Q1 2024 Starbucks Corp Earnings Call
Good afternoon, My name is Diego and I will be your conference operator today.
Diego: I would like to welcome everyone to Starbucks first quarter fiscal year 2024 conference call.
Diego: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Diego: If you would like to ask a question simply press Star then the number one on your telephone keypad.
Diego: If you would like to withdraw your question. Please press Star then the number two key.
Diego: I would now turn the call over to Tiffany Willis Vice President of Investor Relations. Mr. Willis you May now begin your conference.
Tiffany Willis: Thank you Diego and good afternoon, everyone and thank you for joining us today, because that's how Starbucks first quarter of fiscal year 'twenty 'twenty four result.
Tiffany Willis: This discussion will be led by Laxman Narasimhan, Chief Executive Officer, and Rachel Reserve Executive Vice President and Chief Financial Officer.
Tiffany Willis: And for Q&A, we will be joined by Belinda Wong Chairwoman and co Chief Executive Officer of Starbucks, China, and Brady Brewer Executive Vice President and Chief Marketing Officer.
Tiffany Willis: This 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.
Speaker Change: 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.
Speaker Change: Starbucks assumes no obligation to update any of these forward looking statements or information.
Speaker Change: GAAP results in the first quarter of fiscal year, 'twenty 'twenty four and the comparative period include several items related to strategic actions, including restructuring and impairment charges transaction and integration costs and other items.
Speaker Change: These items are excluded from our non-GAAP results.
Speaker Change: All numbers referenced on today's call are on a non-GAAP basis, unless otherwise noted are there is no non-GAAP adjustments related to the metric.
Speaker Change: As part of our non-GAAP results revenue operating margin and EPS growth metric on todays call are measured in constant currency.
Speaker Change: Current period results. However are converted into the United States dollars using the average monthly exchange rates from the comparative period, rather than the actual exchange rates for the current period, excluding any related hedging activities.
Speaker Change: For non-GAAP financial measures mentioned on today's call. Please refer to the earnings release, and our website at Investor that Starbucks Dot com to find reconciliations of those non-GAAP measures to their corresponding GAAP measures.
Speaker Change: This conference call is being webcast and an archive of the webcast will be available on our website through Friday March 15th 'twenty 'twenty four.
Speaker Change: Also for your calendar planning purposes. Please note that our second quarter fiscal year 'twenty 'twenty four earnings conference call has been tentatively scheduled for Tuesday April 30th 'twenty 'twenty four.
Speaker Change: And with that I'll now turn the call over to election.
Speaker Change: Okay.
Election: Thank you Tiffany and thank you all for joining us this afternoon.
Election: I will start by sharing an overview of our business performance in our first quarter fiscal 2024.
Election: I will then turn it over to Rachel for Jeremy to walk through the detailed segment results.
Election: We saw strong momentum in a highly successful holiday in the quarter.
Election: With record revenue and expanded margins.
Election: Strong growth in our loyalty programs sequentially increased in frequency and record spend among our loyal customers.
Election: Positive traction from new product innovations.
Diego: Good afternoon. My name is Diego, and I will be your conference operator. I would like to welcome everyone to Starbucks' first quarter fiscal year 2024 conference. All lines have been placed on mute to prevent any back-and-forth.
Election: Exciting momentum in China with a focus on premium.
Election: And progress on the execution of our Triple shop strategy.
Election: We also saw some unexpected headwinds, which impacted the rate of growth.
Diego: After the speaker's remarks, there will be a question. If you would like to ask a question, simply press the star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number. I would now turn the call over to Tiffany Willis. Vice President of Investor Relations. Thanks Willis, you may now begin your coffee. Thank you, Diego, and good afternoon, everyone, and thank you for joining us today to discuss Starbucks' first quarter fiscal year 2024 results. Today's discussion will be led by Lakshman Narasimhan, Chief Executive Officer, and Rachel Ruggieri, Executive Vice President and Chief Financial Officer. And for the Q&A, we will be joined by Belinda Wong, chairwoman and co-chief executive officer of Starbucks China, and Brady Brewer, executive vice president and chief marketing officer.
Election: We feel very confident about our robust plans to address these challenges.
Election: While we are already seeing traction there was an impact in the quarter and it will take some time to normalize let.
Election: Let me walk you through the details.
Election: Our performance in the quarter was fundamentally strong.
Election: Q1 total company revenue was a record $9 $4 billion up 8% year over year.
Election: Our global comparable store sales grew 5% year over year supported by a 5% comp growth in North America, driven by 4% ticket growth.
And 10% comp growth in China.
Election: Our global operating margins expanded by 130 basis points to 15, 8% and our overall earnings per share grew 20% to 90 cents.
Diego: This call will include forward-looking statements that 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, 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. GATT results for the first quarter of fiscal year 2024 and the comparative period 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.
Election: This speaks to the continued successful execution of our reinvention plan and the durable business we are building.
Election: Yeah.
Election: We are fortunate to have built one of the strongest brands in the world and we continue to benefit from customer loyalty.
Throughout the quarter, we saw our most loyal customers around the world coming into our stores more often.
Election: Specifically in the U S. We set new records with our 90 day active rewards members growing 13% year over year to a record $34 3 million with tender, reaching an all time high of 59% demonstrating increased engagement.
Election: Importantly, the frequency of our most loyal customers increased sequentially and spend per member reached a record in Q1 fueled by our holiday promotion, which significantly exceeded our expectations.
Tiffany Willis: All numbers referenced on today's call are on a non-GAAP basis, unless otherwise noted, or there is no non-GAAP adjustment related to the metric. As part of our non-GAAP results, revenue, operating margin, and EPS growth metrics on today's call are measured in constant currency. Current period results, however, are converted into United States dollars using the average monthly exchange rates from the comparative period rather than the actual exchange rates for the current period, excluding any related hedging activities.
Our cold and gingerbread platforms drove our record high ticket in the U S in the quarter.
Election: We also had the highest sales of Starbucks gift cards in our history, making us number two in gift cards sold.
Tiffany Willis: For non-GAAP financial measures mentioned in today's call, please refer to the earnings release and our website at investor.starbucks.com to find reconciliations of those non-GAAP measures to their corresponding GAAP measures. This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, March 15, 2024. Also, for your calendar planning purposes, please note that our second quarter fiscal year 2024 earnings conference call has been tentatively scheduled for Tuesday, April 30th, 2024. And with that, I'll now turn the call over to you.
Election: In total we have an incredible $3 $6 billion pre loaded onto our cards in the U S in the quarter.
Election: In short our growing Starbucks rewards members are visiting our stores more frequently and increasing their spend each time that they come.
Election: We also saw great momentum in China.
Election: We aim to be the best in the premium market in China.
Election: Our brand equity across Starbucks and Starbucks Reserve is second to none.
Election: Based on our latest brand tracker Starbucks continues to be the first choice in away from home coffee, including among the Gen Z consumers.
Lakshman Narasimhan: Thank you, Tiffany, and thank you all for joining us this afternoon. I will start by sharing an overview of our business performance in our first quarter of fiscal 2024. I will then turn it over to Rachel Ruggeri to walk through the detailed segment results. We saw strong momentum and a highly successful holiday in the quarter, with record revenue and expanded margins. We saw strong growth in our loyalty program, sequentially increased in frequency and record spend among our loyal customers, and positive traction from new product innovation. Exciting momentum in China with our focus on premium and progress on the execution of our triple shot strategy. However, we also saw some unexpected headwinds which impacted the rate of growth.
Election: We continue to lead in brand affinity and have a highest awareness brand familiarity and purchase intent scores.
Election: We have the most outstanding partners in our stores with very strong customer connection and the highest retention rates in our industry.
Election: We offer distinctive global and locally relevant product innovation anchored on superior coffee.
Election: With food attachments and a morning day part that now has surpassed pre COVID-19 levels.
Election: Our loyal customers a major part of tender are coming more often and our loyalty program is growing.
Election: We're doing all of this while offering premium physical and digital experiences delivered across our distinctive store portfolio across other physical channels and through our digital connection and doing so at a commensurate value.
Lakshman Narasimhan: We feel very confident about our robust plans to address these challenges. While we are already seeing traction, there was an impact in the quarter, and it will take some time to normalize. Let me walk you through the details.
Election: This ambition of being best in premium in China is in line with our long term growth ambitions for China.
Lakshman Narasimhan: Our performance in the quarter was fundamentally strong. Our Q1 total company revenue was a record $9.4 billion, up 8% year over year. Our global comparable store sales grew 5% year-over-year, supported by 5% comp growth in North America, driven by 4% ticket..., and 10% comp growth in China. Our global operating margins expanded by 130 basis points to 15.8%, and our overall earnings per share grew 20% to 97%. This speaks to the continued successful execution of a reinvention plan and the durable business we are building. We are fortunate to have built one of the strongest brands in the world, and we continue to benefit from customer loyalty. Throughout the quarter, we saw our most loyal customers around the world coming into our stores more often.
Election: Let me now talk about the headwinds and our response.
Election: We entered the first quarter very strong globally, we had great momentum in August and September and that continued into October which exceeded our expectations across every measure.
Election: Beginning in mid November while our business continued to grow the growth rate was impacted by three unexpected factors.
Election: First.
Election: We saw a negative impact to our business in the middle East.
Election: Second events in the Middle East also had impact in the U S driven by misperceptions about our position.
Election: Our most loyal customers remain loyal and in fact increased their frequency and spend in the quarter.
Election: But we did see a softening of U S traffic.
Election: Pacifically, our occasional use customers who tend to visit in the afternoon came in less frequently.
Lakshman Narasimhan: Specifically, in the U.S., we set new records with our 90-day active rewards members growing 13% year-over-year to a record 34.3 million, with tender reaching an all-time high of 59%, demonstrating increased engagement. Importantly, the frequency of our most loyal customers increased sequentially, and spend per member reached a record in Q1, fueled by our holiday promotion, which significantly exceeded our expectations. Our cold and gingerbread platforms drove a record high ticket in the US in the quarter. We also had the highest sales of Starbucks gift cards in our history, making us number two in gift cards sold. In total, we have had an incredible $3.6 billion preloaded onto our cards in the U.S. during the quarter.
Election: I will speak in a moment as to how we quickly responded with an effective action plan.
Election: Finally, we experienced a slower than expected recovery in China, driven by a more cautious consumer.
Election: While we had a relatively very strong double 11 holiday the overall market weakness led to significantly increased pricing competition.
Election: We responded quickly to these headwinds in.
Election: In the U S. We implemented targeted offers aimed at bringing our occasional customers into our loyalty program.
As we've seen over time, Starbucks rewards members develop a routinize long term relationship with our brand that increases both ticket and transactions.
Election: Additionally, we activated new capabilities within our proprietary deep brew data analytics, and AI tool to identify and incentivize specific rewards members cohorts.
Election: Finally, we are leaning further into our brand marketing and factual narrative in social media.
Lakshman Narasimhan: In short, our growing Starbucks Rewards members are visiting our stores more frequently and increasing their spend each time that they come. We also saw great momentum in China. We aim to be the best in the premium market in China. Brand equity across Starbucks and Starbucks Reserve is second to none. Based on our latest brand tracker, Starbucks continues to be the first choice in away-from-home coffee, including among Gen Z consumers.
Election: To engage these audiences where they are.
Election: We've already seen the positive impact of these new initiatives with our more occasional customers beginning to rebound in December.
Election: However, we continue to see further opportunity to welcome back.
Election: Our very occasional customers.
Election: We feel good about the trajectory over the course of the quarter.
But it will take time for our plans to be fully realized.
In China, we remain very confident in the long term.
Lakshman Narasimhan: We continue to lead in brand affinity and have the highest awareness, brand familiarity, and purchase intent scores. We have the most outstanding partners in our stores with very strong customer connections and the highest retention rates in our industry. We offer distinctive global and locally relevant product innovation anchored on superior coffee, with food attachment, and a morning day pod that now has surpassed pre-COVID levels.
Election: The market is going through a transition as we see an increase in mass market competitors, which we believe will shake out over time and the market will emerge looking fundamentally different than what we see today.
Election: We expect a much larger and tiered market as per capita consumption continues to increase and the market matures.
Election: There are three key elements in our China strategy.
Election: First we are offering more coffee forward locally relevant product innovations.
Lakshman Narasimhan: Our loyal customers, a major part of tender, are coming more often, and our loyalty program is growing. We're doing all of this while offering premium physical and digital experiences delivered across our distinctive store portfolio, across other physical channels, and through our digital connection, and doing so at a commensurate value. This ambition of being the best in premium in China is in line with our long-term growth ambitions for China. Let me now talk about the headwinds and our response.
Election: And we are increasing engagement on social media channels to Influencers and partnerships, which are highly effective in China. These actions are increasing awareness and have led to greater customer frequency.
Election: Second we have made significant investments in technology, increasing our omnichannel capability, allowing us to serve more customers through new occasions. These.
Election: These investments have also led to a more digitized store environment, increasing efficiency of our supply chain and stores, while enhancing the <unk> experience and strengthening our unit economics in both existing and new stores.
Lakshman Narasimhan: We entered the first quarter very strong globally. We had great momentum in August and September, and that continued into October, which exceeded our expectations across every measure. However, beginning in mid-November, while our business continued to grow, the growth rate was impacted by three unexpected factors.
Election: Finally, we are increasing the percentage of new stores opening in lower tier markets and new counties cities, where we see meaningfully stronger new store economics.
Election: As you can see we moved quickly to respond and implement a plan to address these unexpected headwinds. It will take time for these action plans to be fully realized that said, we remain confident in our triple shop strategy and our long term growth. So let me share some of the progress in <unk>.
Lakshman Narasimhan: We saw a negative impact on our business in the Middle East. Second, events in the Middle East also had an impact in the U.S., driven by misperceptions about our position. Our most loyal customers remain loyal and, in fact, increased their frequency of spend in the quarter. But we did see a softening of U.S. traffic. Specifically, our occasional U.S. customers who tend to visit in the afternoon came in less frequently. I will speak about how we quickly responded with an effective action plan. Finally, we experienced a slower than expected recovery in China driven by a more cautious consumer.
