Q3 2024 Starbucks Corp Earnings Call

July 30, 2024

Good afternoon. My name is Diego and I will be your conference operator today. I would like to welcome everyone to the Starbucks third quarter fiscal year 2024 conference call.

Operator: Everyone to the Starbucks third quarter fiscal year 2024 conference call. All lines have been placed on mute to prevent any background noise.

Operator: to the Starbucks third quarter fiscal year 2024 conference call. All lines have been placed on mute to prevent any background noise.

Operator: After the speakers are marked, there will be a question-and-answer session. If you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two on your telephone keypad.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2 on your telephone keypad. I will now turn the conference call over to Tiffany Willis, Senior Vice President of Investor Relations. Willis, you may now begin your coffee. Thank you, Diego.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Speaker Change: If you would like to ask a question, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2 on your telephone keypad.

Tiffany Willis: I will now turn the conference call over to Tiffany Willis, Senior Vice President of Investor Relations. Miss Willis, you may now begin your conference.

Speaker Change: I will now turn the conference call over to Tiffany Willis, Senior Vice President of Investor Relations.

Tiffany Willis: Thank you, Diego. Good afternoon, and thank you everyone for joining us today to discuss Starbucks' third 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.

Tiffany Willis: Good afternoon, and thank you everyone for joining us today to discuss Starbucks' third 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. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that can cause our actual results to differ materially from these statements. Any such statement should be considered in conjunction with cautionary statements and 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. We assume no obligation to update any of these forward-looking statements or information. Gap results for third quarter fiscal year 2024's comparative period include several items related to strategic actions, including restructuring and impairment charges and other items. These items are excluded from our non-gap results.

Speaker Change: Ms. Willis, you may now begin your conference.

Tiffany Willis: Thank you, Diego. Good afternoon, and thank you, everyone, for joining us today to discuss Starbucks' third quarter fiscal year 2024 results.

Tiffany Willis: All numbers referenced on today's call are on a non-gap 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.

Speaker Change: Today's discussion will be led by Laxman Narasimhan, Chief Executive Officer, and Rachel Ruggeri, Executive Vice President and Chief Financial Officer. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that can cause our actual results to differ materially from these statements.

Tiffany Willis: This conference call will include four looking statements, which are subject to various risks and uncertainties that can cause our actual results to differ materially from these statements. Any such statement should be considered in conjunction with cautionary statements and our earnings release and risk factors discussed in our filings with the SEC, including our latest annual report on Form 10-K and quarterly report on Form 10-Q. Starbucks assumes no obligation to update any of these four looking statements or information.

Speaker Change: Any such statement 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: Gat results in third quarter fiscal year 2024's comparative period include several items related to strategic actions, including restructuring and impairment charges and other items. These items are excluded from our non-Gat results. All numbers referenced on today's call are on a non-Gat basis unless otherwise noted, or there is no non-Gat adjustment related to the metric. As part of our non-Gat 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.

Speaker Change: Starbucks assumes no obligation to update any of these forward-looking statements or information.

Speaker Change: Gap results in third quarter fiscal year 2024's comparative period include several items related to strategic actions, including restructuring and impairment charges and other items.

Speaker Change: These items are excluded from our non-GAAP results. All numbers referenced on today's call are on a non-GAAP basis.

Speaker Change: 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.

Speaker Change: 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 and our website at investor.starbucks.com to find recommendations of those non-GAAP measures to their corresponding GAAP measures.

Tiffany Willis: For non-gap financial managers mentioned in today's call, please refer to the earnings release and our website at investor.starbucks.com to find reconciliations of those non-gap measures to their corresponding gap measures. This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, September 13, 2024. And lastly, for your planning purposes, please note that our fourth quarter and full fiscal year 2024 earnings conference call has been tentatively scheduled for Wednesday, October 30, 2024. And with that, I'll now turn the call over to Laxman.

Speaker Change: For non-GAAP financial managers mentioned in today's call, please refer to the earnings release and our website at investor.starbucks.com to find reconciliations of those non-GAAP measures to their corresponding GAAP measures.

Tiffany Willis: This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, September 13th, 2024. Lastly, for your planning purposes, please note that our fourth quarter in full fiscal year 2024 earnings conference call has been tentatively scheduled for Wednesday, October 30th, 2024. And with that, I'll now turn the call over to Luxemann.

Speaker Change: This conference call is being webcast and an archive of the webcast will be available on our website through Friday, September 13, 2024.

Speaker Change: And lastly, for your planning purposes, please note that our fourth quarter and full fiscal year 2024 earnings conference call has been tentatively scheduled for Wednesday, October 30, 2024.

Laxman Narasimhan: Thank you, Tiffany, and thank you for joining us this afternoon. Let me start by laying out our results for this quarter. Our Q3 total company revenue was $9.1 billion, up 1% year-over-year and 6% over Q2. Our global comparable store sales declined 3% year over year, driven by a negative 2% comp growth in North America and a negative 14% comp growth in China, partially offset by strong performance in Japan. Our global operating margins contracted by 70 basis points to 16.7%, and overall earnings per share for the quarter were $0.93. Our total company results were in line with guidance. But their international performance, particularly in China, was challenged.

Laxman Narasimhan: Thank you, Tiffany, and thank you for joining us this afternoon. Let me start by laying out our results for the quarter. Our Q3 total company revenue was $9.1 billion, of 1% year over year and 6% over Q2. Our global comparable store sales declined 3% year over year driven by a negative 2% congro in North America and a negative 14% congro in China. Diana, and partially offset by strong performance in Japan. Our global operating margins contracted by 70 basis points to 16.7%, and overall earnings per share for the quarter was 93 cents. Our total company results were in line with guidance, but international performance, particularly in China, was challenged.

Speaker Change: And with that, I'll now turn the call over to Laxman.

Laxman Narasimhan: Thank you, Tiffany, and thank you for joining us this afternoon. Let me start by laying out our results for this quarter.

Laxman Narasimhan: Our Q3 total company revenue was $9.1 billion, up 1% year over year, and 6% over Q2.

Laxman Narasimhan: Our global comparable store sales declined 3% year over year, driven by a negative 2% comp growth in North America and a negative 14% comp growth in China.

Laxman Narasimhan: and partially offset by strong performance in Japan.

Laxman Narasimhan: Our global operating margins contracted by 70 basis points to 16.7 percent and overall earnings per share for the quarter was 93 cents.

Laxman Narasimhan: Our total company results were in line with guidance.

Laxman Narasimhan: We are not satisfied with the results, but our actions are making an impact. Leading business and operational indicators are trending in the right direction ahead of our financial results, and our runway for improvement is long. We see green shoots in our US business driven by the three-part action plan outlined last quarter. First, meet an unlock capacity for new demand through a relentless focus and improvements to our US store operations, and on elevating the experience we create for our partners and customers. Second, attract new customers and drive transaction growth by launching and integrating more exciting new products with relevant marketing while maintaining our focus on core coffee-forward offerings.

Laxman Narasimhan: But international performance, particularly in China, was challenged.

Laxman Narasimhan: We are not satisfied with the results, but our actions are making an impact.

Laxman Narasimhan: Leading business and operational indicators are trending in the right direction ahead of our financial results.

Laxman Narasimhan: and our runway for improvement is long.

Laxman Narasimhan: We see green shoots in our U.S. business driven by the three-part action plan outlined last quarter.

Laxman Narasimhan: First, meet and unlock capacity for new demand through a relentless focus on improvements to our U.S. store operations and on elevating the experience we create for our partners and customers. Second, attract new customers and drive transaction growth by launching and integrating more exciting new products into relevant markets, while maintaining our focus on core coffee forward options. And third, reach new customers and demonstrate our value by making sure customers believe the Starbucks experience is worth it every time.

Laxman Narasimhan: Second, attract new customers and drive transaction growth by launching and integrating more exciting new products with relevant marketing while maintaining our focus on core coffee forward offerings.

Laxman Narasimhan: And third, reach new customers and demonstrate our value by making sure customers believe the Starbucks experience is worth it every time. First, our largest opportunity meets an unlock capacity for new demand. A relentless focus on improving operational execution across our nearly 10,000 US company-operated stores is the cornerstone of our near-term plan. While it is early days of progress, our plan is working.

Laxman Narasimhan: And third, reach new customers and demonstrate our value by making sure customers believe the Starbucks experience is worth it every time.

Laxman Narasimhan: First, our largest opportunity, meet and unlock capacity for new demand. A relentless focus on improving operational execution across our nearly 10,000 U.S. company-operated stores is the cornerstone of our near-term plan. While it is in the early days of progress, our plan is working.

Laxman Narasimhan: First, our largest opportunity, meet and unlock capacity for new demand.

Laxman Narasimhan: A relentless focus on improving operational execution across our nearly 10,000 U.S. company operated stores is the cornerstone of our near-term plan.

Laxman Narasimhan: If you walk away from today's call with one thought, let it be the significant changes and long-term upside potential taking place within our US stores and across our end-to-end supply chain to unlock growth, enhance the customer experience, and drive cost efficiencies. Within our stores, we've seen material positive momentum across core store health and performance metrics, with notable improvements in partner scheduling and turnover, critical store issues, and inventory management. Stores ranked in our top two operational performance quartiles reached a new high during the quarter, a 28% upwards shift from Q2, but we have more opportunity. Our focus on operational excellence, driven by our invention plan, has led to a multi-second year-over-year improvement in out-of-the-window times.

Laxman Narasimhan: If you walk away from today's call with one thought, let it be the significant changes and long-term upside potential taking place within our US stores and across our end-to-end supply chain to unlock growth, enhance the customer experience, and drive cost efficiency. In our stores, we've seen material positive momentum across core store health and performance metrics, with notable improvements in partner scheduling and turnover. Critical Store Issues and Inventory Management. Stores ranked in our top two operational performance quartiles reached a new high during the quarter.

Laxman Narasimhan: While it is early days of progress, our plan is working.

Laxman Narasimhan: If you walk away from today's call with one thought, let it be the significant changes and long-term upside potential taking place within our U.S. stores and across our end-to-end supply chain to unlock growth, enhance the customer experience, and drive cost efficiencies.

Laxman Narasimhan: Within our stores, we've seen material positive momentum across core store health and performance metrics.

Laxman Narasimhan: With notable improvements in partner scheduling and turnover, critical store issues, and inventory management.

Laxman Narasimhan: Stores ranked in our top two operational performance quartiles reached a new high during the quarter, a 28% upwards shift from Q2, but we have more opportunity.

Laxman Narasimhan: A 28% upward shift from Q2. But we have more opportunities, and are focused on operational. Driven by a reinvention plan that has led to a multi-second year-over-year improvement in out-of-the-window time. A nearly 50% reduction in calls received by a customer contact center for "My order took too long" and a mobile order and pay, and delivery uptime rate of 99%. These are key indicators of our work to drive growth by addressing customer wait times, product availability, and the customer experience. This quarter, we also introduced phase one of our SirenCraft system, which includes several process and partner-driven enhancements to our US store operation.

Laxman Narasimhan: are focused on operational excellence.

Laxman Narasimhan: driven by a reinvention plan has led to a multi-second year over year improvement in out-of-the-window times. A nearly 50% reduction in calls received by a customer contact center for my order took too long.

Laxman Narasimhan: The nearly 50% reduction in calls received by a customer contact center for my order took too long, and mobile order and pay and delivery uptime rates of 99%. These are key indicators of our work to drive growth by addressing customer wait times, product availability, and the customer experience. This quarter, we also introduced phase one of our side-and-croft systems, which includes several process and partner-driven enhancements to our US store operations. Changes include a new peak time play collar roll, strategic investments in partner hours, training, new routines, simple enhancements to technology, and an evolved beverage. Early deployment across 1200 stores demonstrated a material incremental improvement across key performance, throughput, efficiency, and reliability metrics.

Laxman Narasimhan: and mobile order and pay and delivery uptime rates of 99%.

Laxman Narasimhan: These are key indicators of our work to drive growth by addressing customer wait times, product availability, and the customer experience.

Laxman Narasimhan: Changes include a new peak-time play caller role, strategic investments in partner hours, training, new routines, simple enhancements to technology, and an Evolved Beverage Build Process. Early deployment across 1200 stores demonstrated a material incremental improvement across key performance, throughput, efficiency, and reliability metrics. Encouraged by this, we fully deployed SirenCraft Systems process improvements across our entire portfolio of US company-operated stores this week. Later this quarter, we will begin rolling out a simple refit to our espresso machine, which we expect to improve espresso throughput by up to 15% without compromising quality and with a minor software change in our store production. We have a similar ability to improve food.

Laxman Narasimhan: This quarter, we also introduced Phase 1 of our SirenCraft systems, which includes several process and partner-driven enhancements to our U.S. store operations.

Laxman Narasimhan: Early deployment across 1,200 stores demonstrated a material incremental improvement across key performance, throughput, efficiency, and reliability metrics.

Laxman Narasimhan: Encouraged by this, we fully deployed science-craft systems process improvements across our entire portfolio of U.S. company operated stores this week. Later this quarter, we will begin rolling out a simple refit to our espresso machines, which we expect to improve espresso throughput by up to 15% without compromising quality. And with a minor software change in our store production systems, we have a similar ability to improve food throughput. When paired with siren system equipment announced as part of our read mention plan, these new processes become a force multiplier that we expect to drive a true step-change improvement.

Laxman Narasimhan: Encouraged by this, we fully deployed Sinecraft Systems process improvements across our entire portfolio of U.S. company-operated stores this week.

Laxman Narasimhan: Later this quarter, we will begin rolling out a simple refit to our espresso machines, which we expect to improve espresso throughput by up to 15% without compromising quality.

Laxman Narasimhan: and with a minor software change in our store production systems.

Laxman Narasimhan: When paired with siren system equipment announced as part of our reinvention, these new processes become a force multiplier that we expect to drive a true step change improvement. Early assessments demonstrate the capability to drive a 10 to 20 second wait time reduction and a resulting calm opportunity range of 1 to 1.5. Leveraging our DeepBrew Analytics platform, we have identified customer experience outlier stores, approximately 10% of our network, and have developed targeted plans to address and improve them, including accelerated siren system deployment.

Laxman Narasimhan: We have a similar ability to improve food throughput.

Laxman Narasimhan: When paired with siren system equipment announced as part of our reinvention plan,

Laxman Narasimhan: These new processes become a force multiplier that we expect to drive a true step change improvement.

Laxman Narasimhan: Early assessments demonstrate the capability to drive a 10 to 20 second wait time reduction and a resulting calm opportunity range of 1 to 1.5%. Leveraging our deep brew analytics platform, we have identified customer experience outlier stores, approximately 10% of our network, and have developed targeted plans to address and improve them, including accelerated Siren System deployment. Similarly, we are accelerating the pace of our new store bills and renovations, with 580 net new bills and more than 800 renovations planned in North America for FY 2024. Store development efforts are focused on tier two and tier three cities where we see population growth and forecasts both underserved demand and high incrementality.

Laxman Narasimhan: Early assessments demonstrate the capability to drive a 10 to 20 second wait time reduction and a resulting calm opportunity range of 1 to 1.5 percent.

Laxman Narasimhan: Leveraging our DeepBrew analytics platform, we have identified customer experience outlier scores, approximately 10% of our network, and have developed targeted plans to address and improve them, including accelerated siren system deployment.

Laxman Narasimhan: Similarly, we are accelerating the pace of our new store builds and renovations with 580 net new bills and more than 800 renovations planned in North America for FY 2024. Store development efforts are focused on Tier 2 and Tier 3 cities where we see population growth and forecast both underserved demand and high incrementality. Increasingly, these new store builds and renovations also include siren system equipment.

Laxman Narasimhan: Similarly, we are accelerating the pace of our new store bills and renovations with 580 net new bills and more than 800 renovations planned in North America for FY 2024.

Laxman Narasimhan: Store development efforts are focused on Tier 2 and Tier 3 cities where we see population growth and forecast both underserved demand and high incrementality.

Laxman Narasimhan: Increasingly, these new store bills and renovations also include siren system equipment. In line with prior guidance, we remain on track to deploy equipment at less than 10% of company-operated stores by the end of FY 2024, and about 40% by the end of FY 2026. Building on our pilot, Starbucks and GoPOP have agreed to terms for an expanded relationship to open 100 delivery-only kitchens across the US. We're also accelerating the rollout of digital storyboards with target deployment across most US stores in the next two years, a year earlier than originally anticipated. Lastly, we're working on other ways to enhance the cafe experience.

Laxman Narasimhan: Increasingly, these new store builds and renovations also include siren system equipment.

Laxman Narasimhan: In line with prior guidance, we remain on track to deploy equipment in less than 10% of company-operated stores by the end of FY 2024, and about 40% by the end of FY 2021. Building on our pilot, Starbucks and GoPop have agreed to terms for an expanded relationship to open 100 delivery-only kitchens across the U.S. We're also accelerating the rollout of digital stores. Target deployment across most U.S. stores in the next two years, a year earlier than originally anticipated.

Laxman Narasimhan: In line with prior guidance, we remain on track to deploy equipment in less than 10% of company-operated stores by the end of FY 2024, and about 40% by the end of FY 2026.

Laxman Narasimhan: Building on our pilot, Starbucks and GoPuff have agreed to terms for an expanded relationship to open 100 delivery-only kitchens across the U.S.

Laxman Narasimhan: We're also accelerating the rollout of digital storing boards.

Laxman Narasimhan: with target deployment across most U.S. stores in the next two years, a year earlier than originally anticipated.

