Starbucks Corporation

Good afternoon. My name is Diego and I will be your conference operator today. I would like to welcome everyone to Starbucks second quarter fiscal year 2026 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, 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 afternoon, and thank you for joining us today to discuss Starbucks second quarter fiscal year 2026 results. Today's discussion will be led by Brian Nickel, 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 our 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. All metrics referenced on today's call are non-GAAP and measured in constant currency. 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. As a reminder, the financial results discussed on today's call reflect the consolidation of Starbucks China as our transaction closed after the second quarter. This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, June 12, 2026. And for your calendar planning purposes, please note that our third quarter fiscal year 2026 earnings conference call is tentatively scheduled for Wednesday, July 29, 2026. I'll now turn the call over to Brian.

Good afternoon, and thanks for joining. I want to start with the headline. Q2 marked a milestone for the business. We delivered growth on both the top and bottom line for the first time in more than two years. Consolidated second quarter company revenue was 9.5 billion, up 8% year over year. Global comps were a strong 6%, driven by terrific performance across the business, especially in the US. And our consolidated operating margin improved to 9.4%, up about 110 basis points. And as a result, earnings grew year over year. Positive comp trends have continued through April, and this gives us the confidence to take up our fiscal 2026 guidance for global comp growth to 5% or better and earnings per share to $2.25 to $2.45. We believe this quarter reflects the turn in our turnaround, but we know there is more work to be done. Our back to Starbucks strategy is working because we're executing with rigor and focus, and the outcomes are showing up in real and visible ways. Thanks to our partners in the craft, connection, and sense of community they deliver for our customers. This is Starbucks. Green Apron Service is setting the standard for world-class customer service. We're winning the morning and building the afternoon with great craft and speed across every access point. Our Green Apron partners are creating more moments of connection with every cup served. And our support teams are leaner and faster and built around a culture of listening, learning, and acting with intention. Our menu innovation is exciting and moving at the speed of culture. The third place is alive and well in every coffeehouse, and soon the design aesthetic of our cafes will match the feeling you get in them. Our Starbucks rewards program is more rewarding, and there is trust in our coffeehouse leaders to run their business and create community. and the best job in retail keeps getting better. Our brand is showing up in more places, and the shine is back on Starbucks around the world. This is the Starbucks we're building, the Starbucks customers deserve, the Starbucks our partners are proud to call theirs, and the Starbucks we believe will deliver strong performance quarter after quarter. As shared, we grew both the top and bottom line in the second quarter. So let me break down how we achieved these results. North America led our comp performance with both North America and US comps accelerating to more than 7%, driven by over four percentage points of transaction growth. We haven't seen this transaction strength in three years. Our U.S. company-operated business grew transactions across all day parts, with mornings now roughly back to fiscal 2022 levels, and we saw broad-based spend growth across all income levels and age demographics. Our delivery business also contributed to both comp ticket and transaction growth in the quarter. We expanded delivery access across our U.S. company-operated portfolio last fiscal year, and it's proven to be a largely incremental revenue stream, growing more than 30% year-to-date across our U.S. company-operated business. International revenues grew nearly 8% year-over-year as momentum built globally. Comparable sales increased nearly 3%, and our top 10 international markets, including China, all posted positive comps for the first time in nine quarters. This combination of sales growth, operating leverage, and cost management translated into an EPS of 50 cents, up approximately 22% year-over-year. We said we would grow the top line first and margin earnings growth would follow. Q2 is proof our strategy is working. Starting in the coffee house, we focused on continued improvements to staffing, scheduling, technology, and leadership to make Green Apron service work more reliably every day. As a result, in the quarter, customer experience scores continued to rise. Customer service times remained on target, even with the greater transaction volumes. And in May, we're rolling out a new feature in our app that lets customers schedule their order pickup time. We expect this enhancement will bring even more order and predictability to mobile order. Since launching the GROW program, which is our simplified coffeehouse reporting and ranking system back in October, the share of U.S. company-operated coffeehouses delivering four or more shots has increased over 30 percentage points. This progress reflects clear standards, strong performance, and more consistent execution from our coffeehouse teams. The GROW report has become a great new tool to evaluate performance and target improvements, and it's helped put us on our way to being the industry-defining customer service and experience company. Partners felt the difference as well. Confidence on the floor improved with healthy rosters and growing leadership stability, and our data shows that coffeehouse leader stability is highly correlated to store performance. In Q2, 80% of our five-shot coffeehouses had a leader who had been enrolled for more than a year. We also announced new ways for partners to