Q2 2024 Starbucks Corp Earnings Call

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Diego: Good afternoon, My name is Diego and I'll be your conference operator today.

Diego: My name is Diego, and I will be your conference operator. I would like to welcome everyone to Starbucks' second quarter fiscal year 2024 conference. All lines have been placed on mute to prevent any back-and-forth. After the speaker's remarks, there will be a question. If you would like to ask a question, simply press star, then the number one on your telephone.

I would like to welcome everyone to Starbucks second quarter fiscal year 2024 conference call.

Diego: All lines have been placed on mute to prevent any background noise.

Diego: 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, if you'd like to withdraw your question Press Star then the number two on your telephone keypad.

Diego: If you would like to withdraw your question, press star then the number 2 on your remote control. I will now turn the call over to Tiffany Willis, Vice President of Investor Relations, and, Thanks Willis, you may begin your question. And good afternoon, and thank you for joining us today to discuss Starbucks' second quarter fiscal year 2024 results. Today's discussion will be led by Laxman Narasimhan, Chief Executive Officer, and Rachel Ruggeri, Executive Vice President and Chief Financial Officer.

Diego: I will now turn the call over to Tiffany Willis Vice President of Investor Relations and ESG engagement. Mr. Willis you may begin your conference.

Diego: And for the Q&A, we'll be joined by Belinda Wong, Chairwoman and Co-Chief Executive Officer of Starbucks China; Brady Brewer, Chief Executive Officer of Starbucks International; and Michael Conway, Chief Executive Officer of Starbucks North America. This conference call will include forward-looking statements that are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factors discussed in our filings with the SEC, including our latest annual report on Form 10-K and quarterly report on Form 10-Q.

Tiffany Willis: And good afternoon, and thank you for joining us today to discuss Starbucks second quarter fiscal year 2024 results. Today's discussion will be led by Lakshmi North Simmons, Chief Executive Officer, and Rachel Gerry Executive Vice President and Chief Financial Officer.

Tiffany Willis: Starbucks assumes no obligation to update any of these forward-looking statements or information. GATT results for the second quarter of fiscal year 2024 in 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.

Tiffany Willis: And for Q&A, we'll be joined by Belinda Wong Chairwoman and co Chief Executive Officer of Starbucks China.

Tiffany Willis: Brady Brewer chief.

Tiffany Willis: Chief Executive Officer of Starbucks International and Michael Conway, Chief Executive Officer of Starbucks North America.

This conference call will include forward looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.

Tiffany Willis: 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.

Tiffany Willis: Starbucks assumes no obligation to update any of these forward looking statements or information.

Tiffany Willis: GAAP results in the second quarter of fiscal year 2024 in the comparative period include several items related to strategic actions, including restructuring and impairment charges.

Tiffany Willis: Action and integration costs and other items.

These items are excluded from our non-GAAP results all numbers referenced on today's call are on a non-GAAP basis, unless otherwise noted or there is no non-GAAP adjustment related to the metric.

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. Whereby current period results 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 related hedging activities.

Tiffany Willis: As part of our non-GAAP results revenue operating margin and EPS growth metrics on today's call are measured in constant currency.

Tiffany Willis: Whereby current period results 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 related hedging activities.

Tiffany Willis: For non-GAAP financial measures mentioned in today's call, please refer to the earnings release on 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, June 14th, 2024. Also, for calendar planning purposes, please note that our third quarter fiscal year 2024 earnings conference call has tentatively been scheduled for Tuesday, July 30th, 2024. And with that, I'll now turn the call over to Lux.

Tiffany Willis: For non-GAAP financial measures mentioned in today's call. Please refer to the earnings release on our website at Investor Starbucks Dot com to find reconciliations of those non-GAAP measures to their corresponding GAAP measures.

Tiffany Willis: This conference call is being webcast and an archive of the webcast will be available on our website through Friday June 14th 2024.

Tiffany Willis: Also for calendar planning purposes. Please note that our third quarter fiscal year 2024 earnings conference call has tentatively been scheduled for Tuesday July 30th 2024.

Tiffany Willis: And with that I'll now turn the call over to Luckman.

Laxman Narasimhan: Thank you, Tiffany, and thank you all for joining us this afternoon. I want to be clear from the beginning. Our performance this quarter was disappointing and did not meet our expectations. Our Q2 total company revenue was $8.6 billion, down 1% year-over-year. Our global comparable store sales declined 4% year-over-year, driven by a negative 3% comp growth in North America, led by declining traffic, and a negative 11% comp growth in China. Have global operating margins contracted by a 140 basis? to 12.8%, and our overall earnings per share declined by 7% to 68%.

Luckman: Thank you Tiffany and thank you all for joining us this afternoon.

Luckman: Let me be clear from the beginning our.

Luckman: Our performance this quarter was disappointing and did not meet our expectations.

Luckman: Our Q2 total company revenue was $8 $6 billion.

Luckman: One 1% year over year.

Luckman: Our global comparable store sales declined 4% year over year.

Luckman: Driven by a negative 3% comp growth in North America.

Luckman: Led by declining traffic.

Luckman: And a negative 11% comp growth in China.

Luckman: Our global operating margins contracted by 140 basis points to 12, 8%.

Luckman: And our overall earnings per share declined by 7% to 68 cents.

Laxman Narasimhan: While these results do not reflect our strengths, our capabilities, or the opportunities ahead, we confront these challenges from a position of enduring strength. We have led the industry for more than 50 years because we have built a different kind of company. One that exceeds our partner expectations, one that delivers a distinctive and unique experience for our customers, and one anchored in the love and craft of coffee. As a result, our worldwide brand equity remains resilient and strong. Our leadership in coffee remains unmatched, and a global base of customers remains loyal. Our experiences are differentiated and elevated.

Luckman: While these results do not reflect our strengths our capabilities or the opportunities ahead.

Luckman: We confront these challenges from a position of enduring strength.

Luckman: We have led the industry for more than 50, yes, because we have built a different kind of company one that exceeds our popular expectations, one that delivers a distinctive and unique experience for our customers.

Luckman: And one anchored in the love and Croft of coffee.

Luckman: As a result, our worldwide brand equity remains resilient and strong.

Luckman: Our leadership in coffee remains unmatched.

Luckman: Global base of customers remains loyal our experiences are differentiated and elevated.

Laxman Narasimhan: Our partners are talented and engaged. A forward-looking product pipeline is highly appealing. Our distinctive store development capability continues to perform incredibly well. Our network of stores is healthy and robust. Our stores are executing better than ever with a stronger operating foundation. Overall, partner engagement is very strong.

Luckman: Partners are talented and engaged.

Luckman: Forward looking product pipeline is highly appealing.

Luckman: Distinctive store developing capability continues to perform incredibly well.

Luckman: Our network of stores is healthy and robust.

Luckman: Our stores are executing better than ever with a stronger operating foundation.

Luckman: Overall partner engagement is very strong.

Laxman Narasimhan: Our triple shot with two pumps reinvention strategy continues to deliver, and our possibilities as a company remain limitless. However, we still face a challenging operating environment. Headwinds discussed last quarter have continued. In a number of key markets, we continue to feel the impact of a more cautious consumer, particularly with our more occasional customers, and a deteriorating economic outlook has weighed on customer traffic, an impact felt broadly across the industry. In the U.S., severe weather impacted both our U.S. and total company calm by nearly 3% during the quarter.

Luckman: Our triple shot with two pumps Reid mentioned strategy continues to deliver and all possibilities as a company remain limitless.

Luckman: Still we face a challenging operating environment.

Luckman: Headwinds discussed last quarter have continued.

Luckman: And a number of key markets, we continue to feel the impact of a more cautious consumer, particularly with our more occasional customer.

Luckman: And the deteriorating economic outlook has weighed on customer traffic and impact felt broadly across the industry.

Luckman: In the U S severe weather impacted both our U S and total company comp by.

Luckman: By nearly 3% during the quarter.

Laxman Narasimhan: The remainder of our challenges were attributable to fewer visits from our more occasional customers. Turning elsewhere, we still see economic volatility in the Middle East, but we remain confident in the region's long-term growth opportunities. In China, we still see the effects of a slower than expected recovery, and we see fierce competition among value players in the market. But we are strengthening our premium position, and our team in China continues to execute with terrific rigor and heart as the market shakeout continues and demand recovers and matures. None of these realities are excuses,

Luckman: The remainder of our challenges were attributable to fewer visits.

Luckman: From a more occasional customers.

Luckman: Turning elsewhere, we still see economic volatility in the middle East, but we remain confident in the region's long term growth opportunities.

Luckman: In China, we still see the effects of a slower than expected recovery and we see fierce competition among value players in the market.

Luckman: But we are strengthening our premium position.

Luckman: And our team in China continues to execute with terrific rigor and heart as the market Shake off continues.

Luckman: And as demand recovers and matures.

Luckman: None of these realities are excuses some like weather transitory.

Laxman Narasimhan: Some, like weather, are transitory. Others, like a more cautious consumer, may persist longer. But much is within our control. There are three execution opportunities in our U.S. business I want to expand on. First

Luckman: There's like a more cautious consumer may persist longer.

Luckman: But much is within our control.

Luckman: There are three execution opportunities in our U S business I want to expand on.

Luckman: First.

Laxman Narasimhan: First, meet the demand we have across day bots to drive future growth. Second, launch even more exciting and relevant new products while maintaining our focus on our core coffee forward offering. And third, reach and demonstrate more value for our occasional and non-Starbucks rewards customers. We understand how to do this.

Luckman: Meet the demand we have.

Luckman: Across day parts to drive future growth.

Luckman: Second launch, even more exciting and relevant new products, while maintaining our focus on core coffee forward offerings.

Luckman: And third reach and demonstrate more value for our occasional non Starbucks rewards customers.

Luckman: We understand how to do this and we have what we need to deliver against our plans.

Laxman Narasimhan: And we have what we need to deliver against our plan. So as we look to the second half of the fiscal year and beyond, we're accelerating our work on the underlying execution engine that powers our business to realize these opportunities. Let me talk you through each.

Luckman: So as we look to the second half of the fiscal year and beyond.

Luckman: We're accelerating our work on the underlying execution engines that power our business to realize these opportunities.

Luckman: Let me talk you through each.

Luckman: First.

Laxman Narasimhan: First, meet the demand we have in the U.S. across the dayparts. The morning tea part is likely what you think of when you think of Starbucks. It is our peak, and it represents about half our business. It's Coffee Forward, heavily routine based, and driven by strong loyalty. At our best, we bring in customers with distinctive coffee and a great experience. We convert them to Starbucks rewards members.

Luckman: Meet the demand we have in the U S across day parts.

Luckman: The morning day part is likely would you think off when you think of Starbucks. It is our peak and it represents about half of our business. It's coffee forward heavily routine based and driven by strong loyalty.

Luckman: And I'll address we bring in customers with distinctive coffee and a great experience, we convert them to Starbucks rewards members, we build interest with new coffee innovations and we encourage more frequent visits and food attached.

Laxman Narasimhan: We build interest with new coffee innovation, and we encourage more frequent visits and food pairings. But we currently have a challenge meeting our peak morning demand in the U.S. For example, more than 60% of our morning business in the U.S. comes from Starbucks Rewards members who overwhelmingly order with a Starbucks app. What's interesting though, despite strong mobile order and pay sales, we saw a mid-teens percent order incompletion rate within the order channel this past quarter. In other words, customers using MOP put items into their cart and sometimes chose not to complete their order, citing long wait times for product unavailability.

Luckman: But we currently have a challenge meeting our peak morning demand in the U S.

Luckman: For example, more than 60% of our morning business in the U S comes from Starbucks rewards members, who overwhelmingly order with the Starbucks App.

Luckman: What's interesting though.

Luckman: Despite strong mobile order and pay sales.

Luckman: We saw a mid teens percent order in completion rate within the auto channel this past quarter.

Luckman: In other words customers using MLP put items into their cost and sometimes chose not to complete the order, citing long wait times of product unavailability.

Laxman Narasimhan: Here lies opportunity. We're intensely focused and actively working on improving operational throughput by providing our partners with the right processes and tools, and on giving our customers a better sense of when the order will be ready. Rollout of our equipment-driven siren system is on track.

Speaker Change: Here lies opportunity.

Luckman: We're intensely focused on actively working on improving operational throughput.

Luckman: By providing our partners with the right processes and tools and on giving our customers a better sense of when the order will be ready.

Luckman: Rollout of our equipment driven siren system is on track.

Laxman Narasimhan: But we're also fine-tuning the stow processes that underpin this new equipment. We've been working for the past six months with the Toyota Production Systems Support Center to unlock additional capacity at our peak, and what we saw through store tests was a real near-term opportunity to fundamentally improve how we operate our stores. The siren craft system, as we're calling it, requires no capital.

Luckman: But we're also fine tuning the stope processes that underpin this new equipment.

Luckman: We have been working for the past six months with the Toyota production system support center to unlock additional capacity at our peak.

Luckman: And what we saw through store tests was a real near term opportunity to fundamentally improve how we operate our stores.

Luckman: The siren crop system as we're calling it requires no capital.

Laxman Narasimhan: The technology solutions are relatively straightforward, and we are working to roll them out in North American stores over the coming months in stores where we've already used the SirenCraft system to optimize operations. We have already seen an increase in peak throughput, which we estimate to be worth nearly one comp point annually. The SirenCraft system also bolsters the highly incremental returns we expect from our equipment-driven siren systems as it is deployed in stores. Taken together, these new processes and new equipment systems act as complements, and Amplify Efforts to Unlock Capacity at Peace.

Luckman: The technology solutions are relatively straightforward.

Luckman: And we are working to roll it out in North American stores over the coming months.

Luckman: In stores, where we've used the Sam Croft system to optimize operations.

Luckman: We have already seen an increase in peak throughput.

Luckman: Which we estimate to be worth nearly one comp point annually.

Luckman: The siren crop system also bolsters the highly incremental returns we expect.

