivity.
The Rollouts for these three items will be completed by fiscal year 23 for our company operated stores.
Additionally, we rolled out nearly 60% of our handheld.
<unk> investment.
Can you have a 75 per cent of our cold beverage lately.
And <unk> is already helping us capture new enlightened demand in support of our ambitious rather expectation and we expect to see further benefit as we extend the rollout for handhelds pls into fiscal year 24.
While still in the early days in development partner in customer reception and the new Siren system innovation, we shared Investor day is overwhelmingly positive, including the silver vertical brewer and the new proprietary on demand cold pressed cold brew technology.
We expect to begin rolling out code number to February later, and this is going to mess with our broader Simon system innovations best following in fiscal year 2024.
Do our investments for giving our partners more time to focus on coffee crafts and connect with customers, enabling them to continue delivering experiential comedians in a way that only started to scan.
Powerful unlocked and a reinvention physician's desk for sustainable profitable growth over the long term.
In fact, just this last week, we welcome nearly 2000 retail leader from U S and Canada to Seattle for our district manager leadership experience.
This powerful three day of that cause designs with great attention to provide renewed understanding and the critical role each litre planes and our business and with our people and equip them fully to lead their stores and store partners reinvention and into our future as we all breathe life into the screen mentioned plan.
To cloud what I will leave you with is with this.
Is an incredibly exciting time to lead our North American business.
While the macro environment may have uncertainty I performance is once again, demonstrating the strength and resilience of our brand and our business.
We are well positioned in this environment, which will only further strengthen our reinvention comes to life.
I'll now turn it over to Rachel.
Thank you Sarah and welcome to your first Starbucks earnings cough and good afternoon, everyone.
And you heard throughout this call starting with Howard we had record breaking performance this quarter and I'm incredibly proud of what we achieved together.
We finished fiscal year 2022 with consistently strong demand in the U S.
All major markets across the globe with that demand sustaining as we exited the ear.
R. Q for consolidated revenue reached another historical hi, $8.4 billion up 11% from the prior year or 14% when excluding a three per cent impact of foreign currency translation.
Revenue growth was primarily driven by 7% comparable store sales growth and six per cent net new store growth over the past 12 months further strengthened by the remarkable momentum in our global license store businesses.
In addition, it's outstanding performance reflects double digit revenue growth and all three of our reporting segments and constant currencies showcasing the resiliency of our brand power of customer loyalty and depth of our diverse portfolio.
You for consolidated operating margin contracted 380 basis points from the prior year to $15 one per cent, primarily driven by investments and growth in labor, including enhanced store partner wages, a new partner training part of which were investments under a reinvention plan.
In addition, operating margin was impacted by inflationary headwinds and deleverage related to Covid restrictions in China.
The overall contraction was partially offset by pricing in North America, and sales leverage across markets outside of China.
Two four E. P S with 81 cents declining 9% from the prior year, but better than expectations, including five cents of non reoccurring benefits primary related to discrete tax benefits.
For full year fiscal 2022, Arkansas dated revenue reached a record 32.3 billion a 13% from the prior year or 15 per cent when excluding a two per cent impact the foreign currency translation driven by eight per cent comparable store growth six per cent net new store growth and strengthen our global life.
Store businesses.
Full year, consolidated operating margin and EPS or 15.1% and $2.96 respectively.
I will now provide segment highlights for Q4.
North America delivered revenue of 6.1 billion in Q4 at 15% from the prior year and another all time record, primarily driven by an 11% increase in comparable store sales inclusive of a 10% increase in average ticket as well as net new short grocery 3% over the past 12 months.
Impressive <unk> momentum in our U S license store business also contributed to the segments record revenue performance.
My colleagues spoke in detail about our incredible U S performance in queue for posting 11% comparable store sales growth.
Average ticket once again broke a record primarily driven by pricing and for you to catch.
Despite elevated pricing actions taken throughout the year daily store traffic in the U S reached approximately 95% pre pandemic levels in September fuelled by the wildly successful fault promotion.
Importantly, the volume is beverage and food items sold per store has well exceeded pre pandemic levels and the number of unique customers again reached an all time high in Q4 of nine per cent over the prior year more than 1% versus prior quarter, underscoring our branch expanding reach and relevance and customer law.
L T.