Election: Quarter.
Election: Our first triple shot reinvention priorities to elevate our brand by operating great stores and driving product innovation.
Election: The best lever for elevating our brand is our store experience. We've continued to raise the bar on running great stores with a focus on enhancing both our partner and customer experience.
Election: One example is the continued rollout of our siren system cold and food stations, we remain on track to have approximately 10% of our stores equipped with a siren system by the end of this year.
Election: We are a coffee company and we will continue to lead with coffee innovation.
Lakshman Narasimhan: While we had a relatively very strong double 11 holiday, the overall market weakness led to significantly increased pricing competition. We responded quickly to these headlines. In the U.S., we implemented targeted offers aimed at bringing our occasional customers into our loyalty program. As we've seen over time, Starbucks rewards members develop a routinized, long-term relationship with our brand that increases both ticket and transaction revenue. Additionally, we have activated new capabilities within our proprietary Deep Blue data analytics and AI tool to identify and incentivize specific rewards member cohorts. Finally, we are leaning further into our brand marketing, factual narrative, and social media to engage these audiences where they are. We've already seen the positive impact of these new initiatives with our more occasional customers beginning to rebound in December. However, we continue to see further opportunities to welcome back our very occasional customers. We feel good about the trajectory over the course of the quarter, but it will take time for our plans to be fully realized. In China, we remain very confident in the long term.
Election: We're continuing the installation of our global vertical in nearly 10% of our U S company operated stores in the quarter.
Election: We are on track to have on demand single Cup Brewers installed in nearly 60% of our U S company operated stores in fiscal year 2020 for.
Election: This will continue to elevate our coffee offering while also making partners more productive by reducing waste and creating efficiencies in store, allowing them to spend more time doing what they do best connecting with our customers.
Election: Just imagine a perfectly brewed on demand cup of coffee at any time throughout the day even decaf.
Election: This quality and the offering all like no other in the industry.
Election: We also continue to offer coffee blends, which are distinctive and remind people of the romance of coffee.
Election: <unk> blend is anchored in the essence of Verona, Italy. It was at tribute to the city of romance in Italy.
In celebration of our five years in Italy, we will introduce a new coffee Starbucks Milano roast inspired by the art and culture to Milan.
Election: <unk> me art and international modern and contemporary Art Fair is the perfect backdrop to a launch in our Milan registry that will been scaled globally.
Election: The moment, we'll capture a love of coffee the passion of our partners and the Dynamicism of Atlanta.
Lakshman Narasimhan: The market is going through a transition as we see an increase in mass market competitors, which we believe will shake up over time and the market will emerge looking fundamentally different than what we see today. We expect a much larger and tiered market as per capita consumption continues to increase and the market matures. There are three key elements in our China strategy.
Election: Today, we are excited to launch the only auto platform with only out of customization across the U S.
Election: In the coming weeks, we will also launch a chocolate covered strawberry cream cappuccino, and a chocolate hazelnut cookie cold brew in time for Valentine's day.
Election: Starting this week and continuing over the next few months, we will be introducing three new beverage platforms. Each of which is squarely aimed at our gen Z and millennial customers across a range of coffee and cold beverages and compelling for the afternoon.
Lakshman Narasimhan: First, we are offering more coffee-forward, locally relevant product innovation, and we're increasing engagement on social media channels through influencers and partnerships, which are highly effective in China. These actions are increasing awareness and have led to greater customer frequency. Second, we have made significant investments in technology, increasing our omni-channel capability, allowing us to serve more customers through new occasions. These investments have also led to a more digitized store environment, increasing the efficiency of our supply chain and stores, while enhancing the partner experience and strengthening our unit economics in both existing and new stores. Finally, we're increasing the percentage of new stores opening in lower-tier markets and new county cities, where we see meaningfully stronger new store economics. As you can see, we moved quickly to respond and implement a plan to address these unexpected headwinds. It will take time for these action plans to be fully realized.
Election: These product innovations are examples of how we continuously elevate the brand and welcome customers back with a unique Starbucks experience.
Election: We're also offering new and exciting options beyond coffee, including food that appeals to different day parts, especially the afternoon.
Election: In January we added new menu items, including the potato Cheddar and chive bags and the chicken Maple Buttering ex sandwich. These are products that tied our customers over between lunch and dinner.
Election: Accordingly, our digital experience makes attaching food to often drink orders easy and convenient we see the very positive customer response to these new items.
Election: And we are expanding inventory to meet the strong demand.
Election: We're also pleased with the pace of our new store openings and strong unit economics.
Lakshman Narasimhan: That said, we remain confident in our triple-shot strategy and our long-term growth. So, let me share some of the progress we made in the quarter. Our first triple shot reinvention priority is to elevate our brand by operating great stores and driving product innovation. The best lever for elevating our brand is our store experience. We continue to raise the bar on running great stores with a focus on enhancing both our partner and customer experience. One example is the continued rollout of our SIREN system cold and food station.
Election: Most recent H class of company operated new stores in the U S is average unit volumes of approximately $2 million with rois of approximately 50%.
Election: And as we continue to open more stores growing by approximately 4% this year in the U S on a base of over 16000, including licensed stores.
Election: We will further invest in purpose built stores to meet our customers, where they need and want us to be this includes drive throughs, which have grown by over 500 stores since Q1 of last year.
Election: Even in the U S.
Lakshman Narasimhan: We remain on track to have approximately 10% of our stores equipped with a siren system by the end of this year. We are a coffee company, and we will continue to lead with coffee innovation. We're continuing the installation of our Clover Vertica in nearly 10% of our U.S. company-operated stores this quarter.
Election: We see abundant greenfield opportunity ahead.
Election: Our second strategic priority is further strengthening of differentiating our leadership position in digital.
Election: We saw a mobile order <unk> pay surpass our record high 30% of all transactions in the quarter and.
Election: And we've reduced downtime of mobile order <unk> pay by half as we continue to find ways to deliver a better customer experience with.
Lakshman Narasimhan: We are on track to have on-demand single-cup brewers installed in nearly 60% of our U.S. company-operated stores in fiscal year 2024. This will continue to elevate our coffee offering while also making partners more productive by reducing waste and creating efficiencies in stores, allowing them to spend more time doing what they do best, connecting with our customers. Just imagine a perfectly brewed, on-demand cup of coffee at any time throughout the day, even decaf.
Election: We're continuing to make the Starbucks app, even better including adding the ability to use a personal cup and ordering through the app and the rollout of more accurate order wait times.
Election: We're also laser focused on ensuring our customers can personalize their orders in whatever way. They want. One example is helping customers find products based on dietary needs.
Election: Okay.
Election: We saw record results in our U S delivery business with growth of nearly 80% year over year aided by our expanded partnership with door dash.
Lakshman Narasimhan: This quality and the offering are like no other in the industry. We also continue to offer coffee blends which are distinctive and remind people of the romance of coffee. Verona Blend is anchored in the essence of Verona. It is our tribute to the city of romance in its.
Election: We see significant growth for continued incremental growth as delivery represents only 2% of our transactions.
Purpose built stores optimized for delivery and fulfillment help seize this opportunity.
Election: Additionally.
Election: We are conducting a pilot with <unk> targeting a fully incremental opportunity for overnight orders between five PM and five am.
Lakshman Narasimhan: In celebration of our five years in Italy, we will introduce a new coffee, Starbucks Milano Roast, inspired by the art and culture of Milan. Milan's Mie Art, an international modern and contemporary art fair, is the perfect backdrop to a launch in our Milan roastery that will then scale globally. The moment will capture our love for coffee, the passion of our partners, and the dynamism of Milan. Today, we're excited to launch the Oleator platform with Oleator customizations across the U.S. In the coming weeks, we will also launch a chocolate-covered strawberry creme frappuccino and a chocolate hazelnut cookie cold brew in time for Valentine's Day, starting this week and continuing over the next few months.
Election: In this pilot Starbucks trained Baristas PREPA hand crop is Starbucks drinks and food inside <unk> micro fulfillment centers delivering to the customer's door in about 30 minutes.
Election: To further expand the reach and impact of mobile ordering of rewards. We now offer Starbucks connect in over 40% of our more than 6700 U S license stores with further expansion planned for this year.
Election: We're also pleased to share the bank of America will be our next Starbucks rewards partner delivering even more value to our most loyal customers.
Election: This opportunity builds of the great success of our partnership with Delta Airlines that has deepen connection and engagement with our members.
Election: And as one of two new Starbucks rewards partnerships. We told you we would rollout this year.
Lakshman Narasimhan: We will be introducing three new beverage platforms, each of which is squarely aimed at our Gen Z and millennial customers across the range of coffee and cold beverages and compelling for the afternoon. These product innovations are examples of how we continuously elevate the brand and welcome customers back with a unique Starbucks experience. We're also offering new and exciting options beyond coffee, including food that appeals to different parts of the day, especially the afternoon. In January, we added new menu items, including the potato cheddar and chive bakes and the chicken maple butter and egg sandwich.
Election: Our third strategic priority is becoming truly global inter.
Election: International business represents an important growth opportunity for us over the long term.
Election: If you look at our business, excluding the headwinds we had a strong quarter, demonstrating the momentum and resiliency across the portfolio.
Election: We opened over 420 net new stores in the quarter a growth of 10% year over year, bringing total store count to over 20600 stores with nearly 14000 of those stores outside of China and the U S.
Election: In Japan, we reached a milestone of 1900 stores across the market with much opportunity ahead.
Lakshman Narasimhan: These are products that tie our customers over between lunch and dinner. Importantly, our digital experience makes attaching food to afternoon drink orders easy and convenient. We've seen a very positive customer response to these new items, and we are expanding inventory to meet the strong demand. We're also pleased with the pace of our new store openings and strong unit economics. Our most recent age class of company-operated new stores in the U.S. has average unit volumes of approximately $2 million with ROIs of approximately 50%.
Election: Let me address our business in the Middle East.
Election: I am deeply distress by the violence shaking the region.
Election: As I have shared Starbucks condemns violence against the innocent hate and weaponized speech.
We are intensely focused on supporting our partners and the many other stakeholders affected by what is taking place.
Election: We have seen a significant impact on traffic and sales in the region.
Lakshman Narasimhan: And as we continue to open more stores, growing by approximately 4% this year in the US on a base of over 16,000, including licensed stores, we will further invest in purpose-built stores to meet our customers where they need and want us to be. This includes drive-throughs, which have grown by over 500 stores since Q1 of last year, even in the U.S. We see abundant greenfield opportunity ahead. Our second strategic priority is further strengthening and differentiating our leadership position in digital. We saw mobile order and pay surpass a record high, 30% of all transactions of the quarter. And we reduced downtime of mobile order and pay by half as we continue to find ways to deliver a better customer experience. We will continue to make the Starbucks app even better, including adding the ability to use a personal cup and order through the app and the rollout of more accurate order wait times. We're also laser focused on ensuring our customers can personalize their orders in whatever way they want. One example is helping customers find products based on dietary needs.
Election: And we are working.
Election: With our licensees during this time to ensure the safety and well being of our partners and our customers.
Election: I showed earlier by remarks, how we are addressing the near term situation in China overall, our business and brand in China remains strong our revenue in the quarter grew 20% in constant currency underpinned by a 10% increase in comparable store sales grew.
Election: As the market lapped prior year mobility restrictions.
Election: As we strengthen our position in the premium market in China, Let me point to a few accomplishments of the quarter.
Election: We launched 12, new coffee forward beverages in the quarter, including intense, though which was incredibly popular with our customers, including Gen Z fueling the morning day part, which is now larger than pre COVID-19 levels.
Election: Our digital channels accounted for a record 52% of sales up four percentage points quarter over quarter.
Election: Starbucks rewards gold member frequency increased by nearly 10% over the prior quarter with total member engagement setting a record 73% of tender demonstrating the stability of our most loyal customers.
Lakshman Narasimhan: We saw record results in our U.S. delivery business with growth of nearly 80% year-over-year, aided by our expanded partnership with DODAS. We see significant growth for continued incremental growth as delivery represents only 2% of our transactions. Additionally, our purpose-built stores, optimized for delivery and fulfillment, help seize this opportunity.
Election: Our new stores continued to deliver attractive returns on both the topline and profitability with further strength in unit economics and stores opened in new counties cities.
Election: And our turnover amongst full time store partners reached a record low in the quarter, coupled with an all time high partner satisfaction score.
Lakshman Narasimhan: We are conducting a pilot with GOPAF targeting a fully incremental opportunity for overnight orders between 5 p.m. and 5 a.m. In this pilot, Starbucks-trained baristas prepare handcrafted Starbucks drinks and food inside Gopoff Micro-Fulfillment Center. Delivering to the customer's door in about 30 minutes. To further expand the reach and impact of mobile ordering and rewards, we now offer Starbucks Connect in over 40% of our more than 6,700 U.S. licensed stores, with further expansion planned for this year. We're also pleased to share that Bank of America will be our next Starbucks Rewards partner, delivering even more value to our most loyal customers.
Election: Early this month, we celebrated our 25th anniversary in China.
Election: With nearly 7000 stores, we have built a durable business we have built.
Election: A terrific brand and we are well on track to hit our 9000 store target by 2025 and continue to have full confidence in the market opportunity.
We continue to see enormous potential in China's premium market and no one is better positioned to lead in this space.
Lakshman Narasimhan: This opportunity builds on the great success of our partnership with Delta Airlines that is deep in connection and engagement with our members and is one of two new Starbucks Awards partnerships we told you we would roll out this year. Our third strategic priority is becoming truly global. Our international business represents an important growth opportunity for us over the long term. If you look at our business, excluding the headwinds, we had a strong quarter demonstrating the momentum and resiliency across the portfolio. We opened over 420 net new stores in the quarter, a growth of 10% year over year, bringing the total store count to over 20,600 stores, with nearly 14,000 of those stores outside of China and the US. In Japan, we reached a milestone of 1900 stores across the market, with much opportunity ahead. Let me address our business to the Middle East. I am deeply distressed by the violence shaking the region.