Luckman: From our equivalent driven science systems as it is deployed in stores.

Luckman: Taken together these new processes and new equipment systems actress complements at amplify efforts to unlock capacity at peak.

Laxman Narasimhan: Additionally, we are revamping and investing in our deep blue technology to improve wait time estimates and provide more transparency for customers. These are efforts we began last quarter and build on the many improvements we've made to the Starbucks app over the last 12 weeks, with introductions now on a four week upgrade cycle. Another reason customers choose not to complete their order is product availability. For example, potato cheddar and chive bakes were a big hit with customers.

Luckman: Additionally, we are revamping and investing in our deep brew technology to improve wait time estimates and provide more transparency for customers.

Luckman: Our efforts, we began last quarter and build on the many improvements we've made.

Luckman: To the Starbucks App.

Luckman: Over the last 12 weeks with introductions now on a four week upgrade cycle.

Luckman: So another reason customers choose not to complete the order as product availability.

Luckman: For example, our potato Cheddar and Chai breaks were a big hit with customers.

Laxman Narasimhan: But demand was so strong that we are currently only able to offer them in 2000 of our U.S. stores. We are ramping up supply chain investments to further improve availability with an initial focus on our customers' favorite items. In summary, we are working to increase throughput and improve product availability to enhance the customer experience, improve convenience, and better capture existing demands. Over time, we believe these improvements will attract a larger subset of customers.

Luckman: But demand was so strong that we are currently only able to offer them in 2000 of our U S stores.

Luckman: We are wrapping up supply chain investments to further improve availability with an initial focus on our customers' favorite items.

Luckman: In summary, we are working to increase throughput and improve product availability to enhance the customer experience improve convenience and better capture existing demand.

Luckman: Over time, we believe these improvements will attract a larger subset of customers.

Laxman Narasimhan: I also want to talk about unmet overnight demand. We see it as a tremendous and untapped incremental opportunity. Last quarter, we mentioned we were conducting a pilot program to serve customers overnight between 5 p.m. and 5 a.m., when our stores are traditionally closed.

Luckman: I also want to talk about unmet overnight demand.

Luckman: We see it as a tremendous untapped incremental opportunity.

Luckman: Last quarter, we mentioned we were conducting a pilot program to serve customers overnight between five P M and five a M. When our stores are traditionally closed.

Laxman Narasimhan: During this pilot test, we doubled our business. Building on that success, we are aggressively pursuing options to build a $2 billion business over the next five years. Overnight opportunities are incremental and create a complement to our existing delivery business, which grew by double digits in the U.S. this quarter, with both ticket increases and transaction growth. In addition to the overnight, we have unmet weekend demand potential. Starbucks attracts routine customers all week through the morning and the afternoon.

Luckman: During this pilot test we doubled our business.

Luckman: Building off that success, we are aggressively pursuing options to build a $2 billion business over the next five years.

Luckman: Overnight opportunities are incremental and create a complement to our existing delivery business, which grew by double digits in the U S. This quarter, where both ticket increase and transaction growth.

Luckman: In addition to the overnight, we have unmet weekend demand potential.

Luckman: Starbucks attracts routine customers all week through the morning, and the afternoon.

Laxman Narasimhan: While the weekend continues to attract our routine customers, we also see more families and kids. We are working to realize this demand potential through new product offerings, collaborations, marketing, and enhancements to the store experience. As you can see, there is significant demand in the morning and even more potential during the afternoon, overnight, and the weekend. We have yet to realize, and we are accelerating our execution engines to meet. Second, we launch relevant and exciting new products for our US customers while maintaining our focus on core coffee forward. We are the leader in coffee. We are overwhelmingly focused on our coffee forward products, and coffee continues to perform strongly.

Luckman: While the weekend continues to attract a routine customers. We also see more families and kids.

Luckman: We are working to realize this demand potential the new product offerings collaborations marketing and enhancements to the store experience.

Luckman: As you can see there.

Luckman: There is significant demand in the morning, and even more potential direct afternoon overnight and the weekend, we have yet to realize.

Luckman: And we are accelerating our execution engines to meet it.

Luckman: Second launch more relevant and exciting new products for our U S customers, while maintaining our focus on core coffee forward offerings.

Luckman: We are the leader in coffee, we are overwhelmingly focused on our coffee forward products coffee continues to perform strongly.

Laxman Narasimhan: And for example, 63% of our beverage sales in the quarter were cold, up 1% from a year ago, driven by innovation, and beyond our core, there is more. We know we are challenged to bring new innovations with frequency and strong appeal across other day paths. This winter, we brought back pistachio lattes, rolled out oleato nationally, and launched a new core iced shake and espresso.

Luckman: And for example, 63% of our beverage sales in the quarter were cold up 1% from a year ago driven by innovation.

Luckman: And beyond our core there is more.

Luckman: We know we are challenged to bring new innovations with frequency and strong appeal across other day parts.

Luckman: This winter, we brought back Pistachio law case rolled out only auto nationally and launched a new core ice shaken espresso.

Laxman Narasimhan: Our beverages were paired with new breakfast products like our potato cheddar and chive bakes. Some of our new products did well and drove positive customer buzz, but not all met our expectations. That reality, coupled with what our customers have told us, points to opportunities across both coffee and non-coffee. And by that, I mean refreshers, matcha, and chai, and Across Food to Drive Greater Attachment.

Luckman: Our beverages prepared with new breakfast products like a potato cheddar and chive bags.

Luckman: Some of our new products did well and drove positive customer bus.

Luckman: But not all met our expectations.

Luckman: That reality, coupled with what our customers have told us points to opportunity across both coffee and non coffee and by that I mean, refreshes Marsha and Chi and.

Luckman: And across food to drive greater attach.

Laxman Narasimhan: Later in the quarter, we saw improvements. Our Lavender platform was extremely successful, including our Lavender March, and it compared to some of the most successful launches we've ever had. But to cut through, we're working to drive even more buzzworthy products and strengthen the supply of products that become popular. These efforts take time, but our team is working with great energy and speed to make both happen. We also invested in our brand over the past quarter to address recent misinformation. The work was effective in driving brand met, and our overall brand equity and affinity remains strong.

Luckman: Later in the quarter, we saw improvement.

Luckman: Our lab and the platform was extremely successful, including allowing the mantra.

Luckman: And it compares to some of the most successful launches we've ever had.

Luckman: But to cut through we are working to drive even more buzzworthy products, our strengthening the supply of products that become popular.

Luckman: These efforts take time, but our team is working with great energy and speed to make both happen.

Luckman: We also invested in our brand over the past quarter to address recent misinformation.

Luckman: The work was effective in driving brand metrics and our overall brand equity and affinity remains strong.

Laxman Narasimhan: As we look ahead, we have an opportunity to better amplify our new products and to drive more awareness and excitement for those products, particularly among our more occasional customers. As people detail, we are accelerating the execution engines to help us drive more frequent and exciting product innovations, both in the core and beyond. Third, reach and demonstrate more value for our occasional and non-Starbucks Rewards customers. We have loyal customers in the U.S., and they say they are truly loyal in terms of frequency, transactions, and the level of customization they seek with their purchases.

Luckman: As we look ahead, we have an opportunity better amplify our new products and to drive more awareness and excitement for those products, particularly among our more occasional customers.

Luckman: As we will detail we are accelerating the execution engines to help us drive more frequent and exciting product innovations both in the core and beyond.

Luckman: Third reach and demonstrate more value for occasional and non Starbucks rewards customers.

Luckman: We have loyal customers in the U S.

Luckman: And they say truly loyal in terms of frequency transactions and the level of customization they saw with their purchases.

Laxman Narasimhan: We are a brand known for the premium value we provide, and our one-of-a-kind experiential Starbucks Reserve Roasteries, which elevate our brand and create lasting value, have strong transactions, fuelled by innovation across our coffee platforms, other beverages, and food. Throughout the quarter, brand perception of value for what I get on average remained strong, and our pricing decisions have been measured. But in this environment, many customers are being more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent.

Luckman: We are a brand known for the premium value we provide.

Luckman: Our one of a kind experiential Starbucks reserve, <unk>, which elevate our brand and create lasting value had strong transactions.

Luckman: By innovation across our coffee platforms other beverages and food.

Luckman: Throughout the quarter brand perception of value for what I get on average remained strong.

Luckman: And our pricing decisions have been measured.

Luckman: But in this environment, many customers are being more exacting about where and how they choose to spend their money.

Luckman: Particularly with stimulus savings mostly spent.

Laxman Narasimhan: We saw this materialize over the quarter as customers made the trade-offs between food away from home and food at home. Against that tide, we need to be able to reach and communicate with our customers in a way that demonstrates our value, particularly through Starbucks Rewards and the Starbucks app. We are accelerating back and work on the Starbucks app to ensure we better connect with our more occasional customers. Starting in May, we will add new and exclusive in-app offers that create additional value for our customers.

Luckman: We saw this materialize over the quarter as customers make the trade offs between food away from home and food at home.

Luckman: Against that tide, we need to be able to reach and communicate with our customers in a way that demonstrates our value.

Luckman: Particularly to Starbucks rewards and the Starbucks App.

Luckman: We are accelerating back and work on the Starbucks App to ensure we better connect with our more occasional customers.

Luckman: Starting in May we will add new and exclusive in App offers that create additional value for our customers.

Laxman Narasimhan: We'll also launch upgrades to the app that include significant improvements to our wait time algorithm. Then, in July, we will begin opening the Starbucks app for all while making MOP available in more places outside our app. Following that milestone, more of our customers will be able to see our offers, including those that use guest checkout, and more customers will discover the strong value we provide that they will not see otherwise. More on that later.

Luckman: We'll also launch upgrades to the App that includes significant improvements to our wait time algorithms.

Luckman: Then in July we will begin opening the Starbucks app for all while making MLP available in more places outside our app.

Luckman: Following the milestone more of our customers will be able to see our office, including those that use guest checkout.

Luckman: And more customers will discover the strong value we provide value.

Luckman: That they will not see otherwise.

Luckman: More on that later.

Laxman Narasimhan: These opportunities show that much is within our control. We are confident in our accelerated plans to strengthen the execution engines that power how we serve our customers, how we create and amplify a pipeline of new products, and how we reach our customers through the Starbucks app. But let me be clear, it will take time to fully realize these opportunities.

Luckman: These opportunities show that much is within our control we are confident in our accelerated plans to strengthen the execution engines that power, how we serve our customers, how we create and amplify our pipeline of new products and how we reach our customers through the Starbucks App.

Luckman: Let me be clear it will take time to fully realize these opportunities.

Laxman Narasimhan: Our triple shot with two pump strategy is the way we will drive these plans forward over the long term. So let's talk about our progress made against each strategic pillar. Our first strategic pillar is to elevate the brand. We do this by driving compelling product innovation, building great stores, and operating great stores. Above all, we maintain our leadership and innovation in coffee. In fact, just last week, we announced several steps to reinforce our leadership position through the lens of our partners, our customers, and our farmers. These include new investments in coffee farms to further scale open agronomy practices.

Luckman: Uh-huh Triple shot with two pumps strategy is the way we will drive these plans forward over the long term.

Luckman: So let's talk about our progress made against each strategic pillar.

Luckman: Our first strategic pillar is to elevate the brand we do this by driving compelling product innovation building, great stores and operating great stores of all we maintain our leadership and innovation in coffee.

Luckman: In fact, just last week, we announced several steps to reinforce our leadership position through the lens of our partners our customers and our farmers. These include new investments in coffee volumes to further scale open agronomy practices, new an exquisite whole bean coffee is coming to our core and reserve stores and new pulp of experiences in the cities.

Laxman Narasimhan: New and exquisite whole bean coffees are coming to our core and reserve stores, and new pop-up experiences in cities around the world to engage Gen Z and millennial customers in the craft of coffee which they love. Further, we are scaling the rollout of our Clover Vertica Brewer to deliver the world's finest hot quality brewed coffee. The Clover Vertica provides customers with choice between six separate coffee roasts and blends, including decaf, brewed fresh on demand any time of the day, and its roller is paired with the global launch of our new Starbucks Milano Duetto Light and Dark Roast blends in stores later this year.

Luckman: The world.

Luckman: To engage Gen Z and millennial customers in the craft of coffee, which they love.

Luckman: Further we are scaling the rollout of our global vertical brewer to deliver the wells fine as top quality brewed coffee.

Luckman: The <unk> vertical provides customers a choice between six super separate coffee roast and blends.

Luckman: <unk> Bruce fresh on demand any time of today and.

Luckman: And its rollout is paired to the global launch of our new Starbucks Melano Duato light and dark roast blend in stores later this year.

Laxman Narasimhan: As mentioned, we're also driving more frequent and exciting product innovation, both coffee and non-coffee. Our team has been working with remarkable speed and agility to create a product innovation pipeline that includes new flavors, textures, and functional benefits. Investments in product development are already showing better results. Our new lavender platform performed nearly as well this past quarter as the PSL. More recently, too, our new spicy refreshers and reserve hot honey beverages show that relevant product innovation can exceed expectations.

Luckman: As mentioned, we're also driving more frequent and exciting product innovation.

Luckman: Both coffee and non coffee.

Luckman: Our team has been working with remarkable speed and agility to create a product innovation pipeline that includes new flavors textures and functional benefits.

Luckman: Investments and product development are already showing benefit.

Luckman: Our new lab in the platform perform nearly as well this past quarter.

Luckman: As the PSL.

Luckman: More recently to our new spicy refreshes in Brazil Hot Honey beverages show the relevant product innovation can exceed expectations.

Laxman Narasimhan: At our new Roastery and Reserve stores, we're now introducing new products with more agility and speed. Notably, we're also making strides to cut the average product development cycle in half from our current timetable of 12 to 18 months. Looking to our innovation pipeline for the second half of the year, I'm excited by the number and types of products we're bringing to market. For summer, we are launching our first texture innovation, Pearl.

Luckman: And our new Rotary and reserve stores, we're now introducing new products.