North America's operating margin was 19% in queue for contracting 270 basis points from the prior year, primarily due to investments and growth in labor, including enhanced store partner wages, a new partner training as well as inflationary headwinds, partially offset by pricing and sales leverage.
Are disciplined actions to closely manage labor hours reduce waste and prioritize discretionary spin also contributed to the segments margin performance as we build a strong foundation for progressive margin expansion in years to come.
Moving on to international.
The segment delivered third quarter revenue of 1.8 billion down 1% from the prior year are up nearly 12 per cent when excluding at 12% unfavorable impact from foreign currency translation.
It's double digit revenue growth and constant currencies was driven by sustained strength in all major markets outside of China as well as an 8% increase in total store account over the past 12 months.
The growth was partially offset by a 5% decline in comparable store sales at the impacts of Covid continued in China.
As Howard discussed or China market continued its recovery Q for navigating through reoccurring COVID-19 outbreaks and turbulent consumer mobility.
The market posted a comp decline of 16 per cent in queue for a meaningful sequential improvement from a 44 per cent decline in Q3.
Despite this press traffic the China teams outstanding leadership and strength of our branch were markedly evident in the corner as reflected in record levels of store development growth and delivery and the highest ever customer connection scores.
Outside of China, and excluding the impact of foreign currency translation are diverse international markets across the globe sustained incredible momentum in queue for <unk>.
Collectively the market's revenue growth exceeded 30 per cent and a quarter when excluding a 19% unfavorable impact foreign currency translation.
International segments net new stores reached a quarterly record at 518 climbing to more than 18000 stores in total setting the stage for a new era of growth with a rapidly expanding footprint around the world.
Operating margins for the International segment was $14 five per cent in queue for down 750 basis points from the prior year, mainly driven by deleverage related to Covid restrictions in China, lower government subsidies as well as partner investments.
The contraction was partially offset by pricing and strong sales literature crossed markets outside of China.
Shifting to channel development.
Segments revenue for 16% to $484 million in queue for her up 18% when including a two per cent impact from foreign currency translation driven by growth in both the global coffee Alliance and our global ready to drink businesses.
Channel development continue to play a vital role in differentiating diversifying and amplifying our brand by creating customer occasions outsider stores.
As a result, Starbucks remains the market leader in both the total U S adamant coffee and ready to drink category.
Building on the success of our newer platforms. The segments robust innovations continued in the quarter, including the interdiction introductions of ready to drink Starbucks Pumpkin cream Nitro call Bruni U S and bottled Frappuccinos smoothie in China to name a few.
The segment's operating margin to 56% in queue for down 170 basis points from the prior year, mainly driven by Ms business mix shift.
Let's now move onto our fiscal 2023 outlook, which reflects the beginning of a new era of growth.
Our guidance remains consistent with what we shared at our Investor day in September . So today, I will reaffirm and refine the guidance specific to fiscal year 2023, and will also introduce an outlook on a few below the line metrics that were not part of our Investor day guidance.
Starting with the first building block of our growth comparable store sales growth.
We expect fiscal 2023 U S comparable sales growth to grow in the range of 7% to 9%.
For China, we're expecting outsized confidence fiscal year 2023, as we laugh the severity of the Lockdowns in the market.
Given the quarterly shape the fiscal 2022 baseline, we expect China cop to be negative in the first quarter, followed that <unk> outsized <unk> and the balance of the year.
Our fiscal 2023 global comp growth is expected to be near the high end of our longterm target range of 7% to 9% consistent with what I shared it investor day.
And global Coughing Q1, reflecting nevin cop in China is expected to be at the low end of the annual guidance range than expanding in subsequent quarters.
Moving onto the second building block new store growth.
We expect our U S store account to grow by approximately three per cent in fiscal year 2023.
In China, we will continue to rapidly expand our store footprint with approximately 13 per cent growth expected in fiscal year 2023.
We expect our global store growth to reach approximately 7% with over 75 per cent of the growth coming from outside of the U S. As we continued to diversify your portfolio globally.
With his powerful combination of global Com and store growth coupled with our channel development performance. We expect our consolidated revenue goes to reach the range of 10% to 12% in fiscal year 2023. Despite in approximately three percentage currently unfavourable impact expected from foreign currency translation.