Election: Even as we navigate a dynamic environment, we remain confident in our long term growth in our international segment.
Election: As part of elevating our brand across the international segment, along with a second reserved store in India.
Election: We will open two additional Starbucks roast raise that celebrate coffee art and design in markets outside the U S and China.
Election: We will announce these locations and opening timings in due course.
Election: Turning to our fourth priority.
Election: We are focused on unlocking $3 billion of efficiencies and I'm pleased to say that we're making steady progress.
Election: Our triple shot reinvention efforts delivered 130 basis points of margin expansion in the first quarter of the fiscal year.
Election: As you've heard me say often the key to our success is the experience that our partners create for our customers.
Election: We're investing in a better experience for our partners to advance our business to a more balanced growth model as we unlock efficiency.
Election: In the quarter, we are seeing the effectiveness of the reinvention driven investments we have made.
Election: And in store operational efficiencies, such as standards equipment innovation and scheduling improvements.
Lakshman Narasimhan: As I have shared, Starbucks condemns violence against the innocent, hate, and weaponized speech. We are intensely focused on supporting our partners and the many other stakeholders affected by what is taking place. We have seen a significant impact on traffic and sales in the region, and we are working with our licensees during this time to ensure the safety and well-being of our partners and our customers. I shared earlier my remarks on how we are addressing the near-term situation in China. Overall, our business and brand in China remains strong.
Election: Leading to a more stable environment for our partners.
Election: Turnover has decreased by 5% year over year and is now well below pre COVID-19 levels.
Election: Average partner hours increased 10%, leading to a 14 percentage point increase in Papa sentiment related to scheduling specifically preferred hours, which we know is important to partners.
Election: We are listening to our partners and investing to make that experience better.
Election: Of course, we have more work to do but we are proud of the progress we have made today.
Lakshman Narasimhan: Our revenue in the quarter grew 20% in constant currency, underpinned by a 10% increase in comparable store sales growth as the market lapped prior year mobility restructuring. As we strengthen our position in the premium market in China, let me point to a few accomplishments of the quarter. We launched 12 new coffee-forward beverages in the quarter, including Intenso, which was incredibly popular with our customers, including Gen Z fueling the morning day part, which is now larger than pre-COVID level. Our digital channels accounted for a record 52% of sales, up four percentage points quarter over quarter. Our Starbucks rewards goal member frequency increased by nearly 10% over the prior quarter, with total member engagement setting a record 73% of tender.
Outside of our stores, we are working to drive efficiencies across our supply chain and expenses.
Election: I'm pleased with the progress and we remain on track to unlock <unk> efficiencies over.
Election: Over the next three years.
Election: Our final priority is reinvigorating our partner culture.
Election: In addition to the investments in partner experience, we're focused on partner culture.
Election: Our leadership team and board of directors has been deeply engaged in putting department experience at the heart of the business.
Election: An independent assessment found that our strategic investments greater on the ground support a dedicated labor relations team and more bespoke management trading or having a tangible impact on the commitments we've made to our partners.
Lakshman Narasimhan: This demonstrates the stability of our most loyal customers. Our new stores continue to deliver attractive returns on both the top line and profitability, with further strengthened unit economics in stores opened in new county cities. And our turnover amongst full-time store partners reached a record low in the quarter, coupled with an all-time high partner satisfaction. Early this month, we celebrated our 25th anniversary in China.
Election: The assessment was also clear.
Election: That there has been no union busting playbook at Starbucks.
Election: I want to be clear in my view on the matter of unionization at Starbucks.
Election: We believe in a direct relationship with our partners.
Lakshman Narasimhan: With nearly 7,000 stores, we have built a durable business. We have built a terrific brand, and we are well on track to hit our 9000 store target by 2025 and continue to have full confidence in the market opportunities. We continue to see enormous potential in China's premium market, and no one is better positioned to lead in this space.
Election: Adding the 4% of our stores in the U S where our partners have.
Election: I've chosen.
Election: To be represented by a union.
Election: We are committed to finding a constructive path forward with those unions.
Election: I care deeply about our partners their experiences and safety at Starbucks and their futures.
Election: Our partners remain core to the success of our business and I am proud to be re stitching the fabric of the green apron.
Lakshman Narasimhan: Even as we navigate a dynamic environment, we remain confident in our long-term growth in our international segment. As part of elevating our brand across the international segment, along with a second reserve store in India, we will open two additional Starbucks roasteries that celebrate coffee art and design in markets outside the U.S. and China. We will announce these locations and opening timings in due course.
Election: For all partners.
Election: Going forward, we plan to continue to focus deeply on reinvigorating our partner culture.
Election: It's a priority for me and I'll continue spending time, each bond working up close shoulder to shoulder with partners in stores.
Election: I did this during my visit to India earlier, this month and.
Lakshman Narasimhan: Turning to our fourth priority... We're focused on unlocking $3 billion in efficiency, and I'm pleased to say that we're making steady progress. Our triple-shot reinvention efforts delivered 130 basis points of margin expansion in the first quarter of the fiscal year. As you've heard me say often, the key to our success is the experience that our partners create for our customers. We're investing in a better experience for our partners to advance our business through a more balanced growth model as we unlock efficiency. In the quarter, we have seen the effectiveness of the reinvention-driven investments we have made and in-store operational improvements such as standards, equipment innovation, and scheduling improvements, leading to a more stable environment for our partners. Turnover has decreased by 5% year over year and is now well below pre-COVID levels.
Election: And I will continue doing it to stay grounded in the realities of our business.
Election: Good and not so good.
Election: I'm also proud to have earned my coffee monster Black apron, along with my executive leadership team.
Election: A deep connection to partners and to coffee is a top priority for me and for every leader at Starbucks.
Election: As we look ahead to what is brewing for Starbucks in 2024.
Election: I have great optimism.
We have a strong strategy.
Election: Our refreshed mission values and promises are underpinning everything we do.
Election: We have many strengths to build on and a clear plan to navigate this dynamic environment.
Election: While it will take time, we are confident we have significant headroom to further grow topline and bottom line in the long term and invest in our partners and the business, while delivering strong shareholder returns.
Lakshman Narasimhan: Average partner hours increased 10%, leading to a 14 percentage point increase in partner sentiment related to scheduling, specifically preferred hours, which we know is important to partners. We are listening to our partners and investing to make their experience better.
Election: Finally, before I turn this over to Rachel.
Rachel Reserve: I want to remind everyone.
That Starbucks is focused on human connection.
Lakshman Narasimhan: We have more work to do, but we are proud of the progress we have made today, outside of our stores. We're working to drive efficiencies across our supply chain and expenses. I am pleased with the progress, and we remain on track to unlock $3 billion in efficiencies over the next three years.
We stand for belonging we stand for Joy, we stand for humanity.
Rachel Reserve: That is what differentiates our brand and our business and has for the last 52 years.
Rachel Reserve: We believe.
Lakshman Narasimhan: Our final priority is reinvigorating our partner culture. In addition to the investments and partner experience, we're focused on partner culture. Our leadership team and board of directors have been deeply engaged in putting the partner experience at the heart of the business. An independent assessment found that our strategic investment, Greater on-the-ground support, a dedicated labor relations team, and more bespoke management training are having a tangible impact on the commitments we've made to our partners. The assessment was also clear that there has been no union busting playbook at Starbucks.
Rachel Reserve: This has never been more important.
Speaker Change: In the world and with that Rachel.
Rachel Reserve: Thank you Laxman and good afternoon, everyone.
Speaker Change: Let me start by saying that I am so proud of the significant margin expansion and double digit earnings growth, we delivered in our first quarter. Despite the topline headwinds we experienced.
Rachel Reserve: Our strong focus on reinventing continued to unlock efficiencies driving a balanced outcome, where both revenue growth and margin expansion drove our earnings growth.
Rachel Reserve: As we have shared we are unlocking multiple path to support our earnings growth over the long term, creating a more durable business and this quarter is testament to that durability.
Lakshman Narasimhan: I want to be clear in my view on the matter of unionization at Starbucks. We believe in a direct relationship with our partners and in the four percent of our stores in the U.S. where our partners have chosen to be represented by a union. We are committed to finding a constructive path forward with those unions. I care deeply about our partners, their experiences and safety at Starbucks, and their future. Our partners remain core to the success of our business, and I am proud to be restitching the fabric of the Green Apron for APOC.
Rachel Reserve: Our Q1 consolidated revenue reached a record $9 4 billion up over 8% from the prior year, even with the confluence of factors adversely impacting our business as <unk> discussed in detail at the top of our call.
Rachel Reserve: The revenue increase was driven by 5% comparable store sales growth, 8% net new company operated store growth as well as a 6% increase in our global license store revenue over the prior year underscoring the strength of our broader portfolio and our execution.
Rachel Reserve: Q1, consolidated operating margin expanded 130 basis points from the prior year to 15, 8%, primarily driven by sales leverage and reinvention related in store operational efficiencies, partially offset by our continued investments in our partners.
Lakshman Narasimhan: Going forward, we plan to continue to focus deeply on reinvigorating our partner culture. It's a priority for me, and I'll continue spending time each month working up close, shoulder to shoulder with partners in store. I did this during my visit to India earlier this month, and I will continue doing it to stay grounded in the realities of the business, good and not so good. I'm also proud to have earned my Coffee Master black apron along with my executive leadership team.
Rachel Reserve: Our reinvention has successfully driven resiliency in our business with our North America margin expanding a notable 280 basis points in the quarter, which I will discuss in further detail in a moment.
Rachel Reserve: Q1, EPS was <unk> 90.
Rachel Reserve: Up 20% from the prior year.
Rachel Reserve: Our strong double digit EPS growth in the quarter demonstrate multiple path to drive growth and profitability.
Lakshman Narasimhan: A deep connection to partners and to coffee is a top priority for me and for every leader at Starbucks. As we look ahead to what is brewing for Starbucks in 2024, I have great optimism.
Speaker Change: I'll now provide segment highlights for Q1.
Speaker Change: North America delivered another quarter of record revenue in Q1 was $7 1 billion up 9% from the prior year driven by a combination of a 5% increase in comparable store sales inclusive of a 4% and a 1% increase in average ticket and transactions, respectively as well as net new.
Lakshman Narasimhan: We have a strong strategy. Our refreshed mission, values, and promises are underpinning everything we do. We have many strengths to build on and a clear plan to navigate this dynamic environment. While it will take time, we are confident we have significant headroom to further grow top line and bottom line in the long term and invest in our partners and the business, while delivering strong shareholder returns. Finally, before I turn this over to Rachel,
Speaker Change: Company operated growth of 4% over the prior year.
Speaker Change: Our U S. Licensed store business also contributed to the segment's growth and increased travel and further rollout of our Starbucks connect program.
Speaker Change: Our U S company operated business delivered 5% comparable store sales growth in Q1, driven by 4% ticket growing from pricing mix and customization.
Lakshman Narasimhan: I want to remind everyone that Starbucks is focused on human connection. We stand for belonging. We stand for joy. We stand for humanity.
Speaker Change: This led us to having our highest average ticket in our 50 plus year history as a successful holiday innovation and complementary product offerings, including our new Chai tea, Latte, and Sugarplum cheese, Danish resonated with customers.
Lakshman Narasimhan: That is what differentiates our brand and our business and has for the last 52 years. We believe. This has never been more important in the world.
Rachel Ruggieri: Thank you, Lakshman, and good afternoon, everyone. Let me start by saying that I am so proud of the significant margin expansion and double-digit earnings growth we delivered in our first quarter, despite the top-line headwinds we experienced. Our strong focus on reinvention continued to unlock efficiencies, driving a balanced outcome where both revenue growth and margin expansion drove our earnings growth. As we have shared, we are unlocking multiple paths to support our earnings growth over the long term, creating a more durable business, and this quarter proved testament to that durability. Our Q1 consolidated revenue reached a record $9.4 billion, up over 8% from the prior year, even with the confluence of factors adversely impacting our business, as Lakshman discussed in detail at the start of our call.
Speaker Change: Comparable transactions for the quarter increased 1% as traffic was pressured to negative single digits in November before it started to rebound in December.
Speaker Change: In light of the pressured traffic and as Ludwig mentioned earlier customer showed strong loyalty through our Starbucks rewards program with record engagement and the highest ever spend per member.
Speaker Change: North America operating margin was 21, 4% in Q1, expanding 280 basis points from the prior year, driven by 240 basis points from reinvention related in store operational efficiencies as well as sales leverage and pricing, partially offset by continued investment in our partners.
Speaker Change: This outstanding margin expansion in the quarter reflected the meaningful labor staffing and scheduling improvements we made as part of our reinvention.
Rachel Ruggieri: The revenue increase was driven by 5% comparable store sales growth, 8% net new company-operated store growth, as well as a 6% increase in our global licensed store revenue over the prior year, underscoring the strength of our broader portfolio and our execution. P1 consolidated operating margin expanded 130 basis points from the prior year to 15.8%, primarily driven by sales leverage and reinvention-related in-store operational efficiencies, partially offset by our continued investments in our partners. Our reinvention has successfully driven resiliency in our business, with our North America margin expanding by a notable 280 basis points in the quarter, which I will discuss in further detail in a moment. Q1 EPS was 90 cents, up 20% from the prior year. Our strong double-digit EPS growth in the quarter demonstrates multiple paths to drive growth and profitability. I'll now provide segment highlights for Q1.
Speaker Change: We unlocked significant stability by focusing on staffing and scheduling hours based on partners preferred shifts, which enhanced both our partners' experience and subsequent store performance.
Speaker Change: We saw store efficiency increase as items per.
Labor hour reached its highest level in the quarter.