Luckman: With more agility and speed.

Luckman: Notably, we're also making strides to cut our average product development cycle in half from a current timetable of 12 to 18 months.

Luckman: Looking to our innovation pipeline for the second half of the year I am excited by the number and types of products, we're bringing to market.

Luckman: For summer, we are launching our first texture innovation pearls.

Laxman Narasimhan: This is the first of more texture-based innovations that our customers can expect in the coming years. And we're launching a new functional product, a zero to low calorie handcrafted energy beverage, which both builds on our coffee heritage and opens entirely new vectors for additional future innovation. And later this year, we will add up to five sugar-free customization options to our menu in response to both partner and customer requests.

Luckman: This is the first of more texture based innovations that our customers can expect in the coming years.

Luckman: And we are launching a new functional product.

Luckman: Zero to low calorie handcrafted energy beverage.

Luckman: Both build on our coffee heritage.

Luckman: And open entirely new vectors for additional future innovation.

Luckman: And later this year, we will add up to five sugar free customization options to our menu in response to both partner and customer requests.

Luckman: This will provide a lower calorie option for approximately 80% of our beverages.

Laxman Narasimhan: This will provide a lower calorie option for approximately 80% of our customers. Our product innovation pipeline will also include more plant-based options as well, like our new plant-based ready-to-drink Frappuccino beverage that recently launched in U.S. grocery stores. Beyond our beverage development pipeline, we're also focused on enhancements to food. As an example of the investment we're making in food quality, we recently launched a reimagined premium blueberry muffin. And for summer, we're launching a new egg, pesto, and mozzarella sandwich. It combines protein with an outstanding taste.

Luckman: Our product innovation pipeline will also include more plant based options as well like our new plant based ready to drink Frappuccino beverage that recently launched in U S grocery stores.

Luckman: Beyond our beverage development pipeline, we're also focused on enhancements to food.

Luckman: As an example of the investment we're making in food quality, we recently launched a re imagined premium blueberry muffin.

Luckman: And for summer, we're launching a new agg pasture and mozzarella sandwich it combines protein with outstanding taste.

Laxman Narasimhan: We're also expanding grab-and-go choices available in our store lobby to include more vegan, vegetarian, and gluten-free options, as well as kid-friendly options. Bringing together a partner experience, unique customer experience, and our core products are what differentiate us. Our pipeline is significantly stronger than last year, and product builds are being developed with partners and Simplicity in Mind. We're also investing in our supply chain to lower costs and ensure products are available and in stores for our customers.

Luckman: We're also expanding grab and go choices available in a store lobbies to include more vegan vegetarian and gluten free options as well as kid friendly options.

Luckman: Taken together, our partner experience unique customer experience and our core products our differentiate us.

Luckman: Our pipeline is significantly stronger than last year.

Luckman: And product builds are being developed with partners and simplicity in mind.

Luckman: We're also investing in our supply chain to lower cost and ensure products that are available and in store for our customers.

Laxman Narasimhan: Lastly, we continue to grow our global store network. A store quote development capability is a core strength. This year, we will design and build more than 3000 new stores globally, and we continue to do so in a financially creative manner.

Luckman: Lastly, we continue to grow our global store footprint.

Luckman: Our store development capability is a core strength.

Luckman: This year, we will design and build more than 3000, new stores globally.

Luckman: And we continue to do so in a financially accretive manner.

Laxman Narasimhan: Our new store openings continue to realize strong unit economics. AUVs and ROIs across our portfolio continue to drive strong returns and high incrementality. We're also leveraging learnings from international markets to meaningfully lower break-even points for store formats scalable in emerging markets. Moving on, our second strategic pillar is further strengthening and differentiating our leadership position in digital. As mentioned, Starbucks rewards and the Starbucks app play a central role in driving value for our customers. Our MOP set another record in the U.S., representing 31% of all transactions in the quarter.

Luckman: Our new store openings continue to realize strong unit economics.

Luckman: <unk> and Rois across our portfolio continued to drive strong returns and high instrumentality.

Luckman: We're also leveraging learnings from international markets to meaningfully lower breakeven points for store formats scalable and emerging markets.

Laxman Narasimhan: Our Starbucks rewards members in the U.S. also grew by 6% over the prior year to nearly 33 million members. The stickiness and evolution of our digital position provides a structural advantage. Building on this strength, we are mapping additional ways to engage customers as we work to double SR members over the next five years. As mentioned, we will begin opening the Starbucks app for all in July. This addresses the current gap in our ability to reach non-Starbucks Rewards members, allows us to deliver more value for the occasional customer, and improves our ability to convert them to SR members.

Luckman: Moving on our second strategic pillar is further strengthening of differentiating our leadership position in digital.

Luckman: As mentioned Starbucks rewards in the Starbucks App, a central role in driving value for our customers.

Luckman: Our MLP set another record in the U S representing 31% of all transactions in the quarter.

Luckman: Our Starbucks rewards members in the U S. Also grew by 6% over the prior year to nearly 33 million members.

Luckman: The stickiness and evolution of our digital position provides a structural advantage.

Luckman: Building on the strength, we are mapping additional ways to engage customers as we work to double ESR members over the next five years.

Luckman: As mentioned, we will begin opening the Starbucks app for all in July.

Luckman: This addresses the current gap in our ability to reach non Starbucks rewards members.

Luckman: Allows us to deliver more value for the occasional customers and improves our ability to convert them to MSR members.

Laxman Narasimhan: It drives a better experience for our customers and is core to our growth. We know that SR customers visit more often and spend more. Upgrades in our queue include a guest checkout feature and sequential improvements that make our app an even more appealing gateway for all customers.

Luckman: It drives a better experience for our customers and it's core to our growth.

Luckman: We know that as our customers visit more often and spend more.

Luckman: Upgrades.

Luckman: In our Q include a guest checkout feature and sequential improvements that make our app and even more appealing gateway for all customers.

Laxman Narasimhan: We also plan to invest $600 million over the next three years to further digitize our stores and better target customers in more personalized ways. This includes the installation of digital menu boards across the footprint of all our company stores in the U.S. and China. And we're making additional investments in our DeepBrew AI and machine learning platforms to further digitize and fine-tune how we operate our store, delivering an improved digital customer experience and more personalized customer offers. Offers that are timely and relevant and flexible with respect to location, inventory availability, and weather.

Luckman: We also plan to invest $600 million over the next three years to further digitize, our stores and better target customers in more personalized ways.

Luckman: This includes the installation of digital menu boards across the footprint.

Luckman: Of all our company stores in the U S and China.

Luckman: And we're making additional investments in our <unk> AI and machine learning platforms to further digitize and fine tune, how we operate our stores, while delivering an improved digital customer experience and more personalized customer office offers that are timely and relevant and flexible to location.

Luckman: Inventory availability and weather.

Laxman Narasimhan: These investments, including a new revenue management system, are foundational to successful execution. In the near term, we will continue to provide increasingly compelling offers, like marketed pairings including both beverage and food that make occasions like lunch even more appealing. We continue to encourage and reward routinized behaviors across the day with exclusive offers for SR members. Additionally, to better communicate the value we provide, we are working to drive offer awareness with omnichannel marketing. This campaign will remind customers that the best offers are in the app and will target more occasional and non-SR customers.

Luckman: These investments, including our new revenue management system are foundational to successful execution.

Luckman: In the near term, we continue to provide increasingly compelling offers like marketed pairings, including both beverage and food that make occasions like lunch even more appealing.

Luckman: We continue to encourage and reward routines behaviors across the day with exclusive offers for our members.

Luckman: To better communicate the value we provide we are working to drive offer awareness with Omnichannel marketing.

Luckman: This campaign will remind customers that the best offers are in the app and will target more occasional and non MSR customers.

Laxman Narasimhan: Our third strategic pillar is becoming truly global. Our international business remains an important part of our long-term growth strategy. Across the Middle East, we continue to work with the Al Shaya Group to support the well-being of our partners and customers. Last month, the Starbucks Foundation and Al Shaya Starbucks donated $3 million to the World Central Kitchen and humanitarian efforts to provide food aid in Gaza.

Luckman: Our third strategic pillar is becoming a truly global.

Luckman: Our international business remains an important part of our long term growth strategy.

Luckman: Across the Middle East, we continue to work with Y'all Shire group to support the well being of our partners and customers.

Luckman: Last month, the Starbucks Foundation, and I'll shy of Starbucks generated $3 million to the world Central kitchen.

Luckman: And the humanitarian efforts to provide food aid in Gaza.

Laxman Narasimhan: Last week, we also announced that every bag of Whole Beans Starbucks Odyssey Blend coffee sold at participating North American stores through June will benefit World Central Kitchen's efforts to address hunger around the world. Turning our attention to China, macro pressures resulted in traffic contraction this quarter.

Luckman: Last week, we also announced that every bag of whole bean Starbucks Odyssey blend coffee sold at participating North American stores through June will benefit will central kitchens efforts to address hunger around the world.

Luckman: Turning our attention to China.

Luckman: Macro pressures resulted in traffic contraction this quarter.

Laxman Narasimhan: Performance was impacted by a decline in occasional customers. Changing holiday patterns, a highly promotional environment, and a normalization of customer behavior. Falling, last year's market reopened. Like the U.S., our decline in occasional customers was most noticeable in the afternoons and evenings.

Luckman: Performance was impacted by a decline in occasional customers changing holiday patterns, a highly promotional environment and a normalization of customer behaviors following last year's market reopening.

Luckman: Like the U S. Our decline in occasional customers was most noticeable in the afternoons and evenings.

Laxman Narasimhan: Still, there are many bright spots. Starbucks remains the Chinese consumer's first choice for a way from home coffee, across city tier and age. A Morning Depot in China registered growth. Fueled by Coffee Routines, We've Cultivated. Mornings are now larger than before the pandemic.

Luckman: Still there are many bright spots.

Luckman: Starbucks remains the Chinese consumers first choice in away from home coffee.

Luckman: Across city tier and age group.

Luckman: Our morning day part in China registered growth fueled by coffee routines, we've cultivated.

Luckman: <unk> on our larger than before the pandemic.

Laxman Narasimhan: Delivery also achieved positive cost. Starbucks Rewards Membership Expanded, with active members now reaching a record 21 million.

Luckman: Delivery also achieved positive call star.

Luckman: Starbucks rewards membership expanded with active members now, reaching a record $21 million.

Laxman Narasimhan: We're investing further to grow our SR members and their loyalty to drive greater engagement and lifetime value. Beverage innovation is also strong and validates the opportunity we see to further drive the strength of our product pipeline in China. Through the quarter, we unveiled 27 new products, fueling brand excitement and meaningful customer engagement, and monthly Customer Connection scores are at their highest ever, as is partner engagement.

Luckman: We are investing further to grow our MSR members and their loyalty to drive greater engagement and lifetime value.

Luckman: Beverage innovation is also strong and validates the opportunity we see to further drive the strength.

Luckman: Our product pipeline in China.

Luckman: Through the quarter, we unveiled 27, new products fueling brand excitement and meaningful customer engagement.

Luckman: And monthly customer connection scores.

Luckman: Are at their highest ever as its partner engagement.

Laxman Narasimhan: Our robust operating muscle led to sequential margin expansion amidst revenue headwinds, and we sustained very healthy and profitable unit economics and a double-digit store operating margin for a total store portfolio, including new stores. While recovery will remain choppy, our business has shown great resilience, and our fundamentals are very strong. We will win and lead in the premium market. We have built a strong and expanding customer base, a strong brand, a strong portfolio of highly profitable stores, and Strong Capabilities to Drive Margin Expansion. We continue to implement the three key elements of our China strategy.

Luckman: Our robust operating muscle led to sequential margin expansion amidst revenue headwinds.

Luckman: And we sustained very healthy and profitable unit economics, and a double digit store operating margin.

Luckman: Total store portfolio, including new stores.

Luckman: While recovery will remain choppy our business has shown great resilience and our fundamentals are very strong.

Luckman: We will win and lead in the premium market.

Luckman: We have built a strong and expanding customer base, a strong brand a strong portfolio of highly profitable stores and strong capability to drive margin expansion.

Luckman: We continue to execute the three key elements of our China strategy.

Laxman Narasimhan: Offering more coffee-forward, locally relevant product innovation, making significant investments in technology to increase omnichannel capability and digitize our stores, and increasing the percentage of new store openings in lower-tier markets and new county cities where we see stronger new store economics. We will weather through this dynamic and transitory period as the industry shakeout continues. Our confidence in the market opportunity and our ability to deliver remains unwavering as we play the long game in China. Elsewhere, we saw growth in many parts of our international segment, highlighting the resilience and diversity of our business portfolio. Excluding China, our international segment grew revenue and profits in the quarter.

Luckman: More coffee forward locally relevant product innovations.

Luckman: Making significant investments in technology to increase omnichannel capability and digitize our stores.

Luckman: And increase the percentage of new store openings, and lower tier markets and new counties cities, where we see stronger new store economics.

Luckman: We will weather through this dynamic and transitory period as the industry Shakeout continues.

Luckman: Our confidence in the market opportunity and our ability to deliver remains unwavering as we play the long game in China.

Luckman: Elsewhere, we saw growth in many parts of our international segment, highlighting the resilience and diversity of our business portfolio.

Luckman: Excluding China, our international segment grew revenue and comp in the quarter.

Laxman Narasimhan: Bolstered by Strength in Latin America, Asia Pacific, and Japan. The Latin American region continued strong momentum with double-digit system sales, and the Asia-Pacific region drove revenue growth, despite headwinds in the Indonesian and Malaysian markets, and revenue from our Japan business grew by double digits. Across our international segment, we opened 213 net-news stores this quarter.

Luckman: Bolstered by strength in Latin America, Asia Pacific and Japan.

Luckman: The Latin American region continued its strong momentum with double digit system sales growth.

Luckman: Our Asia Pacific region drove revenue growth.

