Starbucks Corporation

Good morning, my name is Daryl and I will be your conference operator today. I would like to welcome everyone to Starbucks first quarter fiscal year 2026 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's prepared 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 Catherine Park, Vice President of Investor Relations. Ms. Park, you may now begin your conference.

Good morning, and thank you for joining us today to discuss Starbucks first quarter fiscal year 2026 results. Today's discussion will be led by Ryan 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 first quarter fiscal year 2026 include restructuring and impairments and transaction costs that are excluded from our non-GAAP results. Revenue, operating income, operating margin, EPS, and EPS growth metrics on today's call represent non-GAAP measures and are measured in constant currency. GNA and effective tax rate metrics also 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 and supplemental financial information. This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, March 13, 2026. Also, for your calendar planning purposes, please note that our second quarter fiscal year 2026 earnings conference call has been tentatively scheduled for Tuesday, April 28, 2026. I'll now turn the call over to Brian.

Good morning, and thank you for joining. I look forward to seeing many of you tomorrow for Investor Day, where we will lay out our future vision for the company, our path to sustained growth and profitability, and how we plan to deliver the best of Starbucks for our customers, partners, and shareholders. Today, though, I want to focus on the continued progress we've made on our Back to Starbucks plan and the momentum we've built across the business through Q1 fiscal 2026. I'm most excited that our turnaround plan is coming to life in the way we envisioned. First, turn around the top line and then earnings growth will follow. And I am delighted to say we are now achieving top line growth driven by transactions. And we have clear plans on how we expect to turn top line growth into margin and earnings growth. We started the fiscal year strong with a focus on disciplined execution at scale. As a result, in Q1, global revenue grew by 5% to $9.9 billion and global comparable store sales accelerated to 4% growth. We delivered 128 net new coffeehouses globally, and we delivered operating margins of 10.1% and EPS of 56 cents. Our North America revenue grew 3% in the first quarter to $7.3 billion. Across North America as a whole and our U.S. business, company-operated sales comps were both 4%, led by 3 percentage points of comp transaction growth. And across our international business, sales comps grew by a healthy 5%, led by strong performance across our company-operated markets in China, Japan, and the UK. In the U.S., where much of our turnaround work has been focused, company-operated transaction comps grew year over year for the first time in eight quarters, and we grew transactions across all day parts in the quarter. Starbucks Rewards 90-day active members reached a record 35.5 million customers during the quarter. Rewards transactions grew year over year for the first time in eight quarters, and non-rewards transactions grew even faster. In fact, this was the first quarter we grew both rewards and non-rewards transactions since Q2 of fiscal 2022. That's nearly four years ago. It is clear from our top-line results that our back-to-Starbucks plan is working and our turnaround is taking hold. As we return to growth, we can also see more clearly where we will improve further. Over the past several months, we have surfaced legacy models and processes in our business that we are now fixing. For example, transaction growth has shown us continued opportunities to strengthen our supply chain and reevaluate menu offerings to ensure product availability while reducing future waste. We will keep moving with speed to identify and implement practical changes like these that we know are good for our customers and for our business. We're also continuing to refine our labor model because we see some opportunities to fine tune it based on store format and performance. There's also opportunity to better enable efficiencies with technology solutions in our coffee houses and across our support centers around the world. We're pleased with our progress and we believe we remain ahead of schedule and we're confident on our path forward, but we also recognize that we're still in our turnaround. And as we expected, the strategic investments we're making to fix our operating foundations will take time to flow through to sustainable earnings growth. A key piece of our path forward is technology. And I'm excited to share that Anand Raradarajan recently joined Starbucks as our new chief technology officer. Anand joins us following a successful 19-year career at Amazon, where he most recently served as president of Worldwide Grocery Technology. I am confident his leadership and knowledge will result in step-change improvements across all our technology platforms. I want to use the remainder of my time today to share with you what we've done to drive top-line growth through Q1 and why I'm confident we're on the right track to deliver improved growth in fiscal 2026 and beyond. First, our Green Apron service standard continued to improve our coffeehouse experience, creating value for our customers and underscoring our growth potential in North America. Through the quarter, we leveraged bigger rosters, new customer service standards, continued low hourly partner turnover, and our SmartQ algorithm to deliver more consistent, timely, and personal service. As a result, across our U.S. company-operated coffeehouses, positive customer comments grew in the quarter. All-day and peak throughput steadily increased. We addressed throughput challenges during peak, with average cafe and drive-thru service times both below our four-minute targets, even with meaningful transaction growth. And we brought order to mobile orders, ensuring they remained accurate and on time. To instill more ownership of the coffeehouse experience and the results they deliver, we rolled out new expectations for coffeehouse leaders to stay in role at least three years. That's because we know leadership continuity strongly correlates to a better culture and improved coffeehouse performance. We