Within fiscal 2023, the unfavourable impact of foreign currency translation is expected to reach approximately four percentage points in the first half of the fiscal year temporary to approximately one to two percentage points in the back half of the year.
Despite the considerable pressure, we now expect some foreign currency translation, which could abate we remain confident in our revenue guidance range for the full year.
We have a solid path to capture strong demand maximize opportunities unlocked from a reinvention plan and deliver attractive revenue results.
Are there a building block is operating margin.
Globally, we expect solid margin expansion in fiscal year 2023.
In terms of the quarterly shape, we expect operating margin to be tempered in Q1, and Q2 with meaningfully higher margins in Q3 and Q4 his margin benefits accumulate from the continued unlocking of the reinvention plan, coupled with the expected recovery in China.
In addition to the quarterly shape of operating margin here are a few points to consider.
We expect over 1 billion incremental investments in fiscal year 2023 half of which will reflect the annualization in the fiscal 2022 investments.
We expect headwinds related to supply chain and commodity inflationary pressures to continue in fiscal 2023, a bite to a lesser extent relative to fiscal 2022.
Headwinds will be managed through sales leverage pricing and productivity from the reinvention, resulting in positive margin expansion as the year progresses as I previously mentioned.
The fourth building block is capital allocation.
We expect our Capex in fiscal 2023 to be approximately two and a half billion dollars.
As we share during our Investor day, we also expect to return approximately 20 billion to shareholders in the next three years between dividends and share buybacks.
We remain committed to targeting and approximately 50 per cent dividend payout ratio as reflected in the recently announced given an increase and will also resume our buyback program in fiscal 2023.
We expect a buyback benefit on EPS to be initially limited until fiscal 2024, when the benefit is expected to reach approximately 1% calculated net of interest expense.
In regards to interest expense, we expect between $540 million and $560 million of interest expense in fiscal 2023 up from $483 million in fiscal 2022.
This increased driven by incremental debt issuances in fiscal 2022 in fiscal 2023 as outlined in a capital allocation strategy.
Importantly, we remain committed to our triple B, plus credit rating and leverage cap with three times rent adjusted EBITDA.
Ask your tax rates in fiscal 2023, we expect our effective gap and non-GAAP tax rate to be in the mid 20 per cent range.
This is up from our fiscal 2022 gap and non-GAAP tax rate of 22.4 per cent and $23, 1%, respectively, which benefited from certain discrete tax items that are not expected to repeat to the same degree in fiscal 2023.
Finally based on the current environment we.
We expect foreign currency translation to have approximate four percentage points unfavourable impact on fiscal 2000 twenty-three earnings growth.
Despite that we continue to expect fiscal 2023 gap E. P. S growth to be at the high end of the 15 to 20 per cent range.
Fiscal 2023, non-GAAP EPS growth.
Is expected to be at the low end of the longterm range of 15% to 20% as the benefits of the reinvention investments will take time to amplify.
It's important to note that queue for fiscal 2022 included approximately five cents of non-recurring items largely from discrete tax benefits.
And considering the quarterly EPS shape, we expect it to near the quarterly shape of operating margin, which will also have a meaningful step up in the second half of the fiscal year.
In closing.
T take away from my discussion today.
We are incredibly proud of our queue for performance underpinned by the experienced our partners create for our customers each and every day.
R 2023 guidance sets the stage for another year of record performance importantly, we recognize that our future growth is dependent on our investments and our partners stores and customer.
As we lenient and solve the challenges of our business together with our partners. We are confident of our path to unlock a new era of growth, creating value for all stakeholders partners customers and shareholders. Once again, our successes earned through are more than 450000 greenie from partners.
Working across the globe to elevate the Starbucks experience each and every day.
Their commitment and their unwavering focus will continue to be the cornerstone of our new Arab <unk>.
With that you will open to the call to Q&A operator.
As a reminder, if you would 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 limit yourself to one question at a time, we will come back for follow up questions as time allows.
Pause for a moment to compile.
Two and a roster.
Your first question comes from Andrew Charles with Cowan Police that your question.
Great. Thanks, I'd to question I'm Gonna rewards together program first can you talk about what differs about this program versus the stars everywhere program that Starbucks rant about six or seven years ago. When your partner with New York Times lifting Spotify that was full to my discontinued and then my other question is just on the data sharing can you talk about the new capabilities as programs can afford to.
