Starbucks (SBUX) 4 Nov 222022 Q4 Earnings call transcript

Good afternoon. My name is Diego, and I will be your conference operator today. I would like to welcome everyone to Starbucks' Fourth Quarter and Fiscal Year End 2022 Conference Call. [Operator Instructions] I would now turn the call over to Tiffany Willis, Vice President of Investor Relations. Ms. begin now may you your conference. Willis,

on be Officer; Diego, for joining America; Vice you, President, Frank and CFO. year fiscal discussion Executive assumes for costs or cause Incoming statements to including actions, restructuring of Q&A, quarter President XX-K on and Channel in Conway, and statements risk and Schultz, of any report with a the Any XX-week our quarterly Laxman Officer; include Rachel conference adjustment update is Starbucks' factors and Chief President and and we year-on-year release these will no to good are in Chairwoman you And thank based results are Executive Vice of Further, materially on and be fiscal will Starbucks which in Today's results. otherwise from SEC, And obligation including statements our Form and everyone. related cautionary these XXXX transaction to basis, All China. latest strategic Starbucks by annual Executive joined and Group conjunction integration excluded to us Chief the information. in differ our quarter such fourth Ruggeri, by Trilling, President results. XX-Q. our Narasimhan, Britt, several report Howard our discussed will Development; of call referenced and actual earnings results filings forward-looking These GAAP an forward-looking Interim International Executive related risks afternoon, fiscal Wong, fourth call week charges, items extra year noted, to Thank led XXXX Michael impairment Executive Form today no numbers include Strategy XX-week today's statements, call on Belinda could Transformation This unless exclude are to are metrics. and discuss Chief Sara statements. to Starbucks items. be comparative on North today's non-GAAP subject of impact items non-GAAP the from XXXX. Officer; with that or considered other fiscal or should basis, President in there and metrics various and uncertainties on a Vice non-GAAP

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will fiscal which incremental reflect billion $X We in fiscal the investments XXXX of annualization half year investments. expect over XXXX, the of

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We fiscal XXXX approximately $X.X in CapEx expect billion. be to our

our and targeting fiscal between during reflected our program billion committed in the Day, dividend As to as also payout buyback shareholders return Investor approximately to in approximately to in $XX next years increase, buybacks. dividend We the expect we dividends shared an announced we XX% share XXXX. recently ratio three resume we'll also and remain

We expense. until reach initially $XXX as interest is This limited incremental to by driven increase, expense, allocation interest of fiscal when million XXXX, in net strategy. and $XXX fiscal regards fiscal up million to approximately benefit from X%, benefit XXXX. and in issuances million buyback XXXX in of XXXX expect outlined XXXX, $XXX we the EPS debt In capital fiscal expect in interest calculated our expense be on between expected fiscal to the

committed credit leverage Importantly, rent-adjusted our we and to Xx EBITDA. cap rating BBB+ remain of

from we in same tax respectively, from rates in the discrete certain rates XXXX, be tax non-GAAP our tax to degree which repeat tax expected fiscal benefited range. XX.X% As and fiscal to non-GAAP not and for GAAP expect This the mid-XX% XX.X%, fiscal rates our is in are that to up and XXXX of XXXX. effective items GAAP

range expect the margin, And from it unfavorable growth of reinvention to the operating year. of here of EPS based XXXX the current XX% items, investments EPS closing, will shape approximately time included expect benefits. on in have to key quarterly we will QX range. GAAP the at take to XX% my on expected tax have benefits Fiscal the end that, In to $X.XX It's be point also half translation the of foreign high are quarterly fiscal expect non-GAAP discussion growth the growth. the mirror note the today. we end of low XX% of environment, from XX% at to long-term of the we Despite nonrecurring to impact earnings takeaways Finally, shape, second a approximate fiscal discrete that XXXX fiscal XXXX EPS XXXX currency the amplify. four step-up to percentage which is fiscal to largely important be continue meaningful to as considering

experience day. for performance, and our every the are We QX create by proud incredibly underpinned of partners our customers each our

year another of for Our XXXX guidance sets stage the record performance.

customers. is growth future our dependent on that and recognize our in stores we our investments partners, Importantly,

call new than cornerstone Apron Q&A. day. Starbucks focus the creating Operator? elevate with partners, shareholders. customers unlock more solve through XXX,XXX continue a is each across partners, every for their and to unwavering As we Once of all and together the challenges experience earned again, open success new Green to globe growth, our our our the and that, our With growth. partners we era stakeholders, and value of our commitment confident will our lean the be are will Their in we business, path era to of working of the to of

Please question. Your comes Charles Instructions] question your Andrew first with Cowen. [Operator state from

the questions Great, on Rewards had I two thanks. Together program.