Speaker Change: Outside of stories, we reaped the benefits of enhancing enhanced sourcing and waste reductions in the first quarter as seen by improvement in the segment's product and distribution costs.
Speaker Change: When you think about the operational efficiencies that continue to manifest both in and out of stores, we expect to continue delivering progressive margin expansion.
Speaker Change: Moving to international.
Speaker Change: The segment delivered $1 $8 billion in revenue in the quarter up 12% from the prior year. The revenue growth was driven by a 12% increase in net new company operated stores year over year as well as a 7% increase in comparable store sales driven by 11% traction growth transaction growth, partially offset by a three <unk>.
Rachel Ruggieri: North America delivered another quarter of record revenue in Q1, with $7.1 billion, up 9% from the prior year, driven by a combination of a 5% increase in comparable store sales, inclusive of a 4% and 1% increase in average ticket and transactions, respectively, as well as net new company-operated growth of 4% over the prior year. Our U.S. licensed store business also contributed to the segment's growth from increased travel and the further rollout of our Starbucks Connect program. Our U.S. company-operated business delivered 5% comparable store sales growth in Q1, driven by 4% ticket growth from pricing, mix, and customization. This led us to having our highest average ticket in our 50-plus-year history, as our successful holiday innovation and complimentary product offerings, including our new chai tea lattes and sugar plum cheese danish, resonated with customers. Comparable transactions for the quarter increased 1% as traffic was pressured to negative single digits in November before it started to rebound in December.
Speaker Change: <unk> decline in average ticket.
Speaker Change: As <unk> mentioned the pace of recovery in China was slower than expected that coupled with a negative impact to our business in the middle East pressured our international segment as a whole. However, we continue to see these headwinds as transitory and remain committed to our long term growth ambitions in this segment.
Speaker Change: In Q1, China's revenue grew 20% driven by 15% new store growth as well as a 10% increase in comparable store sales growth, including 21% transaction growth largely related to the market lapping prior year Covid impact.
Speaker Change: Comparable ticket, however declined 9% due to mix shift, including lower sales of merchandise and increased promotional environment.
Speaker Change: The market opened 169, net new stores and entered 2008, new counties cities in the quarter, serving as a proof point that our commitment to expanding our premium position in the market has not wavered.
Speaker Change: Total International segment operating margin was 13, 1% in Q1 contracting 110 basis points from the prior year.
Speaker Change: The contraction was primarily driven by investments in partner wages and benefits business mix shift as a greater portion of the segment's revenue was generated in our company operated markets versus the prior year and strategic investments, partially offset by sales leverage.
Rachel Ruggieri: In light of the pressured traffic, and as Luchman mentioned earlier, customers showed strong loyalty through our Starbucks Rewards Program with record engagement and the highest ever spend per member. North America's operating margin was 21.4% in Q1, expanding 280 basis points from the prior year, driven by 240 basis points from reinvention-related in-store operational efficiencies, as well as sales leverage and pricing, partially offset by continued investment in our partners. This substantial margin expansion in the quarter reflected the meaningful labor, staffing, and scheduling improvements we made as part of our reinvention. We unlocked significant stability by focusing on staffing and scheduling hours based on partners' preferred shifts, which enhanced both our partners' experience and subsequent store performance. We saw store efficiency increase as items per labor hour reached its highest level in the quarter.
Speaker Change: Shifting to channel development.
Speaker Change: The segment's revenue of $448 million in Q1 declined 7% from the prior year largely in line with our expectations given the sale of Seattle's best coffee.
Speaker Change: Our business continues to resonate with customers as Starbucks maintained the number one share position in both U S at home coffee and U S ready to drink in the first quarter as our holiday offerings, such as Peppermint, Mocha, and gingerbread, where among customer favorites.
Speaker Change: The segment's operating margin was 46, 8% in Q1 down 60 basis points from prior year, driven by product cost and global coffee alliance, partially offset by business mix shift.
Speaker Change: Although there was contraction in the first quarter, we continue to expect the segment's full year operating margin to expand to the high 40% to low 50% range and be accretive to our total company margin.
Speaker Change: Now moving onto our guidance for fiscal year 2024.
Rachel Ruggieri: Outside of stores, we reaped the benefits of enhanced sourcing and waste reductions in the first quarter, as seen by improvement in the segment's product and distribution costs. When you think about the operational efficiencies that continue to manifest both in and out of stores, we expect to continue delivering progressive margin expansion. Moving to International.
Speaker Change: We are confident that the business pressures, we experienced in the first quarter are transitory.
Speaker Change: With that our guidance shared at our reinvention update in November remains unchanged related to our global store growth operating margin and EPS.
However, given the collective magnitude of headwind on our first quarter revenue and the time it will take our action plans to be realized we are revising our full year outlook for revenue and comp to reflect our Q1 results as well as account for recent trends, including a softer than planned January which we expect will impact our Q2 performance.
Rachel Ruggieri: The segment delivered $1.8 billion in revenue in the quarter, up 12% from the prior year. The revenue growth was driven by a 12% increase in net new company-operated stores year-over-year, as well as a 7% increase in comparable store sales, driven by 11% transaction growth, partially offset by a 3% decline in average ticket sales. As Lutchman mentioned, the pace of recovery in China was slower than expected.
Speaker Change: <unk>.
Speaker Change: With that we now expect our full year global revenue growth in the range of 7% to 10% revised from our previous range of the low end of 10% to 12%.
Speaker Change: Full year global and U S comp growth in the range of 4% to 6% both revised from the previous range of 5% to 7%.
Speaker Change: China comp growth of low single digits for the balance of the year revised from the previous range of 4% to 6% in Q2 through Q4 with higher comp in Q1.
Rachel Ruggieri: That, coupled with a negative impact on our business in the Middle East, pressured our international segment as a whole. However, we continue to see these headwinds as transitory and remain committed to our long-term growth ambitions in the segment. In Q1, China's revenue grew 20% driven by 15% new store growth, as well as a 10% increase in comparable store sales growth, including 21% transaction growth, largely related to the market lapping prior year COVID impact. Comparable ticket, however, declined 9% due to mixed shifts, including lower sales of merchandise and increased promotional environment.
Speaker Change: Just to be clear, we continue to expect to deliver full year global store growth at approximately 7%.
Speaker Change: Progressive operating margin expansion on a full year basis.
Speaker Change: Full year, EPS and non-GAAP EPS growth in the range of 15% to 20% as we have multiple paths to such earnings growth as we demonstrated in the first quarter.
Speaker Change: As an additional insight here are a few clarification items related to guidance.
Speaker Change: As a reminder, our guidance does not include any impact from foreign currency translation and assumes constant currency.
Rachel Ruggieri: The market opened 169 net new stores and entered 28 new county cities in the quarter, serving as a proof point that our commitment to expanding our premium position in the market has not wavered. Total international segment operating margin was 13.1% in Q1, contracting 110 basis points from the prior year. The contraction was primarily driven by investments in partner wages and benefits, a business mix shift as a greater portion of the segment's revenue was generated in our company-operated markets versus the prior year, and strategic investments partially offset by sales leverage and shifts to channel development. The segment's revenue of $448 million in Q1 declined 7% from the prior year, largely in line with our expectations given the sale of Seattle's best coffee. However, our business continues to resonate with customers, as Starbucks maintained the number one share position in both U.S. at-home coffee and U.S. ready-to-drink in the first quarter, as our holiday offerings, such as peppermint mocha and gingerbread, were among customer The segment's operating margin was 46.8% in Q1, down 60 basis points from the prior year, driven by product cost and the Global Coffee Alliance, partially offset by business mixtures.
Speaker Change: In terms of quarterly shape, we expect growth rates for our global revenue comp operating margin as well as GAAP and non-GAAP EPS to be the lowest in Q2 and meaningfully below our full fiscal year guidance ranges due to the pressures we discussed in today's call.
Speaker Change: These metrics are then expected to rebound and stabilize in the second half of our fiscal year.
Speaker Change: While we continue to expect our effective GAAP and non-GAAP tax rates in the mid 20% range. They are expected to be meaningfully higher than our fiscal year 2023 tax rate of 23, 6%, which benefited from certain discrete nonrecurring tax items.
Speaker Change: Finally, our disciplined capital allocation approach continues to deliver significant results the.
Speaker Change: The combination of revenue growth margin expansion and improved working capital underpinned by the disciplined capital allocation increased our Q1 cash from operations to a record $2 4 billion.
Speaker Change: Our strong cash generation together with our leverage and investment grade rating creates exceptional shareholder returns, while maintaining balance sheet flexibility to fund our critical investments, creating a competitive advantage.
Speaker Change: In summary here, our key takeaways for my discussion today.
Speaker Change: First our triple shot reinvention is continuing to unlock our greatest potential.
Speaker Change: Evidenced by the strong operating margin performance and balanced earnings growth in the first quarter in spite of the pressured environment.
Speaker Change: Next our revenue and comp guidance has been revised revised to reflect our Q1 results and expected near term and transitory headwinds, but importantly, despite these headwinds we remain committed to our full year fiscal 2020 for EPS growth in the range of 15% to 20%.
Rachel Ruggieri: Although there was contraction in the first quarter, we continue to expect the segment's full-year operating margin to expand to the high 40% to the low 50% range and be accretive to our total company margin. Now moving on to our guidance for fiscal year 2024, we are confident that the business pressures we experienced in the first quarter are transitory.
Speaker Change: Further we have robust plans to navigate through the complex and dynamic environment and recognize our plans will take time to materialize, but remain confident in our long term growth.
Rachel Ruggieri: With that said, our guidance shared at our reinvention update in November remains unchanged related to our global store growth, operating margin, and EPS. However, given the collective magnitude of headwinds on our first quarter revenue and the time it will take for our action plans to be realized, we are revising our full year outlook for revenue and comp to reflect our Q1 results, as well as account for recent trends, including a softer than planned January, which we expect will impact our Q2 performance. With that, we now expect our full-year global revenue growth to be in the range of 7% to 10%, revised from our previous range of the low end of 10% to 12%. Full year global and U.S. comp growth in the range of 4% to 6%, both revised from the previous range of 5% to 7%. China comp growth of low single digits for the balance of the year revised from the previous range of 4 to 6% in Q2 through Q4 with higher comp in Q1.
Speaker Change: And finally, our focused and disciplined approach to capital allocation drives our financial fortitude and balance sheet optionality, keeping us in a position of strength.
Speaker Change: Before I close I want to thank all the partners across the globe, who consistently find ways to create joy and foster connection to and with our customers.
Speaker Change: <unk> gives me the confidence that our best days are yet to come so thank you partner with.
Speaker Change: With that I'll turn it back to Tiffany.
Tiffany Willis: Thank you Rachel before we open the call to Q&A, we request that your questions. Today, we focused on the quarterly performance that we just discussed as this call is not to address questions related to recent proxy filings with that Diego, let's take the first question.
Diego: Thank you and 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 we'll pause for a moment to compile the Q&A roster.
Rachel Ruggieri: Just to be clear, we continue to expect to deliver full-year global store growth of approximately 7% and progressive operating margin expansion on a full year basis. Full year EPS and non-GAAP EPS growth in the range of 15 to 20 percent, as we have multiple paths to such earnings growth, as we demonstrated in the first quarter. As an additional insight, here are a few clarification items related to guidance. As a reminder, our guidance does not include any impact from foreign currency translation and assumes constant currency.
Diego: Your first question comes from Jeffrey Bernstein Barclays. Please go ahead.
Diego: Okay.
Jeffrey A. Bernstein: Great. Thank you very much.
Jeffrey A. Bernstein: A question on the.
The fiscal 'twenty for guidance.
Jeffrey A. Bernstein: Appreciate that you tempered the comp growth for both the U S and China.
Jeffrey A. Bernstein: For the U S. It looks like it's only a point in China, it's only a few points but.
Jeffrey A. Bernstein: We would define that I guess it was modestly.
Jeffrey A. Bernstein: You mentioned that fiscal <unk> is expected well below the targets before accelerating in the rest of the year.
Jeffrey A. Bernstein: So with that as backdrop I'm just wondering if you could talk a little bit about I think you mentioned January has been softer than expected any color you can provide there.
Rachel Ruggieri: In terms of quarterly shape, we expect growth rates for our global revenue, comp, operating margin, as well as GAAP and non-GAAP EPS to be the lowest in Q2 and meaningfully below our full fiscal year guidance ranges due to the pressures we discussed in today's call. These metrics are then expected to rebound and stabilize in the second half of our fiscal year. While we continue to expect our effective gap and non-gap tax rates in the mid 20% range, they are expected to be meaningfully higher than our fiscal year 2023 tax rates of 23.6%, which benefited from certain discrete non-recurring tax items.
Jeffrey A. Bernstein: Otherwise your confidence in that new guidance it does seem like it implies.
Jeffrey A. Bernstein: Rather sharp acceleration in the back half of the year I'm. Just wondering how you think about the guidance relative to maybe tempering. It further and not having that risk if perhaps the recovery doesn't play out as fast as you might be expecting. Thank you sure. Thank you Geoffrey this is Rachel.
Rachel Reserve: As it relates to our guidance when we look at our revised revenue guidance is based on the performance. We saw in Q1 as well as the near term and transitory headwinds that we've spoken about with that we expect Q2 will be below.
Rachel Reserve: The full year guidance ranges largely due to the fact, it's going to take some time for our plans to materialize as well as we'll continue to see an impact to our business in the middle East, but what gives us confidence in that revenue range is the fact that we still have a very strong and growing loyal customer base, we're having increased capability.