Luckman: Despite headwinds in the Indonesian and Malaysian markets.

Luckman: And revenue from our Japan business grew by double digits.

Luckman: Across our international segment, we opened 230 net new stores this quarter.

Luckman: In total our store count outside of North America is now more than 20800, reflecting a year over year growth of 9%.

Laxman Narasimhan: In total, our store count outside of North America is now more than 20,800, reflecting a year-over-year growth of 9%. We opened our 400th store in India. Our 600th store in Indonesia and a 1900 store in Korea. We are on track to operate a thousand stores in India by 2028, meaning one new store opening every three days. As we expand to Honduras and Ecuador, our global footprint will grow to more than 39,000 stores across 88 markets, putting us well on the path to 55,000 stores by 2030.

Luckman: We opened our 400 store in India.

Luckman: Our 600 store in Indonesia.

Luckman: And a 1900 store in Korea.

Luckman: We are on track to operate 1000 stores in India by 2028 translate a one new store opening every three days.

Luckman: As we expand to Honduras, and Ecuador, our global footprint footprint will grow to more than 39000 stores across 88 markets.

Luckman: Putting us well on the path to 55000 stores by 2030.

Laxman Narasimhan: Our fourth strategic pillar, one of our two pumps, is unlocking efficiency. In the quarter, a triple shot strategy continued to unlock meaningful efficiencies across the North American business, driving 150 basis points of store operational efficiency. Additionally, we saw meaningful reductions in product and distribution costs driven by supply chain improvements and procurement, transportation, and sources.

Luckman: Our fourth strategic pillar one of our two pumps is unlocking efficiencies in the quarter, our triple shot strategy continue to unlock meaningful efficiencies across our north American business, driving 150 basis points of store operational efficiencies. Additionally.

Luckman: Additionally, we saw meaningful reductions in products and distribution costs, driven by supply chain improvements and procurement transportation and sourcing.

Laxman Narasimhan: Specifically, in our US stores, we're focused on creating a more stable environment for partners, to Investments in Equipment Innovation, Process Improvements, Staffing, Scheduling, and Waste Reduction. All things our partners value and prioritize. Creating a more satisfying work environment in our stores while de-risking our benefits. Today, our stores are running better than ever before, underpinned by the strong fundamentals our team has built. For example, we've seen meaningful improvement in drive-thru window times without adding more work for our partners, with even more to come as we layer in our siren craft.

Luckman: Specifically in our U S stores, we're focused on creating a more stable environment for partners through investments in equipment innovation process improvements staffing scheduling and waste reduction.

Luckman: All things our partners value and prioritize creating a more satisfying work environment in our stores.

Luckman: <unk> de risking our business.

Luckman: Today, our stores are running better than ever before underpinned by the strong fundamentals of our team is built.

Luckman: For example, we see meaningful improvement in drive through window times without adding more work for our partners.

Luckman: With even more to come as we layer in a siren craft system.

Laxman Narasimhan: We are rebuilding and refining our supply chain and unlocking efficiencies in our factory in the back. We are leveraging technology in new ways. We have significant above-the-store opportunities to realize efficiencies in our supply chain. They are significantly higher than we initially thought, and we are ahead of plan and saving. Through our work to date, we have the confidence we need to extend our goal from three billion in added efficiencies over three years to four billion over the next four. As a result of our investments and focused efficiency efforts. Partner turnover reached a new low in the quarter.

Luckman: We are rebuilding and refining our supply chain and to unlock efficiencies in our factory in the back we are leveraging technology in new ways.

Luckman: We have significant above the store opportunity to realize efficiencies in our supply chain.

Luckman: They are significantly higher than we initially thought and we are ahead of plan and savings.

Luckman: Through work to date, we have the confidence we need to extend our goal from $3 billion in added efficiencies over three years to $4 billion over the next four.

Luckman: As a result of our investments and focused efficiency efforts partner turnover reached a new low in the quarter.

Laxman Narasimhan: Store manager turnover has also improved, and Bolt Beats Industry Benchmarks by a wide margin. Average hours per partner continues to improve by double digits year over year, increasing engagement and their takeover. That brings me to our fifth strategic pillar, reinvigorating our partner culture. From the beginning, Starbucks set itself apart as a different kind of company. Our unique culture is anchored in our mission, promises, and values of craft.

Luckman: Store manager turnover has also improved.

Luckman: And both beat industry benchmarks by a wide margin.

Luckman: Average hours partner continues to improve.

Luckman: By double digits year over year, increasing engagement and their take home pay.

Luckman: That brings me to our fifth strategic pillar reinvigorating our partner culture.

Luckman: From the beginning Starbucks set itself apart as a different kind of company. Our unique culture is anchored in our mission promises and values of Kraft.

Luckman: Results courage belonging and Joy.

Laxman Narasimhan: Courage, Belonging, and Joy, and at the heart of our business are our partners. They're central to the Starbucks experience and are delivering on our promise to uplift the everyday for customers around the world. I see this every day, and through my regular work in stores.

Luckman: And at the heart of our business are our partners. They are central to the Starbucks experience and are delivering on our promise to uplift the everyday for customers around the world.

Luckman: I see this every day.

Luckman: Through my regular work in stores.

Laxman Narasimhan: We continue to work to restitch the fabric of the green apron for all parts. Just last week, we gathered together to celebrate our first ever Starbucks promises, and next month we will celebrate. 10th anniversary of our Starbucks College Achievement Plan with Arizona State University. Following commencement, more than 13,000 partners will have earned their bachelor's degree through the program. Bringing to Life Our Partner Promise, a bridge to a better future. What's more,

Luckman: We continue to work to restage the fabric of the Green apron for all partners.

Luckman: Just last week, we gathered together to celebrate our first ever Starbucks promises day.

Luckman: And next month, we will celebrate the 10th anniversary of our Starbucks College achievement plan with Arizona State University.

Luckman: Following commencement more than 13000 partners will have earned a bachelors degree through the program, bringing to life, our partner promise of a bridge to a better future.

Luckman: What's more.

Laxman Narasimhan: Over 25,000 partners across more than 90% of our U.S. stores are currently enrolled in the program and are pursuing a bachelor's degree. To close, we had a tough quarter; we need to do better, and we will. As I look forward, I'm confident we have the right strategy. We have terrific partners and a strong executive team that is deeply engaged and continues to lead. I thank each of our 460,000 Green Ape partners around the world for their remarkable work.

Luckman: Over 25000 partners across more than 90% of our U S stores.

Luckman: Currently enrolled in the program and are pursuing a bachelor's degree.

Luckman: To close we had a tough quarter, we need to do better and we will.

Luckman: As I look forward I am confident we have the right strategy.

Luckman: We have terrific partners and a strong executive team that is deeply engaged and continues to lead.

Luckman: I think each of our 460000 green apron partners around the world for their remarkable work.

Laxman Narasimhan: We have a real opportunity, and we are taking swift action to accelerate investment in the execution engine that will address the near term and drive long-term success. These actions are funded by a highly profitable operations and productivity initiative, and it's captured within our guide. As these actions take hold,

Luckman: We have real opportunity and we are taking swift action to accelerate investments of the execution engines that will address the near term and drive our long term success.

Luckman: These actions are funded by our highly profitable operations and productivity initiatives and it's captured within our guidance.

Luckman: As these actions take hold.

Rachel Ruggeri: We expect our business to return to algorithmic growth and to achieve its long-term opportunity. And with that, I will turn it over to Rachel to discuss our results in greater detail.

Luckman: We expect our business to return to algorithmic growth add to achieve its long term opportunity and with that I will turn it over to Rachel to discuss our results in greater detail Rachel.

Rachel Ruggeri: Thank you, Laxman, and good afternoon, everyone. As Laxman shared, our performance this quarter did not reflect what we're capable of as a company. We have an incredible brand, loyal customers globally, a strong portfolio of highly profitable stores, and a connection with our partners and customers that's unlike any other in our industry. We know that we can, and we will do better. While it was a difficult quarter, we learned from our own underperformance and recognized the onus was on us to execute.

Rachel Gerry: Thank you Laxman and good afternoon, everyone.

Rachel Gerry: I'd like to and shared our performance this quarter did not reflect what we're capable of as a company. We have an incredible brand loyal customers globally, a strong portfolio of highly profitable stores in connection with our partners and customers. That's unlike any other in our industry. We know that we can and we will do better.

Luckman: Well it was a difficult quarter, we learned from our own underperformance and recognize the onus is on us to execute with.

Rachel Ruggeri: We've sharpened our focus, and with our comprehensive roadmap of well-thought-out actions, the path forward is clear. With that in mind, let me turn to our results. Our Q2 consolidated revenue was $8.6 billion, down 1% from the prior year, due primarily to a 4% decline in comparable store sales driven by lower transactions, partially offset by 8% net new company-operated store growth over the prior year. Q2 Consolidated Operating Margin contracted 140 basis points from the prior year to 12.8 percent, primarily driven by deleverage, partner wages, and benefit investments, as well as promotional activities, partially U2 EPS was down 68 cents, down 7% from the prior year, primarily due to the contraction of operating income in both the North America and international segments as a result of lower revenue.

Luckman: We've sharpened our focus and with a comprehensive roadmap are well thought out of actions. Our path forward is clear with that let me turn to our results.

Luckman: Our Q2 consolidated revenue was $8 6 billion down 1% from the prior year due primarily to a 4% decline in comparable store sales driven by lower transactions, partially offset by 8% net new company operated store growth over the prior year.

Luckman: Q2, consolidated operating margin contracted 140 basis points from the prior year to 12, 8%, primarily driven by deleverage partner wage and benefit investments as well as promotional activities, partially offset by pricing and our continued execution against reinvention related in store.

Luckman: Operational efficiencies, which drove approximately 150 basis point savings in the quarter.

Luckman: Q2, EPS was down was 68.

Luckman: Down 7% from the prior year, primarily due to the contraction of operating income in both the North America and international segments as a result of lower revenue.

Rachel Ruggeri: I'll now provide segment highlights for Q2. North America revenue was $6.4 billion in Q2, flat to the prior year, as 5% net new company-operated store growth was mostly offset by a 3% decline in comparable store sales, driven by a 7% decrease in transactions, partially offset by a 4% increase in average ticket sales. Our U.S. company-operated business posted a 3% comparable store sales decline in Q2, driven by a 7% decrease in transactions.

Speaker Change: I will provide segment highlights for Q2.

Luckman: North America revenue was $6 4 billion in Q2 flat to the prior year as 5% net New company operated store growth was mostly offset by a 3% decline in comparable store sales driven by a 7% decrease in transactions, partially offset by a 4% increase in average ticket.

Luckman: Our U S company operated business posted a 3% comparable store sales decline in Q2, driven by a 7% decrease in transactions.

Rachel Ruggeri: Consistent with Q1, the traffic decline was pronounced among more occasional customers with a more cautious consumer environment as a backdrop, and also included an estimated 3% adverse impact from extreme weather, including some store closures. Partially offsetting the decline was a 4% increase in average ticket, reflecting pricing, as well as the continued mix shift into cold beverages, such as iced shakes and espresso and matcha tea lattes, which resonate with our customers. Additionally, our new store performance remains strong, with both year one AUV and cash margin of recently opened stores projected to be in line with last year's newly opened stores, preserving high incrementality even with our expanding footprint. North America's operating margin was 18% in Q2, contracting 120 basis points from the prior year.

Luckman: Consistent with Q1, the traffic decline was pronounced among more occasional customers with a more cautious consumer environment as a backdrop and also included an estimated 3% adverse impact from extreme weather, including some store closures.

Luckman: Partially offsetting the decline was a 4% increase in average ticket, reflecting pricing as well as the continued mix shift into cold beverages, such as ice shaken espresso and matcha tea, latte, which resonate with our customers.

Luckman: Additionally, our new store performance remains strong with both year, one <unk> and cash margin and recently opened stores projected to be in line with last year's newly opened stores preserving high incrementals <unk>, even with our expanding footprint.

Luckman: North America's operating margin was 18% in situ contracting 120 basis points from the prior year.

Rachel Ruggeri: The contraction was primarily driven by deleverage, partner wage and benefit investments, as well as promotional activities, partially offset by pricing and reinvention-related in-store operational efficiency. While deleverage drove the overall contraction in the segment's margin, efficiencies generated through our reinvention efforts meaningfully countered the deleverage we experienced in the quarter. While a reinvention plan is intended to provide a more balanced growth model and margin expansion, we're pleased to see the benefits counterbalance broader headwinds in our business as our partner staffing and scheduling investments continue to unlock in-store efficiency.

Luckman: The contraction was primarily driven by deleverage partner wage and benefit investments as well as promotional activities, partially offset by pricing and reinvention related in store operational efficiencies.

Luckman: While deleverage drove the overall contraction in the segment's margin efficiencies generated through our reinvention effort meaningfully countered the deleverage we experienced in the quarter.

Luckman: While our reinvention plan is intended to provide a more balanced growth model and margin expansion. We're pleased to see the benefits counterbalance broader headwinds in our business as our partner staffing and scheduling investments continue to unlock in store efficiencies.

Rachel Ruggeri: The benefits continue to expand outside of stores as well, resulting in a meaningful reduction in the segment's product and distribution costs as a percentage of revenue, partially driven by supply chain savings. We believe our strategies related to reinvention are working, creating more streamlined operations and tangible financial benefits across our business with more opportunities to come. Moving to international, the segment delivered $1.8 billion in revenue in the quarter, roughly flat to the prior year, primarily as 12% growth in net new company-operated stores was offset by a 6% decline in comparable store sales, driven evenly by transactions and average ticket sales. Revenue was also impacted by a decrease in licensed store revenues, largely resulting from the negative impact on our business in the Middle East.

Luckman: The benefits continue to expand outside of stores as well, resulting in meaningful reduction in the segments product and distribution costs as a percentage of revenue, partially driven by supply chain savings.

Luckman: We believe our strategies related to reinvention are working creating more streamline operations and tangible financial benefits across our business with more opportunity to come.

