Starbucks Corporation

Hello, my name is Kevin and I'll be your conference operator today. I'd like to welcome everyone to Starbucks' fourth quarter and full fiscal year 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question, press star one on your telephone keypad. If you'd like to withdraw your question, press star two. I will now turn the call over to Tiffany Willis, Vice President, Investor Relations. Ms. Willis, you may now begin your conference.

Thank you, Kevin. And good morning, everyone, and thank you for joining us today to discuss Starbucks' fourth quarter and full fiscal year 2023 results. Today's discussion will be led by Lakshman Narasimhan, Chief Executive Officer, and Rachel Ruggieri, Executive Vice President and Chief Financial Officer. This conference call will include forward-looking statements, which are subject to various risks and uncertainties. that could cause our actual results to differ materially from these statements. Any such 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 forward-looking statements or information. GATT results in fourth quarter and full fiscal year 2023 And the comparative period includes several items related to strategic actions, including restructuring and impairment charges, transaction and integration costs, and other items. These items are excluded from our non-GAAP results. All numbers referenced on today's call are on a non-GAAP basis, unless otherwise noted or there is no non-GAAP adjustment related to the metric. For non-GAAP financial measures mentioned in today's call, please refer to the earnings release on our website at investor.starbucks.com to find reconciliations of those non-GAAP measures to their corresponding GAAP measures. This conference call is being webcast and an archive of this webcast will be available on our website through Friday, December 1st, 2023. Also, for calendar planning purposes, please note that our first quarter fiscal year 2024 earnings conference call has been tentatively scheduled for Tuesday, January 30th, 2024. And with that, I'll now turn the call over to Lakshman.