Rachel Ruggieri: Finally, our disciplined capital allocation approach continues to deliver significant results. The combination of revenue growth, margin expansion, and improved working capital underpinned by a disciplined capital allocation approach increased our Q1 cash from operations to a record $2.4 billion. Our strong cash generation, together with our leverage and investment grade rating, creates exceptional shareholder returns while maintaining balance sheet flexibility to fund our critical investments, creating a competitive advantage. In summary, here are the key takeaways from my discussion today. First, our triple-shot reinvention is continuing to unlock our greatest potential, evidenced by the strong operating margin performance and balanced earnings growth in the first quarter in spite of the pressured environment. Next, our revenue and comp guidance has been revised to reflect our Q1 results and expected near-term and transitory headwinds.
Rachel Reserve: As it relates to our digital programs around the world and we've also seen that our reinvention has been very successful in helping us to meet increasing demand most specifically in this quarter we saw a.
Rachel Reserve: Really strong.
Rachel Reserve: Demand supported in our morning day part our busiest day part in our U S business and we actually exceeded both prior year the year before.
Rachel Reserve: Right online with pre Covid levels. So we're encouraged by that overall just in terms of transactions and in addition to that as we talked about in the call. We're confident that we have multiple levers to be able to drive our earnings growth revenue growth is one factor and we believe we've got growth in that guidance range.
Rachel Reserve: That will help drive margin expansion through a flow.
Rachel Reserve: <unk> flow through but in addition to that we have in store and out of store efficiencies that we're seeing great success with and so that gives us some confidence that we have.
Rachel Ruggieri: But importantly, despite these headwinds, we remain committed to our full-year fiscal 2024 EPS growth in the range of 15% to 20%. Further, we have robust plans to navigate through the complex and dynamic environment and recognize our plans will take time to materialize, but we remain confident in our long-term growth. And finally, our focused and disciplined approach to capital allocation drives our financial fortitude and balance sheet optionality, keeping us in a position of strength. Before I close, I want to thank all the partners across the globe who consistently find ways to create joy and foster connection to and among our customers. You give me the confidence that our best days are yet to come. So, thank you, Park. With that, I'll turn it back to Tiffany.
Rachel Reserve: <unk> path and multiple levers to be able to drive that earnings growth of 15% to 20%.
Rachel Reserve: On a full year basis.
Rachel Reserve: Thank you. Your next question comes from Brian Harbor with Morgan Stanley.
Brian Harbor: Yes. Thank you good afternoon.
Brian Harbor: Could you talk more about kind of a specific plant plans.
Brian Harbor: Plans to drive sort of the occasional customer and it sounds like you you would expect some pretty solid improvement in the U S sales as we go through the year. It sounds like what was new was.
Brian Harbor: Some new product platforms.
Brian Harbor: Could you just elaborate on how how quickly you think those will work what might be coming on the product side that drives our confidence in the U S sales.
Speaker Change: Sure Let me, let me start and I'll call on Brady a bit to provide some more color.
Tiffany Willis: Thank you, Rachel. Before we open the call to Q&A, we request that your questions today be focused on the quarterly performance that we just discussed, as this call is not to address questions related to recent proxy filings. With that said, Diego, let's take the first question.
Speaker Change:
Speaker Change: As we said earlier.
Rosalind Gates Brewer: What we saw in the U S was a quarter that was actually very strong until about the middle of November.
Diego: Thank you. And 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 that you limit yourself to one question at a time. We will come back for follow-up questions as time allows. We'll pause for a moment to compile.
And what are you seeing the results very strong performance of our loyal customers very strong holiday performance very strong brand equity and very strong performance in gift card sales and we mentioned as well.
Rosalind Gates Brewer: We've got about $3 6 billion.
Loaded on our card solar manifestation of the overall brand being very strong and so there is of course, while we do have the isolated impact with the occasional customers, particularly those that visit in the afternoon.
Jeffrey A. Bernstein: Your first question comes from Jeffrey Bernstein Barker. Great. Thank you very much.
Rosalind Gates Brewer: So if you look at some of the actions that we have in place.
Rachel Ruggieri: Just a question on the Fiscal 24 guidance. I appreciate that you tempered the comp growth for both the U.S. and China. For the U.S., it looks like it's only a point, and for China, it's only a few points.
Rosalind Gates Brewer: First there is actually more demand than we are currently meeting in the U S.
Rosalind Gates Brewer: Second our loyalty program is already performing exceptionally well as Rachel mentioned.
Rosalind Gates Brewer: But we have a combination of things that we're doing to address.
Rachel Ruggieri: But we would define that, I guess, as modest, and yet you mentioned that fiscal 2Q is expected to be well below the targets before accelerating the rest of the year. So with that as a backdrop, I'm just wondering if you could talk a little bit about, I think you mentioned January was softer than expected, any color you could provide there, and otherwise your confidence in that new guidance. It does seem like it implies a rather sharp acceleration in the back half of the year. So I'm just wondering how you think about the guidance relative to maybe tempering it further and not having that risk if, perhaps, the recovery doesn't play out as fast as you might be expecting. Thank you. Thank you, Jeffrey. This is Rachel.
The traffic slowdown, particularly in the afternoon.
Rosalind Gates Brewer: The first area of innovation, we mentioned a couple of new products coming in time for Valentine's day.
Rosalind Gates Brewer: But we're going to have three new beverage platforms coming in the next six months and you will see how important that is for us over time.
Rosalind Gates Brewer: The second action is really opening up our app ecosystem to bring more people into the app, because we know that.
Rosalind Gates Brewer: Our members develop routinize long term relationship with a brand that increases both traffic and transactions.
Rosalind Gates Brewer: And third we are implementing targeted offers aimed at some of these very occasional customers to bring them back into the stores and all that of course is foundational to we continue to execute in our stores.
Rachel Ruggieri: As it relates to our guidance, when we look at our revised revenue guidance, it's based on the performance we saw in Q1, as well as the near-term and transitory headwinds that we've spoken about. With that, we expect Q2 to be below the full-year guidance ranges, largely due to the fact it's going to take some time for our plans to materialize, as well as the fact we'll continue to see impacts to our business in the Middle East. But what gives us confidence in that revenue range is the fact that we still have a very strong and growing loyal customer base. We're experiencing increased capability as it relates to our digital programs around the world, and we've also seen that our reinvention has been very successful in helping us to meet increasing demand.
Rosalind Gates Brewer: In order to elevate partner Pride bring a great deal of passion back into the business.
And ensure that we can meet more of the demand that we know exists.
Rosalind Gates Brewer: Brady do you want to give a bit more flavor around some of the activations, particularly on the innovation side sure. Thank you, Brian and thank you <unk>.
Rosalind Gates Brewer: As <unk> said, there is a calendar of compelling product innovation <unk> spoke about the new beverage platforms that are coming over the next few months.
Rosalind Gates Brewer: Food, we're seeing a lot of momentum on the health conscious all day breakfast and all day snacking that I spoke about on the Investor day, as we have released new products in that space, we've seen great resonance with customers and we'll continue to mine that space.
Rachel Ruggieri: Most specifically, in this quarter, we saw really strong demand supported in our morning day part, our busiest day part in our U.S. business, and we actually exceeded both the prior year and the year before, and we're right on line with pre-COVID levels. So, we're encouraged by that overall, just in terms of transactions. And in addition to that, as we talked about in the call, we're confident that we have multiple levers to be able to drive our earnings growth. Revenue growth is one factor, and we believe we've got growth in that guidance range that will help drive margin expansion. But in addition to that, we have in-store and out-of-store efficiencies that we're seeing great success with. And so, that gives us some confidence that we have a balanced path and multiple levers to be able to drive that earnings growth at 15 to 20 percent on a full year basis. Your next question comes from Brian Harbour with more... Yeah, thank you, good afternoon.
Rosalind Gates Brewer: Then we look at digital <unk> referenced the 30% of U S transactions coming through MLP, we're seeing high demand for that service, even among occasional customers. So increasing the reach of the App number one increasing personalized communication and the App both to drive ticket for those routinized customers, but also for.
Rosalind Gates Brewer: <unk> fee for the less frequent customers is a capability that we continue to build we talk a lot about our personalization capabilities at Starbucks, but truly that job is never done because as new technologies and capabilities come online we are grabbing those and integrating them into our system to use that as a business accelerator and then lastly, I would say.
Rosalind Gates Brewer: Are you just making Starbucks more accessible expanding have you heard from <unk>. The delivery options you have with Starbucks in a very fast growing part of our business and then looking at ways to capture more Starbucks rewards members, who are currently not members through big partnerships like the one we've just announced with bank of America so between compelling.
Brian Harbour: Could you talk more about kind of the specific plans to, you know, drive sort of the occasional customer? And, you know, it sounds like you would expect some pretty solid improvement in US sales as we go through the year. It sounds like what was new was, you know, some new product platforms. Could you just elaborate on how, you know, how quickly you think those will work? What might be coming on the product side that drives your confidence in US sales? Sure, let me start and I'll call on Brady a bit to provide some more color, um, as we said earlier.
Rosalind Gates Brewer: Products really excited accelerating S. Our member acquisition efforts.
Rosalind Gates Brewer: And then building our brand as <unk> said to address the fact based narrative in social media and win win our customers and win every visit back that's where we're focused.
Your next question comes from Peter Cella with BTG.
Peter Cella: Great. Thanks for taking the question.
Peter Cella: I did want to ask about the check dynamics going on in China. It looks like down call. It 9%, that's a pretty steep decline just talk about the promotional environment that youre seeing there and.
Lakshman Narasimhan: What we saw in the U.S. was a quarter that was actually very strong until about the middle of November, and what do you see in the results? Very strong performance with our loyal customers, very strong holiday performance, very strong brand equity, and very strong performance in gift card sales. And we mentioned as well that, you know, we've got about $3.6 billion loaded on our card. So, a manifestation of the overall brand being very strong. And so there is, of course, what we do have the isolated impact with the occasional customers, particularly those that visit in the office.
Peter Cella: What exactly you guys are doing to combat that.
Speaker Change: And just more specifically should we expect this check impact to really continue for the balance of the year or how do we think about that going forward. Thank you.
Speaker Change: Well, we are Belinda on line here, So maybe I'll turn this over to Belinda do you want to answer that question. Please.
Belinda Wong: Okay. Thank you for the question, let me just address the HDD client first the average check did decline.
Lakshman Narasimhan: So if you look at some of the actions that we have in place, um, first, there is actually more demand than we're currently meeting. Second, our loyalty program is already performing exceptionally well, as Rachel mentioned. But we have a combination of things that we're doing to address.
Belinda Wong: First of all our beverage and food sales were strong and contributed majority of our comp growth in Q1, and our <unk> decline.
Belinda Wong: <unk>, 9% decline mainly came from two areas one is slower sales of our higher priced merchandise.
Belinda Wong: Our consumers now more cautious in their spending.
Belinda Wong: But the <unk> category constitutes a relatively small portion of our sales mix.
Lakshman Narasimhan: The first area is innovation. We mentioned a couple of new products coming in time for Valentine's Day. But we're going to have three new beverage platforms coming in the next six months, and you will see how important that is for us over time. The second action is really opening up our app ecosystem to bring more people into the app because we know that our members develop a routinized long-term relationship with our brand that increases both traffic and transactions. And third, we are implementing targeted promotions aimed at some of these very occasional customers to bring them back into the store. And all that, of course, is foundational to what we continue to do in our stores in order to elevate partner pride, bring a great deal of passion back into the business, and ensure that we can meet more of the demand that we know exists. Brady, do you want to give a bit more flavor around some of the activations, particularly on the innovation side? Sure. Thank you, Brian.
Second if the targeted promotional investments that we're making to personalize offers and reward customers behaviors in order to drive trial of bankruptcy now this enabled us to optimize our sales and margin and this is powered by China deep root that helps us to design the right offers to the right cohorts of customers.
At the right time.
Belinda Wong: That's mainly the reasons for decline and you asked about the promotional environment. Let me just let me just say this the coffee market is evolving as <unk> and going through a transition is still early days and it has not yet fully tiered right you see mass influx of mass market competitors focus on fast start.
Belinda Wong: Spansion and low priced tactics to drive trial.
Belinda Wong: This will shake out over time and yes, we are operating under an increased promotional environment.
Belinda Wong: Not interested in entering the price war, we're focusing on capturing high quality profitable sustainable growth okay.
Rosalind Gates Brewer: Thank you, Lax. As Laxman said, there's a calendar of compelling product innovation. Laxman spoke about the new beverage platforms that are coming over the next few months. On food, we're seeing a lot of momentum on this health-conscious all-day breakfast and all-day snacking that I spoke about on Investor Day. As we've released new products in that space, we've seen great resonance with customers, and we'll continue to explore that space. Now, we look at digital. Lexman referenced the 30% of US transactions coming through MOP.
Belinda Wong: It is our aim to be the best and lead in the premium market as lax headset, which startups has pioneered in China 25 years ago.
Belinda Wong: We will continue to focus on premium experience that is high quality coffee and human connection.
Belinda Wong: And we have clear strategies to fuel our comp and total growth.
Speaker Change: <unk> shared the three points.
Speaker Change: Three strategies I'll add a little bit more colors.
Rosalind Gates Brewer: We're seeing high demand for that service, even among occasional customers. So increasing the reach of the app, number one, increasing personalized communication in the app, both to drive ticket sales for those routinized customers but also frequency for the less frequent customers is a capability that we continue to build. We talk a lot about our personalization capabilities at Starbucks, but truly, that job is never done because as new technologies and capabilities come online, we are grabbing those and integrating them into our system to use that as a business accelerator. And then lastly, I'd say just making Starbucks more accessible, expanding, as you heard from Lexman, the delivery options you have with Starbucks in a very fast growing part of our business. And then look at ways to capture more Starbucks rewards members who are currently not members through big partnerships, like the one we've just announced with Bank of America.
Speaker Change: Dialog about beverage innovation with robust marketing activations on social media and in store, we're going to accelerate our digitalization efforts to drive innovations sales and productivity, we're going to continue our new store expansion infill in existing cities and accelerate New County City entry is like such that we're going to dial.
Our omnichannel expansion.
Scale up our membership program.