Luckman: Moving to international.

Luckman: The segment delivered $1 8 billion in revenue in the quarter roughly flat to the prior year, primarily as 12% growth in net new company operated stores was offset by a 6% decline in comparable store sales gain in evenly by transactions and average ticket.

Luckman: Revenue was also impacted by a decrease in license store revenues, largely resulting from the negative impacts to our business in the middle East.

Rachel Ruggeri: Although our revenue was impacted, our long-term aspirations in international have not wavered, as there was revenue and comp growth across the international segment when excluding China. This speaks to the strength of our broader international portfolio, driven by markets like Japan, Asia Pacific, Latin America, and the Caribbean. Moving to China. In Q2, China's revenue declined 3%, driven by an 11% decrease in comparable store sales consisting of 8% and 4% declines in average ticket and transactions, respectively, partially offset by a 14% net new store growth.

Luckman: Although our revenue was impacted our long term aspirations in international has not wavered as there was revenue and comp growth across the international segment, winning critics excluding China.

Luckman: This speaks to the strength of our broader international portfolio, driven by markets like Japan, Asia Pacific Latin America, and the Caribbean.

Luckman: Shifting to China.

Luckman: In Q2, China's revenue declined 3% driven by an 11% decrease in comparable store sales consisting of 8% and 4% decline in average ticket and transactions, respectively, partially offset by a 14% net new store growth.

Rachel Ruggeri: The market continued to recover slower than expected, with further impacts from the timing of holiday-related travel trends. Despite the complex environment, the company opened 118 net new stores in the quarter while sustaining double-digit store operating margin for both new stores and the total portfolio, demonstrating the health and resilience of our brand in the market, positioning us well in the market long term. Total International Segment Operating Margin was 13.3% in Q2, contracting 340 basis points from the prior year, primarily driven by promotional activities, partner wage and benefit investments, as well as a sales mix shift, partially offset by pricing in certain markets.

Luckman: The market continued to recover slower than expected with further impacts from the timing of holiday related travel trends.

Luckman: Despite the complex environment. The market opened 118, net new stores in the quarter, while sustaining double digit store operating margin for both new stores and the total portfolio demonstrating the health and resilience of our brand in the market positioning us well in the market long term.

Luckman: Total International segment operating margin was 13, 3% in Q2 contracting 340 basis points from the prior year, primarily driven by promotional activities partner wage and benefit investments as well as sales mix shift partially offset by pricing in certain markets.

Rachel Ruggeri: Moving to channel development, the segment's revenue of $418 million in Q2 declined 13% from the prior year, largely in line with our expectations given the sale of Seattle's Best Coffee and SKU Optimization. Importantly, we maintain the number one share position in both U.S. at-home coffee and U.S. ready-to-drink. As an example of innovation in China, we launched our Starbucks Refreshers platform with two flavors, the pink drink and the purple drink, to drive our much-desired cool portfolio beyond our stores, particularly among Gen Z.

Luckman: Shifting to channel development.

Luckman: This segments revenue of $418 million in Q2 declined 13% from the prior year largely in line with our expectations given the sale of Seattle's best coffee and SKU optimization.

Luckman: Importantly, we maintained the number one share position in both U S at home coffee and U S ready to drink.

Luckman: As an example of innovation in China, We launched our Starbucks refreshes platform with two flavors the pink drink in the peripheral drink to drive a much desired core portfolio beyond our stores, particularly among Gen Z.

Rachel Ruggeri: The segment's operating margin was 51.7% in Q2, expanding 1,610 basis points from the prior year, driven primarily by growth in our North America Coffee Partnership joint venture income, as well as lapping prior year impairment charges against certain manufacturing assets. The segment's operating margin is progressing in line with our original expectations, continuing to target the full year range of high 40% to low 50%, a very attractive financial model. Now moving on to our guidance for fiscal year 2024. Given what we shared today, we're revising our fiscal year guidance, and I'll walk through both one, what changed, and two, what remains the same in comparison to our previous guidance. So first, what changed?

Luckman: The segment's operating margin was 51, 7% in Q2, expanding 1610 basis points from prior year, driven primarily by growth in our North American coffee partnership joint venture income as well as lapping prior year impairment charges against certain manufacturing assets.

Luckman: The segment's operating margin is progressing in line with our original expectations continuing to target a full year range of high 40% to low 50%, a very attractive financial model.

Speaker Change: Now moving onto our guidance for fiscal year 2024.

Speaker Change: Given what we share today, we're revising our fiscal year guidance and I'll walk through both one what changed until what remains the same in comparison to our previous guidance.

Speaker Change: So first what changed.

Rachel Ruggeri: Broadly, in the second quarter, our business underperformed as revenues in the U.S., China, the Middle East, and other markets were impacted more deeply than anticipated by the continued multifaceted headwinds. In addition to the second quarter performance, our exit rates of both revenue and comp growth across our key markets reflect continued headwinds. To manage these headwinds, we have focused actions both to unlock capacity and track demand in the spirit of uplifting traffic, as well as to further implement our triple shot strategy, leveraging our learnings from the second quarter and as Laxman discussed in detail.

Speaker Change: Broadly in the second quarter, our business underperformed as revenues in the U S. China Middle East and other markets were impacted more deeply than anticipated by the continued multifaceted headwinds.

Speaker Change: In addition to the second quarter performance, our exit rate of both revenue and comp growth across our key markets reflect continued headwinds.

Speaker Change: To manage these headwinds we have focused actions both to unlock capacity and track demand in the spirit of uplifting traffic as well as to further implement our triple shot strategy.

Speaker Change: Leveraging our learnings from the second quarter and as Laxman discussed in detail.

Rachel Ruggeri: We're working to further elevate our brand through an integrated focus across product innovation and marketing, including strengthening our digital capabilities, delivering more value for our customers. For instance, first, to unlock demand in the morning daypart in the U.S., we're working to improve store-related processes, leveraging our Siren craft system, while also increasing product availability through improved inventory management. Second, to attract demand, particularly in the afternoon daypart, we're implementing a new and more frequent innovation cadence integrated with a broader multi-channeled marketing approach, inclusive of highly targeted personalized office.

Speaker Change: We're working to further elevate our brand to an integrated focus across product innovation and marketing, including strengthening our digital capabilities delivering more value for our customers.

Speaker Change: For instance, first.

Speaker Change: Unlock demand in the morning day part in the U S. We're working to improve store related processes, leveraging our siren crafts system, while also increasing product availability through improved inventory management.

Speaker Change: Second to attract demand, particularly in the afternoon day part, we're implementing a new and more frequent innovation cadence integrated with our broader multichannel marketing approach.

Speaker Change: <unk> highly targeted personalized offers.

Rachel Ruggeri: This shift is geared towards our more occasional customers to attract and direct them to our stores and apps. Now some of these actions will take time to fully materialize, however, through our investments in our customer experience and focused execution, we do expect to deliver some benefits in the current fiscal year. As a result of what has changed, our revenue and comp guidance, as well as the related flow through to margin and earnings, is impacted. In addition, the continued headwinds have impacted our global store growth expectations. Now, before I share the details of the revised fiscal year 2024 guidance, I'll share what remains the same.

Speaker Change: This shift is geared towards our more occasional customers to attract and inject them to our stores and app.

Speaker Change: Now some of these actions will take time to fully materialize, however through our investments in our customer experience and focused execution, we do expect to deliver some benefits in the current fiscal year.

Speaker Change: As a result of what has changed our revenue and comp guidance as well as the related flow through to margin and earnings is impacted.

Speaker Change: In addition, the continued headwinds impacted our global store growth expectation.

Speaker Change: Now before I share the details of our revised fiscal year 2024 guidance I'll share what remains the same.

Rachel Ruggeri: First, we have confidence in the effectiveness of our proven triple shot strategy as our biggest opportunity lies in our execution. Second, our efficiency efforts are tracking slightly ahead of our expectations. Year-to-date, we achieved 170 basis points of in-store operational efficiencies, along with great progress out of store, positioning us to deliver our $3 billion savings targets through fiscal year 2026, with line of sight to even more opportunities beyond that. Third, while our channel development segment is the smallest of our segments, it complements our portfolio, capturing customer occasions beyond our stores, and our performance in that segment continues to deliver.

Speaker Change: First we have confidence in the effectiveness of our proven triple shot strategy as our biggest opportunity lies in our execution.

Speaker Change: Second our efficiency efforts are tracking slightly ahead of our expectations.

Speaker Change: Year to date, we achieved 170 basis points of in store operational efficiencies, along with great progress out of store positioning us to deliver our 3 billion savings target through fiscal year 2026 with line of sight to even more opportunity beyond that.

Speaker Change: Third while our channel development segment is the smallest of our segments. It complements our portfolio capturing customer occasions beyond our stores and our performance in that segment continues to deliver.

Rachel Ruggeri: Lastly, we must continue investing in the fundamentals and competitive moat of our business, our partners, our stores, and our customers, as we believe these investments will drive long-term growth and industry leadership beyond these transitory Hedge. Based on these facts, we are revising our full year fiscal 2024 guidance to global revenue growth of low single digits from our previous range of 7% to 10%. Global and U.S. comp of low single-digit decline to flat, both from the previous range of 4% to 6% growth.

Speaker Change: Lastly, we must continue investing in our fundamentals and competitive moat of our business our partners our stores and our customers as we believe these investments will drive long term growth and industry leadership beyond these transitory headwinds.

Rachel Ruggeri: China Comp of Single-Digit Decline from the Previous Estimation of Low Single-Digit Growth in Q2 through Q4. Global net new store growth of approximately 6% from our previous expectation of approximately 7%. We continue to expect our U.S. store count to grow by approximately 4% and now anticipate approximately 12% store growth in China from our previous expectation of approximately 13%. Operating Margin Growth Approximately Flat from the Previous Expectation of Progressive Expansion Finally, we expect EPS and non-GAAP EPS growth of flat to low single digits from the previous range of 15% to 20%.

Speaker Change: Based on these facts, we are revising our full year fiscal 2020 for guidance.

Speaker Change: <unk>.

Speaker Change: Global revenue growth of low single digits from our previous range of 7% to 10%.

Speaker Change: Global and U S comp of low single digit decline to flat.

Speaker Change: Both from the previous range of 4% to 6% growth.

Speaker Change: China comp of single digit decline from the previous expectation of low single digit growth in Q2 through Q4.

Speaker Change: Global net new store growth of approximately 6% from our previous expectation of approximately 7%.

Speaker Change: We continue to expect our U S store count to grow by approximately 4%.

Speaker Change: And now anticipate approximately 12% store growth in China from our previous expectation of approximately 13%.

Speaker Change: Operating margin growth approximately flat from the previous expectation of progressive expansion.

Speaker Change: Finally, we expect EPS and non-GAAP EPS growth of flat to low single digits from the previous range of 15% to 20%.

Rachel Ruggeri: As a reminder, our guidance does not include any impact from foreign currency translation and assumes constant currency, as an additional insight into our fiscal year 2024 guidance. We expect sequential revenue growth from Q3 to Q4, with pressure on margin and earnings easing in Q4 as our action plans take hold. We continue to expect our full-year effective tax rates in the mid-20% range.

Speaker Change: As a reminder, our guidance does not include any impact from foreign currency translation and assumes constant currency.

Speaker Change: As an additional insight into our fiscal year 2020 for guidance.

Speaker Change: We expect sequential revenue growth from Q3 to Q4 with pressure on margin and earnings easing in Q4 as our action plans take hold.

Speaker Change: We continue to expect our full year effective tax rate in the mid 20% range.

Speaker Change: Lastly, we continue to expect approximately 3 billion in Capex, most of which is ring fenced for our direct investment in our global store portfolio, which as we have shared continues to drive highly attractive returns.

Rachel Ruggeri: Lastly, we continue to expect approximately $3 billion in CapEx, most of which is ring spent for our direct investment in our global store portfolio, which, as we have shared, continues to drive highly attractive returns. In summary, here are the key takeaways from my discussion today. First, Q2 was a challenging quarter for us as headwinds consistently persisted throughout the quarter, leading us to revamp our actions and response plan to both unlock and attract demand. Second, our triple shot strategy continues to deliver efficiencies even in the face of headwinds, reinforcing that we have the right strategy at the right time.

Speaker Change: In summary here, our key takeaways from my discussion today.

Speaker Change: First Q2 was a challenging quarter for us as headwinds consistently persisted throughout the quarter, leading us to revamp our actions and response plan to both unlock and attract demand.

Speaker Change: Second our triple shot strategy continues to deliver efficiencies even in the face of headwinds reinforcing that we have the right strategy at the right time.

Rachel Ruggeri: Next, our fiscal year 2024 guidance has been revised to reflect our Q2 performance, year-to-date results, as well as the near-term headwinds we're experiencing. We, however, remain confident in our long-term growth opportunity and thus committed to our strategy and the related investments. And finally, our disciplined approach to capital allocation drives our financial fortitude, reflecting shareholder commitment underpinned by our best-in-class dividends.

Speaker Change: Next our fiscal year 2024 guidance has been revised to reflect our Q2 performance year to date results as well as the near term headwinds we're experiencing we.

Speaker Change: We however remain confident in our long term growth opportunity and less committed to our strategy and the related investment.

Speaker Change: And finally, our disciplined approach to capital allocation drives our financial fortitude, reflecting shareholder commitment underpinned by our best in class dividend.

Speaker Change: This allows us to prefer preserve both balance sheet durability and flexibility positioning us to successfully navigate this complex and dynamic environment.

Rachel Ruggeri: This allows us to preserve both balance sheet durability and flexibility, positioning us to successfully navigate this complex and dynamic environment. Before I open the call to questions, I want to share my sincerest gratitude for my partners, both in and out of stores across the globe, who show up every day, living our values to deliver the differentiated customer experience that makes Starbucks so special for all of us. Thank you, partners. Operator, you can now open the call for Q&A. And as a reminder, if you would like to ask a question, press star, then the number 1 on your telephone.