Ooh and how the data sharing will work between you Delta in any of the New partners do you guys bring on.
Thank you for the question this Howard I'm sitting with Brady Brewer, Chief Marketing Officer, Starbucks and it'll take your question.
Thanks for the question really the reward together program is about taking like-minded, leaving loyalty programs and linking them directly to Starbucks rewards to me in 10th is that whether or not you are with an airline like Delta you can earn miles faster at Starbucks and you can get additional Starbucks benefits when you fly with Delta.
And we're looking at a number of leading brands and so this is creating direct Tec tech connection to link our loyalty programs and make the experience is better for both brands in both sets of customers in terms of the data.
We're really sticking with our continued focus on using data to make the experience better, but being very thoughtful and disciplined about the data that we capture but using it to make the experienced veteran inform our business. So we're excited about the early stages of reward together what would seem as you heard on the call is extraordinary demand to.
Link accounts in a way that was overwhelming relative to our expectations. So we're excited to see this build in the future.
Thank you.
Your next question comes from Jeffrey Bernstein with Barclays.
Thank you very much.
Howard.
Since the analyst day. The top question, we've heard on Starbucks is related to the.
To the new long term comp guidance of 7% to 9%.
And it does seem like you are quite confident.
On that and the fiscal 23 things that you have a pretty good line of sight in these quarterly results support that can I get the feeling fiscal 23 is driven by menu pricing and we're trying to bounce back but with that said the focus I guess, we're hearing is more looking six to 12 months out with an even larger system and and the.
[noise] face of a slowing macro and potential recession.
It seems like your product will be more discretionary. So I'm just wondering your confidence or maybe you could prioritize the drivers to support that 7% to 9% cop.
Just cause yourselves and even your peers, it's just been very difficult to be the sustain that level without it being driven by price, so, especially going into a potential recession. Your confidence six to 12 months out that we could still be talking about 7% to 9% for the next couple of years.
Reprioritization will be great. Thank you.
Thanks, Jeff.
Well, let's try I'm kind of go through the question.
Based on our history, where we've seen in the near term and why we are so confident.
If you go back.
Many years.
Although this is an unprecedented time.
We have demonstrated time and time again.
That there is an affordable luxury to Starbucks that our customer base.
<unk> has been willing to support.
The loyalty to Starbucks continues.
Now in the past, we did not have the inherent benefit other rewards program.
Which as you heard and are prepared remarks is generating significant revenue for Starbucks, which was highly predictable.
In a relationship with that customer base is.
Is extremely loyal.
The other thing that's different from the years passed and which gives us so much confidence.
Is that we've always monitored whether or not our customer base was getting younger every year.
We never wanted to see our customer base get general generationally older.
Wanted to see it get younger.
Not only has it gotten younger but they are the young customer that Jim Z customer Tim.
Tends to have significantly more.
Discretionary.
Money at their disposal.
And their loyalty to Starbucks.
Has been quite significant and predictable.
Then you have the pricing power Starbucks, which you know, we're we're certainly not going to try and raise prices. During this time, but certainly we've demonstrated over the last 12 months or so that we've got almost 6% price increases and we haven't seen.
The loyalty and the transactions abate.
I think customization, which we spoke a lot about and are prepared remarks.
It's obviously, giving us.
The ticket is becoming more accretive.
As a result of the modifiers and those modifiers seemed to be more.
More consistent in greater with cold beverages, which is which is now over 75% of the U S business.
And then I think we look at the <unk>.
Promotional plan that we have for the balance of the year.
And we look back on our history in terms of the beverages that have succeeded we look back in the short term history in terms of what beverages have really been home runs and I can honestly say, we sat through a beverage lineup innovation a few a few weeks back and we really had to call the amount of beverages, because we knew we <unk>.
Could handle it because there were just too many.
That we felt so good about.
The last thing I would say this is not as quantitative as I would like but it's real.
During the pandemic and certainly in the last year.
<unk> says picked up consistently consistent market share both in our category.
Our ability to intercept traffic as a result of the strategic nature of our real estate multiple formats and we certainly can't avoid this conversation and not talk about the overwhelming success and revenue and how accretive drive through <unk>.
And so net net.
Were highly concerned and humbled by the environment there isn't a day that goes by in which the lens of every decision. We're making is not made is made through the concern of what's happening in America and around the world.