Laxman Narasimhan: Lastly, we're working on other ways to enhance the cafe experience. This includes new and expanded seating options that elevate many stores while upholding a safe and inviting place for partners and customers. A key outcome of our operational efforts has been material and sustained improvements to the partner experience, driven by precision partner-centric staffing and scheduling efforts. We ended the quarter with a new low partner turnover rate, the best shift completion rate in two years, and a 13% improvement in average hours per part. Now it is the highest on record.

Laxman Narasimhan: This includes new and expanded seating options that elevate many stores while upholding a safe and inviting place for partners and customers. A key outcome of our operational efforts has been material and sustained improvements to the partner experience. Driven by precision partner centric staffing and scheduling efforts, we ended the quarter with a new post-pandemic low partner turnover rate. The best shift completion rate in two years and a 13% improvement in average hours per partner. Now, the highest on record. These initiatives create most stability in our stores, provide more predictability for our partners, and sustain our experience life.

Laxman Narasimhan: Lastly, we're working on other ways to enhance the cafe experience. This includes new and expanded seating options that elevate many stores, while upholding a safe and inviting place for partners and customers.

Laxman Narasimhan: A key outcome of our operational efforts has been material and sustained improvements to the partner experience.

Laxman Narasimhan: Driven by precision partner-centric staffing and scheduling efforts, we ended the quarter with a new post-pandemic low partner turnover rate.

Laxman Narasimhan: The best shift completion rate in two years and a 13% improvement in average hours per partner. Now, the highest on record.

Laxman Narasimhan: These initiatives create more stability in our stores, provide more predictability for our and Sustain Our Experience Flyway. Looking beyond our stores, we continue to realize new efficiencies, cost savings, and performance improvements across our end-to-end supply chain, thanks to strong support from our suppliers, and we see even more head. We have a structured process to realize significant continued improvements across the end-to-end supply chain. We are ahead of plan on productivity. We expect our productivity to drive efficiency and unlock capital from areas that don't touch the customer.

Laxman Narasimhan: These initiatives create more stability in our stores, provide more predictability for our partners, and sustain our experience flywheel.

Laxman Narasimhan: and William. Looking beyond our stores, we continue to realize new efficiencies, cost savings, and performance improvements across our end-to-end supply chain thanks to strong support from our suppliers, and we see even more headroom. We have a structured process to realize significant continued improvements across our end-to-end supply chain. We are ahead of plan on productivity. We expect our productivity to drive efficiency and unlock capital from areas that don't touch the customer. In turn, these savings will enable us to target investments that drive value for our customers, beginning later in Q4, reigniting on North America flywheel for growth.

Laxman Narasimhan: Looking beyond our stores, we continue to realize new efficiencies, cost savings, and performance improvements across our end-to-end supply chain, thanks to strong support from our suppliers.

Laxman Narasimhan: and we see even more headroom.

Laxman Narasimhan: We have a structured process to realize significant continued improvements across our end-to-end supply chain.

Laxman Narasimhan: We are ahead of plan on productivity.

Laxman Narasimhan: We expect our productivity to drive efficiency and unlock capital from areas that don't touch the customer.

Laxman Narasimhan: In turn, these savings will enable us to target investors that drive value for our customers beginning later in Q4, reigniting the North America flywheel for growth. We're in the early days on this journey, building both our strategic sourcing and Revenue Management Capabilities. Our second priority is to drive demand through relevant product innovation, with coffee at our core. We've seen meaningful improvement here as well. This quarter, we drove traffic into our stores through an engaging and innovative pipeline of products supported by integrated marketing. Coal share was up 1% year over year, representing 76% of our beverage mix through the quarter. Our newly formulated iced coffee received positive feedback.

Laxman Narasimhan: In turn, these savings will enable us to target investments that drive value for our customers beginning later in Q4, reigniting our North America flywheel for growth.

Laxman Narasimhan: We're early days on this journey, building both our strategic sourcing and revenue management capabilities. Our second priority is to drive demand through relevant product innovation, the coffee at our core. We've seen meaningful improvement here as well. This quarter, we drove traffic into our stores to an engaging and innovative pipeline of products supported by integrated marketing campaigns. Core share was up 1% year over year, representing 76% of our beverage makes through the quarter. Our newly formulated ice coffee received positive feedback. Our strength in cold espresso innovation continued to drive the platform's growth up 4% year over year, and we launched Starbucks Milano Duetto, hoping coffee in Milan ahead of a global launch this October.

Laxman Narasimhan: We're early days on this journey, building both our strategic sourcing

Laxman Narasimhan: and Revenue Management Capabilities.

Laxman Narasimhan: Our second priority is to drive demand through relevant product innovation, with coffee at our core.

Laxman Narasimhan: We've seen meaningful improvement here as well. This quarter, we drove traffic into our stores through an engaging and innovative pipeline of products supported by integrated marketing campaigns.

Laxman Narasimhan: Coal share was up 1% year-over-year, representing 76% of our beverage mix through the quarter.

Laxman Narasimhan: Our strength in cold espresso innovation continues to drive the platform's growth up 4% year-over-year, and we launched Starbucks Milano Duetto, whole bean coffee in Milan, ahead of a global launch this October. Beyond Coffee, our new Summerberry Starbucks Refreshers beverages with pearls, drove the highest week one product launch in our history. Their success buoyed the entire Starbucks Refreshers beverage platform to an all-time high during the quarter. As mentioned in Q2, we continue to build out our 24 month product pipeline while accelerating our pace of innovation. For example, recognize the growing appeal and opportunity created by the energy category. We launched a new handcrafted iced energy beverage across our U.S. stores in just three months compared to a normal 12 to 18.

Laxman Narasimhan: Our newly formulated iced coffee received positive feedback.

Laxman Narasimhan: Our strength in cold espresso innovation continues to drive the platform's growth, up 4% year-over-year.

Laxman Narasimhan: Milano Duetto, Holbein Coffee in Milan, ahead of a global launch this October .

Laxman Narasimhan: Beyond coffee, our new Summerberry Starbucks Refreshers beverages with pearls drove the highest week one product launch in our history. Their success buoyed the entire Starbucks refreshes beverage platform to an all-time high during the quarter. As mentioned in Q2, we continue to build out our 24-month product pipeline while accelerating our pace of innovation. For example, recognize the growing appeal and opportunity created by the energy category. We launched a new handcrafted iced energy beverages across our US stores in just three months compared to a normal 12 to 18. Looking forward, we believe our Q4 product offerings, including the return of pumpkin spice, combined with supporting marketing activities and offers, provides the right formula to drive customer interest, demand, and deeper engagement with both new and existing customers.

Laxman Narasimhan: Beyond coffee, our new Summerberry Starbucks Refreshers beverages with pearls.

Laxman Narasimhan: drove the highest week one product launch in our history.

Laxman Narasimhan: Their success buoyed the entire Starbucks Refreshers beverage platform to an all-time high during the quarter.

Laxman Narasimhan: As mentioned in Q2, we continue to build out our 24-month product pipeline while accelerating our pace of innovation.

Laxman Narasimhan: For example, recognize the growing appeal and opportunity created by the energy category. We launched a new handcrafted iced energy beverages across our U.S. stores in just three months compared to a normal 12 to 18.

Laxman Narasimhan: Looking forward, we believe our Q4 product offerings, including the return of Pumpkin Spice, combined with supporting marketing activities and offers, provides the right formula to drive customer interest, demand, and deeper engagement with both new and existing customers. Our third and final near-term priority is to reach new customers and demonstrate the value we offer by ensuring the Starbucks experience is worth it every time. Recognizing the premium position of our brand, we've been measured in our use of offers. During this quarter, only 14% of our transactions were driven by offers, compared to a competitive average of 29, of offer-driven transactions.

Laxman Narasimhan: A third and final near term priority is to reach new customers and demonstrate the value we offer by ensuring the Starbucks experience is worth it every time. Recognizing the premium position of our brand, we've been measured in our use of offers. During this quarter, only 14% of our transactions were driven by offers compared to a competitive average of 29%. Of offer-driven transactions, 10% with star-based offers targeted to Starbucks Rewards members. Only 4% were driven by price-based offers. Our best offers are in the app. Together offers and other integrated marketing activities, where paired with exciting product innovation, successfully grew Starbucks Rewards members.

Laxman Narasimhan: Our third and final near-term priority is to reach new customers and demonstrate the value we offer by ensuring the Starbucks experience is worth it every time.

Laxman Narasimhan: Recognizing the premium position of our brand, we've been measured in our use of offers.

Laxman Narasimhan: During this quarter, only 14% of our transactions were driven by offers, compared to a competitive average of 29%.

Laxman Narasimhan: 10% was star-based offers targeted to Starbucks Rewards members, only 4% were driven by five by price based off. Our best offers are in the app, together, Office, and other integrated marketing activities when paired with exciting product innovation. Successfully Grew Starbucks Rewards Membership, reactivated many lapsed rewards members, and drove customer traffic on promotional days and product launch week. Active U.S. Starbucks Rewards members grew to 33.8 million during the quarter, and members across every decile increased the frequency of their visits.

Laxman Narasimhan: Of offer-driven transactions, 10% were star-based offers targeted to Starbucks Rewards members.

Laxman Narasimhan: Only 4% were driven by price-based offers.

Laxman Narasimhan: Our best offers are in the app.

Laxman Narasimhan: Together, offers and other integrated marketing activities, when paired with exciting product innovation, successfully grew Starbucks' rewards membership, reactivated many lapsed awards members, and drove customer traffic on promotional days and product launch weeks.

Laxman Narasimhan: Reactivated many labs towards members and drove customer traffic on promotional days and product launch weeks. Active US Starbucks towards members grew to 33.8 million during the quarter. Members across every desial increased the frequency of their visits. We're focused on the continued growth of the program because the average active member spends materially more annually and drives a higher lifetime value for the business than a non-member. Research also tells us that the most inactive Starbucks towards members don't realize they've lapsed. This demonstrates a continued opportunity to drive return visits, active member growth, and deeper customer loyalty. Looking forward, we will continue to use more targeted offers coupled with select pricing actions funded by efficiency initiatives to drive traffic and conversion.

Laxman Narasimhan: Active U.S. Starbucks Rewards members grew to 33.8 million during the quarter.

Laxman Narasimhan: Members across every decile increased the frequency of their visits.

Laxman Narasimhan: We're focused on the continued growth of the program because the average active member spends materially more annually and drives a higher lifetime value for the best than a non-member. Research also tells us that the most inactive Starbucks Rewards members don't realize they've left.

Laxman Narasimhan: Research also tells us that the most inactive Starbucks rewards members don't realize they've lapsed.

Laxman Narasimhan: This demonstrates a continued opportunity to drive return visits, active member growth, and deeper customer loyalty. Looking forward, we will continue to use more targeted offers. Coupled with Select Pricing Actions, funded by the Efficiency Initiative, to drive traffic and conversion. We plan to leverage a mix of paid media, acquisition, and retention offers. Subject Signage and Partner Education to Drive Transactions and Increase the Frequency of Visits, with a focus on product launches and continued Starbucks Rewards member growth. It's worth remembering the ubiquity of the Starbucks brand and our ability to intercept customers, for instance. Our business is up 13% in airports and up 9% in hotels. Pointing to the strand.

Laxman Narasimhan: This demonstrates a continued opportunity to drive return visits.

Laxman Narasimhan: Active Member Growth and Deeper Customer Loyalty.

Laxman Narasimhan: Looking forward, we will continue to use more targeted offers, coupled with select pricing actions funded by efficiency initiatives to drive traffic and conversion.

Laxman Narasimhan: We plan to leverage a mix of paid media acquisition and retention offers to substitute signage and partner education to drive transactions and increase the frequency of visits with a focus on product launches and continued Starbucks Rewards member growth. It's worth remembering the ubiquity of the Starbucks brand and our ability to intercept customers. For instance, our business is up 13% in airports and up 9% in hotels, pointing to these trends. Leveraging our brand and our ability to intercept customers while demonstrating value not just in price, but through a premium experience remains a sizable opportunity across our entire store portfolio.

Laxman Narasimhan: We plan to leverage a mix of paid media, acquisition, and retention offers.

Laxman Narasimhan: Disruptive signage and partner education to drive transactions and increase the frequency of visits.

Laxman Narasimhan: With a focus on product launches and continued Starbucks Rewards member growth.

Laxman Narasimhan: It's worth remembering the ubiquity of the Starbucks brand.

Laxman Narasimhan: and our ability to intercept customers.

Laxman Narasimhan: for instance.

Speaker Change: Our business is up 13% in airports and up 9% in hotels.

Laxman Narasimhan: Leveraging our brand and our ability to intercept customers while demonstrating value, not just in price but through a premium experience, remains a sizable opportunity across our entire storefront. Moving on to digital as part of our action plan, we made continued improvements to our Starbucks app, including a wait time algorithm enhanced, that have improved orderly accuracy by nearly 50 percentage points. This, combined with in-app offers, helps drive a 10% year-over-year growth in mobile order and pay revenue and a 7% year-over-year increase in MOP transactions.

Speaker Change: Pointing to the Strands.

Speaker Change: Leveraging our brand and our ability to intercept customers while demonstrating value, not just in price, but through a premium experience, remains a sizable opportunity across our entire store portfolio.

Laxman Narasimhan: Moving on to digital as part of our action plan, we may continue to improve in Starbucks app, including wait time algorithm enhancements that have improved orderly accuracy by nearly 50 percentage points. This combined with in-app offers helps drive a 10% year-over-year growth in mobile order and pay revenue and a 7% year-over-year increase in MOP transactions. Looking deeper, our data shows that one in four non-Starbucks Rewards members want the ability to use mobile order pay. Nearly 80% of those customers don't want to join a rewards program or create an account to do it. In response, we opened MOP for all to provide those customers the convenience they seek while removing perceived barriers to entry.

Speaker Change: Moving on to digital as part of our action plan, we made continued improvements to our Starbucks app, including wait time algorithm enhancements.

Speaker Change: that have improved orderly accuracy by nearly 50 percentage points.

Speaker Change: This combined with in-app offers helps drive a 10% year-over-year growth in mobile order and pay revenue.

Laxman Narasimhan: Looking deeper, our data shows that one in four non-Starbucks rewards members want the ability to use mobile order pay. However, nearly 80% of those customers don't want to join a rewards program or create an account to do it.

Speaker Change: and a 7% year-over-year increase in MOP transactions.

Speaker Change: Looking deeper, our data shows that 1 in 4 non-Starbucks Rewards members want the ability to use mobile auto pay.

Speaker Change: Nearly 80% of those customers don't want to join a rewards program or create an account to do it. In response, we opened MOP4ALL to provide those customers the convenience they seek while removing perceived barriers to entry.

Laxman Narasimhan: In response, we opened MOP for All to provide those customers the convenience they seek while removing perceived barriers to entry. We believe these enhancements to the digital experience, coupled with more effortless ordering, will continue to drive Starbucks customers towards membership over time, with customers increasing frequency and spend. Once customers are in our digital ecosystem, they're more likely to remain engaged across channels and drive greater lifetime value. In summary, our plans are beginning to work.

Laxman Narasimhan: We believe these enhancements to the digital experience, coupled with more effortless ordering, will continue to drive Starbucks Rewards membership over time, with customers increasing frequency and spend. Once customers are in our digital ecosystem, they're more likely to remain engaged across channels and drive greater lifetime value.

Speaker Change: We believe these enhancements to the digital experience, coupled with more effortless ordering, will continue to drive Starbucks towards membership over time, with customers increasing frequency and spend.

Speaker Change: Once customers are in our digital ecosystem, they're more likely to remain engaged across channels and drive greater lifetime value.

Laxman Narasimhan: In summary, our plans are beginning to work. We've recovering our brand from its perceptions. We're rebuilding the operational foundation of our stores and supply chain. We're reducing costs to support investments. We're sustaining partner experience improvements, and we're working to make the Starbucks experience worth it every time. Van, Violet's early days, I'm confident in the trajectory of our U.S. business and the operational improvements we're making. And I'm reassured by the impact our work is expected to deliver in FY 2025 and beyond.

Laxman Narasimhan: We're recovering our brand from this perception. We're rebuilding the operational foundation of our stores and supply. We're reducing costs to support investors, while sustaining partner experience approval. And we're working to make the Starbucks experience worth it every time, while it's an early day.

Speaker Change: In summary, our plans are beginning to work. We're recovering our brand from misperceptions.

Speaker Change: We're rebuilding the operational foundation of our stores and supply chain.

Speaker Change: We're reducing costs to support investments.

Speaker Change: We're sustaining partner experience improvements.

Speaker Change: And we're working to make the Starbucks experience worth it every time.

Laxman Narasimhan: I'm confident in the trajectory of our U.S. business and the operational improvements we're making, and I'm reassured by the impact our work is expected to deliver in FY 2025 and beyond. Looking Outside the U.S. We continue to see weakness in parts of our international business, and strength in others. Headwinds persist in the Middle East, Southeast Asia, and parts of Europe.

Speaker Change: While it's early days, I'm confident in the trajectory of our U.S. business and the operational improvements we're making.

Speaker Change: And I'm reassured by the impact our work is expected to deliver in FY 2025 and beyond.

Laxman Narasimhan: Looking outside the US, we continue to see weakness in parts of our international business and strength in others. Headwinds persist in the Middle East, Southeast Asia, parts of Europe, driven by widely discussed misconceptions about our brand. In some European markets, consumers are stretched. At the same time, we see significant strength in markets like Japan and parts of Latin America.