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Chief you with he'll of and Brady question. take This Howard. Brady? Marketing Starbucks, your Brewer, is Thank question. Officer the I'm sitting for

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see this to excited in build we're So future. the

Thank you.

Jeffrey from next comes with Barclays. Your question Bernstein

Starbucks bounce-back. get is out, be months an it guess, to potential will your face the like pricing I system. by And more But the and six recession, driven the 'XX in I quite you're like of is hearing Thank X%. even menu to seem focus, the slowing does the good with sight, It related feeling new much. of that Analyst fiscal have XX said, macro very And discretionary. question you these on And confident quarterly a like 'XX. a and results looking X% seems we're larger Howard, pretty guidance is the it on with the of that. top fiscal comp we've China seems to since more product and long-term Day, that heard you support line in

driven that price. very to if So to able comp, difficult prioritize or the just just to to your by sustain X% without wondering drivers you support because been yourselves your being it level just and could it's be X% maybe that confidence even peers,

into that or talking six of we X% confident Thank So X% would still years. potential prioritization to could out a about couple the Any be for you're especially next going XX great. be you. recession, months color to

based kind through Thanks, and the go Jeff. and try of question we're on our the what Well, we've so near let's history, in seen confident. term why

unprecedented we to time, that go the an our support again, has that you to affordable and time customer have Starbucks base this although is many to been luxury willing Starbucks is back If loyalty there and an continues. time years, demonstrated,

extremely is past, predictable, we as relationship inherent a of that the program, the with revenue did heard our you which generating loyal. in in the not is Starbucks, have customer base is Now significant benefit remarks, prepared Rewards for and highly which

gives every gotten get wanted see us past younger and is we've demonstrated, significantly which been has raise never confidence try and customer, wanted or years at money the We've price time. the to whether to monitored base discretionary last not tends we've to was only or more seen the this predictable. from have which younger, you pricing over different almost not months certainly, We during Gen base it power much the haven't customer, X% that's that we're but thing Z abate. that of their loyalty and XX young getting younger. prices other loyalty so Starbucks, our year. that to Not it customer customer the always The got see Then quite has we get to our that But generationally older. and have so, significant Starbucks certainly disposal. increases and going transactions we've their And

because remarks, the beverages, obviously in then modifiers of U.S. over can we we and business. for ticket which be now of XX% a a the and on in look is at with is in customization, our becoming lineup accretive really more have we that and the those short-term result on have succeeded, -- cold I more beverage think of of the been home through giving about which year I spoke think beverages the of to promotional modifiers, say a the and consistent I look is innovation balance we lot we sat the a back And revenue real seem this greater plan share, accretive about drive-throughs of overwhelming we what have look terms in terms ability conversation as few prepared had us there last has our how history honestly back weeks of the that runs, the beverages real, history and back multiple in beverages talk consistently we result couldn't in our too intercept knew the success Starbucks The and avoid of can't to it that and as is we our because felt amount not have a cull -- the just I like but we say, of both up not really pandemic our year, traffic many we consistent so is good thing strategic been. certainly certainly formats, and picked we quantitative were last it's as and that this the about. the market estate as during nature to and category and I'd would handle and

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with America. Sara Bank Senatore from of comes question next Your

question Hi, then a have thank you follow-up, much. and I so a please.

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start sure, Yes. Sure. go I'll ahead... --

talk about wanted And sorry. mobility, China. really to I clarify, just about Thanks. opening restrictions, it's I'm a about about not you new as question the challenges just in stores.