But we feel that we've got the resources.
The know how the history and the innovation to produce the kind of numbers that we feel very confident about thank.
Thank you.
Your next question comes from Sarah Senator with Bank of America.
Hi, Thank you so much.
Question, and then a follow up.
The question is clearly about you just mentioned the premium.
Foundation and house that seems to be more prominent call beverages.
That sounds like it's been a talent for a little while now how much further can you push this if you will hold accounts for 76% of total.
How much higher can that be and if you think about customization and you could share sort of what percentage have ordered a customized or something that they give us a sense F. F online you might be in that in that penetrate sure well.
Mmm.
Okay <unk>.
Alright, I guess a question about China I just wanted to clarify uhm as you talk about the restrictions that's really bad mobility not about challenges in opening new stores.
Thanks.
Yeah.
I'm trying to just 100 per cent correct. There's no issue with regard to opening stores. In fact, we're opening stores that record numbers in Belinda on the phone as if you have a follow up question about China, She certainly could answer it and.
In terms of your question about the.
The our our ability to extend cold and modifiers a few things one [laughter] cold is certainly surprised us all at Starbucks.
But our ability to customize beverages as a significant.
Competitive advantage there is no other coffee company anywhere in the world that has our ability.
To respond instantaneously to our customers request about customization, nor there isn't a coffee company that has our ability behind the counter in terms of flavors serves modifiers foam et cetera to provide the customer with what they want I think cold is in its early stages in terms of what's coming.
And the innovation, we have around cold through the year will continue to drive awareness and I think attachment. However.
Mmm no one should kind of walk away and think about the fact that our coffee or hot coffee business is not growing.
Fact, it's growing nicely with cold has kind of taken over but we have significant innovation plans for hot So I think the percentage of revenue Cole versus hot I think you'll see hot go up as a result of the innovation we have around the hot platform.
And I'll I'll I'll I'll give it the Brady just to follow up on on your question as well.
I think the is Howard the hard copy is growing but cold beverage over the last few years has just accelerated anatomy added an entire stack.
Sales volume into the scores what we're seeing is Sarah mentioned is that cold customize plant based beverage platform is particularly appealing. The younger you go the colder the beverage we've seen significant year over year growth and iced espresso, which is our biggest product category, we're continuing to announce the growth.
Hottest Gresko Refreshers Nitro cold brew are all growing significantly, but as Howard said modifiers have grown in double digits year over year now over 60% of our beverages are customized and why is that important it's important because what our customers have disks.
Covered their favorite favorite beverage is not possible to buy anywhere else I think that links to the earlier question about navigating rough times. Two is this is a beverage you can only get at Starbucks and you can't make it home and increasingly customization has enabled that in our stores. So we're just getting started.
Lots of growth opportunity.
Thank you.
Your next question comes from Lawrence Silverman with credit Suisse.
Thank you for the question I wanted to ask that China can you talk about your composition of locations in <unk> in China across tier one tier two and lower tier cities and just in terms of Unica, where you're growing across those tears and then any color you can provide and trends you're seeing in tier one versus other cities would be helpful. Thank you.
Sure Belinda <unk> run Starbucks, China is on the phone from China, and I think obviously the best person to answer the questions were Belinda. Please.
Thank you Howard.
Thank you for the question stomach continues to lead the market and branch Sharon preference.
By our premium positioning competitive advantage founded on the exceptional coffee experienced delivered by all partners and if he connections cultivated with our customers. We're very delighted to see the robust growth of the tiny China's coffee market in recent years with the entry of new brands and players.
Different brands offer different value propositions targeting different segments and locations, but together will accelerate coffee culture and overall category adoption in terms of our new default start development strategy is I have shared during investor day, we will build.
We will follow our purpose built sore strategy.
Ah.
We will go deeper into Optimising I'll start portfolio, increasing the density T trained areas you know top 20 cities.
Makes this thing cities that we're in and we're also go wider into entering continued entering into new cities that were not any yet there are plenty of opportunities to grow in those two areas. Currently goes smarter, we have a very strong start development system, that's built by our incredible.
Teams in the local market power by data, we have more accurate data to understand where we should be opening the format and the size and not just the first place experience, but we're able to accurately project where is best placed in terms of our new store circle feel omnichannel.