Speaker Change: Looking outside the U.S., we continue to see weakness in parts of our international business and strength in others.

Laxman Narasimhan: The company is driven by widely discussed misconceptions about our brand. In some European markets, consumers are stressed. At the same time, we see significant strength in markets like Japan and parts of Latin America. China is one of our most notable international challenges and an area I'd like to talk about in more detail.

Speaker Change: Headwinds persist in the Middle East, Southeast Asia, parts of Europe , driven by widely discussed misperceptions about our brand.

Speaker Change: In some European markets, consumers are stretched.

Speaker Change: At the same time, we see significant strength in markets like Japan and parts of Latin America.

Laxman Narasimhan: China is one of our most notable international challenges and an area I'd like to talk about in more detail. The competitive market dynamics in China are reflected in our recent results. We continue to face a more cautious consumer spending and intensified competition. In the past year, unprecedented store expansion and a mass segment price war at the expense of comp and profitability have also caused significant disruptions to the operating environment. Still, we have made progress in important areas. Through Q3, metrics like average daily transactions, weekly sales, and operating margin improved sequentially quarter over quarter. Starbucks Rewards members grew by 1.6 million to a record high 22 million active members.

Speaker Change: China is one of our most notable international challenges and an area I'd like to talk about in more detail.

Laxman Narasimhan: The competitive market dynamics in China are reflected in our recent results. We continue to face more cautious consumer spending and intensified competition. In the past year, unprecedented store expansion and a mass segment price war at the expense of comp and profitability have also caused significant disruptions to the operating environment. Still, we have made progress in important areas, through Q3 metrics like average daily transactions, weekly sales, and operating margin improved sequentially quarter over quarter. Rewards members grew by 1.6 million to a record-high 22 million active members, and Customer Connection scores reached a new high, while partner turnover reached a new low.

Speaker Change: The competitive market dynamics in China are reflected in our recent results.

Speaker Change: We continue to face a more cautious consumer spending and intensified competition.

Speaker Change: In the past year, unprecedented store expansion and a mass segment price war at the expense of comp and profitability have also caused significant disruptions to the operating environment.

Speaker Change: Still, we have made progress in important areas.

Speaker Change: Through Q3, metrics like average daily transactions, weekly sales, and operating margin improved sequentially quarter over quarter.

Speaker Change: Starbucks rewards members grew by 1.6 million to a record high 22 million active members.

Laxman Narasimhan: And customer connection scores reached a new high, while partner turnover reached a new low. We've built an amazing business in China over the past 25 years. A business for China built by an outstanding local team. We've pioneered the growth of the premium coffee industry in market with our Starbucks and Starbucks Reserve brands, and brand equity remains distinctive. We've incredibly committed an expert partners with an unmatched depth in coffee and craft. Our stores are distinctive in industry-leading and our supply chain is world-class. New stores have expanded our presence to more than 900 county cities and continue to drive exceptional cash-on-cash returns and a payback of less than two years.

Speaker Change: And customer connection scores reached a new high, while partner turnover reached a new low.

Laxman Narasimhan: We've built an amazing business in China over the past 25 years, a business for China built by an outstanding local team. We've pioneered the growth of the premium coffee industry in China with our Starbucks and Starbucks Reserve brands, and Brand Equity remains distinct. We have incredibly committed and expert partners with an unmatched depth in coffee and craft, our stores are distinctive and industry leading, and our supply chain is world class. New stores have expanded our presence to more than 900 cities and continue to drive exceptional cash-on-cash returns and a payback of less than two years.

Speaker Change: We've built an amazing business in China over the past 25 years.

Speaker Change: A business for China, built by an outstanding local team.

Speaker Change: We've pioneered the growth of the premium coffee industry in market with our Starbucks and Starbucks Reserve brands.

Speaker Change: and Brand Equity Remains Distinctive.

Speaker Change: We have incredibly committed and expert partners with an unmatched depth in coffee and craft.

Speaker Change: Are stores distinctive in industry leading?

Speaker Change: and our supply chain is world-class.

Speaker Change: New stores have expanded our presence to more than 900 county cities and continue to drive exceptional cash-on-cash returns.

Laxman Narasimhan: We're looking beyond near-term challenges and towards long-term opportunities in the market. We built Starbucks in China around three principles. A great customer experience is grounded in a great partner experience. Our coffee will always be distinctive and high quality, with low penetration relative to other markets, which provides continued headroom. Our beautiful stores will celebrate the culture and traditions of China and their local communities. Even in a challenging market, we have stayed true to these principles and our relative premium resting. This is reflective in the competitive margins we have sustained in the face of price competition. Over the past 25 years, we've gone through different phases of growth in China and have relied on different strategic partnerships to grow our business and capabilities, like your inventors as strategic partnerships in technology, real estate, and supply chain.

Laxman Narasimhan: We're looking beyond near-term challenges and towards long-term opportunities in the market. We built Starbucks in China around three principles: a great customer experience is grounded in a great partner. Starbucks coffee will always be distinctive and high quality, with low penetration relative to other markets, which provides continued headway.

Speaker Change: and a payback of less than two years.

Speaker Change: We're looking beyond near-term challenges.

Speaker Change: and towards long-term opportunities in the market.

Speaker Change: We built Starbucks in China around three principles.

Speaker Change: A great customer experience is grounded in a great partner experience.

Speaker Change: Our coffee will always be distinctive and high quality.

Laxman Narasimhan: Our beautiful stores will celebrate the culture and traditions of China and their local community. We have stayed true to these principles and our relative premium position. This is reflected in the competitive margins we have sustained in the face of price competition over the past 25 years. We've gone through different phases of growth in China and have relied on different strategic partners to grow our business and capability. Like Your Invention!

Speaker Change: with low penetration relative to other markets, which provides continued headroom.

Speaker Change: Our beautiful stores will celebrate the culture and traditions of China and their local communities.

Speaker Change: Even in a challenging market.

Speaker Change: We have stayed true to these principles and our relative premium positioning.

Speaker Change: This is reflective.

Speaker Change: In the competitive margins we have sustained in the face of price competition.

Speaker Change: Over the past 25 years, we've gone through different phases of growth in China.

Speaker Change: and have relied on different strategic partnerships to grow our business and capabilities.

Laxman Narasimhan: and Strategic Partnerships, in technology, real estate, and supply chain. As we look forward, we see higher growth and margin opportunities in China. We're building the next generation of Starbucks, grounded in our premium brand, and with a business that is even more digital, Innovative, and Locally Relevant, to do so.

Speaker Change: Like Join Ventures, and Strategic Partnerships in Technology, Real Estate, and Supply Chain.

Laxman Narasimhan: As we look forward, we see higher growth and margin opportunities in China. We're building the next generation of Starbucks, grounded in our premium brands, and with a business that is even more digital, innovative, and locally relevant. To do so, as our strategy evolves, we are in the early stages of exploring strategic partnerships to further enhance our competitive position, to accelerate growth and innovate to win in the long term in China. We remain completely committed to our business and our partners in China for the next 25 years and beyond. The long-term opportunity for us is significant.

Speaker Change: As we look forward, we see higher growth and margin opportunities in China.

Speaker Change: We're building the next generation of Starbucks grounded in our premium brands and with a business that is even more digital, innovative, and locally relevant.

Laxman Narasimhan: As this strategy evolves, we are in the early stages of exploring strategic partnerships to further enhance our competitive position, accelerate growth, and innovate to win in the long term in China. We remain completely committed to our business and our partners in China for the next 25 years and beyond; the long-term opportunity for us is significant. Before I close, I would like to confirm that Elliott Management is a shareholder in our company, and our conversations to date have been constructive about the business.

Speaker Change: to do so.

Speaker Change: As our strategy evolves.

Speaker Change: We are in the early stages.

Speaker Change: of Exploring Strategic Partnerships.

Speaker Change: To further enhance our competitive position, to accelerate growth, and innovate to win in the long term in China.

Speaker Change: We remain completely committed to our business and our partners in China for the next 25 years and beyond.

Laxman Narasimhan: Before I close, I would like to confirm that Elliott Management is a shareholder in our company, and our conversations to date have been constructive. On the business, my continued confidence has rooted in the focus, energy, and effort of our partners across the business and around the globe. Our growing culture of focused innovation and relentless execution continues to enhance our capabilities, operational muscle, and execution discipline.

Speaker Change: The long-term opportunity for us is significant.

Speaker Change: Before I close,

Speaker Change: I would like to confirm that Elliott Management is a shareholder in our company.

Elliott Management: and our conversations to date have been constructive.

Laxman Narasimhan: My continued confidence is rooted in the focus, energy, and effort of our partners across the business and around the globe. A growing culture of focused innovation and relentless execution continues to enhance our capabilities, operational muscle, and executional discipline. Driving forward our action plan and our long-term triple-shot strategy while helping return the best to sustainable algorithmic growth. And with that, I'll turn this over to Rachel. Thank you, Laxman, and good afternoon, everyone.

Speaker Change: On the Business

Speaker Change: My continued confidence is rooted in the focus, energy, and effort of our partners across the business.

Speaker Change: and around the globe.

Speaker Change: Our growing culture of focused innovation and relentless execution continues to enhance our capabilities, operational muscle, and executional discipline.

Laxman Narasimhan: Driving forward our action plan and our long-term triple-shot strategy while helping return the business to sustainable algorithmic growth, and with that, our turn is over to Rachel.

Speaker Change: Driving forward our action plan and our long-term triple-shot strategy.

Speaker Change: for helping return the business.

Speaker Change: to sustainable algorithmic growth. And with that, I'll turn this over to Rachel.

Rachel Ruggeri: Thank you, Luxman, and good afternoon, everyone. As Luxman shared, we're seeing progress against our three-part action plans. Additionally, our efficiency efforts, which are tracking ahead of expectations, partially offset investments associated with the cautious consumer environment. With continued focus on our action plans, efficiency efforts, and disciplined operational execution, we expect progress as we close out the year.

Rachel Ruggeri: As Laxman shared, we're seeing progress against our three-part action plans. Additionally, our efficiency efforts, which are tracking ahead of expectations, partially offset investments associated with the cautious consumer environment. With continued focus on our action plans, efficiency efforts, and disciplined operational execution, we expect progress as we close out the year. With that, let me turn to our results.

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

Speaker Change: With continued focus on our action plans, efficiency efforts, and disciplined operational execution, we expect progress as we close out the year. With that, let me turn to our results.

Rachel Ruggeri: With that, let me turn to our results. Our Q3 consolidated revenue was 9.1 billion, up 1% from the prior year, demonstrating sequential revenue growth quarter-over-quarter, consistent with what we guided. Revenue growth over the prior year was driven by 8% net new company-operated store growth, partially offset by a 3% decline in comparable store sales from a 5% decrease in transactions and a 2% increase in average ticket, as we continue to navigate through a value-driven consumer environment. US led the average ticket increase of 4%, driven by pricing and multi-beverage orders. The increase in average ticket in the US reflects how our innovative products and thoughtful promotions resonated with customers in our quest to offer enhanced value, indicating that our action plans are starting to take hold.

Rachel Ruggeri: Our Q3 consolidated revenue was $9.1 billion, up 1% from the prior year, demonstrating sequential revenue growth quarter over quarter, consistent with what we guided. Revenue growth over the prior year was driven by 8% net new company-operated store growth, partially offset by a 3% decline in comparable store sales from a 5% decrease in transactions and a 2% increase in average ticket, as we continue to navigate through a value-driven consumer environment. The U.S. led the average ticket increase of 4%, driven by pricing and multi-beverage orders.

Speaker Change: Our Q3 consolidated revenue was $9.1 billion, up 1% from the prior year, demonstrating sequential revenue growth quarter over quarter, consistent with what we guided.

Speaker Change: Revenue growth over the prior year was driven by 8% net new company operated store growth, partially offset by a 3% decline in comparable store sales from a 5% decrease in transactions and a 2% increase in average tickets as we continue to navigate through a value-driven consumer environment.

Speaker Change: U.S. led the average ticket increase of 4%, driven by pricing and multi-beverage orders.

Rachel Ruggeri: The increase in average ticket in the U.S. reflects how our innovative products and thoughtful promotions resonated with customers in our quest to offer enhanced value, indicating that our action plans are starting to take hold. Shifting to transactions, U.S. posted a comparable transaction decline of 6%, primarily driven by non-SR members.

Speaker Change: The increase in average ticket in the U.S. reflects how our innovative products and thoughtful promotions resonated with customers in our quest to offer enhanced value indicating that our action plans are starting to take hold.

Rachel Ruggeri: Chifting to Transactions U.S. posted a comparable transaction decline of 6% primarily driven by non-SR members. Across S.R. customers, as Lexman shared, we saw improved frequency across all desiles. Mobile order and pay in the U.S. remains strong in the quarter with positive year-over-year total transaction growth of 7% as customers continue to value both the experience and convenience of the mobile order and pay channel. As we open our app for all with MOP guest checkout, which launched earlier this month, we expect to create and deliver value across a broader population, expanding our universe of known customers to deepen engagement, driving increased frequency and spend.

Speaker Change: Shifting to transactions.

Speaker Change: U.S. posted a comparable transaction decline of 6%, primarily driven by non-SR members.

Rachel Ruggeri: Across SR customers, as Laxman shared, we saw improved frequency across all deciles. Mobile Order & Pay in the U.S. remains strong in the quarter with positive year-over-year total transaction growth of 7% as customers continue to value both the experience and convenience of the Mobile Order & Pay channel. As we open our app for all with MLP guest checkout, which launched earlier this month, we expect to create and deliver value across a broader population, expanding our universe of known customers to deepen engagement, driving increased frequency and spend. In addition to strong SR program growth in the U.S., we saw strong SR program growth in China. SR members grew to a record 22 million 90-day active members in China.

Speaker Change: Across SR customers, as Laxman shared, we saw improved frequency across all deciles.

Laxman Narasimhan: Mobile Order & Pay in the U.S. remains strong in the quarter, with positive year-over-year total transaction growth of 7%, as customers continue to value both the experience and convenience of the Mobile Order & Pay channel.

Speaker Change: As we open our app for all with MOP Guest Checkout, which launched earlier this month, we expect to create and deliver value across a broader population, expanding our universe of known customers to deepen engagement, driving increased frequency and spend.

Rachel Ruggeri: In addition to strong S.R. program growth in the U.S. we saw strong S.R. program growth in China. S.R. members grew to a record 22 million 90-day active members in China. And in June, we also enhanced the program through extending rewards and introducing a new diamond tier, which provides exclusive benefits to our most loyal S.R. members. We're pleased with the S.R. member growth across both the U.S. and China and expect to see the benefit from this growth in future quarters as new members provide a longer-term benefit.

Speaker Change: In addition to strong SR program growth in the U.S.,

Speaker Change: We saw strong SR program growth in China. SR members grew to a record 22 million 90-day active members in China. And in June , we also enhanced the program through extending rewards and introducing new diamond tier, which provides exclusive benefits to our most loyal SR members.

Rachel Ruggeri: And in June, we also enhanced the program by extending rewards and introducing a new diamond tier, which provides exclusive benefits to our most loyal SR members. We're pleased with the SR member growth across both the U.S. and China and expect to see the benefit from this growth in future quarters as new members provide a longer-term benefit. Shifting to margin, our Q3 consolidated operating margin contracted 70 basis points from the prior year to 16.7%, primarily driven by increased promotional activities, investments in store partner wages and benefits, as well as deleverage. However, the contraction was partially offset by pricing and our continued execution against reinvention-related in-store operational efficiencies, as well as out-of-store efficiencies, which primarily center around our supply chain. As you've heard Laxman discuss.

Speaker Change: We're pleased with the SR member growth across both the U.S. and China and expect to see the benefit from this growth in future quarters as new members provide a longer-term benefit.

Rachel Ruggeri: Chifting to margin, RQ-3 consolidated operating margin contracted 70 basis points from the prior year to 16.7%. Primarily driven by increased promotional activities, investments in store partner wages and benefits, as well as delivery. The contraction was partially offset by pricing and our continued execution against reinvention related in-store operational efficiencies, as well as out-of-store efficiencies, which primarily center around our supply chain. As you've heard Luchman discuss, we're focused on improving operational execution and efficiencies, which is now more important than ever as we build resiliency in our business. Our efficiency efforts are built on creating sustainable improvements in our operations and end-to-end supply chain, allowing us to both reinvest in our business and drive margin expansion.

Speaker Change: Shifting to margin, our Q3 consolidated operating margin contracted 70 basis points from the prior year to 16.7%, primarily driven by increased promotional activities, investments in store partner wages and benefits, as well as deleverage.

Speaker Change: The contraction was partially offset by pricing and our continued execution against reinvention related in-store operational efficiencies as well as out-of-store efficiencies which primarily center around our supply chain.

Rachel Ruggeri: We're focused on improving operational execution and efficiencies, which is now more important than ever as we build resiliency in our business. Our efficiency efforts are built on creating sustainable improvements in our operations and end-to-end supply chain, allowing us to both reinvest in our business and drive margin expansion. A testament to these efforts includes the achievement of in excess of 200 basis points in year-over-year efficiency gains as of Q3, across both in-store and out-of-store areas, manifesting through our business in reduced store operating expenses and product and distribution costs, respectively. Collectively, these line items represent approximately 85% of our annual spend.

Speaker Change: As you've heard Laxman discuss, we're focused on improving operational execution and efficiencies, which is now more important than ever as we build resiliency in our business.

