Starbucks Corporation

Good afternoon. My name is Diego, and I will be your conference operator today. I would like to welcome everyone to Starbucks' third quarter fiscal year 2025 conference call. 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. 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. I will now turn the call over to Katherine Park, Vice President of Investor Relations. Ms. Park, you may now begin your conference.

Good afternoon, and thank you for joining us today to discuss Starbucks' third quarter fiscal year 2025 results. Today's discussion will be led by Brian Nickell, Chairman and Chief Executive Officer, and Kathy Smith, 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 actual results to differ from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factors discussed in our filings with the SEC, including our latest annual report on Form 10-K and quarterly report on Form 10-Q. Starbucks assumes no obligation to update any of these forward-looking statements or information. GAAP results in the third quarter fiscal year 2025 include restructuring charges that are excluded from our non-GAAP results. Revenue, operating margin, and EPS growth metrics on today's call are also measured in constant currency and represent non-GAAP measures. Please refer to the earnings release and our website at investor.starbucks.com to find reconciliations of these non-GAAP measures to the corresponding GAAP measures. This conference call is being webcast and an archive of the webcast will be available on our website through Friday, September 12, 2025. Also, for your calendar planning purposes, please note that our fourth quarter fiscal year 2025 earnings conference call has been tentatively scheduled for Wednesday, October 29, 2025. With that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining today. It's clear Back to Starbucks is the right plan. It is grounded in feedback from our customers and partners, and it's rooted in what has always set us apart, a welcoming coffee house where people gather and where we serve the finest coffee, handcrafted by our skilled baristas. This quarter, we've made meaningful progress, and we are ahead of our expectations. We're moving quickly to transform both the business and our culture. We're testing, learning, and focusing on the work that has the biggest impact. We're fixing the operational foundations of the business and building a platform for innovation in 2026. Some of the changes are already visible, while others will be seen in the months ahead. There's still much to do, but I'm excited by what I see. I'm confident that we're not just getting back to Starbucks. We are building a better Starbucks, where everyone can experience the best of Starbucks. one that is stronger, more resilient, and consistently growing. A Starbucks that is once again the gold standard in customer service, partner experience, the coffee house experience, and financial performance. Let me start by sharing the results and then talk about the progress we are making. For the quarter, total company net revenue was $9.5 billion with a global comparable store sales decline of 2%, a global operating margin of 10.1%, Global net new store growth of 4% and earnings per share of 50 cents. In North America, Canada led the way with its second consecutive quarter of positive comparable sales. While in the U.S., comparable sales declined 2%. We are clearly in the early stages of our turnaround in the U.S., but our work is gaining momentum. In our international business, we achieved record-breaking quarterly revenue. It is worth noting that China delivered two points of comparable sales growth and six points of transaction growth through Q3. Our EPS in the quarter reflects the strategic investments we're making in our Back to Starbucks strategy, like Leadership Experience 2025, which we believe will power our future growth. While our financial results for the quarter don't yet reflect all the progress we've made, I see meaningful signs from across our U.S. business that we're on the right path. Here are a few examples. We've energized our partners, and they see and feel the difference. Retail partner engagement scores are up, and coffeehouse leader engagement is nearing historic highs. Hourly partner turnover is 49.1%, and shift completion is at a record 98.2%. Customers are liking our marketing and noticing that our speed, hospitality, and accuracy are improving. Customer connection scores are up, and customer complaints are down, both quarter over quarter and year over year. Customer value perceptions are near two-year highs, driven by gains among Gen Z and millennials, who make up over half our customer base. We saw the percentage of company-operated coffeehouses with positive full-day transaction comps and positive morning transactions improve for the third straight quarter. Non-rewards customers delivered transaction growth year over year for the first time since the post-pandemic recovery. Our college and university licensed business saw year-over-year comparable sales growth in the low double digits, showing renewed brand love from younger customers. We have huge strengths that differentiate us and form the foundation of our turnaround. We have three strong businesses, in-cafe, drive-through, and digital, that are each substantial on their own. And we're rapidly growing a fourth with a delivery business that delivered year-over-year transaction growth of more than 25% and looks to be highly incremental. Average peak drive-thru times are under our service time goal at three minutes and 20 seconds across our more than 7,600 drive-thru coffee houses. Our mobile app is highly rated and our reputation as a digital leader is a huge strength. We saw non-discounted transactions grow among our nearly 34 million 90-day active members in our rewards program. And we have one of the largest social communities in the industry with over 65 million followers. These strengths and signs of progress are why I remain confident in our ability to win. We have a lot of work underway, but today I want to focus on three critical areas. Operational changes in our coffeehouses, transforming our coffeehouse portfolio, and then how we plan to build on these foundational changes with a wave of