Speaker Change: And it continued invest in our partners. So we have all of these strategies to drive out cost growth and total growth and traffic and ticket. So we are very confident and our ability to deliver our growth in the short and long term. Thank you.
Speaker Change: Your next question comes from Lauren Silberman with Deutsche Bank.
Lauren Silberman: Thank you very much I wanted to ask about the U S business I appreciate all the color I guess two related questions. One I understand youre seeing a more significant slowdown with the occasional customer have you also seen a slowdown in traffic with rewards customers or are the challenges really just isolated to occasional trying to understand some of the breadth of the social media challenges.
Rosalind Gates Brewer: So between compelling product, really accelerating SR member acquisition efforts, and then building our brand, as Lakshman said, to address the fact-based narrative in social media and win, win our customers, and win every visit back. That's what we're. Here's your next question. Peter Sala. Great, thanks for taking the question. I did want to ask about the check dynamics going on in China. It looks like, you know, down, call it 9%.
Lauren Silberman: And then second you've ramped up the level of promotional activities for rewards is this effectively hitting the occasional occasional customers trying to understand how youre thinking about promotional activity ahead. Thank you.
Well, let me take this one.
Speaker Change: First of all we are seeing no slowdown in our loyal <unk> customers. In fact, we are seeing an increase in frequency. They are buying more they're customized anymore that part of the business is extremely strong we did see as you rightfully said a slow down in the very occasional customers, which we're still working to get back.
Peter Sala: That's a pretty steep decline. Could you just talk about the promotional environment that you're seeing there? What exactly are you guys doing to combat that? And just more specifically, should we expect this check impact to really continue for the balance of the year? Or how do we think about that? We have Belinda online here, so maybe I'll turn this over to Belinda.
Speaker Change: But the folks in the middle who are.
Speaker Change: Occasional some of the tactics that we use which of course, you see essentially help bring the back into the Fray in terms of the traffic we've seen it bounce back towards December. So we're focused on ensuring that we do the right thing in terms of welcoming back our very occasion.
Belinda Wong: Do you want to answer that question? Okay, thank you for the question. Let me just address the AT decline first, the average tech decline. First of all, beverage and food sales were strong and contributed the majority of our comp growth in Q1. And our AT decline, the 9% decline, mainly came from two areas. One was slower sales of our higher-priced merchandise, as our consumers are now more cautious in their spending. But the merchandise category constitutes a relatively small portion of our sales. Thank you very much, at the right time.
<unk> customers with the right offer with the right innovation and the right experience in stores.
Speaker Change: Your next question comes from Brian Bittner with Oppenheimer and company.
Brian Bittner: Okay. Thanks, Thanks for taking the question.
Brian Bittner: Right. So I wanted to ask about the operating margin expansion in the Americas segment. Obviously, it was very impressive and it was driven by leverage on your store operating expense line in fact, when we break it down on a dollar basis on a same store basis, those operating expenses were actually flattish or or even slightly down.
Speaker Change: One year over year can you just unpack what's going on in that line item. How sustainable is this performance on the operating expense line.
Belinda Wong: So those are the mainly the reasons for decline. And you asked about the promotional environment. Let me just say this: the coffee market is evolving, as Lex said, and going through a transition. It's still early days, and it has not yet fully tiered, right?
Speaker Change: Sure as you look at the store operating expense.
Largely driven by the activities, we've taken around our reinvention in in store operational efficiencies. So thats a combination of a number of factors, including we've focused on operational execution leveraging standards to be able to manage performance across over nine.
Belinda Wong: You see, the influx of mass market competitors focus on fast store expansion and low price tactics to drive trial. This will shake out over time. And yes, we're operating under an increased promotional environment. But we're not interested in entering the price war.
Speaker Change: 700 stores and growing so that's that's been one driver. In addition to that we've had continued improvement in our equipment and the investments we made in equipment a year ago as well as the investments. We're currently make that all annualized and helping to support the favorability that we're seeing in the margin expansion and then third.
Belinda Wong: We're focusing on capturing high quality, but profitable, sustainable growth, okay? And it is our aim to be the best and lead in the premium market, as Lex has said, which Starbucks pioneered in China 25 years ago. And we will continue to focus on the premium experience that is high-quality coffee and human connection. And we have clear strategies to fuel our comp and total growth. As Lex shared, the three points, well, the three strategies; I'll add a little bit more color.
Speaker Change: More recently, we focused on improving our overall scheduling so providing more hours for our partners per store, we have a ways to go but we know that that's a high driver of engagement all of those efforts together have led to lower turnover and a more stable environment and it's that stability that really is.
Belinda Wong: We're going to dial up our beverage food innovation with robust marketing activations on social media and in-store. We're going to accelerate our digitalization efforts to drive innovation, sales, and productivity. We're going to continue our new store expansion, infill in existing cities, and accelerate new county city entry, as Lex has said. We're going to ramp up our Omni-Channel expansion, scale up our membership program, and continue to invest in our partners. So we have all these strategies to drive our comp growth and total growth in traffic and tickets. So we are very confident in our ability to deliver our growth in the short and long term. Thank you. Your next question? Lauren Silberman with Deutsche, Thank you very much.
Speaker Change: Allows us to create a better efficiency in serving our customers. So as an example, Larry spoke about.
Speaker Change: Morning day part this quarter in the U S was the strongest that we've seen and that's a function of all of those efforts and activities that I just spoke about being realized in supporting our demand so creating a better experience for our partners leads to a better experience for our customers now some of that was <unk> from the efforts that we made last year.
Speaker Change: But we continue to see quite a bit of opportunity ahead. When we think about continuing to focus on Scott scheduling continue I'll focus on improvements in staffing we have more work ahead of us there as well as in store or excuse me out of store efficiencies the way, we scrutinize our sourcing the way we distribute to our stores we have seen some benefits from there.
Lauren Silberman: I want to ask about U.S. business and appreciate all the color. I guess I have two related questions. One, I understand you're seeing a more significant slowdown with the occasional customer. Have you also seen a slowdown in traffic with rewards customers, or are the challenges really just isolated to occasional customers, trying to understand some of the breadth of the social media challenges? And then second, you've ramped up the level of promotional activities for rewards. Is this effectively hitting the occasional customer, trying to understand how you're thinking about promotional activities in the future? Thank you. Well, let me take this on.
But this quarter that won't show up in store operating expense that'll be in our on product and distribution cause but between those two lines Thats, where we see potential opportunity going forward. So it gives us confidence in the progressive margin expansion, but importantly, our ability to continue to meet that 15% to 20% earnings growth.
Speaker Change: Your next question comes from David Palmer with Evercore ISI.
Speaker Change: Hi.
David Palmer: A big picture question I don't know if this is maybe one for Brady but.
David Palmer: By our math you just looking back to 2016, just because you gave some percentages on what was called and what was hard of your beverages. It looks like your U S. Cold beverage sales have grown by roughly 750000 per store, while hot beverage sales declined by 150000 per store and since pre Covid Your war.
Lakshman Narasimhan: First of all, we are seeing no slowdown in our loyal SR customers. In fact, we're seeing an increase in frequency. They're buying more, they're customizing more. That part of the business is extremely profitable. We did see, as you rightfully said, a slowdown in the very occasional customers, which we're still working to get back, but the folks in the middle who are, you know, occasional. Some of the tactics that we use, which, of course, you're seeing, essentially help bring them back into the fray in terms of the traffic we've seen it bounce back towards December. So we're focused on ensuring that we do the right thing in terms of welcoming back our very occasional customers with the right offer, with the right innovation, and with the right experience in store. Your next question comes from Brian Bittner with Oppenheimer. Thanks.
David Palmer: Rewards membership has more than doubled but traffic is down since that time, so and we don't see your customer like you do some a bit of a question, but it looks like you maybe have less of that everyday hot coffee and latte consumer and more of a new type of consumer that comes less frequently and probably has ops.
David Palmer: For cold beverage I'm envisioning.
David Palmer: Being my daughter, and three of her friends coming in some afternoon. So it's more of a episodic visit big Big orders cold beverage led.
David Palmer: With this happening if this is what's happening.
Brian Bittner: Thanks for taking the question. Rachel, I wanted to ask about the operating margin expansion in the America segment. Obviously, it was very impressive, and it was driven by leverage on your store operating expense line. In fact, when we break it down on a dollar basis, on a same-store basis, those operating expenses were actually flattish or even slightly down year over year. Can you just unpack what's going on in that line item?
David Palmer: How does that inform your strategy for growth going forward I know youre doing some things to increase capacity on cold beverage and maybe that helps fuel the summer months, a little bit more but I'm, just wondering like what or what.
David Palmer: Do you share that perspective, and how does that feel your strategy. Thank you.
Speaker Change: Yes. Thank you David it's a great question.
Speaker Change: My perspective is a little different.
Speaker Change: We don't see a tradeoff and frequency between cold beverage customers in hot beverage customers, it's really a shift in generational taste preferences, where that highly frequent millennial Gen Z customer is drinking cold coffee every day just as people have different generations were drinking hot coffee to start their day every day.
Rachel Ruggieri: How sustainable is this performance on the operating expense line? Sure. As you look at the store operating expense, it's largely driven by the activities we've taken around our reinvention of in-store operational efficiencies. That's a combination of a number of factors, including how we focused on operational execution, leveraging standards to be able to manage performance across over 9,700 stores and growing. That's been one driver.
Speaker Change: So we've seen a continued increase in our cold beverage and our portfolio as you noted, but what I found with the cold beverages is.
Speaker Change: There are infinite customization as possible on the cold beverage platform and what that means is that it's increasingly a beverage you can't get anywhere else and so it has a staying power to it. So we don't see a tradeoff and frequency from coal.
Rachel Ruggieri: In addition to that, we've had, you know, continued improvement in our equipment. And the investments we made in equipment a year ago, as well as the investments we're currently making, that's all annualizing and helping to support the favorability that we're seeing in the margin expansion. And then thirdly, more recently, we focused on improving our overall scheduling, so providing more hours for our partners per store. We have a ways to go, but we know that that's a high driver of engagement. All of those efforts together have led to lower turnover in a more stable environment.
Speaker Change: Coal is a great business for us and we don't see a threat there we see a great opportunity you mentioned about the capacity that we can put in place with Xyrem system and other aspects of the things we're doing in reinvention, which is really about accelerating our capacity to create and craft cold beverages at pace with our <unk>.
Speaker Change: Customers both in drive through mobile ordering and delivery in particular, so that is a huge opportunity for the company and our hot beverage I would say, we're not leaving that customer behind we're continuing to innovate on hot beverages, just as we did today with the launch of our <unk> beverages.
Rachel Ruggieri: And it's that stability that really allows us to create better efficiency in serving our customers. So as an example, I already spoke about our morning day part of this quarter in the U.S. was the strongest that we've seen. And that's a function of all of those efforts and activities that I just spoke about being realized in supporting our demand. So creating a better experience for our partners leads to a better experience for our customers. Now, some of that was annualization from the efforts that we made last year, but we continue to see quite a bit of opportunity ahead when we think about continuing to focus on scheduling, and continuing to focus on improvements in staffing. We have, you know, more work ahead of us there, as well as in-store, or excuse me, out-of-store efficiencies, the way we scrutinize our sourcing, the way we distribute to our stores. We've seen some benefits from that this quarter, but that won't show up in store operating expense.
We're launching clover vertical store across our portfolio. We're in 10% of stores now and that is the best Cup are brewed coffee you've ever been able to get at Starbucks Rolling out on a proprietary machine and then lastly, you mentioned, our Lux mentioned, our Milana roast, which is really our passion for <unk>.
Speaker Change: Coffee coming to fruition. So whether you are a cold coffee customer or a hot coffee customer we're increasingly creating a reason for you to visit and we see no tradeoffs there.
Your next question comes from Sara Senatore with Bank of America.
Sara Harkavy Senatore: Thank you very much.
Sara Harkavy Senatore: Wanted to ask about unit growth I know in both the U S and China I know you mentioned.
Sara Harkavy Senatore: New then the most recent vintage as high volumes and strong rois in the in the U S. But I was curious if you are.
Rachel Ruggieri: That'll be in our product and distribution costs. But between those two lines, that's where we see potential opportunity going forward. So it gives us confidence in the progressive margin expansion, but importantly, our ability to continue to meet that 15 to 20 percent earnings growth. Your next question. David Palmer with Evercore ISI.
Sara Harkavy Senatore: <unk> seen anything that might suggest that the acceleration in unit growth maybe translating in case slower same store transaction growth I know this is a very kind of idiosyncratic quarter, but in the past I think when we have seen faster growth. It is sometimes corresponded with slower same store transactions.
David Palmer: Hi. That's a big picture question; I don't know if... Brady, Um, by our math, just looking back to 2016, just because you gave some percentages on what was cold and what was hot in your beverages, it looked like... Your U.S. cold beverage sales have grown by roughly $750,000 per store, while hot beverage sales have declined by $150,000 per store. Pre-COVID, your rewards membership has more than doubled, but traffic has been down since that time. So and we don't see your customer like you do. So this is a bit of a question, but it looks like. You maybe have less of that everyday hot coffee and latte consumer and more of a new type of consumer that comes less frequently and probably opts for cold beverages. I'm picturing them being, you know, my daughter and three of her friends coming in some afternoon.
Sara Harkavy Senatore: Wanted to see if you had any color on any variation in markets or in fill versus Greenfield and then if you could just maybe address that same question in China. Thank you.
Rachel do you want to take on the U S and Belinda I'd Love you to take on China.
Rachel Reserve: Thanks, Sarah for the question in the U S. What we see is we continue to see that our unit volumes as we shared in lessons prepared remarks are continuing to grow and importantly, when you look at the growth in North America and in the U S business. This quarter. Our revenue grew 9% so you've got a five person.
<unk> comp in there and we've already spoken to that we're pleased with the performance and the strength, we saw particularly in our most loyal customers.