Laxman Narasimhan: Our efficiency efforts are built on creating sustainable improvements in our operations and end-to-end supply chain, allowing us to both reinvest in our business and drive margin expansion.

Rachel Ruggeri: A testament to these efforts includes the achievement in excess of 200 basis points in year-over-year efficiency gains as of Q3 across both in-store and out-of-store areas, manifesting through our business in reduced store operating expenses and product and distribution costs, respectively. Collectively, these line items represent approximately 85% of our annual spend. Our in-store focus, a combination of efficiencies and staffing and scheduling, as well as enhancements in our store equipment and new store format design, has fueled a reduction in partner turnover, creating greater stability in our stores. We believe that stability not only creates opportunity to nurture stronger connections with customers, but also increases productivity, which translated to roughly 110 basis point improvement in store operating expense in the quarter.

Speaker Change: A testament to these efforts includes the achievement in excess of 200 basis points in year-over-year efficiency gains as of Q3 across both in-store and out-of-store areas manifesting through our business in reduced store operating expenses and product and distribution costs respectively.

Speaker Change: Collectively, these line items represent approximately 85% of our annual spend.

Rachel Ruggeri: Our in-store focus, a combination of efficiencies and staffing and scheduling, as well as enhancements in our store equipment and new store format design, has fueled a reduction in partner turnover, creating greater stability in our stores. We believe that stability not only creates opportunities to nurture stronger connections with customers but also increases productivity, which translated to roughly a 110 basis point improvement in store operating expense in the quarter. Our efficiency focus also extends outside of the store, as we've been taking a hard look across our supply chain and other areas, including G&A.

Speaker Change: Our in-store focus, a combination of efficiencies and staffing and scheduling, as well as enhancements in our store equipment and new store format design, has fueled a reduction in partner turnover, creating greater stability in our stores.

Speaker Change: We believe that stability not only creates opportunity to nurture stronger connections with customers, but also increases productivity, which translated to roughly 110 basis point improvement in store operating expense in the quarter.

Rachel Ruggeri: Our efficiency focus also extends outside of the store, as we've been taking a hard look across our supply chain and other areas, including G&A. As Laxman shared, we're working collaboratively with suppliers to identify opportunities to leverage our scale for cost reductions without compromising product quality or distribution timeliness, which led to meaningful savings in the quarter of approximately 100 basis points between rebates and rate savings. In addition, we believe our end-to-end supply chain focus gives us the opportunity to increase inventory availability with the right products at the right time, enhancing the customer experience while reducing waste.

Speaker Change: Our efficiency focus also extends outside of the store, as we've been taking a hard look across our supply chain and other areas including G&A.

Rachel Ruggeri: As Laxman shared, we're working collaboratively with suppliers to identify opportunities to leverage our scale for cost reductions without compromising product quality or distribution timeliness, which led to meaningful savings in the quarter of approximately 100 basis points between rebates and rate savings. In addition, we believe our end-to-end supply chain focus gives us the opportunity to increase inventory availability with the right products at the right time, enhancing the customer experience while reducing waste.

Speaker Change: As Laxman shared, we're working collaboratively with suppliers to identify opportunities to leverage our scale for cost reductions without compromising product quality or distribution timeliness.

Laxman Narasimhan: which led to meaningful savings in the quarter of approximately 100 basis points between rebates and rate savings.

Speaker Change: In addition, we believe our end-to-end supply chain focus gives us the opportunity to increase inventory availability with the right products at the right time, enhancing the customer experience while reducing waste.

Rachel Ruggeri: As we've shared, GNA was elevated at more than 7% of revenue through Q2, as we have deliberately invested in resources to continue to grow our technology capability. We have, however, reduced GNA in Q3 and expected to remain closer to 6% of revenue in the second half of this fiscal year as we balance investments for our long-term growth. When considering our progress this fiscal year, our out-of-store year-to-date efficiency efforts collectively amounted to nearly 300 basis points of margin improvement. Our significant efficiency runway, coupled with sales growth, gives us confidence to drive margin expansion over time. Given this, we have ample opportunities to deliver above our initial goal of 3 billion, driving to 4 billion in efficiencies over the next 4 years.

Rachel Ruggeri: As we've shared, GNA was elevated at more than 7% of revenue through Q2, as we deliberately invested in resources to continue to grow our technology capability. We have, however, reduced G&A in Q3 and expect it to remain closer to 6% of revenue in the second half of this fiscal year as we balance investments for our long-term growth.

Speaker Change: As we've shared, GNA was elevated at more than 7% of revenue through Q2, as we have deliberately invested in resources to continue to grow our technology capability.

Speaker Change: We have, however, reduced G&A in Q3 and expect it to remain closer to 6% of revenue in the second half of this fiscal year as we balance investments for our long-term growth.

Rachel Ruggeri: When considering our progress this fiscal year, our in-store and out-of-store year-to-date efficiency efforts collectively amounted to nearly 300 basis points of margin improvement. Our significant efficiency runway, coupled with sales growth, gives us confidence to drive margin expansion over time. Given this, we have ample opportunities to deliver above our initial goal of $3 billion, driving to $4 billion in efficiencies over the next four years. U3 EPS was $0.93, down 6% from the prior year.

Speaker Change: When considering our progress this fiscal year, our in-store and out-of-store year-to-date efficiency efforts collectively amounted to nearly 300 basis points of margin improvement.

Speaker Change: Our significant efficiency runway, coupled with sales growth, gives us confidence to drive margin expansion over time. Given this, we have ample opportunities to deliver above our initial goal of $3 billion, driving to $4 billion in efficiencies over the next four years.

Rachel Ruggeri: Q3 EPS was 93 cents, down 6% from the prior year. The decline was driven largely by the cautious consumer environment, which in response drove increased promotions and marketing in the quarter, partially upset by our efficiency efforts. Additionally, our higher effective tax rate had a 3-cent unfavorable impact driven by fewer discrete items relative to the prior year.

Rachel Ruggeri: The decline was driven largely by the cautious consumer environment, which, in response, drove increased promotions and marketing in the quarter, partially offset by our efficiency efforts. Additionally, our higher effective tax rate had a 3 cent unfavorable impact driven by fewer discrete items relative to the prior year.

Speaker Change: U3 EPS was $0.93, down 6% from the prior year.

Speaker Change: The decline was driven largely by the cautious consumer environment, which in response, drove increased promotions and marketing in the quarter, partially upset by our efficiency efforts.

Speaker Change: Additionally, our higher effective tax rate had a three-cent unfavorable impact driven by fewer discrete items relative to the prior year.

Rachel Ruggeri: With segment results being discussed in detail in today's Q3 earnings release, I'll now touch on our capital allocation and financial resilience, and then move into guidance. As a reminder, our disciplined approach to capital allocation continues to drive financial flexibility, allowing us to continue to make the necessary investments in our business to drive long-term growth. Our new stores continue to be a meaningful part of our growth equation, with approximately 85% of our CAPEX allocated to our stores, both new stores and renovations. These high-return growth-oriented investments have superior economics while adding incrementally to our business. Even with over 16,700 stores across the U.S.

Rachel Ruggeri: With segment results being discussed in detail in today's Q3 earnings release, I'll now touch on our capital allocation and financial resilience and then move into guidance. As a reminder, our disciplined approach to capital allocation continues to drive financial flexibility, allowing us to continue to make the necessary investments in our business to drive long-term growth. Our new stores continue to be a meaningful part of our growth equation, with approximately 85% of our capex allocated to our stores, both new stores and renovations.

Speaker Change: With segment results being discussed in detail in today's Q3 earnings release, I'll now touch on our capital allocation and financial resilience and then move into guidance.

Speaker Change: As a reminder, our disciplined approach to capital allocation continues to drive financial flexibility, allowing us to continue to make the necessary investments in our business to drive long-term growth.

Speaker Change: Our new stores continue to be a meaningful part of our growth equation, with approximately 85% of our CapEx allocated to our stores, both new stores and renovations.

Rachel Ruggeri: These high-return growth-oriented investments have superior economics while adding incrementally to our business. Even with over 16,700 stores across the U.S. and another 7,300 in China, we have abundant white space ahead, particularly as populations continue to move to more suburban and rural areas.

Speaker Change: These high-return, growth-oriented investments have superior economics while adding incrementally to our business.

Rachel Ruggeri: and another 7,300 in China, we have abundant white space ahead, particularly as populations continue to move to more suburban and rural areas. Take a tier 3 market in U.S., for example, a place like Joplin, Missouri. A drive-through in that market boasts a year-one ROI in excess of 65% with cash margins approaching 30%, and a payback period of less than two years. Year-one AUVs reach approximately 2 million, with opportunity ahead as we build out the trade area. Importantly, our new store revenue is highly incremental. Adding an average of nearly 90% to the trade area, attained by our world-class store development partners and their rigorous work that leverages AI-assisted strategic strike-site selection. We see that in China as well.

Speaker Change: Even with over 16,700 stores across the U.S. and another 7,300 in China, we have abundant white space ahead, particularly as populations continue to move to more suburban and rural areas.

Rachel Ruggeri: Take a tier three market in the US, for example, a place like Joplin, Missouri. A drive-thru in that market boasts a year one ROI in excess of 65% with cash margins approaching 30% and a payback period of less than two years. Year 1 AUVs reach approximately 2 million, with opportunity ahead as we build out the trade area.

Speaker Change: Take a Tier 3 market in the U.S., for example, a place like Joplin, Missouri. A drive-thru in that market boasts a year-one ROI in excess of 65%, with cash margins approaching 30%, and a payback period of less than two years.

Speaker Change: Year 1 AUVs reach approximately 2 million, with opportunity ahead as we build out the trade area.

Rachel Ruggeri: Importantly, our new store revenue is highly incremental, adding an average of nearly 90% to the trade area, attained by our world-class store development partners and their rigorous work that leverages AI-assisted, Strategic Site Selection Process. We see that in China as well. Take a new county city, for example.

Speaker Change: Importantly, our new store revenue is highly incremental, adding an average of nearly 90% to the trade area, attained by our world-class store development partners and their rigorous work that leverages AI-assisted strategic site selection process.

Rachel Ruggeri: Take a new county city, for example. We're in only about 900 of the nearly 3,000 across the market. Today, we see year one ROI as high as 70% with cash margins averaging over 30% as we've successfully managed both store development and operating costs, even in the current macroeconomic backdrop. We believe this is a great investment and a creative to shareholder value, building out the long term opportunity.

Rachel Ruggeri: We're in only about 900 of the nearly 3,000 across the market. Today, we see year-one ROI as high as 70% with cash margins averaging over 30% as we've successfully managed both store development and operating costs, even in the current macroeconomic backdrop. We believe this is a great investment and accretive to shareholder value, building out the long-term opportunity. With our disciplined approach to capital allocation, underpinned by our strengthening store portfolio, we are reinforcing our financial resilience while remaining committed to our compelling dividends.

Speaker Change: We see that in China as well. Take a new county city, for example. We're in only about 900 of the nearly 3,000 across the market.

Speaker Change: Today, we see Year 1 ROI as high as 70%, with cash margins averaging over 30%, as we've successfully managed both store development and operating costs, even in the current macroeconomic backdrop.

Speaker Change: We believe this is a great investment and accretive to shareholder value, building out the long-term opportunity.

Rachel Ruggeri: With our disciplined approach to capital allocation, underpinned by our strengthening store portfolio, we are reinforcing our financial resilience while remaining committed to our compelling dividend. We continue to target an earnings payout ratio of approximately 50% near the top end of growth companies of our size and scale, resulting in a significant portion of earnings going directly back to our shareholders. Currently, we have maintained a leverage target below three times least-adjusted divina, ensuring a strong financial foundation and consistent with our investment grade credit rating of triple B plus, which allows us to continue to access capital efficiently.

Speaker Change: With our disciplined approach to capital allocation, underpinned by our strengthening store portfolio, we are reinforcing our financial resilience while remaining committed to our compelling dividends.

Rachel Ruggeri: We continue to target an earnings payout ratio of approximately 50%, near the top end of growth companies of our size and scale, resulting in a significant portion of our earnings going directly back to our shareholders. Currently, we have maintained a leverage target below three times lease adjusted EBITDA, ensuring a strong financial foundation and consistent with our investment grade credit rating of triple B plus, which allows us to continue to access capital efficiently.

Speaker Change: We continue to target an earnings payout ratio of approximately 50% near the top end of growth companies of our size and scale, resulting in a significant portion of our earnings going directly back to our shareholders.

Speaker Change: Concurrently, we have maintained a leverage target below three times lease-adjusted EBITDA, ensuring a strong financial foundation and consistent with our investment-grade credit rating of BBB+, which allows us to continue to access capital efficiently.

Rachel Ruggeri: Collectively, our disciplined approach enables us to preserve both balance sheet strength and flexibility, positioning us to successfully navigate through the current macroeconomic environment. Moving to our fiscal year 2024 guidance, we are encouraged by our progress this quarter, and we're pleased to reaffirm all metrics of our full year 2024 guidance. Our confidence is underpinned by the results of our action plans, coupled with the continuous efficiency unlocked both in and out of store.

Speaker Change: Collectively, our disciplined approach enables us to preserve both balance sheet strength and flexibility, positioning us to successfully navigate through the current macroeconomic environment.

Rachel Ruggeri: Moving to our fiscal year 2024 guidance, we are encouraged with our progress this quarter, and we're pleased to reaffirm all metrics of our full year 2024 guidance. Our confidence is underpinned by the results of our action plans, coupled with the continuous efficiency unlock both in and out of store.

Speaker Change: Moving to our fiscal year 2024 guidance.

Speaker Change: We are encouraged with our progress this quarter, and we're pleased to reaffirm all metrics of our full year 2024 guidance.

Speaker Change: Our confidence is underpinned by the result of our action plans, coupled with the continuous efficiency unlock both in and out of store.

Rachel Ruggeri: In summary, here are key takeaways from my discussion today. First, we are seeing progress against our action plans. Second, our efficiency efforts partially offset investments associated with the cautious consumer environment. Third, we believe our financial fortitude and disciplined capital allocation strategy positions us well for the long term. And last, our full year 2024 guidance remains intact.

Rachel Ruggeri: In summary, here are key takeaways from my discussion today. First, we are seeing progress against our action plan. Second, our efficiency efforts partially offset investments associated with the cautious consumer environment. Third, we believe our financial fortitude and disciplined capital allocation strategy positions us well for the long term. And last, our full year 2024 guidance remains intact. Before I close, I want to acknowledge all of our partners across the globe, working tirelessly each and every day to elevate the Starbucks experience in our stores, at our roasting plants, and in our support centers. You are and always have been our superpower.

Speaker Change: In summary, here are key takeaways from my discussion today. First, we are seeing progress against our action plan.

Speaker Change: Second, our efficiency efforts partially offset investments associated with the cautious consumer environment.

Speaker Change: Third, we believe our financial fortitude and disciplined capital allocation strategy positions us well for the long term. And last, our full year 2024 guidance remains intact.

Rachel Ruggeri: Before I close, I want to acknowledge all of our partners across the globe, working tirelessly each and every day to elevate the Starbucks experience in our stores, at our roasting plants, and in our support centers. You are and always have been our superpower. Thank you, partners.

Speaker Change: Before I close, I want to acknowledge all of our partners across the globe working tirelessly each and every day to elevate the Starbucks experience in our stores, at our roasting plants, and in our support centers. You are and always have been our superpower.

Operator: Thank you, partners. And with that, we'll open the call for questions. Operator.

Operator: And with that, we'll open the call for questions.

Operator: Operator? As a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad. In order to allow as many questions as possible, we ask you to please limit yourself to one question at a time. We will come back for follow-up questions as time allows.

Speaker Change: Thank you, partners. And with that, we'll open the call for questions. Operator?

Operator: As a reminder, if you would like to ask a question, press star, then number one on your telephone. In order to allow as many questions as possible, we ask you to please limit yourself to one question at a time. We will come back for follow-up questions as time allows. Your first question comes from Brian Harbour, Morgan Sound.

Speaker Change: As a reminder, if you would like to ask a question, press star, then the number 1 on your telephone keypad.

Speaker Change: In order to allow as many questions as possible, we ask you to please limit yourself to one question at a time. We will come back for follow-up questions as time allows.

Brian Harbour: Your first question comes from Brian Harbour, Morgan Stanley. Yeah, thank you. Good afternoon.

Speaker Change: Your first question comes from Brian Harbour, Morgan Stanley .

Brian Harbour: I wanted to ask you a couple of things on kind of the margin and cost side.

Brian James Harbour: Thank you. [inaudible] I wanted to ask a couple of things on the margin and cost side. First of all, G&A, could you talk more about what actions were taken there? Do you still see that as kind of a source of leverage as we go into fiscal 25 and then on the store side? You know, you're obviously generating quite a bit of efficiency. I think you alluded to reinvesting some of that. Where will that go? And then, as we also kind of think about next year, is there some continued need for reinvestment, whether it's in labor or certain other things? Could you shed some light on that?

Brian James Harbour: Yeah, thank you. Good afternoon.

Brian Harbour: First of all, V&A, could you talk more about what actions were taken there? Do you still see that as a source of leverage as we go into fiscal 25? And then on the store side, you're obviously generating quite a bit of efficiency. I think you alluded to reinvesting some of that. Where will that go?

Brian James Harbour: Lowbrow.

Brian James Harbour: I wanted to ask a couple of things on the margin and cost side. First of all, G&A, could you talk more about what actions were taken there?