Speaker Change: Before I open the call to Q&A I want to share my sincerest gratitude for my partners, both in and out of stores across the Globe, who show up every day living our values to deliver the differentiated customer experience that makes Starbucks so special for all of US. Thank you partners.

Speaker Change: Operator, you can now open the call to Q&A.

Speaker Change: Thank you.

Speaker Change: As a reminder, if you would like to ask a question Press Star then the number one on your telephone keypad in order to allow as many questions as possible. We ask you to please limit yourself to one question at a time.

Unknown Speaker: In order to allow as many questions as possible, we ask... Q&A Q&A. And with that, our first question is from Sara Senatore with Bank of America: Hi, thanks. I guess it's a two-part question about the trends that you were talking about. The first is that, you know, you talked about weather as a headwind, and then you said that lavender late in the quarter was one of the strongest launches you've had, similar to PSL, but your exit rate, it sounds like you're saying your exit rate was largely unchanged. So I'm trying to reconcile what would appear to have been, you know, headwinds that aren't reoccurring and then very successful innovation That's, that's the first part.

Speaker Change: With that our first question comes from Sara Senatore with Bank of America. Please state your question Hi.

Unknown Speaker: And the second is just, in terms of the cautious consumer, you know, typically, I think what we'd see is check management, and you don't seem to be seeing that. I think mix is still a tailwind for you. So it seems to me that, you know, there's not as much evidence of consumer caution as perhaps just some of what you were talking about that's Starbucks specific. So if you could just comment on those things,

Sara Harkavy Senatore: Alright, Thanks, and I guess, it's a two part question about trends that you were talking about the first is that.

Sara Harkavy Senatore: You talked about weather as a headwind and then you said that lavender late in the quarter with one of the strongest launches you've had similar PSL, but your exit rate it sounds like youre, saying your exit rate.

Speaker Change: Largely unchanged I'm trying to reconcile what would appear to have been headwinds that arent rig occurring and then.

Speaker Change: Very successful innovation with the.

Speaker Change: The guidance in the X Ray exit rates that that's the first part and the second is just in terms of the cautious consumer and typically I think what we'd say is check management and you don't seem to be seeing that I think makes us still.

Speaker Change: A tailwind for you. So it seems to me that theres not as much evidence of <unk>.

Speaker Change: Consumer caution as perhaps just some of what you were talking about that serve X specifics.

Speaker Change: Can you just comment on those things.

Unknown Speaker: Sara, thank you for your question. Let me address both of them by pointing to the underlying pressures that we see consumers face, just in terms of what they have available. So there's no question that, you know, if you take some of these transitory headwinds out, which, of course, are not an excuse in any way.

Speaker Change: Sarah Thank you for your question let me.

Sarah: Let me address both of them.

Sarah: By pointing to.

Speaker Change: The underlying.

Speaker Change: Pressures that we see consumers face <unk>.

Speaker Change: Just in terms of what they have available to spend.

Speaker Change: So there is no question that if you take some of these transitory headwinds out which of course.

Speaker Change: Or are not an excuse in any way and you look at the underlying headwinds, particularly around the pressures that consumers face, particularly with the occasional customer what we're seeing is that's where the challenge is.

Unknown Speaker: And when you look at the underlying headwinds, particularly around the pressures that consumers face, particularly with the occasional customer, what we're seeing is that's where the challenge is. It's a challenge with their traffic, and it's their challenge with them coming into our stores. If you look at our most loyal customers, they come in. Often, they're seeing the value that we provide and Starbucks rewards in our app. And they are, you know, premiumizing through customization, as in the past.

Speaker Change: It's a challenge with air traffic and it's their challenge with them coming into our stores.

Speaker Change: If you look at our most loyal customers they are coming in.

Speaker Change: Often there.

Speaker Change: <unk> seen the value that we provide in Starbucks rewards in our App.

Speaker Change: They are.

Speaker Change: In our premium rising through customization as in the past and so therefore, what you see there as you see a strong a strong business with our loyal customers, particularly those with the environments of the Starbucks App, what we are focused on.

Unknown Speaker: And so, therefore, what you see there is a strong, a strong business with our loyal customers, particularly those within the environments of the Starbucks app. What we are focused on is first. How we meet the demand we already have by ensuring that our partners have the processes and the tools at the peak in order to meet the demand of customers who, at this moment, are choosing not to complete their transactions in mobile order pay.

Speaker Change: First how we meet the demand we all ready have.

Speaker Change: Through <unk>.

Speaker Change: Ensuring that our partners have the processes and the tools at the peak in order to meet the demand of customers who at this moment are choosing not to complete their transactions and mobile order pay.

Unknown Speaker: The second thing is that we are clearly launching new products, and our pipeline is very strong. And what we are doing, though, as part of that is the third element, which is how we reach and deliver value to the more occasional customers as well as those that are not in the Starbucks rewards ecosystem. And that's where the challenge lies. And that's how you reconcile the two points that you made.

Speaker Change: The second thing is we are clearly launching new products in our pipeline is very strong and what we're doing though as part of that is the third element is.

Speaker Change: How we reach.

Speaker Change: And deliver value.

Speaker Change: The more occasional customers as well as those that are not in the Starbucks rewards ecosystem, that's where the challenge lies and that's how you reconcile the two points that you have made so we have a lot in our control and we're focused on it and we're focusing on the execution of those three opportunities.

Unknown Speaker: So we have a lot in our control, and we're focused on it. And we're focusing on the execution of those three opportunities as laid out in North America, and our next question. Brian Harbour with Morgan Stanley.

Speaker Change: I laid out in North America.

Speaker Change: Thank you and our next question comes from Brian Harper with Morgan Stanley. Please state your question.

Brian Harper: Thank you and good afternoon.

Unknown Speaker: Please state your question. Unknown Speaker I'm a more occasional customer. I'm curious, you know, is that often a younger customer?

Brian Harper: When you talk with Nomura Haynesville customer.

Brian Harper: Curious.

Brian Harper: Is that off in a younger customer and I think the broader question is just is there any sort of brand residents issue with perhaps some of that customer base do you think there's sort of a product residents issue with them.

Unknown Speaker: And I think the broader question is just, is there any sort of brand resonance issue? Perhaps some of that customer base, do you think there's sort of a product residue issue with them?

Brian Harper: Are there more that needs to be done and just kind of accelerating the pace of new products.

Brian Harper: And some of the other drivers that you talked about it in the near term.

Unknown Speaker: Is there more that needs to be done than just kind of accelerating the pace of new products and some of the other drivers that you talked about in the near term? Brian, thank you for your question. I think that if you look at our overall brand, it is and continues to be strong. If you look at the scores around value for what I get,

Brian Harper: Brian. Thank you for your question.

Brian Harper: Think that if you look at our overall brand equity.

Brian Harper: It is and continues to be strong if you look at the scores around value for what I get.

Brian Harper: Strong.

Unknown Speaker: So if I look at the occasional customer, though, they're clearly making choices based on the economic pressures they face. What they look for from us is variety. They look for the core, you know, 50% of what we have in the afternoon, as an example, is coffee. So obviously, coffee is really important.

Brian Harper: So if I look at the occasional customer though.

Brian Harper: They are clearly making choices based on the economic pressures they face.

Brian Harper: They look for from us as they look for variety.

Brian Harper: So they look for the core and a 50% of what we have.

Brian Harper: In the afternoon as an example, as coffee solvency coffee is really important and distinctiveness of coffee is very important but they are looking for variety and they're looking for value.

Unknown Speaker: And the distinctiveness of coffee is very important, but they are looking for variety, and they're looking for value. And what we're focused on is ensuring that we find a way to connect with them to bring them into our app ecosystem. In order for them to see the value that we provide inside there, that's why you're going to see the actions we take in May, you're going to see the actions that we take in July as we open up the app for all, that is going to make them, particularly in North America, be able to see the value that we provide in a way that's much easier for them.

Brian Harper: And what we're focused on is ensuring that we find a way to connect with them to bring them into our app ecosystem in order for them to see the value that we provide and that's why you're going to see the actions. We've taken may you're going to see the actions will be taken July as we open up the after all that is going to make them.

Brian Harper: Particularly north America be able to see.

The value that we provide in a way that's much easier for them and as they build loyalty over time, they will see even more value as they come into the system. So thats as far as North America goes and the steps that we're taking.

Unknown Speaker: And as they build loyalty over time, they will see even more value as they come into. So that's as far as North America goes and the steps that we are taking. And our next question comes from Jeffrey Bernstein with Barclays. Great, thank you very much, broader question on global unit growth. Just more broadly, your confidence, or I guess the prudence in maintaining it. Still, it's outsized growth with the headwinds seemingly large, just wondering how you can be confident that the current challenges you're facing aren't in part due to maybe saturation or cannibalization. I guess that does end up pointing to China.

Brian Harper: Thank you and our next question comes from Jeffrey Bernstein with Barclays. Please state your question.

Great. Thank you very much.

Jeffrey Andrew Bernstein: Broader question on the global unit growth.

Jeffrey Andrew Bernstein: And then just more broadly your car.

Jeffrey Andrew Bernstein: Or I guess, the prudence and maintaining.

Jeffrey Andrew Bernstein: But still as outsize growth with the headwinds seemingly large.

Jeffrey Andrew Bernstein: Wondering how are you.

Jeffrey Andrew Bernstein: Can be confident that the current challenges you're facing are in part due to maybe saturation or cannibalization.

Jeffrey Andrew Bernstein: And I guess that does end up pointing to China for.

Jeffrey Andrew Bernstein: Specifically I think you mentioned healthy unit economics, and double digit restaurant margin.

Jeffrey Andrew Bernstein: I was just wondering if Rachel maybe you could just talk about the specifics in terms of those sales margins and returns.

Jeffrey Andrew Bernstein: Just if I still that outsized growth in a very challenging China macro thank you.

Unknown Speaker: And for China specifically, I think you mentioned healthy unit economics and double-digit restaurant margins. I was just wondering if, Rachel, maybe you could just talk about the specifics in terms of... Those sales margins and returns that still justify that outsized grill in a very challenging Chinese macro. Thank you. First, I'll take on the first question about global unit growth and hand over to Rachel to talk specifically about your question about China.

Speaker Change: Let me close.

Speaker Change: I'll take on the first question of global unit growth in the Hollywood Rachel to talk specifically about your question on China margins.

Unknown Speaker: Jeff, what we see is we see very strong cash-for-cash, And I think what we've done both in the US but also in the expansion plans that we have. And I think what you see us doing, what we're focused on is ensuring that we have reduced the cost of our stores and store investment. We have done a very good job of bringing efficiency to that. And so, as we expand, we see very good cash on cash returns.

Rachel Gerry: Jeff what we see is we see very strong cash on cash returns.

Rachel Gerry: And I think it will be done both in the U S. But also in the expansion plans that we have internationally.

Speaker Change: And I think what you see us what we're focused on is ensuring.

Speaker Change: That we have.

Speaker Change: Reduce the cost of our stores installs investment.

Speaker Change: We have done a very good job in bringing efficiency to that and so as we expand we see very good cash on cash returns. The reality is that the penetration we have in many of these markets and the headroom that we have internationally is very high I mean, I think last time, we talked about the fact.

Unknown Speaker: The reality is that the penetration we have in many of these markets, and the headroom that we have internationally is very high. I mean, last time we talked about this fact, I think we were just in 800 cities in China, and the opportunity for us in terms of counties is about over 3,000.

Speaker Change: So I think we were just 800 cities or.

Speaker Change: In China and the opportunity for us in terms of counties. This is about over 3000. So I think we're like we're not really penetrated as much as we could be in a place like China, which is why we have confidence as we look at the real estate options. We have the proposals that have come.

Unknown Speaker: So I think we're not really penetrated as much as we could be in a place like China, which is why we have confidence. As we look at the real estate options we have, the proposals that are coming together, the kind of cash returns we get are very strong. That's what gives us confidence in terms of global unit growth. Rachel, do you want to take the second part?

Speaker Change: Do you have the kind of cash returns we get are very strong that's what gives us confidence in terms of the global unit growth. Rachel do you want take second Falcon, if I would just add to that when we look at the guidance that was given around our our new store growth, particularly as it relates to China. That's really a very deliberate decision that we took to be able.

Unknown Speaker: And if I would just add to that, when we look at the guidance that was given around our new store growth, particularly as it relates to China, that's really a very deliberate decision that we took to be able to increase the number of stores that we were opening in lower-tier cities and new counties, where we see even stronger returns. So, broadly, our returns are quite attractive, but they're even stronger in those lower-tier cities and the new counties.

Rachel Gerry: To increase the number of stores that we're opening in lower tier cities and new counties, where we see even stronger returns. So broadly our returns are quite attractive, but they are even stronger in those lower tier cities and the new counties and as a result of that.

Unknown Speaker: And as a result of that, that shift actually impacts our development pipeline, so there's a timing impact in terms of new store growth. So that's why we're at 12%, which we think is still very strong growth and indicative of the opportunity that we see.

Falcon: That shift actually impacts our development pipeline, so theres a timing in fact timing.

Falcon: Timing impact in terms of new store growth. So that's why we're at 12%, which we think is still a very strong growth and indicative of the opportunity that we see.

Falcon: Mr connected.

Speaker Change: Can you hear us.

Speaker Change: All right.

Connected: We can hear you.

Yeah.

Connected: Yeah.

Speaker Change: Thank you.

Unknown Speaker: And our next question comes from... David Palmer with Evercore ISI.

Speaker Change: And our next question comes from.

Speaker Change: David Palmer with Evercore ISI. Please state your question.

Unknown Speaker: First, I wanted to ask a clarification question. You mentioned in your prepared remarks that you viewed some of the issues in China as transitory. I think you were speaking more about competition than you were about the consumer with that comment. I think you mentioned something about a shakeout.

David Sterling Palmer: Thanks first I wanted to ask a clarification you mentioned in your prepared remarks that.