Rachel Reserve: Talk about some of the headwinds that related to some of the impact we saw there, but when you look broadly and you look at the combination of comp and new store growth driving to that 9%. It shows you that we still have a lot of I'd call. It opportunity even in the U S. In terms of continuing to open more new stores and when we do it through <unk>.
Rosalind Gates Brewer: So it's more of an episodic visit, big orders, cold beverage led. So with this happening, if this is what's happening, you know, how does that inform your strategy for growth going forward? I know you're doing some things to increase capacity for cold beverages, and maybe that helps fuel the summer months a little bit more. But I'm just wondering, like, what do you share that perspective on, and how does that fuel your strategy? Yeah, thank you, David. It's a great question.
Rachel Reserve: Purpose design, we're able to look at the market.
Speaker Change: Determined how are we how do we drive the overall trade area higher with a variety of different types of stores to meet customers, where they are so we see a lot of opportunity there and with that I'll turn it over to Sarah can I just add one thing here, we've gone through a look.
Rosalind Gates Brewer: My perspective is a little different in that we don't see a trade-off in frequency between cold beverage customers and hot beverage customers. It's really a shift in generational taste preferences where that highly frequent millennial Gen Z customer is drinking cold coffee every day, just as people of different generations were drinking hot coffee to start their day every day. So we've seen a continued increase in our cold beverage portfolio, as you noted, but what I found with the cold beverages is that there are infinite customizations possible on the cold beverage platform, and what that means is that it's increasingly a beverage you can't get anywhere else, and so it has staying power. So we don't see a trade-off in frequency from hot to cold.
Sarah: MSA by MSA.
Sarah: And what is interesting is as you start looking at where the population has shifted and you look at how the U S is so different from what it was even five years ago. I think what you see is white space for us and particularly as you look at purpose defined stores.
Sarah: And our plans to build in the U S. We have lot more headroom in the U S with that let me call on Belinda to talk a little bit on China, both around how our business has been reset but also the kind of growth options receiver Linda go ahead.
Sarah: Okay.
Sarah: So.
Rosalind Gates Brewer: Cold is a great business for us, and we don't see a threat there. We see a great opportunity. You mentioned the capacity that we can put in place with siren systems and other aspects of the things we're doing in reinvention, which is really about accelerating our capacity to create and craft cold beverages at pace with our customers, both in drive-thru, mobile order, and delivery, in particular. So that is a huge opportunity for the company. And on hot beverages, I would say we're not leaving that customer behind. We're continuing to innovate on hot beverages, just as we did today with the launch of our Oliato beverages. We're launching Clover Vertica across our portfolio. We're in 10 percent of stores now, and that is the best cup of brewed coffee you've ever been able to get at Starbucks on a proprietary machine.
Belinda Wong: Despite the short term headwinds the long term opportunity in China is clear I.
Belinda Wong: I think everyone will agree to that so.
Belinda Wong: Not extensively at the Investor Forum about the huge greenfield opportunities to both increase penetration in existing cities.
Belinda Wong: And entering new counties cities. So as of end Q1, we are only in 857 cities out of nearly 3000 in China. The opportunities are abundant and new stores continue to deliver best in class store profitability and returns.
Belinda Wong: And when you look at new counties City stores that we have entered.
Recently and in the past couple of years consistently outperformed top tier cities new stores on profitability too. So as long as <unk> has pointed to we will accelerate our entry into new <unk> cities. So we are on track to reach nine stores as so many opportunities.
Rosalind Gates Brewer: And then lastly, you mentioned, or Lex mentioned, our Milano Roast, which is, you know, really our passion for coffee coming to fruition. So whether you're a cold coffee customer or a hot coffee customer, we're increasingly creating a reason for you to visit, and we see no trade-off. Your next question: Sara Senatore with Bank of America. Thank you very much.
Belinda Wong: He's out there we will we have a very sophisticated system visualized and to help our team to identify the right areas to open to optimize.
Belinda Wong: The cannibalization impact and where we should be going.
Sara Harkavy Senatore: I just wanted to ask about unit growth. I know in both the U.S. and China, you mentioned that the most recent vintage has high volumes and strong ROIs in the U.S., but I was curious if you are seeing anything that might suggest that the acceleration in unit growth may be translating into slower same-store transaction growth. I know this is a very kind of idiosyncratic quarter, but in the past, I think when we have seen faster growth, it has sometimes corresponded with slower same-store transactions, and I wanted to see if you had any color on any variation in markets or infill versus greenfield, and then if you could just maybe address that same question in China. Thank you. Rachel, if you want to take on the U.S., and Belinda, I'd love you to take on China.
Belinda Wong: So with our experience our team our operating muscle and track record.
Belinda Wong: I have full confidence in our store expansion plan and we're on target to achieving 13% store growth in FY 'twenty four.
Belinda Wong: I've been to China three times, the last nine months.
And one of the things is fundamentally impress me with the business is really hot abused Colgate.
Belinda Wong: And the time that the business has actually taken to reset the business.
Belinda Wong: If you look at the end to end costs from a supply chain perspective with the Digitization. What does have an end to end in China. It is frankly incredibly strong I'd love to have some of that back in the U S. If.
If I look at the ability to deliver the value that we have end to end in China, coupled with a premium experience with a wonderful stores be design.
Rachel Ruggieri: Thanks, Sara, for the question. In the U.S., what we see is that our unit volumes, as we shared in Lushman's Prepared Marks, are continuing to grow. And importantly, when you look at the growth in North America and in the U.S. Businesses Quarter, our revenue grew 9 percent. So you've got a 5 percent comp there.
Belinda Wong: <unk>.
Belinda Wong: At a very low investment cost because that is also been fine tuned what you realize is that as we expand the kind of economics, we're seeing.
Our very strong and so I think that is foundational to what Belinda talked about big headroom in terms of cities to go to but also want to compliment. The team on is the work that has gone in to build the business and to and that is extremely strong.
Rachel Ruggieri: And we've already spoken to – though we were pleased with the performance and the strength we saw, particularly in our most loyal customers – we talked about some of the headwinds that related to some of the impact we saw there. But when you look broadly and you look at the combination of comp and new store growth driving to that 9 percent, it shows you that we still have a lot of, I'd call it, opportunity, even in the U.S., in terms of continuing to open more new stores. And when we do it through purpose design, we're able to look at the market and determine how we can drive the overall trade area higher with a variety of different types of stores to meet customers where they are.
Belinda Wong: This doesn't happen overnight.
Belinda Wong: This happens because of 25 years of history, and the muscle and the capability of the business is built in China. The team is ready obviously as the market turns and we see things come back youre going to see the kind of economics get even better.
Andrew M. Charles: Your next question comes from Andrew Charles <unk> Cowen.
Andrew M. Charles: Great. Thank you Rachel how did you arrive at the new low single digit China same store sales guidance from the 4% to 6% previously perhaps you can help us understand the typical quarter to quarter changes in seasonal AWS that you typically see in China, and how that factors into the new 2024 guidance. Thanks.
Rachel Ruggieri: So we see a lot of opportunity there. And with that, I'll turn it over to – Actually, Sarah, can I just add one thing here? We've gone through the look – MSA by MSA. And what is interesting is that you stop looking at where the population is shifting, and you look at how the U.S. is so different from what it was even five years ago. I think what you see is white space for us. And particularly as you look at purpose-defined stores and our plans to build in the U.S. We have a lot more headroom in the U.S. With that, let me call on Belinda to talk a little bit about China, both around how our business has been reset, but also the kind of growth options we see. Belinda, please.
Sure. Thank you Andrew when we looked at the guidance for China. It is largely based around I wouldn't say the seasonality is.
Rachel Reserve: Maybe as distinct as what we see in the U S business with Q2 being so much lower than any of our other quarters and strengthening as we go through Q3, Q4, particularly because we're lapping quite a bit of.
Rachel Reserve: Compares from the prior year, if you recall last year in Q3 were lap we were lapping the COVID-19 impacts from the prior year. So we have a pretty big lap when you look at that comp in that compare in Q3. So it's more around the progression we expect in the business less about the compare about seasonality and more about the progress.
Belinda Wong: Thank you. So, despite the short-term headwinds, the long-term opportunity in China is clear. I think everyone will agree that. I talked extensively at the investor forum about the huge greenfield opportunities to both increase penetration in existing cities and enter new county cities. So, as of NQ1, we are only in 857 cities out of nearly 3,000 in China.
Rachel Reserve: And in the business.
Rachel Reserve: And what we're looking to is Chinese new year. As an example is there is a good indicator of what we expect to see around the consumer environment and that's factored into our assumptions. So a lot of it depends on mainly the recovery. The time, it's going to take as Belinda and team work on the action plans, which.
Rachel Reserve: Or in some ways I'd say adapted to what we're saying we've already led in the premium market, but we're adapting some of our strategies as it relates to the awareness of the customer and how we go after the customer through the innovation and new channels of social media. So we expect that that's going to take some time and that's reflected in the guidance range, but I would think about it that way.
Belinda Wong: The opportunities are abundant, and new stores continue to deliver best-in-class store profitability and return. And when you look at new county city stores that we have entered recently and in the past couple of years, they consistently outperformed top tier cities, new stores, and profitability too. So, as Lakshman has pointed out, we will accelerate our entry into new counties. We are on track to reach 9,000 stores. There are so many opportunities out there.
Rachel Reserve: More about the recovery in the progression from where we are with the plans today, which we're expecting will see a rebound in closer to a stabilization in the back half of the year I think it's fair to say that the Chinese consumer is very cautious yet and so the recovery is going to be choppy, but as Richard said, we think we <unk>.
Rachel Reserve: With that into the guidance that we see the long term opportunity in China is tremendous.
Belinda Wong: We have a very sophisticated system digitalized to help our team to identify the right areas to open, to optimize the cannibalization impact, and where we should be going. So with our experience, our team, our operating muscle, and our track record, I have full confidence in our store expansion plan, and we're on target to achieving 13% store growth in FY24. You know, I've been to China three times in the last nine months, and one of the things that have fundamentally impressed me with the business is really how we've used COVID and the time that the business has actually taken to reset the business. If you look at the end-to-end costs from a supply chain perspective with the digitization of what is happening end-to-end in China, it is frankly incredibly strong. I'd love to have some of that back in the U.S.
Rachel Reserve: Your next question comes from Sharon Zackfia with William Blair.
Sharon Zackfia: Hi, good afternoon.
Sharon Zackfia: The customer that lapsed in there the first quarter was there any particular demographic that you saw.
Sharon Zackfia: More of an impact with.
Sharon Zackfia: Excuse me and then on the.
Sharon Zackfia: The conversation around the new beverage platforms. I think you said three upcoming new beverage platforms can you can you talk about the potential trade offs, there with speed as you talk about untapped demand.
Sharon Zackfia: Yeah.
Sharon Zackfia: So I think what I heard you say was there any demographic specific demographics that are impacted in the second question was on the three beverage platforms.
Sharon Zackfia: Is there something that is a tradeoff between speed is that correct.
Speaker Change: Here, you probably actually maybe you could repeat that question, but I think I think myself and break it up.
Lakshman Narasimhan: If I look at the ability to deliver the value that we have end to end in China, coupled with the premium experience with the wonderful stores we design, at a very low investment cost, because that has also been fine-tuned, what you realize is that as we expand, the kind of economics we're seeing is very strong. And so I think that is foundational to what Belinda talked about, the big headroom in terms of cities to go to. But also, what I compliment the team on is the work that has gone in to build a business end to end that is extremely strong. You know, this doesn't happen overnight.
When I think about you're introducing new beverage platforms and introducing complexity potentially into the system I naturally worry about three plus and you talked about untapped demand any opportunity to tap into that as part of the buffer.
Speaker Change: With me in the back half of the year and I'm, just thinking about that with a new beverage platforms and hoping you can talk about if there is a tradeoff with speed or if the new beverage platforms have been designed to facilitate per foot.
Speaker Change: Randy you want to grow sure. So in terms of beverage platform specific guidance. So I'll start there.
Lakshman Narasimhan: This is because of 25 years of history and the muscle and the capability that the business has built in China. The team is ready, obviously, as the market turns and we see things come back. You're going to see the kind of economics get even better. Here's your next question, Charles.
Randy: We put every product we offer through a very rigorous set of tests and measures to make sure that it's conducive to operations that it's easier for our partners to deliver in the stores and make sure that it's accretive to the business a lot of times. What we'll do is we'll bring in a new product and we will take our lower volume product out just the main.
Charles: ,,,, Great, thank you. Rachel, how did you arrive at the new low single-digit China same-store sales guidance from the 4% to 6% previously? Perhaps you can help us understand the typical quarter-to-quarter changes in seasonal AWS that you typically see in China and how that factors into the new 2024 guidance. Thank you, Andrew.
Randy: <unk> total complexity of the system rather than just add we have a very disciplined approach about how we do that and so the three beverage platforms, which we won't reveal yet.
Randy: I have gone through that and so it's really about how to do these products in a way that's accretive to the business and specifically targeted and so in these cases. This is about looking at that occasional customer and frequent customer, but particularly appealing for the afternoon, where we want to continue to build our business. We are really laser targeted these.
Andrew M. Charles: When we looked at the guidance for China, it's largely based on, I wouldn't say the seasonality is maybe as distinct as what we see in the U.S. business with Q2 being so much lower than any of our other quarters and strengthening as we go through Q3, Q4, particularly because we're lapping quite a bit of comparisons from the prior year. If you recall last year in Q3, we were lapping the COVID impacts from the prior year. So, we have a pretty big lap when you look at that comp and that compare in Q3.
Randy: Products for those occasions, and so we're excited to bring those to customers.
Randy: And then with regards to the demographics Starbucks.
Randy: Attracts a very wide range of customers around the world and particularly in the US again, a very wide range of customers. So the way that I would characterize it as occasional and I know you've spoken about the very occasional that's really what we would say is the audience with whom we saw that impact in November and started rebounding in December so that.