Brian James Harbour: Do you still see that as kind of a source of leverage as we go into fiscal 25 and then on the store side You know, you're obviously generating quite a bit of efficiency. I think you alluded to you know reinvesting some of that

Brian Harbour: And then, as we also think to next year, is there some continued need for reinvestment, whether it's in labor, certain other things could you should... Marley on that.

Speaker Change: Where will that go? And then, as we also kind of think to next year, is there some continued need for reinvestment, whether it's in labor or certain other things? Could you shed some more light on that?

Rachel Ruggeri: Sure, thanks, Brian. Let me start with the GNA actions. So, in the quarter, our GNA actually declined your year by about 5%. And the drivers of that include performance-based compensation, so lower performance-based compensation, coupled with lapping over some foundation investments from the prior year. In addition to that, given the environment, we made some deliberate decisions to focus on cost efficiencies, which helped us offset some of the investments we've made in wages and benefits, as well as the investments we've made in technology. We'll expect that to further into Q4.

Rachel Ruggeri: Sure, thanks, Brian. Let me start with the G&A actions. So in the quarter, our G&A actually declined year-over-year by about 5%. And the drivers of that include performance-based compensation, so lower performance-based compensation, coupled with lapping over some foundation investments from the prior year. In addition to that, given the environment, we made some deliberate decisions to focus on cost efficiencies, which helped us offset some of the investments we've made in wages and benefits, as well as the investments we've made in technology.

Speaker Change: Thanks Brian . Let me start with the GNA actions. So in the quarter, our GNA actually declined year-over-year by about 5%.

Speaker Change: And the drivers of that include performance-based compensation, so lower performance-based compensation, coupled with lapping over some foundation investments from the prior year.

Speaker Change: In addition to that, given the environment, we made some deliberate decisions to focus on cost efficiencies, which helped us offset some of the investments we've made in wages and benefits, as well as the investments we've made in technology.

Rachel Ruggeri: We'll expect that to further into Q4. As we look to the future, we will continue to drive leverage in our G&A as part of our overall efficiency focus and effort. Now on the store side, you asked about reinvesting, where does that go? And as far as our in-store and out-of-store efficiencies are concerned, those investments this year have helped to support the promotional activities, as well as the investments we've made in our partner wages and benefits.

Rachel Ruggeri: As we look to the out years, we will continue to drive leverage energy in a as part of our overall efficiency focus and efforts.

Speaker Change: We'll expect that to further into Q4. As we look to the out years, we will continue to drive leverage in our GNA as part of our overall efficiency focus and efforts.

Rachel Ruggeri: Now, on the store side, you asked about reinvesting; where does that go? And as far as our in-store and out-of-store efficiencies, those investments largely this year have helped to support the promotional activities, as well as the investments we've made in our partner wages and benefits. Now, as we look towards next year, we'll continue on our path of efficiency efforts. Those efforts will help us to be able to unlock the capacity to be able to reinvest back into our business in a sundry of different areas, but it will also allow us to drive a margin expansion.

Speaker Change: Now, on the store side, you asked about reinvesting, where does that go? And as far as our in-store and out-of-store efficiencies, those investments largely this year have helped to support the promotional activities, as well as the investments we've made in our partner wages and benefits.

Rachel Ruggeri: Now as we look towards next year, we'll continue on our path of efficiency efforts. Those efforts will help us to be able to unlock the capacity to be able to reinvest back into our business in a number of different areas, but it will also allow us to drive margin expansion. So I think that answers all of your questions.

Speaker Change: Now, as we look towards next year, we'll continue on our path of efficiency efforts. Those efforts will help us to be able to unlock the capacity to be able to reinvest back into our business in a sundry of different areas, but it will also allow us to drive margin expansion.

Rachel Ruggeri: So, I think that answered all of your questions.

Rachel Ruggeri: Thank you. Thank you. Your next question comes from Sara Senatore with Bank of America. Great. Thank you very much.

Sara Senatore: Your next question comes from Sarah Senator with Bank of America. Please state your question. Great. Thank you very much. I wanted to ask about the composition. So, leverage orders, which I guess suggest that perhaps you're not seeing premimization or customization anymore, but rather just increase group sizes. And then you also mentioned pricing. How much price you have year-over-year if you could give any color on that. And then the final piece, you talked about much lower promotional intensity or mix than what we see from some of your competitors, but I'm trying to understand how does that 14% compare perhaps to what Starbucks might have seen in the past.

Sara Harkavy Senatore: I wanted to ask about composition. So I think, Rachel, you mentioned that the average check benefited from multiple beverage orders, which I guess suggests that perhaps you're not seeing premiumization or customization anymore, but rather just increased group sizes. And then you also mentioned pricing, how much price you have year over year, if you could give any color on that. And then, the final piece, you talked about a much lower promotional intensity or mix than what we see from some of your competitors. But I'm trying to understand how that 14% compares, perhaps, to what Starbucks might have seen in the past. Thanks. Sure, Sara. Thank you for the question.

Speaker Change: So I think that answered all of your questions. Thank you.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Sara Senatore with Bank of America. Please state your question.

Sara Harkavy Senatore: Great. Thank you very much. I wanted to ask about the composition. So I think, Rachel, you mentioned Average Check benefited from multi-beverage orders, which

Sara Harkavy Senatore: I guess.

Speaker Change: I would suggest that perhaps you're not seeing premiumization or customization anymore, but rather just increased group sizes.

Speaker Change: And then you also mentioned pricing, you know, how much price you have.

Speaker Change: [inaudible]

Sara Senatore: Thanks.

Sara Senatore: Sure, Sarah. Thank you for the question.

Rachel Ruggeri: I'll start with the 4% check. So in the US business, our ticket comp increased by 4%. And as I shared in my prepared remarks, that included about 25% of it was related to beverage attach or multi-beverage orders in response to our promotional offers. So it showed that our customers responded well to our offers. So that's really the driver of it.

Speaker Change: Starbucks might have seen in the past. Thanks.

Sara Senatore: I'll start with the 4% check. So, in the US business, our ticket comp increased by 4%, and as I shared in my prepared remarks, that does include about 25% of it was related to beverage attach or multi-beverage in response to our promotional offers. So, it showed that our customers responded well to our offers. So, that's really the driver of it. We aren't seeing the customization in the personalization in the same way because our offers were much more targeted and driven around specific beverages as well as overall beverage attached. And so, as a result of that, that drove the ticket in the quarter, but we were pleased with that because it shows that customers responded well to those offers.

Speaker Change: Sure, Sara. Thank you for the question. I'll start with the 4% check.

Speaker Change: So, in the U.S. business, our ticket comp increased by 4%, and as I shared in my prepared remarks, that does include about 25% of it was related to beverage-attached or multi-beverage orders in response to our promotional offers.

Rachel Ruggeri: We aren't seeing the customization in the personalization in the same way because our offers were much more targeted and driven around specific beverages as well as overall beverage attachement. And so as a result of that, that drove the ticket in the quarter, but we were pleased with that because it shows that customers responded well to those offers. Now when we think about price year over year on that 4% ticket, I would say the remainder of the ticket, about 75%, is really the net price.

Speaker Change: So it showed that our customers responded well to our offers.

Speaker Change: So, that's really the driver of it. We aren't seeing the customization and the personalization in the same way because our offers were much more targeted and driven around specific beverages as well as overall beverage attach. And so, as a result of that, that drove the ticket in the quarter, but we were pleased with that because it shows that customers responded well to those offers.

Sara Senatore: Now, when we think about price year over year in that 4% ticket, I would say the remainder of the ticket, about 75%, is really net price. That includes everything from pricing moves, including the increases that we took in California, coupled with the promotional offers. So, I'd say that's a net pricing impact on that 4%.

Speaker Change: Now, when we think about price year over year in that 4% ticket, I would say the remainder of the ticket, about 75%, is really net price.

Rachel Ruggeri: That includes everything from pricing moves, including the increases that we took in California coupled with promotional offers. So I'd say that's a net pricing impact of that 4%. And in terms of the promotional intensity, I'll turn it over to Laxman in a minute. But what I can say about the promotional environment is that we've been very measured from a promotional standpoint, given the fact that, you know, we have a premium positioning as our brand.

Speaker Change: That includes everything from pricing moves, including the increases that we took in California, coupled with the promotional offers. So I'd say that's a net pricing impact on that 4%.

Sara Senatore: Grant. And in terms of the promotional intensity, I'll turn it over to Luxembourg in a minute, but what I can say about the promotional environment is we've been very measured from a promotional standpoint, given the fact that, you know, we have a premium positioning as our brand. And so the majority of our promotional efforts were focused on driving growth in our Starbucks Rewards membership because we know that those members tend to increase their value for us over the lifetime. It's a more efficient way for us to promote. And in the quarter, we were pleased with the fact that between the offers and the marketing activities, we were able to grow our Starbucks Rewards membership in the US as a result of that.

Laxman Narasimhan: And in terms of the promotional intensity, I'll turn it over to Laxman in a minute. But what I can say about the promotional environment is we've been very measured from a promotional standpoint, given the fact that, you know, we have a premium positioning as our brand. And so the majority of our promotional efforts were focused on driving growth in our Starbucks Rewards membership, because we know that those members tend to increase their value for us over the lifetime. It's a more efficient way for us to promote. And in the quarter, we were pleased with the fact that between the offers and the marketing activities, we were able to grow our Starbucks Rewards membership in the US. As a result of that, we also saw traffic increase on days where we had offers as well as days

Rachel Ruggeri: And so the majority of our promotional efforts are focused on driving growth in our Starbucks Rewards membership because we know that those members tend to increase their value for us over the lifetime. It's a more efficient way for us to promote. And in the quarter, we were pleased with the fact that, between the offers and the marketing activities, we were able to grow our Starbucks Rewards membership in the US. As a result of that, we also saw traffic increase on days where we had offers as well as days where we had new product launches. So that also gave us some encouragement, just in terms of the effectiveness of our offers. And with that, I'll turn it over to you. Sara, just to build on the question that you asked and Rachel's response.

Sara Senatore: We also saw traffic increase on days where we had offers, as well as days where we had new product launches. So that also gave us some encouragement just in terms of the effectiveness of our offers.

Speaker Change: So that also gave us some encouragement just in terms of the effectiveness of our offers. And with that, I'll turn it over to Laxman.

Laxman Narasimhan: And with that, I'll turn it over to Luxembourg. Sara, just to build on the question that you asked in Rachel's response, you know, the Starbucks brand is grounded in the idea that if you exceed the partner expectations, you will exceed the customer expectations. And it is in this experience that we deliver the premiumness of the brand. And we look at the words worth it for the Starbucks experience. What we measure in our work and brand equities, not just about price. It is about the quality, the distinctive quality, the product customization that you mentioned, the consistency of the experience that we create both in stores and digitally, deliver the price that customers believe is worth it when they come into store to transact with us or when they transact with us across channels.

Laxman Narasimhan: You know, the Starbucks brand is grounded in the idea that if you exceed partner expectations, you will exceed the cost of an exit, and it is in this experience that we deliver the premiumness of life. And we look at the words worth it for the Starbucks experience. What we measure in our work and brand equity is not just about price. It is about the quality, the distinctive quality, the product customization that you mentioned, the consistency of the experience that we create both in stores and digitally, delivered at a price that customers believe is worth it when they come into the store to transact with us, or when they transact with us across channels.

Laxman Narasimhan: Sarah, just to build on the question that you asked and Rachel's response, you know, the Starbucks brand is grounded in the idea that if you exceed the partner expectations, you will exceed the customer expectations.

Laxman Narasimhan: and it is in this experience that we deliver the premiumness of the brand.

Laxman Narasimhan: And when you look at the words worth it for the Starbucks experience, what we measure in our work and brand equity is not just about price.

Speaker Change: It is about the quality, the distinctive quality, the product customization that you mentioned, the consistency of the experience that we create both in stores and digitally, delivered at a price that customers believe is worth it when they come into the store to transact with us or when they transact with us across channels.

Laxman Narasimhan: Now, one of the things that, you know, we have been very careful about is that, given the premiumness of the brand, we've been very careful about the offers. And as Rachel said, it is at a low intensity than it is for some of the other brands. What we've tried to do is focus on the Starbucks Rewards menu for our business. 60% of our revenue comes from the SR program. And 40% comes from the non-SR program. And what we've found is that some of these offers that we have done, particularly for our Starbucks Rewards members, has helped drive engagement and incremental visits.

Laxman Narasimhan: Now, one of the things that, you know, we have been very careful about is that given the premiumness of the brand, we've been very careful about the offer, which, as Rachel said, is at a lower intensity than it is for some of the other brands.

Speaker Change: Now one of the things that you know, we have been very careful about is that given the premiumness of the brand We've been very careful about the offers

Laxman Narasimhan: What we've tried to do is focus on the Starbucks rewards members for our business. 60% of our revenue comes from the SR program, and 40% comes from those who are honest. And what we've found is that some of these offers that we have done, particularly for our Starbucks Rewards members, have helped drive engagement and incremental visits. We talked a bit about the fact that we've seen engagement go up in every decile of the Starbucks Rewards program.

Speaker Change: and as Rachel said, it is at a lower intensity than it is for some of the other brands. What we've tried to do is focus on the Starbucks rewards members. For our business, 60% of our revenue comes from the SR program.

Rachel Ruggeri: and 40% comes from the non-SR program.

Speaker Change: And what we've found is that some of these offers that we have done, particularly for our Starbucks Rewards members, has helped drive engagement and incremental visits. We talked a bit about the fact that we've seen engagement go up in every decile of the Starbucks Rewards members.

Laxman Narasimhan: We talked a bit about the fact that we've seen engagement go up in every decimal of the Starbucks Rewards members. If I look at a non-SR customers, which is about 40% of it, what we've been working on is ensuring that we give them office to come in and become part of the SR program. Additionally, they have told us about a fourth of them tell us that they want the digital convenience, but they don't necessarily want to be part of the program. So we've done things around how we open up the app for them to order and get the digital convenience.

Laxman Narasimhan: If I look at non-SR customers, which is about 40% of them, what we've been working on is ensuring that we give them offers to come in and become part of the SR program. Additionally, about a fourth of them tell us that they want the digital convenience, but they don't necessarily want to be part of the program.

Speaker Change: If I look at a non-SR customer, which is about 40% of it,

Speaker Change: What we've been working on is ensuring that we give them offers to come in and become part of the S.R. program.

Speaker Change: Additionally, they've told us about a fourth of them tell us that they want the digital convenience, but they don't necessarily want to be part of the program. So we've done things around how we open up the app for them to order and get the digital convenience.

Laxman Narasimhan: So we've done things around how we open up the app for them to order and get the digital convenience. What we will see over time is for the non-SR customers, we still have the opportunity to target price investors, funded by the progress we're making in our efficiency program. And, you know, this all brings it back to our three-part action plan in terms of what we're doing to continue to deliver the kind of premium experience Starbucks is about. Thank you.

Laxman Narasimhan: What we see over time is, for the non-SR customers, we still have the opportunity to target price investments funded by the progress we're making in our efficiency program. And you know, all the way brings it back to our T-bought action plan in terms of what we're doing to continue to deliver the kind of premium experience Starbucks is about.

Speaker Change: What we see over time is for the non-SR customers, we still have the opportunity to target price investments.

Speaker Change: funded by the progress we're making in our efficiency program and you know all the way brings it back to our three-part action plan in terms of what we're doing to continue to deliver the kind of premium experience Starbucks is about.

Operator: Thank you.

Jeffrey Bernstein: Your next question comes from Jeffrey Bernstein with Barclays.

Operator: Your next question comes from Jeffrey Bernstein with Barclays. Great. Thank you very much. My question was on China. The headwinds, Laxman, as you mentioned, are seemingly large.

Jeffrey Bernstein: Please say your question. Great. Thank you very much. My question was on China. The headwinds, Alaxman, as you mentioned, are seemingly large. The comps down 14%. I think you mentioned we're just highlighted the rampant competition and the macro challenges and the price wars. But with that said, I know you mentioned exploring strategic partnerships, and you've had partnerships in the past. I'm just curious if you could provide some more color. I know in the past the board has evaluated alternatives such as the licensing of China. Some of the other multinational QSRs, which would kind of lie to participate in the growth but mitigate the volatility and reduce your capital needs.

Speaker Change: Thank you. Your next question comes from Jeffrey Bernstein with Barclays. Please state your question.

Jeffrey Andrew Bernstein: Great. Thank you very much. My question was on China. The headwinds, Laxman, as you mentioned, are seemingly large. The comp's down 14%. I think you mentioned

Jeffrey Andrew Bernstein: The comp's down 14%. I think you mentioned or just highlighted the rampant competition and the macro challenges and the price wars. But with that said, I know you mentioned exploring strategic partnerships, and you've had partnerships in the past. I'm just curious if you could provide some more color.

Speaker Change: We just highlighted the rampant competition, and the macro challenges, and the price wars.

Speaker Change: But with that said, I know you mentioned exploring strategic partnerships, and you've had partnerships in the past.

Laxman Narasimhan: I know in the past the board has evaluated alternatives such as the licensing of China, similar to other multinational QSRs, which would allow you to participate in the growth but mitigate the volatility and reduce your capital needs. So I'm just wondering what your thoughts are on that, whether that was kind of the reference you made earlier, maybe some of the pros and cons as you contemplate the potential for those strategic alternatives such as licensing. Any color would be great.