Summer needs and all the cities and you'll be a new or existing cities that we operate in and lastly, we're gonna go greener side sure before during Investor Day, We're Gonna Open 25 Hunter Green of stores by 2025 as part of the portfolio. So we're very confident and the way, we're gonna grow out new stores and coverage.
Yeah.
He said the China market.
<unk>.
Thank you.
Your next question comes from John Ivan Co with J P. Morgan.
I. Thank you for several calls now we've been talking about the record number of discrete customers that Starbucks has and obviously, that's very admirable to be able to talk about that you're just having a breath of the customer base and.
To put that in the context of 55% on MSR, presumably that's a customer that you could.
You could get that come to your brand a lot in other words he had to actually have increased frequency relative to the to the brand or the past. So can you talk about the.
The frequency opportunity that you have I mean, I guess in two parts and one bringing back that that 2019 customer to come back as often you today as they used to three years ago come. The first part of the question and then secondly.
What are the frequency driving opportunities that you have for some of the new customers. When we talk about that you as both part of the MSR.
Program as well as other initiatives that you may have.
Pretty sure. Thank you John .
While transactions are still lower than F Y 19, or pre COVID-19 levels. While we are seeing is transactions continued to grow and what is a part of the products sold.
As measured by units per store per day have been consistently higher than F. Y 19, So what we're seeing is more group orders.
Starbucks rewards frequency as a function both of.
<unk> remembers visiting frequently but we're also adding so many new members and what we're doing is acquiring customers, who are lower frequency and bringing them into the program, which helps increase their frequency.
The S. R program tend to see a very significant increase in frequency in the first year membership and so as far as a strong driver of that for us.
Thank you.
Your next question comes from John Tower with city.
Great I just wanted to follow up on the <unk> recovery curious to understand.
That's embedded in your expectations for the year for the China. It looks specifically you know it it sounds like obviously your bedding and your guidance the idea that there's a reopening in the back half of the year. So what's the risk to the numbers, particularly to calm.
And neither.
Earnings recovery in the back half of this year should Covid zero Covid policy stay in place.
Right Rachel do you want to start that in if Belinda wants to add anything Rachel.
Yeah.
Thank you for the question the way we've considered the recovery in China is really as we said in the beginning based on mobility and so when we talk about an outsize performance in the back half of the year. It's as we lap the severity of the lockdown. So even though there may still be challenges. If you recall you know we have towards.
The end of two two started to see the severity of the Lockdowns with a negative 23 per cent cough in that quarter, followed by negative 44 per cent cough and the following quarter. So we're basing our expectations of recovery based on the lap and the increased mobility certainly you know there's as we've indicated today.
It's non linear but that's how our actual assumptions for recovery are based which is part of our guidance.
Linda do you have any let me.
Yeah, Let me just add to the fact that you know how pleased we are to see all solid sequential improvement in queue for in terms of our revenue in cop sales growth.
It's it's it's humbling to see what a strong positive correlation we're seeing between easing restrictions and allow business recovery I mean, the incredible sequential improvement on our 90 day active members enthusiastically coming back to our store as soon as the mobility restrictions.
<unk> it really gives us a lot of confidence.
Ability to rebuild as soon as the mobility restrictions elliptic. So I just wanted to add that thank you.
Glenda can you just add one more thing if you don't mind, the what what <unk>, what you and the team have been able to do given the restrictions on digital and delivery. Please.
Yes, despite the short term COVID-19 disruptions as we shared at.
Investor Day, we remain laser focus on executing all China broke agenda. This great discipline and confidence right. As you heard we achieved record high quality new store growth.
And now we have 6021, new stores across 230 cities in those new stores continue to achieve best in class returns and profitability. We also focus on our fast growing omnichannel business and that continued to gain great momentum is Howard you shared a starbucks delivers.
Sales grew 35% year on year to a record 24% of all sales mix.
Pretty incredible and total mobile ordering sales makes now reached 44% that's something we're very pleased to see and it's gonna here, it's gonna be here to stay as we unfold moral occasions from all customers customers engagement as I said before the rewards active members, calling back we're very pleased to see that and that's really.
Close to our historic high as well and we achieving highest customer connection score.