Thank you, Tiffany. Good morning, everyone. Welcome to Starbucks' fourth quarter and fiscal year 2023 earnings conference call. Thank you in advance to those who will join us this afternoon, where we will share an update on our long-term strategies and celebrate the launch of Holiday at Starbucks. Before we get started this morning, I'd like to express my deepest gratitude to our Starbucks partners around the world for a very successful fiscal year 2023. I've learned through connecting with so many of you how our reinvention plan has continued to be well executed, giving us great momentum in this early stage of our transformation at Starbucks. I have discovered how our brand is uniquely delivered in our stores and digitally through our extraordinary partners and the tremendous headroom we see for our global business. Turning now to our business performance, Rachel and I will share details of our strong results delivered in the fourth quarter and fiscal year 2023. We will also share our confidence in the company's long-term opportunity with guidance for fiscal year 2024. What you will take away from this call today is that we have great momentum, fueled largely by our reinvention plan. We are seeing the work pay off through improved partner and customer experiences, as well as captured improvements in efficiency and margins. We believe this bodes well for this next year and for years beyond. To deliver our long-term sustainable growth, we are focused on five areas. You will hear more on what we call our triple-shot reinvention and our continued momentum this afternoon. The discussion will provide a more detailed outlook on our three core and two enabling priority areas. First, we will elevate the brand to our stores. Second, we will strengthen and scale in digital. Third, we will become truly global. Fourth, we will unlock efficiencies, including outside the store. Finally, we will reinvigorate the partner culture at Starbucks. In the fourth quarter, our total company revenue reached a record $9.4 billion, representing an 11% increase year over year. Full year revenue reached a record of $36 billion, representing 12% growth year over year for fiscal 2023, or 14% when excluding the 2% impact of foreign currency translation. aligning our revenue growth at the high end of our guidance range. Equally impressive, our global comparable store sales increased 8% year over year, both for the quarter and the fiscal year 2023, driven by a healthy mix of ticket and transaction growth. We grew earnings per share by 31% to $1.06 for the quarter, and by 20 cents to $3.54 for the fiscal year, again aligning to the top end of our guidance range. Importantly, we grew margin by 310 basis points for the fourth quarter and 100 basis points on a full year basis. And we did all this while growing our global store count to over 38,000 in line with our store growth guidance of 7% in fiscal year 2023. Demand for Starbucks remains strong around the world. Here in the US, our largest market, we saw momentum sustained throughout the quarter. Revenue for the quarter was up a record 12%, underpinned by 8% comps. We had a remarkable fall launch, that led to record-breaking average weekly sales. Our 90-day active Starbucks rewards members reached a new record this quarter of nearly 33 million 90-day active members and setting records in spend per member and total member spend. Customers remain loyal to their favorite fall menu classics that have stood the test of time, including the pumpkin spice latte, which celebrated its 20th anniversary. In addition to very strong performance in our core offerings, we also have strong performance with new offerings, including our Apple-inspired beverages and food items. The results from the quarter, including the dynamic ways we are driving ticket growth, give us great confidence in our menu innovation on both an individual product and overall portfolio level. We have proven that complementary yet competing products and flavors can successfully coexist, such as pumpkin and apple, with the right menu innovation, marketing mix, and strategic pricing strategies. As customer demands have evolved, we've delivered more beverages, food, and personalization and customization across existing and new formats to meet their expectations and grow the business. Our continued investments in our partners, equipment, supply chain and technology are paying off, evidenced by a margin expansion across North America to 23.2% this past quarter. Timed with our busiest cold foam promotion of the year, the recent rollout of our new portable cold foamers to all U.S. company-operated stores enhanced productivity in the fourth quarter, and lessened the strain on our partners while continuing to meet the high cold beverage demand. In support of the continued growth in cold beverages, we delivered over 550 new nugget ice machines and remained on track with installation prioritized for our most ice constrained stores in fiscal year 2024. Clover Vertica, our on-demand single-cup brewer, is now installed in over 600 of our stores across the U.S., and we continue the on-schedule rollout of the siren system cold and food stations, prioritizing new stores and renovation locations. Our portfolio and pipeline management of new equipment design and rollout plans are robust and enabled us to deliver our results. We have created a more stable environment in our stores. Hours per partner increased in the quarter by 5%, as we continue finding schedules that fit our partners' and customers' needs. Turnovers down in the fourth quarter by 10%, while barista tenure increased by 16% for the quarter. Customer connection scores also improved in the quarter relative to this time last year. We did all of this by investing over 20% of this year's profits back into our partners and stores through wages, training, equipment, and new store growth. All this is further evidence that our strategy is working. Turning to international in the fourth quarter, We saw record store growth of nearly 600 stores across the segment, with international store count remaining higher than that of the U.S. We also experienced record double-digit revenue growth internationally in the quarter, with continued growth across every key market around the world. Our comparable same-store sales in our company-operated markets for both the U.K. and Japan remained well above historical averages in fiscal year 2023. with growth attributed to higher profitability and higher productivity store formats, as well as elevated digital and partner experiences. We saw strong customer demand for our beverage and food offerings around the world, with record global demand for our pumpkin platform. And in our international license markets, Starbucks rewards programs grew by 4 million 90-day active members, now contributing to 30% of total sales, up 9 percentage points in just one year, driven by the growth from Starbucks Digital Solutions. Supported by a strong brand globally, outside of China, our international segment is well ahead of the growth pace we indicated at last year's Investor Day, with focused growth in our company-operated markets and motivated business partners powering our licensed stores. Turning to China, we were pleased with our performance in the quarter, delivering revenue growth of 8% from the prior year, or up 15% when excluding approximately 6% impact of foreign currency translation. This is further supported by a comp of 5%, squarely in line with our expectations. Full-year revenue grew to $3 billion, up 3% from the prior year. or up 11%, excluding approximately 8% impact foreign currency translation with comp of 2%. Our performance in China improved sequentially quarter over quarter, with revenue in the second half of the year 20% higher than the first half, reflecting our growth momentum. These results underscore the strength of beverage and food offerings. the success of our market strategies, and the powerful execution unleashed by our partners in China as we capture the abundant opportunities in front of us. We continue to see strength from coffee-forward innovations, delighting our customers with locally relevant product innovation like the Moose Espresso and the smaller-sized Intenso range, a first in the world. We're also seeing higher food sales with tremendous headroom in this area, driving both transaction and ticket opportunities. In Q4, we saw continued momentum across the omni-channel experiences of Starbucks in China with strength in-store through mobile order and pay, mobile order delivery, e-commerce, and in channels. China now has over 21 million active loyalty members representing 22% year-over-year growth with many members skewing younger to build our next generation of customers. In the quarter, we opened a record 326 net new purpose-driven stores in China. reaching 13% net new store growth over the prior year to over 6,800 stores at the end of fiscal year 2023. The outstanding financial returns of new stores give us confidence we will reach our goal of 9,000 stores by 2025, opening nearly 1,000 net new stores every year. Finally, the September opening of the China Coffee Innovation Park, designed to be our most energy efficient and sustainable coffee manufacturing and distribution center in the world, further signals our commitment to the largest consumer market in the world and the growth of our business in China for China. We look forward to sharing more on the headroom we see in China later today. The momentum against the backdrop of headwinds in China this past year give us optimism in our position and affirm our distinctive competitive advantages for our business. These advantages include our uplifting partners, including our China leadership team, our distinctive stores, our vertically integrated and highly digitized efficient operations, and our relevant innovation. We will maintain our leading position in the premium market as we continue to grow and scale across our current portfolio and through new tiers of cities in this growing market of coffee drinkers. Finally, our channel business continues to elevate the Starbucks brand around the world at home and on the go, creating Starbucks moments for consumers outside of our retail stores. We are the number one ready-to-drink brand around the world. notably in the fourth quarter we celebrated our five-year partnership with the global coffee alliance with nestle this nestle relationship which includes we proudly serve food service locations as well as additional partnerships such as our north america channel partnership with pepsico and international partners like kingy and arla have helped us grow our customer touch points and is now in nearly 90 markets around the world for Fiscal year 2023, we saw notable growth in our leading channel market position, as well as a creative brand equity as we continued to be recognized for our innovation. Some notable accolades include awards in China, ready to drink select. In the Europe, Middle East, Africa, multi-serve business, as well as achieving 1 billion in servings in Korea and selling out of grab and go in Japan. In closing, while navigating an environment of unprecedented volatility throughout fiscal year 2023, we finished our fourth quarter and full year strong, delivering on our guidance. Our reinvention is moving ahead of schedule, fueling revenue growth, efficiency, and margin expansion. Notably, we continue to see the positive impact of our reinvention on our partner and customer experiences. Proof points. that we can continue to innovate, grow, and strengthen our business while creating value for all. Looking ahead, we remain fully optimistic about our headroom across the US and internationally, and we see limitless possibilities across all areas of the business. While the global business environment remains uncertain, we are confident in our ability to adapt and innovate to meet evolving consumer needs. We will continue to invest in our partners, to expand upon our reinvention, and to deliver on our sustainability and social impact initiatives all while driving long-term growth. We feel very good about the business momentum for next year, the continued strength of the brand, and the opportunity for growth in the years ahead. I look forward to sharing greater detail around these strategies for growth with you later this afternoon. Our performance this past year and the plans ahead give us great confidence in the multiple paths we have in front of us to achieve our long-term results. I will now hand the call over to Rachel to walk you through further details of the fourth quarter and fiscal year 2023 results, as well as our fiscal year 2024 guidance. Thank you all for joining us this morning, and we look forward to seeing you this afternoon. Rachel?