Speaker Change: I'm just curious if you could provide some more color. I know in the past the board has evaluated alternatives such as the licensing of China.

Speaker Change: Some of the other multinational QSRs which would kind of allow you to participate in the growth But mitigate the volatility and reduce your capital needs. I'm just wondering

Jeffrey Bernstein: I'm just wondering about your thoughts on that, whether that was kind of the reference you made earlier, maybe some of the pros and cons as you contemplate the potential for those strategic alternatives such as licensing. Any color would be great.

Speaker Change: What your thoughts are on that, whether that was the reference you made earlier, maybe some of the pros and cons as you contemplate the potential for those strategic alternatives such as licensing. Any color would be great. Thank you.

Laxman Narasimhan: Thank you. Yeah, thanks so much. We've built a distinctive business in China with, you know, both the Starbucks and Starbucks Reserve brands that are relatively more premium relative to what we have in the market. And, you know, we've got 60,000 partners, 19,000 of them who are Black Aprons and coffee. And so the depth of coffee expertise we have is tremendous. But additionally, as we look at the really long term, you know, the potential in this business is amazing. I mean, we've essentially very early days given the per caps we see in the headroom that it provides.

Laxman Narasimhan: Thank you. Jeff, thanks so much. We've built a distinctive business in China with, you know, both the Starbucks and Starbucks Reserve brands that are relatively more premium relative to what we have in the market. And, you know, we've got 60,000 partners, 19,000 of them who are wearing black aprons and coffee. And so the depth of coffee expertise we have is tremendous. Additionally, as we look at the really long term, the potential in this business is amazing.

Speaker Change: Thanks so much. We've built a distinctive business in China with both the Starbucks and Starbucks Reserve brands that are relatively more premium relative to what we have in the market.

Speaker Change: and you know we've got 60,000 partners 19,000 of them who are black aprons and coffee and so the depth of coffee expertise we have is tremendous.

Laxman Narasimhan: I mean, it's essentially very early days given the per capita we see in the headroom that it provides. So, you know, the stores, the brand, the partners, the supply chain, the digital presence we have all are distinctive advantages. But, as you rightfully said, there's been quite a change in the competitive environment. And, you know, we've been very entrepreneurial. I mean, 25 years ago, when Habba went to China, we created a specialty coffee industry from pretty much nowhere.

Speaker Change: Additionally, as we look at the really long-term, you know, the potential in this business is

Laxman Narasimhan: So, you know, the stores, the brand, the partners, the supply chain, the digital presence we have, all are distinctive advantages. But, as you rightfully said, there's been quite a change in the competitive environment. And you know, we've been very entrepreneurial.

Speaker Change: is amazing. I mean, we've essentially, very early days, given the percaps we see in the headroom that it provides. So, you know, the stores, the brand, the partners, the supply chain, the digital presence we have, all are distinctive advantages.

Laxman Narasimhan: I mean, 25 years ago, when Haber went to China, you know, we've created a specialty coffee industry from pretty much nowhere. And, you know, we've been very entrepreneurial, and we've looked at various ways of making that happen, including joint ventures and partnerships, strategic partnerships, and technology, real estate, and supply chain. We're frankly at the very early stages of this. And so I don't want to necessarily come specifically on any one option versus another, but we're at the early stages. And we recognize that what we want to be sure of is that we are further strengthening our advantage in this market because the long-term opportunity for us is significant.

Speaker Change: But as you rightfully said, there's been quite a change in the competitive environment.

Speaker Change: and you know we've been very entrepreneurial. I mean 25 years ago when Habba went to China you know we've created a specialty coffee industry from pretty much nowhere.

Laxman Narasimhan: And, you know, we've been very entrepreneurial. And we've looked at various ways of making that happen, including joint ventures, and partnerships, strategic partnerships, technology, real estate, and supply chain. We're, frankly, at the very early stages.

Speaker Change: And, you know, we've been very entrepreneurial and we've looked at various ways of making that happen, including joint ventures and partnerships, strategic partnerships and technology, real estate and supply chain.

Laxman Narasimhan: And so I don't necessarily want to comment specifically on any one option versus another, but we're at the early stages. And we recognize that what we want to be sure of is that we are further strengthening our advantage in this market because the long-term opportunity for us is significant. And we will update you as we, you know, as we make progress on this effort in terms of exploring these strategic partnerships. Thank you.

Speaker Change: We're frankly at the very early stages of this.

Speaker Change: And so I don't want to necessarily comment specifically on any one option versus another, but we're at the early stages.

Speaker Change: And we recognize that what we want to be sure of is that we are further strengthening our advantage in this market because the long-term opportunity for us

Laxman Narasimhan: And we will update you as we, you know, as we make progress on this effort in terms of exploring these strategic partnerships.

Speaker Change: is significant. And we will update you as we, you know, as we make progress on this effort in terms of exploring these strategic partnerships.

Peter Saleh: Thank you. And your next question comes from Peter Salah with BTIG.

Peter Mokhlis Saleh: And your next question comes from Peter Saleh with BTIG. Please state your question, six percent in the U.S., and the majority of that was due to non-rewards customers, which makes up, call it, forty percent of your business. That's a pretty substantial decline in that customer base, probably a double-digit decline in that customer base. So can you just talk a little bit about where you think these customers are going and why is it that there is such a steep decline in this customer account in just this segment? Thank you very much.

Peter Saleh: Please state your question. Great. Thank you. I think you guys mentioned that traffic was down, you know, 6% in the U.S. And the majority of that was due to the non-rewards customers, which makes up, called 40% of your business. That's a pretty substantial decline in that customer base, by a double digit decline in that customer base.

Speaker Change: Thank you.

Speaker Change: And your next question comes from Peter Saleh with BTIG. Please state your question.

Peter Mokhlis Saleh: Great, thank you. I think you guys mentioned that traffic was down, you know, 6% in the U.S.

Peter Mokhlis Saleh: And the majority of that was due to the non-rewards customers, which makes up, call it 40% of your business. That's a pretty substantial decline in that customer base, probably a double-digit decline in that customer base.

Laxman Narasimhan: So can you just talk a little bit about where you think these customers are going and why is it that they're such a steep decline in this customer account and just this segment? Thank you very much. So, first of all, I think we are, you know, we are operating in a challenging consumer environment. You see the impact of that in a way from home consumption. If you look at a business at home, you know, the grocery stores at our brands, you know, you're seeing volume increase; you're seeing share increase in a category that's in decline, but we see volume increase at home.

Speaker Change: So, can you just talk a little bit about where you think these customers are going and why is it that there is such a steep decline in this customer count in just this segment? Thank you very much.

Laxman Narasimhan: Um, so first of all, I think we are, um, you know, we are operating in a challenging consumer environment. You see the impact of that on away from home consumption. If you look at a business at home, you know, the grocery stores with our brands, you're seeing volume increases, you're seeing share increases in a category that's in decline, but we're seeing volume increases at home. In our ready-to-drink business, we're seeing, you know, clearly that that has some challenges, but with the work that our joint venture team is doing, we're seeing progress there. But away from home consumption, you can see the impact of a challenging consumer environment.

Speaker Change: So first of all, I think we are, you know, we are operating in a challenging consumer environment.

Speaker Change: You see the impact of that in away from home consumption.

Speaker Change: If you look at our business at home, you know, the grocery stores with our brands, you know, you're seeing volume increase, you're seeing share increase in a category that's in decline, but we're seeing volume increase at home.

Laxman Narasimhan: In our ready-to-drink business, you know, we're seeing, you know, clearly that they have some challenges, but with the work that our joint venture team is doing, we're seeing progress there. But away from home consumption, you see the impact of the challenging consumer environment.

Speaker Change: In our ready-to-drink business, you know, we're seeing, you know, clearly that that has some challenges, but with the work that our joint venture team is doing, we're seeing progress there.

Speaker Change: But away from home, consumption, you see the impact of a challenging consumer environment.

Laxman Narasimhan: What we're focused on is what is it that we can do to control what we have? And so the Starbucks Rewards numbers, you see greater engagement; that is 60% of our revenue. Clearly, if you look at the sort of lower gasiles of the Starbucks Rewards program, we see opportunity even there for them to increase their visitation. Williams, but if I look at what we're seeing with our non-SR customers, you know, we still maintain the number one position in terms of coffee shops visited from the research that we do internally and for the equity work we've done.

Laxman Narasimhan: What we're focused on is what we can do to control what we have. And so the Starbucks rewards members, you see, greater engagement; that is 60% of our revenue. Clearly, if you look at the sort of lower deciles of the Starbucks rewards program, we see opportunity even there for them to increase their visitation. But if I look at what we're seeing with a non-SR customer... Um, you know, we still maintain the number one position in terms of coffee shop visits, from the research that we do internally, and for the equity work we've done.

Speaker Change: What we're focused on is what is it that we can do to control what we have. And so the Starbucks Rewards members, you see greater engagement, that is 60% of our revenue.

Speaker Change: Clearly, if you look at the sort of lower deciles of the Starbucks rewards program, we see opportunity even there for them to increase their visitations.

Speaker Change: But if I look at what we're seeing with our non-SR customers...

Speaker Change: You know, we still maintain the number one position in terms of coffee shops visited.

Laxman Narasimhan: So, I think that this is a statement around the overall environment. We know that there are things that we can do in order to communicate value better to our non-SR customers, which is why we've opened up the app for all starting this quarter. And once they come in and once they see what's happening inside the convenience of the mobile audit pay channel, they will get exposed to what we have inside the app. And we know that we have an opportunity as we look at the end-to-end efficiencies that we can get in our supply chain, that we can target price investments in those areas that will help them realize the price proposition that we have overall.

Laxman Narasimhan: So I think that this is a statement about the overall environment. We know that there are things that we can do in order to communicate value better to our non-SR customers, which is why we've opened up the app for all starting this quarter.

Speaker Change: from the research that we do internally and for the equity work we've done.

Speaker Change: So I think that this is a statement around the overall environment.

Speaker Change: We know that there are things that we can do in order to communicate value better to our non-SR customers, which is why we've opened up the app for all starting this quarter.

Laxman Narasimhan: And once they come in and once they see what's happening inside the convenience of the mobile order and pay channel, they will get exposed to what we have inside the app, and we know that we have an opportunity. As we look at the end-to-end efficiencies that we can get in our supply chain, we can target price investments in those areas that will help them realize the price proposition that we have overall.

Speaker Change: and once they come in and once they see what's happening inside the convenience of the mobile O2Pay channel, they will get exposed to what we have inside the app.

Speaker Change: And we know that we have an opportunity, as we look at the end-to-end efficiencies that we can get in our supply chain, that we can target price investments in those areas that will help them realize

Laxman Narasimhan: You know, if you really step back and look at us, you know, we've been very disciplined, you know, over the last many years; we've taken less pricing than many. But we also recognize the environment we're operating in is challenged. And so I think what you'll see us do is measure the way we do this and do it through the app and target price investments where appropriate, leveraging off the efficiency work that Rachel spoke about. Thank you. Our next question comes from... Jon Tower with Citi. Please state your question. Great. Thanks for taking the questions.

Laxman Narasimhan: And if you really step back and look at us, you know, we've been very disciplined, you know, over the last many years. We've taken less pricing than many, but we also recognize the environment we're operating in is challenged. And so I think what you'll see us do is be measured in the way we do this and do it through the app and target price investments where appropriate, leveraging off the efficiency work the way to spoke about.

Speaker Change: the price proposition that we have overall.

Speaker Change: You know, if you really step back and look at us...

Speaker Change: You know, we've been very disciplined, you know, over the last many years, we've taken less pricing than many.

Speaker Change: But we also recognize the environment we're operating in is challenged. And so I think what you'll see us do is be measured in the way we do this and do it through the app and target price investments where appropriate, leveraging off the efficiency work that Rachel spoke about.

Operator: Thank you.

John Tower: Our next question comes from John Tower with City. Please, dear question.

Speaker Change: Thank you.

John Tower: Great, thanks for taking the questions. I guess maybe first the clarification on the question. Rachel, you mentioned the four billion dollars in savings. Just want to ensure that that's a closer net number.

Speaker Change: Our next question comes from...

Jon Michael Tower: I guess maybe first a clarification on the question, Rachel. You mentioned the $4 billion in savings. Just want to ensure that that's a grosser net number. And then I guess maybe going to the siren stations that you've talked about. I know you're still on track to get 40% or less than 40% done in North America by the end of fiscal 26. Can you talk about what you're seeing with respect to returns and what's the impediment to accelerating that type of remodel schedule, picking it up, say, instead of less than 40% by the end of 26, picking that up to 50, 60, or pulling forward more to the current fiscal 25, say?

Speaker Change: Jon Tower with Citi. Please state your question.

Jon Michael Tower: Great, thanks for taking the questions. I guess maybe first a clarification on the question, Rachel, you mentioned the $4 billion in savings, just want to ensure that that's a gross or net number. And then, I guess, maybe going to the

John Tower: And then I guess maybe going to the siren stations that you've talked about. I know you're still on track to get 40% or less than 40% done in North America by the end of fiscal 26. Can you talk about, you know, what you're seeing with respect to returns and, you know, what's the impediment to accelerating that type of remodel schedule, you know, picking it up, say instead of less than 40% by the end of 26, picking that up to 50, 60 or pulling forward more to current fiscal 25, say. John, I'll start with on the four billion of savings over the next four years.

Speaker Change: The siren stations that you've talked about.

Speaker Change: I know you're still on track to get 40% or less than 40% done in North America by the end of fiscal 26.

Speaker Change: Can you talk about what you're seeing with respect to returns and what's the impediment to accelerating that type of remodel schedule, you know, picking it up, say, instead of...

Speaker Change: Less than 40% by the end of 26, picking that up to 50, 60, or pulling forward more to current fiscal 25, say.

Jon Michael Tower: Don, I'll start with the 4 billion in savings over the next four years. That is a net number. So we obviously have a larger gross number to ensure that we can deliver on that. So that's the way I think about the savings. On your second question about the siren systems and equipment deployment.

Rachel Ruggeri: That is a net number. So we have obviously a larger gross number to ensure that we can deliver on that. So that's the way I think about the savings.

Speaker Change: Don, I'll start with on the four billion of savings over the next four years, that is a net number. So we have obviously a larger gross number to ensure that we can deliver on that. So that's the way I think about the savings.

Rachel Ruggeri: On your second question on the siren, on the siren systems and the equipment deployment, well firstly, we've deployed the process improvements across all our stores in the US this week. This has been very well received. The inclusive of the new routines, the training, the beverage bills, the partner investments, you know, that we will see transaction impact with that. Now, we have matched our siren system equipment rollouts with the renovations of store bills because of the returns that that gives us. But it's not stopping us from actually using those siren siren systems. Open, in order for us to debuff and act these outlier stores, and as I mentioned in my prepared marks, with the work we've done with DeBrew and the analytics that we have, there were 10% of our stores that have the highest customer service outages.

Rachel Ruggeri: Well, firstly, we've deployed the process. Improvements across all our stores in the US. This has been very well received. The inclusion of the new routines, the training, the beverage bills, the partner investments, you know, that will we will see transaction impact with. Now, we have matched our siren system equipment rollout with the renovations of store bills because of the returns that that gives. But it's not stopping us from actually using those sciences to equip.

Don: On your second question on the siren systems and equipment deployment,

Speaker Change: Well, firstly, we've deployed the process improvements across all our stores in the U.S. this week.

Speaker Change: This has been very well received, the inclusive of the new routines, the training, the beverage bills, the partner investments, you know, that we will see transaction impact with that.

Speaker Change: Now, we have matched our siren system equipment rollouts with the renovations of store bills because of the returns that that gives us.

Rachel Ruggeri: In order for us to de-bottleneck these outlier stores, and as I mentioned in my prepared remarks, with the work we've done with Debreu and the analytics that we have, there are 10% of our stores that have the highest customer service outages. For these 10% of stores, there are less than a thousand.

Speaker Change: But it's not stopping us.

Speaker Change: from actually using those science assistive equipment.

Speaker Change: In order for us to de-bottleneck these outlier stores, and as I mentioned in my prepared remarks,

Speaker Change: With the work we've done with Debreu and the analytics that we have, there are 10% of our stores that have the highest customer service outages.

Rachel Ruggeri: For these 10% stores, there's less than a thousand, right? There's work going on store by store, and what we're doing store by store is to look to see combination of process improvements, how we run the stores, as well as looking at our renovation cycle to potentially re-sequence them in order for us to bring the siren systems in an accelerated fashion to help us debuff and act these stores.

Laxman Narasimhan: Right. There's work going on store by store. And what we're doing store by store is looking to see a combination of process improvements, how we run the stores, as well as looking at a renovation cycle to potentially re-sequence them in order for us to bring the siren systems in an accelerated fashion to help us de-bottleneck these stores. Now, later this quarter, we're going to start rolling out a couple of things that will help us address some of the bottle For example, with this retrofit to our espresso machines, same quality, higher throughput.

Speaker Change: For these 10% stores.

Speaker Change: There's less than a thousand.

Speaker Change: Right. There's work going on store by store.

Speaker Change: And what we're doing store by store is to look to see this combination of process improvements, how we run the stores, as well as looking at a renovation cycle.

Speaker Change: to potentially re-sequence them in order for us to bring the siren systems in an accelerated fashion to help us de-bottleneck these stores.