Yes.

XXX% regard In stores. There's correct. China, to opening no terms issue of with that's

is record a stores have opening the answer you And question we're and about if Belinda numbers. fact, China, on In at she follow-up can phone, certainly it.

your provide few customize company has in world about to certainly competitive has a want. to modifiers, instantaneously in of flavors, to there our the about our ability request at customization, respond -- the nor anywhere surprised behind Starbucks. that has customer advantage. the ability that coffee customer's terms terms isn't ability all what In ability a they the syrups, a counter et of foam, cold a is cetera, beverages extend no One, modifiers, cold things. question coffee other But our and significant our company to There to is us

its attachment. cold will And awareness coming. the continue year in cold stages the of have is we I early think what's to around and terms I through think, innovation drive in

However, coffee our coffee that should of kind not away the -- one our and walk business about think hot no fact is growing.

fact, it's taken plans cold significant innovation hot. of over. we In has growing for but nicely, kind But have

think your I'll a well. we the platform. up give innovation hot result around hot, revenue follow hot go I up think I the just of on So to it Brady, of the see question as percentage you'll cold versus have to as And

Yes.

the the sales to said, is is years, stores. modifiers beverage The seen the in particularly stack just espresso. and mentioned, But continuing platform Howard are said, we're category. We're beverage. into as added now digits that has We've hot our Nitro, entire Brew in year-over-year. is in see that Espresso, younger hot product volume as the significantly. you go, the have year-over-year double beverage, and Refreshers, growing of colder growth over few significant think is all coffee grown which appealing. biggest Iced Cold growth cold Sara Howard seeing, I -- growing, last plant-based cold-customized What accelerated, the an but

to Now is important have possible of And buy their what over favorite that important? customers our It's XX% customized. beverages anywhere that is not else. are our why beverage because is discovered

links only Starbucks and that enabled this stores. that you a at increasingly, the earlier is think make beverage can't to I question get it can times rough about navigating you is has And home. too, customization in our

just we're Lots started. So growth of getting ahead. opportunity

you. Thank

question from Credit Suisse. comes next Lauren with Your Silberman

your Thank you trends in terms X those about Tier other to Can you tiers? growth, Tier locations you're X then cities about you're provide across of I China. can seeing on and you. any talk unit just helpful. and ask you of for X, Tier be lower-tier question. across where color versus Thank the in growing in And would China wanted composition cities

China, Starbucks and think question. Belinda on Sure. obviously I person answer best who China, Wong, phone the the from the to runs is

So Belinda, please?

Different new very different of category Thank but growth brands overall the robust premium adoption. We're for by on our coffee cultivated advantage of you, by locations, our exceptional propositions, delighted Howard. Starbucks targeting coffee in and connections deep partners customers. market and competitive share value culture brands see delivered founded players. offer accelerate Thank question. brand the experience different the in we'll segments you our recent positioning, with the to together, the preference, the coffee a market and China's fueled and and years continues of entry lead to with the --

in into that in also cities yet. those of And purpose-built grow strategy, new into density our portfolio, we'll I store -- trade we in store shared are development XX There build cities in two existing of smarter. will go go will our during increasing Investor areas. new as terms optimizing wider will we deeper follow into we're key plenty that not we're opportunities continue And our strategy. In go cities, our have entering in. the we areas store the will Day, we in top And -- entering to thirdly,

our to third should understand development experience, placed in We the accurately we have fulfill the terms new just it all that's have data, existing strong to opening that project And more data greener. of incredible going we're place needs a by we to the local lastly, Powered be we not new by format very able and and store cities, we're in. is to where omnichannel market. in be where best cities but size, go built the system in stores the accurate our or team customer operate

shared greener portfolio. the open Investor as we're by going stores part I've before during As X,XXX Day, of to XXXX

we're the we're going Thank to So comprehending you. China very and stores the in confident market. the way increase our grow new in

you. Thank

Ivankoe Your John next question from JPMorgan. with comes

you. Thank

like number that has. that XX% And to MSR. breadth put been the words, increased brand that in on of to a to come the talk get very that's able would talking customer have For several you could about the to other lot, to past. just admirable in the brand customer that's of Presumably, about relative that, to record to context, your And of base. I discrete obviously, frequency now, customers a the having we've Starbucks calls actually be

what opportunity I ago, in as frequency the parts? that about talk that years to one, kind today you kind two I mean, of as you for the that that as new come three the XXXX they initiatives used as you're part as talk have. I the customer you can the may about customers? well have, bringing back other often So have the first question. opportunities MSR back guess, secondly, then, part of frequency-driving to And of I of mean, that both mean some you program of are

Brady?