David Sterling Palmer: That you viewed as some of the issues in China as transitory and I think you were speaking more about the competition. Then you worry about the consumer with that comment I think you mentioned something about a shakeout. It I was wondering if you could double click on that for us what youre, maybe seeing that would make you think that there that the <unk> environment there would be.

Unknown Speaker: I was wondering if you could double-click on that for us, what you're maybe seeing that would make you think that the environment there would be, competitively, would be a transitory one, and it would get better that way. And then from a beverage innovation standpoint, I'm wondering... How are you viewing the pipeline? You know, Lavender happened, Spicy Lemonade happened, you have two new ones coming up.

David Sterling Palmer: <unk> would be transitory, one and they would get better that way and then from a from a beverage innovation standpoint I'm wondering.

Unknown Speaker: How are you viewing the pipeline differently, and how are you thinking about the process of R&D differently today? And how are you evaluating what you've done? Thank you. I think we had some technical problems hearing you, but let me just try and recap the questions. The first question was on competition in China and the comment around the shakeout that we are starting to see. And the second comment was on beverage prices.

David Sterling Palmer: How you're viewing the pipeline lab.

David Sterling Palmer: Lavender happened spicy lemonade has happened.

David Sterling Palmer: Two new ones coming up.

David Sterling Palmer: How are you viewing the pipeline differently, then and how are you thinking about the process of R&D differently today.

David Sterling Palmer: And how are you evaluating what you've done thank you.

I think we have some technical problems and hearing you, but let me just try and recap. The question. Your first question was.

Speaker Change: Competition in China, and the comment around the shakeout that we are starting to see in the second comment was on beverage pipeline.

Unknown Speaker: So let me start with the competition in China. I think the growth that's taking place in the mass area of the Chinese business, of the overall Chinese coffee and tea segment is one where we see just intense price competition. We're choosing not to participate in that.

Speaker Change: Let me start with the competition in China.

I think the growth is taking place in the mass area on the China business, China overall coffee and tea segment is one where you just intense price competition.

Unknown Speaker: We are a premium brand. We've built a business for over 25 years, with a great deal of competitive advantages. You can see that there we have amazing partners and stores. We have stores that look distinctive.

Speaker Change: And choosing not to participate in that.

Speaker Change: <unk> premium brand, we have built a business over 25 years.

Speaker Change: Have a great deal of competitive advantages you can see that we have amazing partners in stores. We have stores that look distinctive give an end to end supply chain that frankly, I would love to have in the U S. And then we are steeped in coffee in the tradition of coffee.

Unknown Speaker: We have an end-to-end supply chain that, frankly, I would love to have in the US, and then we are steeped in coffee and the tradition of coffee from end to end as well as with the knowledge that we have in store, so we bring that to life very well in our business in China. At the same time, what you are seeing is intense competition, particularly in the peace segment, and it overlaps into coffee, in the mass area, is one where you are seeing some of the shake-out happen in terms of the impact on people and how they can really sustain that kind of intensity.

Speaker Change: End to end as well as with the knowledge that they have install suite brings that to life.

Speaker Change: Very well and our business in China.

Speaker Change: At the same time, what you are seeing is the intense competition, particularly in the <unk> segment and in overlaps into coffee in the mass area is one where you are seeing some of the shakeout happen in terms of.

Speaker Change: Impact on people and how they can really sustain that kind of intensity.

Unknown Speaker: For us, our focus is on the premium end, and we're continuing to see that right now, the headroom we have in China is large. I mean, we're still at 13 cups per capita. The U.S. is at 280.

Speaker Change: As our focus on premium added and are continuing to see that right now the headroom we have in China is large.

Speaker Change: Let's touch on Cups per capita Japan's at $2 80 in the U S is a 380 <unk>, we know that over time.

Unknown Speaker: We know that over time, as the Chinese consumer starts spending, what you're going to realize is that we have a business that is healthy, that has a B&L at the store operating margin level that is strong. And we're going to see that grow as the consumer gets more and more exposed to coffee. So that is what I mean by the overall competitive environment in China.

Speaker Change: Annie's consumer start spending what youre going to realize is that when you have a business that is healthy that is the P&L at the store operating margin level that is strong and we're going to see that grow as the consumer gets more and more exposed to so that is what I mean by the overall competitive environment.

Speaker Change: In China.

Unknown Speaker: In terms of your question about the beverage pipeline, I think that's meant largely, One of the things we're seeing here is that we have a core in coffee, and we're tremendously excited about the innovations that we're bringing with whole bean coffee and some of the coffee forward innovations that we are seeing in our stores. But additionally, as we look at the occasional customers, they are looking for variety. And what we are doing is we're finding ways to open up new platforms of growth.

Speaker Change: In terms of your question about the beverage pipeline I think thats been largely.

Speaker Change: In North America.

Speaker Change: One of the things we're seeing here is we have a core and a coffee and we're tremendously excited about the innovations that we're bringing the whole bean coffee and some of the coffee forward innovations that we are seeing in our stores.

Speaker Change: But additionally, as we look at the occasional customers.

Speaker Change: Our looking for variety and when we are doing is we're finding ways to open up new platforms of growth and also I mentioned that it was <unk>.

Unknown Speaker: And last time I mentioned that there were three. These are foundational, additional new introductions that we will make over time. The first one was textures, so we start with pearls with our summer one program that starts next week.

Speaker Change: These are foundational.

Speaker Change: Additional <unk>.

Speaker Change: Introductions that we will make over time.

Speaker Change: First <unk> Jess let me start with us.

Speaker Change: With our summer one program that starts next week, we then have.

Unknown Speaker: We then have a handcrafted energy platform that's coming in later in this quarter. Additionally, plant-based is an area where we've traditionally been really well-known for. We are defining platforms, and these are platforms around which you can expect to see systematic innovations that come in, not just this time around, but also you will see furthermore innovations that come in around these platforms. That's how we're thinking about R&D. It's around platforms, both in beverage as well as in food. And our next question comes from Sharon Zackfia with William Blair. Hi, good afternoon.

Speaker Change: Handcrafted energy platform that's coming in.

Speaker Change: In this quarter.

Speaker Change: Actually.

Speaker Change: This is an area, where we've traditionally been really well known for so we are just wondering platforms and these platforms around which you can expect to see systematic innovations that come in not just this time, Rob but also you will see further borne that come in around these platforms. That's how we're thinking about R&D.

Speaker Change: On our platform both in beverage as well.

Speaker Change: Thank you and.

Speaker Change: And our next question comes from Sharon Zackfia with William Blair. Please state your question.

Unknown Speaker: Thanks for taking the question. I guess, you know, I'm trying to think through the sequence of how we got here today. And it seems like, you know, in October and early November at the analyst meeting, demand was not a problem in the US. And I hear you saying that you have a lot of unmet demand. But could you, excuse me, kind of help us do a hindsight on how these issues have come to a crux so quickly, you know, just four or five months hence since those, those kind of very ambitious goals that were given?

Sharon Zackfia: Hi, good afternoon. Thanks for taking the question I guess I'm trying to think through the sequencing of how we got here today and it seems like you know in October and early November at the analyst meeting demand was not a problem you know in the U S and I hear you, saying that you have a lot of unmet demand.

Sharon Zackfia: But could you excuse me kind of help us do a hindsight on how these issues have come to that clock so quickly.

Sharon Zackfia: Just four or five months, hence since those are those kind of ambitious goals that right Kevin.

Unknown Speaker: Thank you, Sharon. I think that if I look at the headwinds that we see in the market, particularly with the consumer and the pressures that they face, I think that they are sharper and more accelerated than we thought. I mean, and I'm sorry, when I look at the situation in China.

Kevin: Thank you Sharon I think that if I look at fee.

Kevin: The headwinds.

Kevin: We see in the market.

Kevin: And particularly with the consumer and depression.

Kevin: I think that Dave.

Kevin: Sharper and more accelerated than what we expected.

Speaker Change: Hey, Brian.

Speaker Change: The situation in China.

Unknown Speaker: Well, long-term growth potential is, is sort of thinking we're committed to the long term in China. The recovery has been choppy. But I think what we've seen, particularly since that period, is that we've seen more intense price competition that will be expected. None of that takes away from the long term, but it's clear that what we had this quarter was tough. Thank you. And our next question comes from Peter Saleh with BTIG. Please state your question.

Speaker Change: Long term growth potential is sort of thinking about committing to the long term in China.

Speaker Change: The recovery has been choppy.

Speaker Change: But I think what we've seen particularly since that period as we are seeing more intense price competition that will be expected none of that takes away from the long term, but it is clear that when we had this quarter was tough.

Speaker Change: Thank you.

Speaker Change: And our next question comes from Peter Sadler with BTG. Please state your question.

Unknown Speaker: Great. Thanks for taking the time to answer the question. I did want to ask about the SIREN system. This was the focal point of Investor Day a couple years ago, and it seemed like it was put on the back burner for a little while. But now it seems like you're talking more bullish about this system going forward. So can you just give us an update? I think the last we heard it was going to be rolled out to less than 10% of the stores this year.

Peter Mokhlis Saleh: Great. Thanks for taking the question.

Peter Mokhlis Saleh: I did want to ask about the siren system.

Peter Mokhlis Saleh: This was a focal point of the Investor day, a couple of a couple of years ago. It seemed like it was put on the back burner for a little while but now it seems like you're talking more bullish about the system going forward. So can you just give us an update.

Peter Mokhlis Saleh: I think last we heard it was going to be rolled out to less than 10% of the stores. This year. What is the strategy now and how does this help solve some of the issues you have.

Unknown Speaker: What is the strategy now? And how does this help solve some of the issues you have? It sounds like some of the issues that you have are more in the supply chain and not necessarily within the four walls of the stores. Thanks. These are just to respond to your question. First of all, the siren system was never put on.

Peter Mokhlis Saleh: The issues that you have are more on the supply chain and not necessarily.

Peter Mokhlis Saleh: Our walls of the stores.

Peter Mokhlis Saleh: Thanks.

Speaker Change: These are just to respond to your question first of all the sirens.

One over there.

Unknown Speaker: In fact, we're on track to having a siren system installed in less than 10% of the store as much as we committed. So it's on track. What we've added here, though, is the underlying process to ensure that we can reuse the wait time in the store. It is inside the four walls of the store.

Speaker Change: In fact, we are on track.

Speaker Change: Having a <unk> system installed.

Speaker Change: And less than 10% of the stores as much as we committed.

Speaker Change: On track.

Speaker Change: What we've added in here, though is the underlying processes to ensure that we can reduce the wait time in the store.

Speaker Change: Inside four walls sooner.

Unknown Speaker: And that's what those processes are intended to do in the U.S. And so that's what the acceleration of the processes that we've been testing is about. What they provide is a base on which we will continue to implement the overall siren systems that we showcased to you at the September Anniversary when you were here with us and we talked about them. Our next question comes from Lauren Silberman with Deutsche Bank. Thank you.

Speaker Change: And Thats, what those processes are intended to do in the U S.

Speaker Change: So that's what the acceleration of the processes that we have been testing what we provide as a base on which we will continue to implement the overall syring systems that we showcase to you.

Speaker Change: In the September Analyst day, when you were here with us and we talk to it.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Lauren Silberman with Deutsche Bank. Please state your question.

Unknown Speaker: One quick follow-up and then a question. First, can you just talk about the cadence of U.S. comp throughout the quarter? I know you mentioned Lavender was extremely successful, but it doesn't seem to be showing up in the comp, just given the commentary on the exit rate. So just help us understand the performance of new products and whether that's driving the incremental customers you're targeting. And then just a quick one on, like, loyalty.

Lauren Danielle Silberman: Thank you.

Lauren Danielle Silberman: The next question.

Lauren Danielle Silberman: First can you just talk about the cadence of U S comp throughout the quarter I know you mentioned lavender with extremely successful it doesn't seem to be showing up in the comp just given the commentary on the exit rate. So just help us understand.

Lauren Danielle Silberman: And whether that's driving incremental customers you're targeting and then just.

Lauren Danielle Silberman: A quick one on like loyalty it looks like active rewards members declined quarter over quarter, which is very rare can you just talk about what youre seeing there given the commentary on the strength of the core customer. Thank you very much.

Unknown Speaker: It looks like active rewards members declined quarter over quarter, which is very rare. Can you just talk about what you're seeing there, given the commentary on the strength of the core customer? Thank you very much.

Unknown Speaker: Thank you, Lauren. I'll start with the competition and what I spoke about in my prepared remarks about the exit rate. And Lavender was quite successful for us, as you heard in Luxman's prepared remarks. What we were encouraged by is that Lavender spoke to where our customers, particularly our Gen Z and Millennial customers, are now asking about, which is more news more often in a broader offering. So offering means coffee, non-coffee, food, healthier choices. And so we hit squarely on that with Lavender by having, particularly, our most popular offering in Lavender was the Iced Lavender Matcha Latte.

Speaker Change: Thank you Donna.

Speaker Change: Okay.

Speaker Change: And that in my prepared remarks.

Speaker Change: Great.

Speaker Change: And there was quite successful for us.

Speaker Change: Hey, good luck in his prepared remarks.

Right.

Speaker Change: Sure.

Speaker Change: Thank you Greg.

Excellent.

Speaker Change: Good morning.

Speaker Change: Router offering.

Speaker Change: Operating property non coffee.

Speaker Change: Great.

Speaker Change: Sure.

Speaker Change: I agree with that with lavender by having particularly Edwards, our operating rather than go away right.

Unknown Speaker: And so that shows that when we innovate well, it meets our own expectations. Now, it was later in the quarter, so it did something for us in terms of driving customers into the afternoon. Largely, we saw that platform resonate well in the afternoon with our customers. The lattes still tend to do more in the morning, but broadly, Lavender did well in the afternoon.

Speaker Change: Right.

Speaker Change: Sure Jay.

Speaker Change: Is it now.

Speaker Change: Yes.

Speaker Change: Alright, thank you.