also launched the Grow Program, a simplified reporting system to evaluate, rank, and improve coffeehouse performance. We're measuring five key metrics that closely tie to CompGrow's and are within coffeehouse leaders' control. While it's only been a few months, leaders across our North America operations are already using the new report to help them better run their coffeehouses and take ownership of their action plans to improve performance. To better support our Green Apron partners, we fully scaled Green Dot Assist across our North American coffeehouses this past November. This new AI-powered knowledge search tool provides a real-time resource to look up beverage builds, troubleshoot operational issues, and adjust deployment plans. It also provides a strong foundation to test and learn, then develop and scale thoughtful AI solutions that reduce friction for partners and help them focus on craft and connection with our customers. Our overhauled approach to marketing and menu innovation is putting Starbucks back in the cultural conversation and back into a leadership position. Our holiday offering featured an exciting menu and new merchandise, including our barista mug, which created real energy and buzz that drove more customers into our coffee houses. Our partners also showed up with enthusiasm and a desire to connect with our customers, delivering a record revenue holiday launch week for our U.S. company-operated business and driving sustained performance through the quarter. We also saw brand performance improve. Brand affinity in the U.S. remained strong during the quarter, with continued improvements in visit consideration and Starbucks ranking as a customer's first choice. Connection scores improved, with more customers saying our partners make an effort to get to know them. Convenience scores improved significantly as customers responded to our green apron service standard and improved in-stock levels. And more customers said Starbucks offers great tasting food and healthy menu choices. Value perception scores also held strong in Q1, and when paired with average ticket growth, it clearly shows that we're delivering greater value through menu innovation and customer connection, not through discounts. These are all clear signs that we are creating a more valuable brand for more customers. Going forward, we will continue to build on Starbucks' proven seasonal strengths with engaging marketing, on-trend menu innovation, and seamless digital experiences that work together to create moments our partners can deliver with excellence. And our customers want to be a part of and share. Third, we continue to scale our coffeehouse uplift program, bringing more warmth and great seats back into our coffeehouses. To date, we've completed approximately 200 uplifts, primarily in Southern California and New York City. And we're on track to complete more than 1,000 by the end of fiscal 2026. We believe these investments in our cafes and the customer experience will continue to have a positive impact on our business as we reclaim the third place. Within our international segment, we grew revenue by 10% to $2.1 billion. And we grew comps in nine of our 10 largest international markets, underscoring the strength and resilience of the Starbucks brand globally. China was a standout. Comps accelerated to 7%, marking our third consecutive quarter of comp sales growth led by transactions. This performance reflects the progress we were making to strengthen our competitive position as the leading premium coffee brand in the market. Looking ahead, we are sharpening our focus for our long-term future in the region. During the quarter, we identified Boyu as our partner to maximize Starbucks' potential in China. This partnership will help us expand into more cities, deliver exceptional coffee experiences, create new career opportunities for partners, and strengthen Starbucks' position as a global brand for long-term growth. We continue to expand our footprint with discipline and pace. In the first quarter, we opened 79 net new international coffee houses, reflecting 130 net new licensed coffee houses and 51 net closures in our company-operated business. India crossed 500 coffee houses, and we announced expansion into six new cities in our Latin American and Caribbean markets, along with plans to surpass 1,000 coffee houses in Mexico this year. International remains a powerful growth engine for amplifying the Starbucks brand, and we are confident in our ability to deliver consistent, profitable growth in this business longer term. So to conclude, we've continued to build momentum across our business through Q1, and we are clear on our long-term vision. We will be the world's greatest customer service company. We will offer the best job in retail. We will be the community coffeehouse. Our brand will be visible, relevant, and loved everywhere, and we will accelerate growth around the world. And finally, we will deliver on our commitments to create shareholder value. As a result of our disciplined work over the past 18 months, we are now delivering the top-line results we set out to achieve, and we're creating the room we need to invest thoughtfully in our future. As I said last quarter, we have a plan, we have been working the plan, and the plan is working. Our work is not done, and we are clearly in the early stages of our turnaround, and we have clear plans to maintain our top-line performance while improving the foundations of our business. I don't expect the path forward to be linear, but we will continue to test, learn, and refine our approach to deliver the best of Starbucks and drive durable, profitable, long-term growth. Before I turn it over to Kathy, I want to thank our partners across our coffeehouses and support centers around the world for their continued focus and relentless effort to execute with excellence. Our back-to-Starbucks plan is the strategic currency of our turnaround, and their work is the foundation of our progress and our performance. Together, we've grown comps and transactions. Brand affinity and customer connection is strong. Our innovation pipeline is stacked with breakthrough menu items and new digital experiences, and the shine is back on our brand, both in the U.S. and around the world. With that, I'll turn it over to Kathy to walk us through our Q1 financial results and to share our fiscal 2026 guidance.