John. Sure. Thank you,

still what as units are this that have or products seeing transactions 'XX. of consistently than per store continue is -- pre-COVID a per FY sold, transactions than we FY lower day, what been grow. measured by is is levels, 'XX to higher part And are While

their more we're what which program, we're helps them and frequency our see is group frequently, SR the program is members. customers so lower in we're seeing of frequency both SR So of the bringing is but adding new what And also many very frequency to are Starbucks visiting The first in orders. acquiring members doing tends a into function who significant membership. year increase increase Rewards a frequency.

SR driver so for And strong us. a that is of

you. Thank

Jon comes with Your next Citi. from Tower question

the recovery. to up I year on what's just to expectations the in follow your for outlook. Great. understand And curious embedded want the China China for

that of in betting obviously, sounds it the Specifically, the like, year. idea in you're your the guidance back there's a reopening half

risk the year -- and half should this numbers, back comp what's the the COVID recovery stay the to in in particularly the zero-COVID earnings of policy So place?

anything. you add And start if that? to do Belinda want wants Rachel? Rachel, to

really, China on in Thank for we mobility. question. you The we've recovery Yes. in said the as way the the is based considered beginning,

we And year, so when it's of we severity the talk the half as back the outsized of an lap about lockdowns. the in performance

we quarter. though towards challenges, severity be lockdowns the negative quarter, with in you XX% still the to have, of end following the by followed there see even recall, So negative may QX, a if XX% the of a started that in comp comp

are we're recovery our the assumptions So for indicated guidance. we've there's part recovery of which based, actual laps basing and the but our Certainly, how nonlinear, increased it's as our that's -- on based of is expectations today, mobility.

you do Go sorry. have -- Belinda, any ahead, Belinda.

Yes, yes.

what just that of as as coming strong ability me of eases, comp sales growth. correlation QX seeing lifted. XX-day see on as the and rebound terms between stores the we're revenue fact our the a sequential see the easing are solid incredible are sequential and recovery. restrictions mobility we as our humbling to positive I restrictions how our improvement business a improvement mean us soon soon in really in it Let gives back restrictions It's to active on pleased to enthusiastically confidence add our to our mobility a members to lot

Thank you. that. add to wanted just I So

just on to thing, don't the Belinda, what have more restrictions add you've digital -- delivery, given been the do the can and you mind, please? if what able and you been you team -- one

growth short-term those heard, best-in-class and the Despite on our we stores we high-quality COVID at Investor record And now, cities, and returns Yes. profitability. new remain Day, discipline and you have as right? agenda disruptions, shared confidence, XXX with to across store continue we achieve growth. X,XXX achieved executing As stores new China we great laser-focused new

focused business, continued momentum. on also our great and We fast-growing that omnichannel gain to

That's reached sales we're to pleased very mix. That's to XX% engagement, sales Rewards achieving pretty going pleased XX% customers. customer as we see to stay historic as shared, something highest I mobile Delivers, to here connection as And the incredible. to year-on-year see, unfold said total members be it's our Howard are record to now XX%. really Starbucks ordering back, As a grew of and mix our And that's more we're Customers' that. very our active occasions from close coming high we well. before, And score. sales

increasing getting partners stores ground, development. better. and every capability. really We're in operate operational store on supply are customers. day smarter our the serving We're and as chain Our our our We're how our to muscle to our learning our

see. And to So I'm thing. pleased also, more one very

partner our partner FY full-time engagement, we that in past record-low of the over terms retail really the In That years off. have really partner 'XX. paying we made demonstrates achieved investments turnover have are