innovation in 2026. Let me start with the operational changes. We've already taken several steps to improve the customer and partner experience, including bringing back condiment bars, eliminating the upcharge for non-dairy milks, implementing a new coffeehouse code of conduct, and rolling out coffeehouse walk certifications. In June, we brought together 14,000 coffeehouse leaders from across North America for Leadership Experience 2025. We focused on coffee, craft, connection, opportunity, and sharpened our commitment to customer service excellence. The momentum from the event continues to inspire our coffeehouse leaders as they drive our transformation. The most significant change will come as we begin fully scaling Green Apron Service across all U.S. company operated coffeehouses in mid-August. Green Apron Service is a new foundational operating model that establishes repeatable, consistent, and scalable standards. It is Starbucks' biggest investment ever in operating standards and customer service. Green Apron Service starts with the five key moments, including craft and connection, that define the experience we want every customer to have every time they visit. It is enabled by an evolved staffing model, which includes adjustments to roster size, labor hours, peak coverage, and deployment. We're also rolling out our SmartQ technology, an advanced order sequencing algorithm designed to ensure consistent, timely service across all our access points. We've accelerated the rollout of Green Apron Service well ahead of schedule because of the strong early results from our pilots. Just eight weeks into our 1,500 store test, partner feedback has been tremendous. Coffee houses using Green Apron Service have driven improvements in transactions, sales, and customer service times. Peak transaction comps have already started to grow, and all-day transaction comps are outperforming the broader North American portfolio. Where we've deployed SmartQ, we've seen a double-digit improvement in cafe orders handed off in under four minutes, with 80% of in-cafe orders now meeting that target. Drive-through service times are consistently under four minutes, and mobile order and pay is more accurate and on time. SmartQ is bringing order to mobile order. Once all elements of Green Apron service are fully implemented together and customers come to appreciate the improved experience, we believe these trends will continue to improve. To ensure they do, we're launching a new Grow Report in Q1 fiscal year 2026. It's a simple tool that helps coffeehouse leaders focus on five key drivers of same-store sales growth, and it'll provide sharper insights to improve our outlier performance and incentivize retail leaders. The Grow Report and our coffeehouse walks are emblematic of a fundamental shift in our expectations for retail leaders, who will be spending more time in stores focused on operational excellence and customer service. Lastly, we still have an opportunity to meet the demand we already have by reducing unacceptably high out of stocks. The supply chain team is focused on it, and in our pilots, we've been able to improve item availability. Now I want to talk about the changes we're driving to our coffeehouse portfolio. Every coffeehouse we operate should be warm and welcoming and provide a place for customers to connect and gather. They should have a great seat for any occasion, and they should provide customers access to a high-quality mobile order and pay experience and a drive-through where possible. We slowed new builds and major renovations to prioritize a new coffeehouse uplift program with a target investment of approximately $150,000 per store and minimal to no downtime. Uplifts are intended to quickly replace the thousands of seats we removed and introduce greater texture, warmth, and layered design. Work is accelerating now in New York City. We'll begin in Southern California later in Q4. And by the end of calendar year 2026, we will have completed at least 1,000 uplifts across North America. We've also begun work on the Coffeehouse of the Future. We have a new standalone prototype that will open in fiscal 2026 that has 32 seats, a drive-thru, and a roughly 30% lower cost to build. A small format version with approximately 10 seats is under construction in New York City and will open in the next few months. We believe this new prototype will deliver an exceptional customer experience, improve unit economics, and unlock growth opportunities in more markets. We plan to complete an evaluation of our North American portfolio by the end of this fiscal year to ensure we have the right coffee houses in the right locations to drive profitability and deliver the Starbucks experience. As a part of this work, we plan to sunset our mobile order and pickup only concept in fiscal 2026. We found this format to be overly transactional and lacking the warmth and human connection that defines our brand. We have a strong digital offering and believe we can deliver the same level of convenience through our community coffee houses with a superior mobile order and pay experience. Together, we expect these changes to our operating model and our coffeehouse portfolio strategy will improve and transform the foundations of our North American business so that we are reestablishing that moment of connection between a barista and their customer, bringing back warm and welcoming coffeehouses with great seats, delivering drinks in four minutes or less in the cafe and drive-thru while bringing order to mobile order, right-sizing store renovations and new build costs, eliminating unproductive menu items, and reducing our reliance on deep discounts and promotions. Because of this hard work, we are creating an operating platform to build on with a wave of innovation in 2026 across digital, loyalty, and our menu. This quarter, we made the most of legacy plans in place, but we have much higher ambition. Building on our back to Starbucks plan and new foundations, we will bring a consistent drumbeat of innovation to market through fiscal year 2026. We're building a robust menu innovation pipeline, leveraging our starting five approach and stage gate process that is centered on premium coffee experiences and exciting beverages beyond coffee, artisanal