Rachel Ruggeri: Now, later this quarter, we're going to start rolling out a couple of things that will help us attack some of the bottleneck areas we see. For example, if there's retrofit to our espresso machines, same quality, higher throughput, we're going to see the rollout start to over 6,000 espresso constraint stores starting next quarter. We're doing the same thing with some of the software changes we're making around food and how we drive throughput there. So these are targeted sequenced efforts that will have high impact on those stores of the greatest constraints. You would see Clobovertica being all stores by the end of financial year 2025.

Speaker Change: Now, later this quarter, we're going to start rolling out a couple of things that will help us.

Speaker Change: attack some of the bottleneck areas we see. For example, with this retrofit to our espresso machines, same quality, higher throughput. We're gonna see the rollout start to over 6,000 espresso constraint stores starting next quarter.

Laxman Narasimhan: We're gonna see the rollout start to over 6,000 espresso-constrained stores starting next quarter. We're doing the same thing with some of the software changes we're making around food and how we drive throughput there. So these are targeted, sequenced efforts that will have high impact on those stores with the greatest constraints. You will see Clover Vertica in all stores by the end of financial year 2025.

Speaker Change: We're doing the same thing with some of the software changes we're making around food and how we drive throughput there. So these are targeted, sequenced efforts that will have high impact on those stores with the greatest constraints.

Rachel Ruggeri: So we're going at this not just waiting for the whole system but looking at portions of it that we can bring in in a more accelerated fashion in order for us to drive throughput in the store. If I would just add one more point to that, it's important to note that the Siren system and the equipment is a major overhaul to our overall stores, our engine. It requires quite a bit of capital expenditure as well as quite a bit of change management.

Speaker Change: You will see Clover Vertica being all-stores.

Rachel Ruggeri: So we're going at this, not just waiting for the whole system, but looking at portions of it that we can bring in in a more accelerated fashion in order for us to drive throughput in the stores. If I would just add one more point to that, I think it's important to note that the siren system, the equipment, is a major overhaul to our overall stores, our engine. It requires quite a bit of capex as well as quite a bit of change management. So we intentionally leverage the renovation and new store process because it allows us to optimize the costs while take advantage of downtime.

Speaker Change: by the end of financial year 2025. So we're going at this, not just waiting for the whole system, but looking at portions of it that we can bring in in a more accelerated fashion in order for us to drive throughput in the stores.

Speaker Change: If I would just add one more point to that is I think it's important to note that the Siren system, the equipment is a major overhaul to our overall stores, our engine. It requires quite a bit of capex as well as quite a bit of change management. So we intentionally leverage the renovation and new store process because it allows us to optimize the cost while take advantage of downtime.

Rachel Ruggeri: So that's also an important note in terms of how we've been thoughtful about how we roll these systems out more broadly.

Speaker Change: So that's also an important note in terms of how we've been thoughtful about how we roll these systems out more broadly.

Sharon Zackfia: Your next question comes from Sharon Zaxia with William Blair; please steer your question. Sharon Zaxia, your line is open. Please unmute yourself.

Rachel Ruggeri: So we intentionally leverage the renovation and new store process because it allows us to optimize the costs while taking advantage of downtime. So that's also an important note in terms of how we've been thoughtful about how we roll these systems out more broadly. Your next question comes from Sharon Zackfia with William Blair. Please state your question. Sharon Zackfia, your line is open, please unmute yourself.

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

Operator: All right, we'll move on to the next question.

Speaker Change: Sharon Zackfia, your line is open, please unmute yourself.

Operator: All right, we'll move on to the next question, and our next question comes from David Tarantino with Baird. Hi, good afternoon.

David Tarantino: Our next question comes from David Tarantino with Baird. Please steer your question. Hi, good afternoon. I just wanted to follow up on the US business. A lot of encouraging commentary about some of the internal metrics you're seeing in the business there.

Speaker Change: Ruggeri, Tiffany Willis, Laxman Narasimhan

Speaker Change: All right, we'll move on to the next question. Our next question comes from David Tarantino with Baird. Please state your question.

David E. Tarantino: I just wanted to follow up on the US business. There is a lot of encouraging commentary about some of the internal metrics you're seeing in the business there. But I was hoping maybe you could talk about how that's translating to sales performance and whether you're already starting to see sales responding to some of the progress you're making. And maybe more specifically, if you expect the fourth-quarter comp growth or transaction growth in the US or North America to be better than what you saw in the third quarter. Let me start with the three-part action plan that we have in place. The first one was fixing our stores.

David E. Tarantino: Hi, good afternoon. I just wanted to follow up on the U.S. business. A lot of encouraging commentary about some of the internal metrics you're seeing in the business there.

Laxman Narasimhan: But I was hoping maybe you could talk about how that's translating the sales performance and whether you're already starting to see sales responding to some of the progress you're making, and maybe more specifically if you expect the fourth quarter comp growth or transaction growth in the US or North America to be better than what you saw on the third quarter.

David E. Tarantino: I was hoping maybe you could talk about how that's translating to sales performance, and whether you're already starting to see...

Speaker Change: Sales responding to some of the progress you're making and and maybe more specifically if you expect the fourth quarter Comp growth or transaction growth in the US or North America to be better than what you saw in the third quarter

Laxman Narasimhan: Let me start with the three-part action plan that we had in place. The first one was fixing our stores. And I think that we're making strong progress. here. And so if you just look at examples of, you know, MOP, the growth rate we had quarter over quarter, which was a year over year, which was a 10% growth, the uptime that we had in MOP, obviously, you know, big improvements. So that's an example of the kind of improvements that we're seeing. Our drive-throughs are more efficient, with the multi-second improvements we've seen, clearly translate as well into our ability to meet the demand that we have.

Laxman Narasimhan: And I think that, you know, we're making strong progress. And so if you just look at examples of, you know, MOP, the growth rate that we had quarter over quarter, which was a year over year, which was 10% growth, the uptime that we had in MOP, obviously, big improvement. So that's an example of the kind of improvements that we're seeing. Our drive-throughs are more efficient.

Speaker Change: Let me start with the three-part action plan that we have in place.

Speaker Change: The first one was fixing our stores.

Speaker Change: And I think that, you know, we're making strong progress here.

Speaker Change: And so, if you just look at examples of, you know, MOP, the growth rate we had quarter over quarter, which was a, sorry, year over year, which was a 10% growth, the uptime that we had in MOP, obviously, you know, big improvements.

Laxman Narasimhan: I mean, the multi-second improvements we've seen clearly translate as well into our ability to meet the demand that we have. The product innovations, we touched on some of those that we have and the impact of those. You know, the Summer Bear refreshers, the highest sales we've ever had in a launch week leading to the refresher platform reaching 18% of sales.

Speaker Change: So that's an example of the kind of improvements that we're seeing. Drive-throughs are more efficient. The multi-second improvements we've seen clearly translate as well into our ability to meet the demand that we have.

Laxman Narasimhan: The product innovations, we touched on some of those that we have, and the impact of those, you know, the summer barrier pressures, the high sales we've ever had in a launch week, leading to the refresher platform, reaching 18% of sales. So examples over there, and also the work we're doing with our SR program, an increase in number, and increase in the engagement of these.

Speaker Change: The product innovations, we touched on some of those that we have, and the impact of those. You know, the Summer Bear refreshers, the highest sales we've ever had in a launch week, leading to the refresher platform reaching 18% of sales.

Laxman Narasimhan: So examples over there, and also the work we're doing with our SR program and increasing the number and increasing the engagement of these. So those are all the metrics that we have in terms of the kind of improvements that we're seeing against the three-part action plan. As we look ahead into this quarter, and we look at, for example, July, what you see in July is the fact that, you know, we are seeing, you know, shifts in routine. In July, we normally see that, you know, from a seasonality perspective.

Speaker Change: So, examples over there, and also the work we're doing with our SR program and increasing the number and increasing the engagement of these. So there's all the metrics that we have in terms of the kind of improvements that we're seeing against the three-part action plan.

Laxman Narasimhan: So there's all the metrics that we have in terms of the kind of improvements that we're seeing against a three-part action plan. As we look ahead into this quarter, and we look at, for example, July, what you see in July is the fact that, you know, we are seeing, you know, shifts in routines in July. We normally see that, you know, from a seasonality perspective, but I think we've seen more pronounced changes in the routines in July, in addition to some of the tech outages that have impacted, you know, people across industries. And so, you know, we see the disruptions, for example, of the airport stores that I mentioned, on the hospitality stores where we're seeing strong growth.

Speaker Change: As we look ahead into this quarter,

Speaker Change: and we look at for example July what you see in July is the fact that you know we are seeing you know shifts and routines

Laxman Narasimhan: But I think we see more pronounced, more pronounced changes in the routines in July, in addition to some of the tech outages that have impacted, you know, people across the industry. And so, you know, we see the disruptions, for example, of the airport stores that I mentioned, or the hospitality stores; we were seeing strong growth. And so what I would say to you is that our guidance does, at the end of the day, reflect the challenging consumer environment and what we expect the comms to be, you know, flat to low single-digit for the year.

Speaker Change: In July , we normally see that, you know, from a seasonality perspective, but I think we see more pronouncements, more pronounced changes in the routines in July , in addition to some of the tech outages that have impacted, you know, people across industries.

Speaker Change: and so you know we see the disruptions for example of the airport stores that I mentioned or the hospitality stores we were seeing strong growth and so what I would say to you is that our guidance does

Laxman Narasimhan: And so what I would say to you is that our guidance does, at the end of the day, reflect the challenging consumer environment, and what we expect, the cons to be, you know, flat to low single-digit for the year.

Speaker Change: At the end of the day, reflect the challenging consumer environment.

Laxman Narasimhan: But what I expect is that these actions that we're putting in place will position us stronger to see growth in FY 2025. And just to remind that cop guidance range is a low single-digit decline to flat.

Speaker Change: and what we expect the comps to be, you know, flat to low single digit for the year. But what I expect is that these actions that we're putting in place will position us stronger to see growth in FY 2025.

Speaker Change: And just to remind that comp guidance range is a low single-digit decline to flat.

Sharon Zackfia: Thank you. The next question comes from Sharon Zaxia with William Blair. Please state your question. Hi, can you hear me now? Yes, you can. Okay, perfect. I felt like a Verizon commercial. I wanted to ask; I know you gave the kind of returns you're seeing in US news stores as well as in China. But, you know, I think with the weakness you're seeing in cops, it kind of bakes the question of how committed you are to this kind of global rate of expansion and the seven to eight percent range for company on stores?

Laxman Narasimhan: But what I expect is that these actions that we're putting in place will position us stronger to see growth in FY 2025. And just to remind you that the comp guidance range is a low single-digit decline to flat. Thank you. And our next question comes from Sharon Zackfia with William Blair. Please state your question.

Speaker Change: Thank you.

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

Sharon Zackfia: Okay, perfect. I felt like a Verizon commercial. You know, I wanted to ask you about the kind of returns you're seeing in US new stores as well as in China. But you know, I think with the weakness you're seeing in comps, it kind of begs the question of how committed you are to this kind of global rate of expansion and the seven to 8% range for company-owned stores. Well, I'll just make a comment and then hand it to Rachel specifically.

Sharon Zackfia: Hi, can you hear me now?

Speaker Change: Yes, we can.

Sharon Zackfia: Okay, perfect. I felt like a Verizon commercial. You know, I wanted to ask, I know you gave the kind of returns you're seeing in U.S. news stories as well as in China. But, you know, I think with the weakness you're seeing in comps, it kind of begs the question of how committed you are to this.

Laxman Narasimhan: Well, I'll just make a comment and hand it to Rachel specifically. So first of all, we're not chasing a number. You know, we look at every, every project that we have, every site, and we look at the incremental returns, the incremental technology, the business that it brings, and we're entirely driven by ROI. And we see the strong cash and cash returns in the US. You know, Rachel spoke to the kind of cash and cash returns we're seeing in the tier two and tier three markets, where the headroom is large for us. And we're under penetrated in those markets.

Speaker Change: Kind of global rate of expansion in the seven to eight percent range for company-owned stores

Laxman Narasimhan: So first of all, we're not chasing a number. Um, you know, we look at every, every project that we have on every site. And we look at the incremental returns, the incrementality, the business that it brings. And we're entirely driven by ROI. And we see strong cash on cash returns in the US. You know, Rachel spoke to the kind of cash on cash returns we're seeing in the tier two and tier three markets, where the headroom is large for us. I mean, we're underpenetrated in those markets. And so if you look at the pipeline of real estate investments in the US, they're really targeted at tier two, tier three, mostly.

Speaker Change: Well, I'll just make a comment and then hand it to Rachel specifically. So first of all, we're not chasing a number.

Rachel Ruggeri: You know, we look at every project that we have, every site, and we look at the incremental returns.

Rachel Ruggeri: The Incrementality, The Business That It Brings, and We're Entirely Driven By ROI, and We See the Strong Cash-On-Cash Returns in the U.S. You Know, Rachel Spoke to The Kind of Cash-On-Cash Returns We're Seeing in the Tier 2 and Tier 3 Markets

Rachel Ruggeri: And so if you look at the pipeline of real estate investments in the US, they're really targeted to tier two, tier three mostly. And the work we've done to de-brew to identify the sites, to ensure that we build, you know, this clearly work that's going into how we ensure that returns to getting these sites strong. In a very similar way in China, if you look at the cash-on-cash returns that we're getting in the lower two cities that we're expanding in, the cash returns are strong. So we're not really chasing a number. We're chasing a and where we see incrementality, where we see returns, we will invest.

Rachel Ruggeri: Where the headroom is large for us and we were under penetrated in those markets

Laxman Narasimhan: And the work we've done to debrew, to identify the sites, to ensure that we build, you know, there's clearly work that's going into how we ensure that returns we get on these sites are strong. In a very similar way in China, if you look at the cash on cash returns that we're getting in the lower tier cities that we're expanding in, the cash returns are strong. So we're not really chasing a number.

Rachel Ruggeri: And so if you look at the pipeline of real estate investments in the U.S.

Rachel Ruggeri: They're really targeted at the Tier 2, Tier 3 mostly.

Deep Blue: and the work we've done with DBREW to identify the sites, to ensure that we build, you know, there's clearly work that's going into how we ensure that the returns we get in these sites are strong.

Deep Blue: In a very similar way in China, if you look at the cash on cash returns that we're getting in the lower tier cities that we're expanding in, the cash returns are strong. So we're not really chasing a number, we're chasing a return. And where we see incrementality, where we see returns, we will invest.

Laxman Narasimhan: We're chasing a return, and where we see incrementality, where we see returns, we will invest. The only thing I would add to that is, given the fact that we do see these strong returns and the incremental nature of our overall business, we see a vast opportunity, we have a very rigorous site selection process, and we also have the ability to monitor overall performance. And the combination of all of that allows us to strengthen our portfolio through the growth of new stores.

Rachel Ruggeri: The only thing I would add to that is just, you know, given the fact that we do see these strong returns and the incremental nature to our overall business, we see the vast opportunity. We have a very rigorous site selection process; we also have an ability to be able to monitor overall performance, and the combination of all of that allows us to strengthen our portfolio through the growth of new stores. So, we see it as an important part of our overall long-term growth algorithm, but I think what's important in what Laxman said is it really comes down to ensuring that we keep monitoring the overall economics. And as long as we see the kind of returns we see today, then it supports our long-term growth ambitions.

Laxman Narasimhan: So we see it as an important part of our overall long-term growth algorithm. But I think what's important in what Laxman said is that it really comes down to ensuring that we keep monitoring the overall economy.

Speaker Change: The only thing I would add to that is just

Speaker Change: You know, given the fact that we do see these strong returns.

Speaker Change: and the incremental nature to our overall business.

Speaker Change: We see the vast opportunity. We have a very rigorous site selection process. We also have an ability to be able to monitor overall performance. And the combination of all of that allows us to strengthen our portfolio.

Speaker Change: through the growth of new stores. So we see it as an important part of our overall long-term growth algorithm. But I think what's important in what Lakshman said is it really comes down to ensuring that we keep

Laxman Narasimhan: Monitoring the overall economics and as long as we see the kind of returns we see today then it supports our long-term growth ambitions.

John Ivankoe: Thank you.

Rachel Ruggeri: And as long as we see the kind of returns we see today, then it supports our long-term growth ambition. Thank you. Your next question comes from John Ivankoe with J.P. Morgan.

John Ivankoe: Your next question comes from John Ivankoe with JP Morgan. Please state your question. Hi, thank you. We generally have the perception that the US is the leading market for Starbucks around the world, and certainly it is in terms of total sales. But my question was, as you look around the world in Latin America and Europe, in Asia, and a lot of markets really are competitive and have challenging consumer environments, what have you? Is there anything that you can point to that being done particularly well in any of these markets from a service, from a beverage perspective that maybe can be some tangible leading indicators that we can start to get excited about?

Speaker Change: Thank you. Your next question comes from John Ivankoe with JP Morgan. Please state your question.

John William Ivankoe: Thank you. We generally have the perception that the U.S. is the leading market for Starbucks around the world, and certainly it is in terms of total sales. But my question was, as you look around the world in Latin America, in Europe, in Asia, and a lot of markets really are competitive and have challenging consumer environments, what have you, is there anything that you can point to that is being done particularly well in any of these markets, from a food, from a service, from a beverage perspective that maybe can be some tangible leading indicators that we can start to get excited about as we think about fiscal 25 and 26 innovation past what you've already done?

John William Ivankoe: Hi, thank you. We generally have the perception that the U.S. is the leading market for Starbucks around the world, and certainly it is in terms of total sales.