Is a really on the ground, sending our customers. We're learning every day as to how to upgrade I'll stores better, we're increasing all muscle and I'll operation capability, we're getting smarter and I'll supply chain and and I'll start development.
So I'm very pleased to see and also one more thing in terms of all partner engagement. We have achieved record low full time retail part of their turnover in N Y 22 that really demonstrates the appointment investments that we have made over the past years I really paying off so we're very humbled and well positioned.
And excited to to capture the future growth opportunities. Thank you.
Your next question comes from John Glass with Morgan Stanley .
Thanks, very much on the reinvention plan inside of 23 can you help us Prioritise what do you think drives sales. The most you talked about retention improving you've talked about some equipment upgrades, if there's a way to sort of rank order, what you think sort of benefits the business in or if there's a kaden since we think about certain of these initiatives benefiting.
One part of the year versus the other and inside of that can you just talk about speed of service and where you are where you wanna be it would seem to me just based on personal experience that that's still an issue and maybe a gating factor to unlock and greater profit growth over the next couple of quarters. Thanks.
Frank can you take the reinvention question. Please and then Sarah could talk about the speed of service.
Sure the partner experience as the core of the offer a model Starbucks is designed to drive retention Groot connection scores both to the partner of the customer and the second order effect to answer your question about top line growth is it creates more capacity that allows us to capture that incremental demand does sometimes is challenged in the current operating environment.
And so the core of the reinvention agenda of course is the combined innovation around store customer a partner, but at the end of the day, it's designed to give us the capacity to engage the customers how they want to be engaged in service of supporting their needs and ultimate performance.
Thank you. Thank you. Thank you bye. Thank thank you John I, just want to start out with just an acknowledgement. We certainly don't have a demand issue, but you know in our store.
This has been talked about we've got total will be glad to customers that could give you. The crowd were benefiting from incredibly high average weekly sales and so uhm your call out about the opportunity with fee for service is top of mind with all of us, notably over the last quarter, we did see some improvement during peak and our side to business.
It's window time, which is the metrics that we continue to keep an eye on and really Orient are still get.
Store with meters.
And coaching during that day are specifically you know all I can say is that acknowledge the opportunity ahead, and what we hope to see with the reduction in turnover increase with more tenured partners and overall stability in our stores that you'll continue you will continue to see.
Improvement with speed with service, whether that the next peak hours in a cafe and drive through or no over the over the whole day parts.
Okay.
Thank you. Thank you.
Your <unk>. Your next question comes from David Tarantino with Bird.
Hi, Hi, good afternoon, Howard I think you mentioned that you're.
Willing to support some of the license partners outside the U S. If I heard that correctly and I just wanted to see if you could elaborate on what you meant by that statement and whether you're seeing.
Pockets of issues outside the U S with all the you know the pressures and the and the macro environment any any elaboration on that would be helpful. Thanks.
Sure I'll I'll start and respond and then I'll give it to micro Conway.
Who runs international.
I think Starbucks.
Has some.
Very unique longterm relationships that go back in some cases in terms of the middle East.
Mexico, Latin Latin and South America Korea.
Somebody's relationships go back 25 30 years.
And there's and there's others.
So there is a tremendous level of loyalty.
Friendship.
That we have well beyond the business relationships. So we're in constant contact.
Side by side with our partners to ensure the fact that.
They know that if something did come up we would be a backstop and and be there for them that that is not in any in any way been the case and they have not indicated anything but we certainly want to be the kind of partner that we can look back on with great Pride that we were there for them I'll give it to Michael Conway.
It was working side by side with them every day.
Thank you Howard that's right. We're we're keeping a close eye on the on the headwinds that we know are are here both from foreign.
Foreign exchange perspective, and inflation perspective, but what I can say is that so far we're not seeing any negative impact our business outside of China internationally grew over 30%, we have a double digit comps and all of our company operated markets.
And across all the regions and so where you know we're staying very close to them, but at the same time, we feel confident that between the strength of our brand the convenience that for bringing the fact that.
Certainly over this last quarter, we saw travel start to pick up it was a strong summer and mobility is continuing to open up we we see a lot of tailwind and our business and we'll stay close to our our business partners should should the.
Lacy challenges.
Your next question comes from Nicole Miller with Piper Sandler.
[noise] good afternoon, and thank you for for taking the question.
I wanted to ask about the UK some commentary earlier about the employees.