Speaker Change: For us in terms of driving.

Speaker Change: And largely we saw that platform resonate well.

Speaker Change: And with our customer demand.

Sure.

Speaker Change: Good morning, Robert.

Speaker Change: Broadly lab.

Unknown Speaker: So we see that the overall offering and how we're trying to address the customer, more occasional customers with that, worked well. But what I would say is it was later in the quarter; we got more opportunity coming going forward. And as a result of that, our exit rates in the quarter still reflected continued headwinds, which we're reflecting in our guidance for the back of this half of the year. What we're expecting is that the plans that we've outlined today will help us counterbalance some of those headwinds, particularly as we see those actions start to take place. So I think it's important to think about whether there are continuing headwinds in there.

Speaker Change: That that overall offering and then how we are trying to address.

Speaker Change: More occasional customers that work well.

Speaker Change: During the quarter.

Sure.

Speaker Change: And going forward.

Speaker Change: Often that our exit rate in the quarter.

Speaker Change: Right.

Speaker Change: Yes.

Which were reflected in our guidance for the back half year.

Speaker Change: Randy outlined.

Speaker Change: On your ballot.

Speaker Change: Particularly as we see those actually start to take place.

Speaker Change: Important to think about there are.

Unknown Speaker: Our plans will counterbalance that. And as we go after some of those challenges, I think the other thing to remember is that we are coming with a position of strength as it relates to the efficiency of our triple shot. As well as the growth we have in new stores and the strength we're seeing in our portfolio overall. We have a very strong and profitable portfolio globally, which helps us, and our brand is strong.

Speaker Change: Our plan will counterbalance.

Speaker Change: And thereafter.

Speaker Change: Sharon.

Speaker Change: The other thing to remember.

Great.

Speaker Change: Yes.

Speaker Change: And our triple a shot.

Well as the growth we have a new story.

Speaker Change: Yes.

Speaker Change: Overall.

Speaker Change: Profitable.

Speaker Change: Yes.

Unknown Speaker: So we look at all of that, and that's how we're thinking about the exit rates of comps, as well as what we're seeing for comps in the back half of the year. So hopefully that provides a little more. Thank you Warren. You talked about the year-over-year increase but a quarter-over-quarter decline of Starbucks Rewards members. And I think, just to be clear, that is in terms of 90-day frequency, so we still have a very large population of SR members, but it's not the frequency that I think is consistent with the consumer pullback. The more occasional and very occasional SR members, those ones visited less frequently within the quarter, and as a result of that, we saw fewer 90-day active quarter-over-quarters.

Speaker Change: When you look at all of that color.

Speaker Change: The rate of comp as well.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thank you, Brian you talked about.

Speaker Change: Year over year and.

Quarter over quarter decline.

Speaker Change: Sorry, Thats rewards member.

Speaker Change: To be clear.

Speaker Change: In terms of 90 day frequency.

Speaker Change: Very hard.

Speaker Change: Acquisition.

Speaker Change: Got it.

Speaker Change: Yes.

Speaker Change: I think consistent with the.

Speaker Change: Recall that the more occasional and very reasonable number.

Speaker Change: Are those ones.

Speaker Change: Great.

Speaker Change: Yes.

Unknown Speaker: That said, with 6% growth year-over-year, we're continuing to grow SR. MLP grew in the quarter, so we still have a very active customer base, setting a record high for MLP. Delivery grew double digits in the quarter, so we see a very active additional, And I think as Laxman talked about with regard to how we're going to drive SR in traffic in the coming quarters, this It's reactivating SR, reading the facts and demonstrating value, and driving frequently through the apps and through that bar.

Speaker Change: Thank you David.

Speaker Change: Yes.

Right.

Speaker Change: Sure.

Speaker Change: Thanks Mark.

Speaker Change: During the quarter.

Speaker Change: Well it is very accurate.

Speaker Change: Recognize that we will see later regroup.

Speaker Change: The double digits in the quarter.

Digital.

Speaker Change: Good luck.

Sure.

Speaker Change: Albert.

Speaker Change: Good morning.

Speaker Change: <unk>.

Speaker Change: My early align to this challenge is reactivating.

Speaker Change: Bringing it back and demonstrating very good Brian.

Speaker Change: Yes.

Speaker Change: Great.

Speaker Change: Yes.

Speaker Change: Got it.

Speaker Change: Thank you.

Unknown Speaker: We have a lot of great programs lined up for the work we need to head. And our next question comes from John Ivankoe with JPL, help me out about a point. Correct me if I'm wrong about that. But, you know, that seems to be a fairly low number.

Speaker Change: And our next question comes from John <unk> with Jpmorgan. Please state your question.

John: Hi, Thank you.

John: Two parts, if I may I heard the word misinformation and and I think some improving.

Maybe scores around that so I just wanted to get a sense how much of an opportunity in terms of sales loss that you think correcting misinformation might actually mean for Starbucks I don't think you've quantified that but that would be helpful. And then secondly regarding the Toyota production system.

Think I heard you said that it would help with that a point correct.

Unknown Speaker: And, you know, just talk about what kind of changes that would happen under the Toyota production system. And, you know, for us, one of the opportunities would be having food ready when the customer orders it. In other words, using food warming cabinets would be particularly effective for both mobile order and pay and drive-thru.

John: Correct me, if I'm wrong about that but that seems to be fairly low number and just talk about what kind of changes that would happen on the Toyota production system and to US one of the opportunities would be having to be ready when the customer orders that in other words using food warming cabinet would be particularly effective.

John: For both mobile order and pay and drive three so is that something that maybe is part of siren that.

John: It can be accelerated before the entire salary system goes into place. Thank you.

Unknown Speaker: So, you know, is that something that maybe, as part of Siren, can be accelerated before the entire Siren system goes into place? Thank you. John, thank you for the question. I think the question about misperception did have an impact on our business. Unknown Speaker, We haven't really, we don't have a qualification. What we do know is that our brand equity scores and the investment we made in the brand have certainly helped strengthen the overall perception of our brand to the extent that we did.

Speaker Change: Thank you for the question.

Speaker Change: Good question.

Speaker Change: Mr Section did have an impact on our business.

Speaker Change: Yes.

Speaker Change: We haven't seen.

Speaker Change: Okay.

Speaker Change: No.

Speaker Change: Got it.

Speaker Change: And the investments.

Speaker Change: Okay.

Speaker Change: Spending.

Speaker Change: Thanks.

Speaker Change: No.

Unknown Speaker: In terms of delivering our position, what we're doing first is we're talking, you know, how we deal with tweaks, including the deployment. How we essentially work with deployment in the store, how we handle what happens at peak in terms of, you know, where people are deploying, how we essentially go off the cuff. I know we've given you a quantification of one percentage point, but that is a conservative estimate because when it fully gets deployed, and it sinks, you can see even bigger improvements that happen.

Speaker Change: Okay.

Speaker Change: Hello.

Speaker Change: Okay.

Speaker Change: No.

Speaker Change: <unk>.

Speaker Change: Sure.

Okay.

Speaker Change: We essentially work with.

Speaker Change: Deployment in the store.

Speaker Change: What happens with Pete in terms of where people.

Speaker Change: Thank you Paul.

Speaker Change: And what are you seeing.

Pete: Well, we've given you a quantification of one percentage point.

So all good on that.

Pete: When it's fully deployed.

Pete: Thanks.

Unknown Speaker: With regard to your question about the hot fold, that is purely something we're testing and we're looking at furthering. So it's a great point for the community to further develop that with the work that we are doing. Thank you. And our next question comes from Andrew Charles with Cohen & Company. Great, thank you. I know you're committed, of course, to the tenets of the reinvention plan. But in light of the current environment and the caution of the US and Chinese consumers, can you level set the long-term earnings algorithm introduced in November around guidance for 5% same store sales and 15% plus CPS growth? Does that still apply to 2025 and beyond? Edward VanCouper, U.S. Everything was clean. I know that we had a top four.

Speaker Change: Thank you.

Speaker Change: Well to your question now.

Okay.

Speaker Change: The shortfall.

Speaker Change: That is clearly suffering.

Speaker Change: Our.

Speaker Change: So.

Speaker Change: Great.

Speaker Change: Yes.

Speaker Change: What we will do it.

Speaker Change: Yeah.

Speaker Change: [laughter].

Speaker Change: Thank you.

Speaker Change: And our next question comes from Andrew Charles with Cowen <unk> Company. Please state your question.

Andrew Michael Charles: Great. Thank you I know you're committed of course for the tenant to the reinvention plan, but in light of the current environment caution on the U S and China consumer can you level set the long term earnings algorithm introduced November around guidance for 5% same store sales and 15% plus EPS growth does that still apply to 2025 and beyond.

Speaker Change: Thank you for your question.

Speaker Change: Everything we've seen.

Speaker Change: Got it that's helpful.

Unknown Speaker: But everything is seen in terms of the opportunities that lie ahead. As you look at the opportunities we have, [inaudible] If you look at the productivity option... Unknown Speaker, Unknown Speaker, We believe you'll be back. I'll do it for you. And we see no change in the long term. Congress doesn't say.

Speaker Change: Okay.

Speaker Change: In terms of the opportunities that lie ahead.

Speaker Change: As you look at it.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Innovation.

Speaker Change: Okay.

Speaker Change: Going forward.

Speaker Change: Yeah.

Speaker Change: If you look at the productivity opportunities.

Speaker Change: The store count.

Speaker Change: Yeah.

Speaker Change: When you believe it will be back.

Speaker Change: Yeah.

And we see no change.

Speaker Change: The long term.

Speaker Change: Okay.

Unknown Speaker: All right. Thank you. Thank you. And the last question comes from David Tarantino with Baird.

Speaker Change: Earlier.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you.

Then the last question comes from David Tarantino with Baird You May ask your question.

Unknown Speaker: I get out. My question is about the value strategy that you laid out. I'm just wondering how you balance that with the technology.

David E. Tarantino: Hi, good afternoon.

My question is on the value strategy that you laid out and.

David E. Tarantino: The need.

David E. Tarantino: Traffic or attract traffic in a tough environment, but I'm just wondering how bad.

David E. Tarantino: Alan.

David E. Tarantino: Testing.

Unknown Speaker: The Long Term Health of the Branch. Starbucks has always been a very premium brand.

David E. Tarantino: Long term.

David E. Tarantino: Health of the brand.

David E. Tarantino: Starbucks has always been a very premium brand position.

Unknown Speaker: Transcripts provided by Transcription Outsourcing, LLC. Unknown Attendee, Thank you for your quest. First Call. Please leave the room, and we have no intention of going across the board. Unknown Speaker, Unknown Speaker, Yeah, we all do.

David E. Tarantino: Yeah sort of training some of these occasional users to comment on discount rate you might have.

David E. Tarantino: Some detrimental impact so I'm just wondering how you balance those two things and.

David E. Tarantino: And the strategy that you have.

Speaker Change: Thank you for your question.

Mhm.

And we have no intention of light.

Speaker Change: The board.

Speaker Change: Yes.

Speaker Change: Yeah.

Unknown Speaker: We are serious about the fact that, as a new team, as you go along the way, we are going to offer you the best levels of things that we've got. Remember that our brand overall, right now, that, for what I get, is still very strong, so be very good about that. And this is more about how we move the teams and how we manage them.

Speaker Change: Okay.

Speaker Change: Back then.

Speaker Change: Okay.

Speaker Change: As.

Speaker Change: <unk>.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Oh.

Speaker Change: Hey, Brett.

Brian worldwide now.

Speaker Change: Yes.

Speaker Change: Great.

Speaker Change: Alright.

Speaker Change: And this board about Chile.

Speaker Change: Yes.

Speaker Change: Well.

Speaker Change: Great.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: In fact, we have been thinking of it.

Speaker Change: Paul.

Unknown Speaker: [inaudible] That is what we intend to do. [inaudible] Transaction. We're at 29. Unknown Speaker, Unknown Speaker, Unknown Speaker, Unknown Speaker, and as well as what our customers can get an app to do.

Paul: If that is what we intend.

Yeah.

Paul: Okay.

Paul: Yeah.

Paul: Okay.

Paul: Yeah.

Paul: Awesome.

Paul: Yeah.

Paul: Yeah.

Paul: Okay.

Paul: Yeah.

Paul: Yeah.

Paul: Sure.

Paul: Yeah.

Paul: Transactions were 29.

Paul: Yeah.

Paul: Yeah.

Paul: Okay.

Paul: Okay.

Paul: Okay.

Paul: Got it.

Paul: Okay.

Paul: The war.

Paul: Right.

Paul: Integrated way around Sonic.

Paul: Yes.

Paul: Yes.

Paul: Yeah.

Paul: Sure.

Paul: Yeah.

Paul: Yeah.

Paul: Sure.

Paul: Okay.

Paul: Yes.

Paul: Thank you.

Laxman Narasimhan: Thank you. That was our last question. I'll now turn the call over to Laxman Narasimhan for closing. Thank you all for joining us. We are in tough water. We have a clear action plan. (Inaudible) Thank you all for joining us, and we appreciate the time you've taken to talk to us. Thank you. This concludes today's conference. All parties may

Paul: That was our last question and I'll now turn the call over to Laxman Narasimhan for closing remarks.

Laxman Narasimhan: Thank you all for joining us.

Laxman Narasimhan: Tough quarter.

Laxman Narasimhan: But we have a clear.

Laxman Narasimhan: Pat.

Laxman Narasimhan: Thanks, Steve.

Good morning.

Okay.

Laxman Narasimhan: Okay.

Laxman Narasimhan: Okay.

Laxman Narasimhan:

Laxman Narasimhan: Scott.

Laxman Narasimhan: Our strategy.

Laxman Narasimhan: <unk>.

Laxman Narasimhan: Okay.

Laxman Narasimhan: Joining us.

Laxman Narasimhan: I appreciate the time.

Yeah.

Yeah.

Speaker Change: Thank you. This concludes today's conference all parties may disconnect have a good day.