Rachel Ruggieri: So, it's more around the progression we expect in the business, less about the comparison or about seasonality, and more about the progression in the business. And what we're looking at is the Chinese New Year, as an example, which is a good indicator of what we expect to see around the consumer environment, and that's factored into our assumptions. So, a lot of it depends mainly on the recovery, the time it's going to take as Belinda and her team work on the action plans, which are, in some ways, I'd say, adapted to what we're saying. We've already led in the premium market, but we're adapting some of our strategies as it relates to the awareness of the customer and how we go after the customer through innovation and new channels of social
Randy: Where I would leave it and say we've got plans to bring them back.
Randy: Okay.
Randy: Your next question comes from Andrew <unk> with BMO capital markets.
Andrew: Hey, Thanks for taking the question I wanted to just make sure that we understand the bridge from the revised lowered revenue growth guidance to the maintained.
Andrew: S growth guidance.
Andrew: Obviously, the first quarter operating margin was very strong, particularly in North America.
Andrew: Is something changing there and your expectations for the year of the cost saves coming through faster or greater.
Rachel Ruggieri: So, we expect that that's going to take some time, and that's reflected in the guidance range. But I would think about it that way: it's more about the recovery and the progression from where we are with the plans today, which we're expecting we'll see a rebound and closer to a stabilization in the back half of the year. I think it's fair to say that the Chinese consumer is very cautious.
Speaker Change: Is there a change in how you're thinking about buyback contribution there just any more texture on that bridge would be helpful. Thanks.
Speaker Change: Sure. Thank you for the question.
Speaker Change: As it relates to our guidance and how we're thinking about.
Speaker Change: Maintaining their earnings growth range of 15% to 20%.
Speaker Change: Though our revenue has been revised I think what's important to think about that is what we're pointing to is that Q2 will be below our full year guidance ranges on all of our metrics and then we'll expect to see a rebound in a stabilization in the back half of the year and that rebound and stabilization will come to from the revenue growth.
Lakshman Narasimhan: And so, the recovery is going to be choppy. But, you know, as Rachel has said, we think we factored that into the guidance that we see. The long-term opportunity in China is, Your next question comes from Sharon Zackfia with... Hi, good afternoon. On the customer that lapsed in the first quarter, was there any particular demographic that you saw more of an impact with? Excuse me.
Speaker Change: That we're guiding to so the seven to.
Speaker Change: 10% and in that revenue growth a range there is.
Rosalind Gates Brewer: And then on the conversation around the new beverage platforms, I think you said three upcoming new beverage platforms. Can you talk about the potential trade-offs there with speed as you talk about untapped demand? So I think what I heard you say was, were there any demographic, specific demographics that were impacted? And the second question was about the three beverage platforms. Is there something that is a trade-off between speed?
Speaker Change: Time to materialize there is the impact we have from a strong and growing.
Speaker Change: Growing loyal customer base as well as what we've talked to around the strength in our <unk>.
Speaker Change: Digital and some of the success, we're seeing in reinvention. So that's factored in there to give us the confidence to be able to expect that we'll see that.
Speaker Change: The flow through from the revenue growth in the back half of the year, but in addition to that.
Speaker Change: What we're expecting is that we'll continue to see the strength in our in store and out of store operational efficiencies. So we had good success. This quarter. We will expect some of that to continue into Q2 and it will further into Q3 and Q4, that's how we'll be able to drive to the 15% to 20% on a full year basis.
Rosalind Gates Brewer: Is that correct? We couldn't hear you properly, actually. Maybe you could repeat that question. I think my cell is breaking down.
Rosalind Gates Brewer: When I think about you introducing new beverage platforms and potentially introducing complexity into the system, I naturally worry about throughput. And you talk about untapped demand and the opportunity to tap into that as part of a buffer into the back half of the year. And I'm just thinking about that. With the new beverage platforms, I'm hoping you can talk about if there is a trade-off with speed or if the new beverage platforms have been designed to help facilitate that. Brady, do you want to take it off?
Speaker Change: Thank you.
Speaker Change: The last question comes from John <unk> with Jpmorgan, you May ask your question.
John: Hi, Thank you, it's maybe a related one to the previous but normally operating companies when they do reduce revenue.
John: It's pretty customary for earnings to come down along with that now.
Rosalind Gates Brewer: Sure. So in terms of beverage platforms specifically, I'll start there. We put every product we offer through a very rigorous set of tests and measures to make sure that it's conducive to operations, that it's easier for our partners to deliver in the stores, and that it's accretive to the business. A lot of times, we'll bring in a new product, and we'll take a lower volume product out just to maintain the total complexity of the system rather than just add, add, add. We have a very disciplined approach to how we do that. And so the three beverage platforms, which we won't reveal yet, have gone through that.
John: You guys have communicated I think $3 billion of cost savings on a three year basis, I think that's $1 billion on a gross basis on a one year basis can you talk about if there were any.
John: Any cost savings that were pulled forward into fiscal 'twenty four were there any meaningful expenses, maybe discretionary expenses in 'twenty four that were perhaps pushed out.
John: <unk> 25, and 26, and maybe I'm getting a little bit ahead of myself at this point are getting getting ahead of you at this point as we kind of think about you getting more margin.
Rosalind Gates Brewer: And so it's really about how to do these products in a way that's accretive to the business and specifically targeted. And so, in these cases, it's about looking at that occasional customer and frequent customer, but particularly appealing for the afternoon, where we want to continue to build our business. We've really laser targeted these products for those occasions, and so we're excited to bring those in. And then, with regard to the demographics, Starbucks attracts a very wide range of customers around the world, and particularly in the US, again, a very wide range of customers. So the way that I would characterize it is as occasional.
On that lower revenue than maybe we would've thought earlier does it actually lead to a more difficult comparison that youll have to face 25 over 24 is there just some shifts in expenses between the two years.
The way I would look at it John is as we showed in the first quarter, we were able to demonstrate that margin expansion of 130 basis points to the total company level, given a combination of sales leverage.
We still had strong sales growth rate and that sales leverage as well as.
John: The flow through from that sales leverage and the in store operational efficiencies that we spoke to and when we think about the back half of the year, we'll expect to continue to see benefit from the revenue growth and the sales leverage that comes from that but we'll also see benefit from the in store and out of store operational efficiencies, which we do.
Rosalind Gates Brewer: And I know we've spoken about the very occasional. That's really what we would say is the audience with whom we saw that impact in November and started rebounding in December. So that's where I would leave it and say, we've got plans to bring them back. Next question: Andrew Strzok with BMO.
John: <unk> ability to increase our focus on some of those areas, which will help to ensure our 15% to 20% earnings growth commitment on a full year basis outside of that we also have investments as it relates to G&A as it investments as it relates to our reinvention and will continue to make the investments because there.
Andrew M. Charles: Hey, thanks for taking the question. I wanted to just make sure that we understand the bridge from the revised or lowered revenue growth guidance to the Maintained EPS Growth Guidance. Obviously, the first quarter operating margin was very strong, particularly in North America.
John: Those investments drive a meaningful impact and there are a driver of our competitive advantage, but we do have an ability to also dial up and dial down some of those investments to help support the commitments, we're making as it relates to the years ahead I don't think it's probably best to just focus on their year end. We're in right now, but that's how I would expect.
Rachel Ruggieri: So is something changing in your expectations for the year? Are the cost saves coming through faster or greater? Is there a change in how you're thinking about buyback contribution there? Just any more detail on that bridge would be helpful.
Rachel Ruggieri: Sure, thank you for the question. As it relates to our guidance and how we're thinking about maintaining the earnings growth range of 15 to 20%. Though our revenue has been revised, I think what's important to think about that is what we're pointing out is that Q2 will be below our full-year guidance ranges on all of our metrics, and then we'll expect to see a rebound and a stabilization in the back half of the year. And that rebound and stabilization will come from the revenue growth that we're guiding to. So the seven to ten percent.
John: The the guidance to come together and how I would think about Q2 relative to the balance of the year, John If I could just add one more thing I think we've system ties.
Speaker Change: Our approach to how we think about innovation, how do we think about productivity how do we think about growth overall.
Speaker Change: A very sort of systematic approach that we have in place with pipelines around how we're looking at different things. So we have visibility clearly in terms of things that we could do for example, about the store and they go multiple years and so even if you did bring something forward because we can it does not have told me that we don't have more there'll be go after so I feel very confident about that that will continue.
Rachel Ruggieri: And in that revenue growth range, there is. Time for it to materialize, there is the impact we have from a strong and growing loyal customer base as well as what we've talked about around the strength in digital and some of the success we're seeing in reinvention, so that's factored in there to give us the confidence to be able to expect that we'll see the flow through from the revenue growth in the back half of the year. But in addition to that, what we're expecting is that we'll continue to see strength in our in-store and out-of-store operational efficiencies, so we had good success this quarter. We'll expect some of that to continue into Q2, and it'll further into Q3 and Q4. That's how we'll be able to drive to the 15 to 20 percent on a full year basis. The last question comes from John Ivankoe with J.P. Hi, thank you.
Speaker Change: We invest in the business there is no impact from a buyback I think that was a question asked earlier, none whatsoever, and we're investing in the business, but we also know that we have opportunities for us to make ourselves more efficient at the same time.
Speaker Change: Get the throughput that we think we need in order to meet the demand that exists out there yeah. I do think it's just worth noting is that our buybacks are expected to be nearly 1% of our earnings growth net of interest so small in the scheme of things.
Speaker Change: Thank you that was our last question I will now turn the call over to Lakshman, the rosman for closing remarks.
Lakshman: Thank you so much Diego I will close by reiterating our strong momentum from the quarter and our overall confidence in our long term growth.
Lakshman: While we continue to navigate some headwinds.
Lakshman: We're encouraged by the strength of our brands, particularly with our loyal customers around the world and.
Lakshman: And the plans that we have in place to address the challenges we have identified.
John William Ivankoe: It's maybe a related one to the previous one, but normally, you know, operating companies when they do reduce revenue, it's pretty customary for earnings to come down along with that. Now, you know, you guys have communicated, you know, I think $3 billion of cost savings on a three-year basis. I think that's $1 billion on a gross basis, on a one-year basis. Can you talk about whether there were any cost savings that were pulled forward into fiscal 24? Were there any meaningful expenses, maybe discretionary expenses, in 24 that were perhaps pushed out, you know, into 25 and 26?
Lakshman: On a broader level of cup learn.
Lakshman: That we truly are a different kind of company here at Starbucks.
Lakshman: But we are now operating in a different kind of world.
Lakshman: We recognize that no one can solve the many difficult problems in the world alone.
Lakshman: Starbucks is however.
Lakshman: And we will continue to be the worlds third place provide.
Lakshman: Providing people with places to come together to connect to find common ground.
Lakshman: Feel they belong.
And to bring.
Lakshman: A little joy in their everyday.
Speaker Change: For joining us this afternoon.
Rachel Ruggieri: And maybe I'm getting a little bit ahead of myself at this point, or getting ahead of you at this point. You know, as we kind of think about you getting more margin on that lower revenue than maybe we would have thought earlier, does that actually lead to a more difficult comparison that you'll have to face 25 over 26? Because I think in fiscal 24, there are just some shifts in expenses between the two years.
Speaker Change: This concludes Starbucks first quarter fiscal year 2024 conference call you may now disconnect.
Rachel Ruggieri: The way I would look at it, John, is as we showed in the first quarter, we were able to demonstrate that margin expansion of 130 basis points at the total company level, given a combination of sales leverage. So we still had strong sales growth, right? That sales leverage, as well as the flow through from that sales leverage and the in-store operational efficiencies that we spoke about. And when we think about the back half of the year, we'll expect to continue to see benefits from the revenue growth and the sales leverage that comes from that. But we'll also see benefit from the in-store and out-of-store operational efficiencies, and we do have the ability to increase our focus on some of those areas, which will help to ensure our 15 to 20% earnings growth commitment on a full year basis.
Rachel Ruggieri: Outside of that, we also have investments as it relates to GNA, investments as it relates to our reinvention, and we'll continue to make those investments because those investments drive a meaningful impact and they're a driver of our competitive advantage. But we do have the ability to also dial up and dial down some of those investments to help support the commitments we're making. As for the years ahead, I don't think it's probably best to just focus on the year we're in right now, but that's how I would expect the guidance to come together and how I think about Q2 relative to the balance of the year. John, if I could just add one more thing. I think we've systematized it. Our approach to how we think about innovation, how we think about productivity, how we think about growth overall, a very sort of systematic approach that we have in place with pipelines around how we're looking. So we have visibility, clearly, in terms of things that we could do, for example, about the store. And they go for multiple years.
Lakshman Narasimhan: And so even if we did bring something forward because we can, it does not at all mean that we don't have more that we could go after. So I feel very confident about that, that we'll continue to invest in the business. There's no impact from a buyback. I think that was a question asked earlier. None whatsoever.
Lakshman Narasimhan: And we're investing in the business, but we also know that we have opportunities for us to make ourselves more efficient at the same time, get the throughput that we think we need in order to meet the demand that is. I do think it's just worth noting that our buybacks, you know, are expected to be nearly 1% of our earnings growth net of interest, so small in the scheme of things. Thank you. That was our last question. I will now turn the call over to Lakshman Narasimhan for closing. Thank you so much, Diego.
Lakshman Narasimhan: I will close by reiterating our strong momentum from the quarter and our overall confidence in our long-term growth. While we continue to navigate some headwinds. We're encouraged by the strength of our brand, particularly with our loyal customers around the world, and the plans that we have in place to address the challenges we have identified. On a broader level, I've come to learn that we truly are a different kind of company here at Star. But we are now operating in a different kind of world. We recognize that no one can solve the many difficult problems in the world alone. Starbucks is, however, and will continue to be the world's third place, providing people with places to come together, to connect, to find Common Ground, to feel they belong, and to bring a little joy to their everyday. Thank you for joining us this afternoon. This concludes Starbuck's first quarter fiscal year 2024 conference. You may now go.