-- So capture positioned well humbled and Thank we're growth the very opportunities. you. future and excited but to

comes with question Morgan John from Glass Your next Stanley.

much. very Thanks

prioritize improving. you of sales You 'XX, On the help think what talked drive can most? the about reinvention us you retention inside plan,

the think where inside factor the of just a of talked of personal would speed an are, talk rank you be? issue of next greater experience, seem you unlocking quarters. me, if about the If some part what upgrades. you It to to other? or And should initiatives service certain benefits just gating one business, year you we the over can couple think Thanks. growth a that's You've where cadence, and versus sort on maybe a that there's want to way based about equipment to and still order sort traffic about of there's of these that, benefiting of

take Sara speed could you please, then about talk question, reinvention can of Frank, the and service?

capacity demand partner drive it about that us capture growth, environment. designed improve partner incremental and operating in secondary allows to your experience challenged core more creates top to The is answer retention, is that the as current Sure. Starbucks scores, of operating of that And is model customer. question connection the the line the to to effect, the both sometimes

agenda, is engaged, ultimately, the end course, and the to around their of us so the they engage in of the capacity of customer and to But service at give day, combining supporting reinvention want of it's partner. of customers And innovation core be to the needs designed how the performance. store, the the

certainly issue don't want you, with stores. to We I John. acknowledgment. you. you, Thank have a just Thank demand in start an Thank just Frank. our out

As to average total high weekly that we've incredibly got sales. active we've customers grow. talked benefiting weekly about, continue from We're

specifically. tenured daypart increase see and that with you'll reduction cafe those the with continue or in to an times, in mind some say of we in peak with I whether more all coaching the quarter, And opportunities, I see our did our about dayparts. peak keep is hope with of in service, see metric call-out improvement speed, drive-through with full the improvement during with And we stores, so acknowledge stability I All that which that's during focus last notably, orient drive-through opportunity over in that window we leaders really your the eye business speed, can mean turnover, with the is hours partners and is service, in us. those over overall continually a stores, observing in on to our that ahead. and the and retail our what with top

you. Thank

Your next Baird. comes Tarantino David question from with

heard if Howard, the all wanted to be support the I of correctly. And environment. you're U.S., just on think in with to pressures on that by afternoon. good seeing if mentioned could the pockets see elaborate you outside that that partners I the the I you willing of whether Hi, macro some outside helpful. you you're U.S. what statement issues Any and mean Thanks. would that elaboration license

Sure. I'll Michael to who runs start respond, it give Conway, and I'll and then International.

relationships go and there's has long-term And back, East, that Middle go some years. of Starbucks terms think in I cases, others. Korea, in Mexico America, very back these South unique some Latin the some XX of relationships XX,

of level so well a And that friendship there relationship. we loyalty, is business tremendous have the beyond

partner is there we side-by-side that for the have certainly Conway, great in be that constant fact and not So the we with that we way, to a backstop be partners be them indicated But that them. would case, our pride ensure working with has on there any to been up, for come did not, want with can to know every side-by-side it That we're who and contact they I'll if in give day. them. were the anything. they back of Michael we look something kind

But We're we're from that, Thank inflation seeing headwinds on we are you, a right. and That's exchange impacts. negative the eye far, say know both any close here, I so is keeping that Howard. perspective. perspective what foreign can not

markets double-digit Our business and XX%. all having We're all regions. company-operated in outside of of the China our internationally across comps grew over

very feel that we're them. that they brand, confident this time, strong staying start and strength our was so And bringing, same And to up, over between to our at mobility travel that, open to convenience lot the certainly fact a we the But challenges. business saw we we'll up, quarter, the we're the stay pick partners last close a we to summer it close business. see in see is of should our tailwind continuing of

Nicole with question next from Piper comes Sandler. Your Miller

question. like clearly, same commentary the surveyed wanted in and done the would Good been employees. for about afternoon, about for of working it sounds the consumers. and ask -- thank And I taking have earlier you gave some terms you've conditions the you to they And benefits.

has customer really they the number either? you changed customers, ideas for So do one, employees employees second intersection between the the thinking B, the the shared overlap? where the and how part, very relationship? the and you two of then Where process to part survey is question, much. part Thank talk about And

you a for shot the Nicole. take Frank don't at and Sara that? Thank Why question,

Yes.