And it sounds like they would've been surveyed in terms of working conditions and benefits and clearly.
You've done the same for consumers that the two part question number one I'm thinking about how you talk to survey the employees and customers has the process changed for either.
And then the second part part B, where do they overlap where is the intersection really absurd ideas between the employees and the customer relationships. Thank you very much.
<unk> went on Franken, Sarah and take a shot at that thank you for the question Nicole.
Yeah. So thank you so we have a very.
Advance what we call listening capability, where we are constantly sensing how our partners are doing those who proudly wear the green acres in the store, there's a process that happens on a.
Short term basis, just to sort of monitor and then we have a more.
Comprehensive process with you do quarterly we then deconstruct that we do a tremendous amount of correlation analysis using some very advanced capabilities. We have in the analytics and date of science Arena and we try to be very precise about the things. We're responding to based on this first principle that we've spouse now for quite awhile, which is this idea that we should be creating the new Starbucks.
With partners and four partners. So I think we have come a long way in that arena and yet we often say we are pleased but not satisfied.
As it relates to the connection to the customer site would spell it Sir further elaborate on we know as we've talked about before there is a direct correlation between partner engagement, which the sum total of the survey and you mentioned and customer engagement.
And we know that correlations real and it's amplified and you can see it everyday in action and so we tried to spend a lotta time understanding that connection between the two and the contact of the brand which are really speaks to quite a bit. We know that care is the number one factor in the brand equity equation, Starbucks and we know the partner is the <unk>.
The center of that care, so that is the fabric that binds.
The lens a brand experience as measured by the customer and realized experienced a smoker by the the partner in the store.
Mmm, Thanks right Sir.
Excuse me. Thank you Howard I was just gonna pull up and offer you know kind of a broad range perspective, you know going back to the reinvention overall and that is is that the investments that we're making our directly designed to make it easier for our partners to do their job and to enable them to meet the growing demand in our stores and create new ways with that addition.
No capacity to engage with our customers and we we do track partner engagement on a regular basis and we also map that engagement to the activity that we're launching in our stores. So that we can understand the connection if they're arcane points or if there are opportunities and continued to check and adjust into does.
<unk> around his learning looking forward. The other thing I think we're quite excited about is launching some new listening mechanism related department engagement. Our partner App is an example of that which we're currently piloting and testing and you know as we look for the future. We acknowledge that you know it is an error appropriation.
And those who are closest to the front lines, serving our customers have a deep enrich understanding needed and we need to enable them to be able to sir.
Thank you.
The last question comes from the <unk> with Burstein you May I ask you a question.
Thank you and personal Hubbart. Thank you very much for the kind words on who needs to be in coffee culture I Wonder if I ask a question on the difference is that you're seeing in terms of customer behavior or demographic.
The incremental unicorn customers that you're saying across your stores any particular, what is attracting them for the brand compared to <unk>.
Brady.
Yeah can I ask a clarifying question was that about middle East specifically.
No that was about the Starbucks system as a whole so.
So the ninth of December 9% unique customers that you were saying this quarter.
Oh, great Yeah, I think the relevance of the brand really I think it's Sarah outlined the fifth.
Not only are we are we seeing in the U S. For example, a larger population of seven day active customers than we've seen ever before when we get deeper into that what we see is that our customer base is becoming younger and the U S. 51% of our customer base is not generally in millennial and in fact now our.
Summer base is quite diverse.
And I think around the world, we continued to attract both young customers in diverse customers and when you go into our storage a fee that the relevance of Starbucks is not the coffee your parents strength, but the coffee. The young people are choosing every single day, our brand position right now we have the strongest brand affinity of any away.
From home coffee brand around the world and as soon as the first choice for coffee away from home. So the younger you go the stronger the brand affinity gets and the more diverse you go with the stronger the brand affinity gets and so for all of those reasons.
We continue to cater to.
<unk> diverse and increasingly young customer base with those cold customize plant based beverages and the strategies working and will continue to do so thank you.
On behalf of all of US is Starbucks wish you and your families a wonderful Thanksgiving vacation and we look forward to speaking with you at the end of of Q1 have a great holiday season. Thank you very much.
Thank you.
And with that we conclude Starbucks fourth quarter and fiscal year N 2022 conference call you may now disconnect.