John William Ivankoe: My question was, as you look around the world in Latin America, in Europe , in Asia, and a lot of markets really are competitive and have challenging consumer environments, what have you, is there anything that you can point to that is being done particularly well in any of these markets from a food, from a service, from a beverage perspective that maybe can be some tangible leading indicators that we can start to get excited about as we think about fiscal 25 and 26 innovation past what you've already done? Thank you.

John Ivankoe: As we think about fiscal 25 and 26 innovation, past what you've already done.

Laxman Narasimhan: Thank you. I'll just point to our business in Japan. It's been growing double digits, terrific round of innovation, great execution stores, strengthened digital presence, and a brand that really celebrates the coffee house in Japan. I think if you look around the world, we have pockets of these pretty much everywhere. It may not necessarily be uniformly the case, but pretty much everywhere we have examples of our brand, the experience that we deliver, the products that we bring to bear, the speed of innovation that we have, and, by the way, even in pockets of China, we have amazing stories of these in the US too.

John William Ivankoe: Thank you. I'll just point to our business in Japan. It's been growing double digits, a terrific round of innovation, great execution in stores, strengthened digital presence, and a brand that really celebrates the coffee house in Japan. I think if you look around the world, we have pockets of these pretty much everywhere. It may not necessarily be uniformly the case, but pretty much everywhere.

Speaker Change: I'll just point to our business in Japan. It's been growing double digits, a terrific round of innovation, great execution in stores, strengthened digital presence, and a brand that really celebrates the coffeehouse in Japan.

Speaker Change: I think if you look around the world, we have pockets of these pretty much everywhere.

Laxman Narasimhan: We have examples of our brand, the experience that we deliver, the products that we bring to bear, the speed of innovation that we have. And by the way, even in pockets in China, we have amazing stories of these, you know, the US too. So I think that there is a broad set of examples that we constantly look at to learn from and find ways of scaling around the world. And that's what we mean at the heart of truly going global, which is our third imperative in our triple shot strategy. It is a way for us to share best practices across the world.

Speaker Change: It may not necessarily be uniformly the case, but pretty much everywhere we have examples

Speaker Change: of our brand, the experience that we deliver, the products that we bring to bear, the speed of innovation that we have. And by the way, even in pockets in China, we have amazing stories of these.

Laxman Narasimhan: So I think that there is a broad set of examples that we constantly look at to learn from and find ways of scaling around the world, and that's what we mean at the heart of truly going global, which is our third imperative in our trip or shop strategy. It is a way for us to share best practices across the world.

Speaker Change: You know, the U.S. too. So I think that there is a broad set of examples.

Speaker Change: that we constantly look at, to learn from and find ways of scaling around the world. And that's what we mean at the heart of truly going global, which is our third imperative in our triple-shot strategy. It is a way for us to share best practices across the world.

Christine Cho: Thank you.

Christine Cho: And your next question comes from Christine Cho with Goldman Sachs. Please state your question. Thank you. So you've made some significant investments into staffing, scheduling, and partner wage and benefits over the years, and it does seem like it's making very good progress so far. But I was wondering if there are any major areas you see incremental opportunities, and just adding on to that, on one hand, you have the goals to improve the cost efficiencies and productivity. But on the other, you will continue to focus on partner and customer experience, so just curious to your thoughts as to how you strike a balance here.

Laxman Narasimhan: Thank you. And your next question comes from Christine Cho with Goldman Sachs. Yes, thank you.

Speaker Change: Thank you.

Unknown Attendee: So you've made some significant investments in staffing, scheduling, and partner wages and benefits over the years, and it does seem like it's making very good progress so far. But I was wondering if there are any major areas where you see incremental opportunities? And just adding on to that, on the one hand, you have the goals to improve cost efficiencies and productivity. But on the other, you will continue to focus on partner and customer experience. So just curious as to your thoughts as to how you strike a balance here.

Speaker Change: And your next question comes from Christine Cho with Goldman Sachs. Please state your question.

Unknown Attendee: Yes, thank you. So you've made some significant investments into staffing, scheduling and partner wage and benefits over the years, and it does seem like it's making very good progress so far. But I was wondering if there are any major areas you see incremental opportunities? And just adding on to that, on one hand, you have the goals to improve the cost efficiencies and productivity. But on the other, you will continue to focus on partner and customer experience. So just curious to your thoughts as to how you strike up a balance here. Thank you.

Laxman Narasimhan: Thank you. I feel very good about the progress we are making in delivering a more stable partner experience in our stores. Um, I think if I just look at the average partner, where we are, it's, you know, it's, it's, it's reached a real high, a historic high, so I feel good about it.

Rachel Ruggeri: Thank you. I feel very good about the progress we are making on delivering a more stable Potter experience in our stores. in the US. I think if I just look at the average hour's partner where we are, it's, you know, it's, it's, it's reached a real high, a historic eye. So I feel good about that.

Speaker Change: I feel very good about the progress we are making on delivering a more stable partner experience in our stores in the US.

Speaker Change: I think if I just look at the average house partner, where we are, it's, you know, it's reached a real high, a historic high.

Laxman Narasimhan: I think part of what we are looking to continue to do is how we ensure we simplify in the stores, how we simplify our menus, how we simplify our beverage bills, how we simplify in our supply chain, what happens upstream versus downstream, and how we focus on training, how we ensure more consistency in the experiences that we deliver. And you know, the sign craft system is a great example of this. See, to some of the stories we've heard as we've rolled this out over the course of, you know, over the last several weeks, including this week, across all on that word, is just what it's doing in terms of the part of reception and the positivity we hear from partners, including what they say about their ability to connect with customers, and also deliver a more personal experience in stores.

Laxman Narasimhan: I think part of what we are looking to continue to, is how we ensure we simplify in the story. How we simplify our menus, how we simplify our beverage bills, how we simplify in our supply chain what happens upstream versus downstream, and how we focus on training how we ensure more consistency in the experiences that we deliver. And, you know, the science craft system is a great example of this either some of the stories we've heard, as we've rolled this out over the course of, you know, over the last several weeks, including this week, across all on that is just what it's doing in terms of the part of reception and the positivity we hear from POTS, including what they say about their ability to connect with customers, and also deliver a more personable experience in stores.

Speaker Change: So I feel good about that.

Speaker Change: I think part of what we are looking to continue to do is how we ensure we simplify in the stores.

Speaker Change: How we simplify our menus, how we simplify our beverage bills, how we simplify in our supply chain what happens upstream versus downstream.

Speaker Change: And how we focus on training, how we ensure more consistency in the experiences that we deliver.

Speaker Change: And, you know, the sign and craft system is a great example of this, you know, some of the stories we've heard as we've rolled this out over the course of, you know, over the last several weeks, including this week, across all our network is just what it's doing in terms of the partner reception and the positivity we hear from partners.

Speaker Change: including what they say about their ability to connect with customers.

Laxman Narasimhan: So it's clearly this is the sort of thing that we have to do, and just continue to make the right investments to deliver the right part and experience in order to exceed the customer expectations that I know a premium brand like ours is all about. The last question comes from David Palmer with Evercore ISI.

Laxman Narasimhan: So it's clearly this is the sort of thing that we have to do and just continue to make the right investments to deliver the right often experienced in order to exceed the customer expectations that I know of premium brand like ours is all about. Thank you.

Speaker Change: and also delivery more.

Speaker Change: personal experience

Speaker Change: in store. So it's clearly, this is the sort of thing that we have to do and just continue to make the right investments to deliver the right partner experience.

Speaker Change: in order to exceed.

Speaker Change: The Customer Expectations.

Speaker Change: that I know a premium brand like ours is all about.

David Palmer: The last question comes from David Palmer with Evercore ISI. You may ask your question. Thank you. I wanted to go back and then look at some of the products and the value strategies from April through July. You were very active with some of the new products, and they would be something beyond the coffee core. They would be things that you would think would drive not just that strong trial that you say, but an incremental traffic to your business. And I know you were going to dial up some value marketing. Maybe you confirm if you felt like you did that.

Speaker Change: Thank you.

Speaker Change: The last question comes from David Palmer with Evercore ISI. You may ask your question.

David Sterling Palmer: Thank you. I wanted to go back and look at some of the products and the value strategies from April through July. You were very active with some of the new products, which would be something beyond the coffee core. I mean, they would be things that you would think would drive, you know, not just the strong trial that you say but incremental traffic to your business. And I know you were going to dial up some value marketing. Maybe you can confirm if you did, you felt like you did that.

David Sterling Palmer: Thank you. I wanted to go back and look at some of the products and the value strategies from April through July . You were very active with some of the new products.

Speaker Change: Would be something beyond the coffee core, they would be things that you would think would drive, you know, not just the strong trial that you say, but incremental traffic to your business.

Speaker Change: And I know you were going to dial up some value marketing. Maybe you confirm if you felt like you did that.

Laxman Narasimhan: But I'm wondering, what do you think worked particularly well, not just in the first trial week or two but on a more sustainable basis from that in these initiatives, including the value and the new products? And in light of the traffic decline of 6%, I'm wondering, what do you think were really the offsets? Has there been some decline in the coffee core, or is there a day part? Or how should we think about offsets for these things that you're doing?

David Palmer: But I'm wondering, what do you think worked particularly well, not just in the first trial week or two, but on a more sustaining basis from that in these initiatives, including the value and the new products, and in light of the traffic decline of 6%. I'm wondering, what do you think were really the offsets? Has there been some decline in the coffee core, or is there a day part, or how should we think about offsets to these things that you're doing? Thanks very much.

Speaker Change: But I'm wondering, what do you think worked?

Speaker Change: particularly well, not just in the first trial week or two, but on a more sustaining basis from that in these initiatives including the value and the new products.

Speaker Change: And in light of the traffic decline of 6%, I'm wondering, what do you think were really the offsets? Has there been some decline in the coffee core, or is there a day part? How should we think about offsets to these things that you are doing? Thanks very much.

David Palmer: Thank you, David.

Laxman Narasimhan: Thanks very much. Thank you, David. Let me just start with coffee, right? I think, as I said in my prepared remarks, we've gone to one additional point on cold. So it's now 76. Obviously, that's seasonal, but it's 77.

Laxman Narasimhan: Let me just first stop a coffee. I think, as I said in my prepared remarks, we've gone to one additional point on cold, so it's now 76. Obviously, that's seasonal, but it's 76. If you look at our espresso business, let's grow in 4%. So, espresso drinks are up 4%. So, coffee has grown. And our distinctiveness isn't coffee.

Speaker Change: Thank you, David. Let me just first start with coffee, right?

Speaker Change: I think as I said in my prepared remarks, we've gone to one additional point on coal, so it's now 76.

Laxman Narasimhan: If you look at our espresso business, that's grown 4%. So espresso drinks are up 4%, and so coffee has grown. And our distinctiveness is in coffee. And I think you'll see that in the kind of innovations and new products we bring in, including the launch of Milano Duetto towards the end of this quarter. So coffee is core to who we are, distinctive in terms of the breadth of what we bring, and the products will obviously have that. I think one of the things we did talk about was the fact that afternoons are an opportunity for us.

Speaker Change: Obviously, that's seasonal, but it's 76.

Speaker Change: If you look at our espresso business, that's grown 4%.

Speaker Change: So espresso drinks are up 4% so coffee has grown

Laxman Narasimhan: And I think you'll see that in the kind of innovations and new products would bring, including the launch of the launch of Deweyto towards the end of the quarter. So, coffee is core to who we are, distinctive in terms of breadth of what we bring, and the products will obviously have that.

Speaker Change: and our distinctiveness isn't coffee, and I think you'll see that in the kind of innovations and

Speaker Change: and new products we'll bring in, including the launch of Milano Duetto towards the end of this quarter. So, coffee is core to who we are, distinctive in terms of breadth of what we bring, and the products will obviously have that.

Laxman Narasimhan: I think one of the things we did talk about was the fact that afternoons are an opportunity for us. And as we look at these new platforms of what we have launched, if I look at pearls, for example, it was significantly ahead of what we thought it would be, to the point where we ran out of supply. and I think that it wasn't a supply issue necessarily, but it was more, the demand was ahead of what we thought it would be. We had a full-back marketing, and my sense is that as you look at what we now have in our stores, they're back in stores with new products, and it's a platform that we will continue to build over time.

Laxman Narasimhan: And as we look at these new platforms that we have launched, if I look at Pearls, for example, demand was significantly ahead of what we thought it would be to the point where we ran out of supply. And I think that it wasn't a supply issue necessarily, but it was more the demand was ahead of what we thought it would be. We had to pull back on marketing. And, you know, my sense is that as you look at what we now have in our stores, they're back in stores with new products.

Speaker Change: I think one of the things we did talk about was the fact that afternoons are an opportunity for us.

Speaker Change: And as we look at these new platforms of what we have launched, if I look at Pearls, for example, it was significantly ahead of what we thought it would be, to the point where we ran out of supply.

Laxman Narasimhan: And it's a platform that we will continue to build over time. So we're not just launching a product, we're launching platforms. The energy platform, you know; we've been in the energy business since 2007 with the launch of Double Shot and Triple Shot Express. What we now have is a zero calorie energy platform that we're scaling, and it's building steadily and will be something that we're committed to over time. If you look at some of our food innovations, like the egg mozzarella pesto sandwich. It's a terrific sandwich.

Speaker Change: and I think that it wasn't a supply issue necessarily but it was more the demand was ahead of what we thought it would be. We had to pull back marketing and you know my sense is that as you look at what we now have in our stores they're back in stores with new products and it's a platform that we will continue to build over time.

Laxman Narasimhan: So we're not just launching a product; we're launching platforms. The energy platform, we've been in the energy business since 2007 with the launch of double shot and triple shot espresso. What we now have is we have a zero-calorie energy platform that we're scaling, and it's building steadily and will be something that we're committed to over time.

Speaker Change: So we're not just launching a product, we're launching platforms. The energy platform, you know, we've been in the energy business.

Speaker Change: Since 2007 with the launch of Double Shot and Triple Shot Espresso.

Speaker Change: What we now have is we have a zero calorie energy platform that we are scaling and it's building steadily and will be something that we are committed to over time. If you look at some of our food innovations, like the egg mozzarella pesto sandwich as an example.

Laxman Narasimhan: If you look at some of our food innovations, like the egg mozzarella pesto sandwich as an example, it's a terrific sandwich. And again, it's one that's going to join our core, but it's building systematically over time.

Laxman Narasimhan: And again, it's one that's going to join our core, but it's building systematically over time. We still have work to do on supply, around how we ensure stability and reliability of supply, particularly in food, in order to get the kind of service that we're going to need across our 10,000 stores with the products that we launch. So that's an opportunity, David, that I think we still have. And the team is working very hard, along with our suppliers, in order to make that happen.

Speaker Change: It's a terrific sandwich, and again, it's one that's going to join our core, but it's building systematically over time.

Laxman Narasimhan: We still have work to do on supply or on how we ensure stability and reliability of supply, particularly in food, in order to get the kind of service that we're going to need across our 10,000 stores with the products that we launch. So that's an opportunity, David, that I think we still have, and the team is working very hard along with our suppliers in order to make that happen.

Speaker Change: We still have work to do on supply.

Speaker Change: or on Howie and Shaw's.

Speaker Change: Stability and Reliability of Supply, particularly in food.

Speaker Change: In order to get the kind of service that we're going to need across our 10,000 stores.

Speaker Change: with the products that we launch. So that's an opportunity, David, that I think we still have. And the team is working very hard, along with our suppliers, in order to make that happen.

Operator: Thank you. That was our last question.

Laxman Narasimhan: Thank you. That was our last question. I will now turn the call over to Laxman Narasimhan for his closing remarks. Thank you all for the time today. If you take away one thing, let it be this: We're making real progress on our feedback. We are focused on what we can control in a consumer environment that can best be described as complex. Our teams are moving to the...

Laxman Narasimhan: I will now turn the call over to Lakshman Narasimhan for closing remarks. Thank you. Thank you all for the time today.

Laxman Narasimhan: Thank you. That was our last question. I will now turn the call over to Laxman Narasimhan for closing remarks. Thank you.

Laxman Narasimhan: If you take away one thing, let it be this. We're making real progress on our pre-bought plan. We are focused on what we can control in a consumer environment that can be best be described as complex. Our teams are moving to the urgency. I thank them for their efforts and for staying focused on what we can control.

Laxman Narasimhan: Thank you all for the time today. If you take away one thing, let it be this.

Laxman Narasimhan: We're making real progress on our pre-BAR plan.

Laxman Narasimhan: We are focused on what we can control in a consumer environment that can best be described as complex.

Laxman Narasimhan: I thank them for their efforts and for staying focused on what we can control. I have full confidence in the long-term potential of Starbucks worldwide. Thank you. Thank you. This concludes Starbucks' third quarter fiscal year 2024 conference call. You may now go.

Laxman Narasimhan: Our teams are moving to the emergency.

Laxman Narasimhan: I thank them for their efforts and for staying focused on what we can control.

Laxman Narasimhan: I have full confidence in the long-term potential of Starbucks worldwide. Thank you.

Laxman Narasimhan: I have full confidence in the long-term potential

Operator: This concludes Starbucks' 3rd quarter fiscal year 2024 conference call. You may now...

Laxman Narasimhan: of Starbucks Worldwide.

Laxman Narasimhan: Thank you.

Speaker Change: This concludes Starbucks third quarter fiscal year 2024 conference call. You may now disconnect.

Q3 2024 Starbucks Corp Earnings Call

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