So you. thank

first sensing in we of that. who proudly deconstruct are we the more We process partners happens quarterly. that call, And are process So a those on very some is we using of just very analysis a and have things arena. We have idea that tremendous do this we've to constantly store. do about precise of that be to advanced what which analytics monitor. should a And have responding try is we we Green quite the correlation sort a the the on comprehensive which science a short-term There then base partners basis, data to a Starbucks our we doing, the partners. for we're sort now we capability, the where amount for new espoused creating listening capabilities we be wear and in very advanced, how with Aprons while, principle then

as And think in we so way long often satisfied. that a I say, come not arena. yet, have we're pleased but And we

further As the it there know, Sara on, partner engagement, as correlation a relates between to let to amplified the we we've mentioned, action. I'll connection which direct is before, customer elaborate about side, surveying it can is which that correlation real, is you you've customer sum it's engagement. the the of know day see and And total we and talked in and every

is of spend equity bit, lot to in brand context partner a between brand, is a number know the one the care. the the Brady we connection time we And know to equation try that of so which the factor of Starbucks. the that that And understanding epicenter the speaks quite X. of care we In

of And is measured customer fabric in experience and as by as that brand the the by partner realized the measured store. binds so the that lens experience the

Sara? And Frank. Thanks,

do and that we if also pain in Thank you, adjust additional the job to up just directly that kind with for are of do would making continue engagement connections, track understand to We that that investments range looking we're ways or pull in the are partners basis. and of on mapped to to and our our our broad designed And learnings And around capacity check activity perspective, customers. partner so engagement overall. to those and stores, the create their a kind Howard. to them we're back going a there offer engage to that stores I and to reinvention there if is that it opportunities, design easier with growing our the regular make are demand points that enable we can new launching the and forward. meet to

excited some think about related to other listening The launching partner new is thing engagement. I mechanisms quite we're

of have is we what's able serving acknowledge needed, piloting we that to who rich to era And which to Our look we're and testing. our a an we is enable that, co-creation. app future, of serve. and it partner those frontline, as customers, understanding an currently closest example are and the deep need be to them to And of the

Danilo last The you. Thank comes Bernstein. from Gargiulo with question

You may ask your question.

your in about terms your of attracting is you across demographic very much wanted seeing for what Thank customers customer and behavior particular, you. stores. brand or you're base? coffee to the its them to And unique culture. that question you're existing the incremental differences the that on seeing I And ask compared of Italy first thank all, words a on in kind Howard, to

Brady?

a ask I Was can question? Yes, that about clarifying specifically? Italy

Starbucks was a X% unique you've X% whole, That as X% -- No. system quarter. that to customers the the about seen this so

think the bit, for we the a see into great. example, base a seen are we've customers in Yes, get base our Z Gen think we outlined is base customers the our customer I that, not And I Millennial. drink, deeper active diverse brand, is X-day U.S., that the And young the think that choosing I is U.S., Oh, only fact as is of Starbucks Sara is seeing In and customer And now, diverse. of day. we parents in what larger relevance you single of around coffee population younger. young becoming world, not the customer into than When the relevance now we of before. and ever when but our that coffee is you really, XX% both see customers. attract people stores, every the your go our continue quite to are

of Our away-from-home brand now, for it's first any from brand seen as the and have around the choice affinity right home. away coffee world, we coffee position brand strongest the

go, stronger affinity brand brand the So more the the gets. the younger you go, And diverse stronger gets. you the the affinity

for working, cold-customized to so. all with we we'll to so is a do and beverages those young to very continue you. strategy diverse and reasons, continue base the increasingly And and customer cater of those plant-based Thank

Starbucks, season. us much. and at we at wonderful behalf vacation, you Have a I great you forward Thank Thanksgiving families wish of your of end you QX. a the to very look On speaking of and all with holiday

quarter year that, call. with XXXX Thank Starbucks' conference And conclude we end and fiscal fourth you.

may You disconnect. now