food that resonates across day parts, and the function forward modern offerings that customers want. In late Q4, we'll introduce protein cold foam. This is the first breakthrough innovation built and tested with our starting five approach. It taps into what has become one of our most popular modifiers, cold foam, which grew 23% year over year. Protein cold foam with no added sugar is an easy way to add 15 grams of protein to virtually any cold beverage. And customers can also add the flavor of their choice. Early in calendar year 2026, we'll launch a reimagined artisanal bait case and a bold new 1971 dark roast coffee available on our Clover Vertica brewer in all U.S. company-operated coffee houses. As we move further into 2026, expect more experiential beverages and nutritious, satisfying bites for the afternoon day part. This month, we'll start testing new coconut water-based tea, and coffee beverages in select markets. And we'll lean into customer needs with upcoming tests of gluten-free and high protein options to create food that's as artisanal as our beverages. In 2026, we'll also introduce new platforms, including global flavors and customizable energy offerings. And of course, we'll continue to own our hit seasons like fall with the pumpkin spice latte and holiday. Our rewards program is a huge asset for us with those nearly 34 million 90-day active members. In early 2026, we'll launch significant innovations in our Starbucks rewards program, addressing key customer feedback and introducing exciting new features designed to grow loyalty, brand love, and engagement. We have an incredible digital business and in 2026, we'll lean in further with a new Starbucks app and significant enhancements to mobile order and pay that will further improve our ability to deliver a great customer experience at pickup. As we work to turn around the U.S. business, we believe we have huge opportunities outside the U.S. too. This quarter, our international business posted more than $2 billion in quarterly revenue for the first time ever. Many of the changes we are driving in the U.S., like lower cost store builds and renovations, can scale around the world, creating opportunities to grow the business faster. In China, the near-term changes we made are paying off. Through Q3, we achieved our third consecutive quarter of revenue growth and total comp turned positive. Beverage innovation and new customization options drove customer frequency and our changes to non-coffee pricing broadened our customer base and bolstered afternoon and evening sales. As you know, we've been working to identify a strategic partner with a like-minded vision and values to help us capture future growth opportunities in China. We've received significant interest from more than 20 interested parties and we're evaluating options. We remain committed to our China business and want to retain a meaningful stake. The intense interest in partnering with us is a testament to the great team, strong brand, and long-term opportunity for Starbucks in China. It really is a vote of confidence. Finally, we will only enter a transaction if it makes sense for Starbucks. Across other markets, performance continues to improve as well. In the UK, we see continued momentum with improving comparable sales performance in the low single digits, driven by a focus on connection, beverage consistency, food innovation, and labor investments to support peak operating hours. The momentum stretches across EMEA as well. With overall Q3 revenue and comparable sales up year over year, Our business in Turkey, for example, is performing strongly despite a challenging economic environment, and we opened our 750th store in the market. In Latin America, we maintained double-digit year-over-year growth in system sales, revenue, and operating income. Mexico is approaching the 1,000-store milestone and provides a roadmap for profitable growth in the region. As we look forward, we see significant opportunity to accelerate growth across our international license markets. The team is focused on it and is thinking big. As I look back on the progress we've made this quarter and my 10 months here, I believe more than ever in our back to Starbucks plan. We've had to fix a lot, but we've done the hard work on the hard things. We've moved quickly to build a more consistent operating model, set clear customer service standards, and bring order to mobile orders. We're right-sizing our new store builds and renovations to improve economics, and we're addressing inventory availability. Though these are areas we know we can move even faster, and we're fixing our cost structure and finding offsets across our P&L to support investments at the store level. This transformation lays the operating foundation for ambitious innovation agenda, and I'm confident by the end of 2026, Starbucks in the US will look and feel very different, delivering the industry's best customer experience. We're not just getting back to Starbucks, we're building a better Starbucks, where everyone can experience the best of our brand. As we do, we believe we'll drive a stronger top line, and in time, healthy, sustainable profits will follow. I know there's a lot of interest in our long-term plans, and I'm pleased to confirm that we will hold an investor day in Q2 of fiscal year 2026. I look forward to seeing many of you in person. Before I close, I want to say thank you to our Green Apron partners. The energy and enthusiasm and leadership experience was inspiring, and I continue to see that same momentum every time I visit our coffeehouses. Back to Starbucks is coming to life through the passion and leadership of our coffeehouse leaders and Green Apron partners. I'm grateful for the way they're embracing change and delivering world-class customer experiences. Thank you. They're truly creating the green wave. I also appreciate how our support center partners are embracing the changes and how we get work done. We're all committed to building a culture centered on performance, accountability, and prioritizing support for our coffeehouse teams. Thank you for the important role you're playing in driving this change. And with that, I'll turn it over to Kathy to share more detail on our financial results for the quarter.