share in our success. During the quarter, we announced we would shift to weekly pay and introduce a new quarterly reward program for baristas and shift supervisors. This program recognizes Coffeehouse teams for strong performance across sales, operations, and customer service. Looking ahead, we'll continue to strengthen the supply chain behind Green Apron Service. Our focus is on improving costs, availability, flow, and accuracy to meet our pace of innovation and support consistent execution as our business grows. Our goal is really simple. If it's on the menu, customers should be able to order it. We're also tackling technology, equipment, and process improvements to enable even better craft, connection, and speed. Second, our disciplined menu innovation, energized marketing, and redesigned Starbucks rewards program continue to drive demand. Our lean organizational structure is allowing us to innovate and execute quickly. This is already showing up in the pace of our menu innovation in the quarter. which included new bakery items and an elevated bait case, premium matcha beverages, and our 1971 dark roast coffee. It's innovation focused on what customers want, geared for both the morning and afternoon occasion, and built for easy execution in our coffee houses. In April, we launched new energy refreshers and our new mango flavor. Both have exceeded our expectations and strengthened a proven $2 billion platform. Customers can now tailor the caffeine level of their refresher with the same ease and flexibility as flavors, creating more reasons for customers to visit later in the day. We'll continue to build on a refresher platform through the year and even more flavors and blended versions as well. Our upcoming summer menu features innovative drinks and merchandise that build on our iconic platforms and mixes soon-to-be favorites with returning classics. It's designed around what customers want in both the morning and afternoon. A highlight includes the Tropical Butterfly Refresher. With a striking look and refreshing flavor, and like other refreshers, it will be available with customizable energy. We believe it's a great way to kick off the summer. Marketing continues to amplify our brand as well. We're back in culture, whether it's major music moments like Coachella, global stages like the Winter Olympics, or tech platforms like ChatGPT. We're engaging with customers in ways that feel authentic and distinctly Starbucks, and it's helping deepen brand loyalty and fuel fandom. U.S. 90-day Active Starbucks Rewards membership reached a record 35.6 million, with both rewards member and non-member transactions growing year over year. Our new 60-star redemption option has become our most used reward, accounting for approximately a third of all redemptions. And while still early, we've seen a growing number of customers visit four or more times a week since launching last month. We've made Starbucks Rewards a growth engine again, positioning it to drive new customer routines, deeper engagement, and increased frequency. And that connection is showing up in the brand. Brand affinity continued to rise in the second quarter, reaching five-year highs in consideration and purchase intent. Gains were led by Gen Z and millennials, and more customers now believe their Starbucks purchase is worth it compared to a year ago. This shows what Starbucks continues to become, more visible, relevant, and loved. Third, customers are responding to a great coffeehouse experience. Coffeehouse uplifts are driving positive customer feedback and transaction trends, reinforcing the role of the coffeehouse experience in our return to growth. We're investing in that experience at scale with more than 300 uplifts now complete on budget and with zero closure days. We're accelerating this work over the next two quarters and expect to have more than 1,000 uplifts completed in our top 20 markets by fiscal year-end. Our return to growth has also sharpened how we manage our coffeehouse portfolio. The GROW report, paired with improving company-wide comp trends, is helping us more clearly identify outliers, focus resources, and raise standards across the system. We're also applying the same level of discipline to coffeehouse development as we reset our portfolio and begin ramping unit growth. Finally, broad-based momentum across our international markets in Q2 highlighted the strength and resiliency of our global brand. Japan had an outstanding quarter, led by a record sales week over New Year's, robust tourism, and strong additions to our menu. And in South Korea, our Ericano launch in February drove incredible demand, with more than a million cups sold in its first week. China delivered transaction-led comp growth for the fourth consecutive quarter, as Starbucks remained the top away-from-home coffee choice for Chinese consumers. We also completed our transaction with Boyu after the close of our fiscal quarter, bringing together Starbucks' globally trusted brand with Boyu's local market expertise to unlock attractive long-term opportunities in China. With a rebased portfolio, the Starbucks China team is eager to step back into growth, with plans to expand Starbucks' footprint from over 1,000 county-level cities today to more than 1,500 in the next three years. As our international business moves towards a nearly 90% licensed model, we're simplifying our structure and strengthening how we support our business partners. This puts decisions closer to customers and local markets, and it lets us focus on setting standards and sharing best practices. It's a model built for speed, accountability, and scale. Taken together, we're encouraged by the progress we've seen across key markets during the quarter, and we're confident in the role of our international portfolio as a durable growth engine over time. So to conclude, Q2 marked a significant step forward in our turnaround. We delivered growth on both the top and bottom line, reflecting strong execution of our back to Starbucks plan. Operational discipline is working with labor, throughput, and availability moving together, and with brand momentum translating into comp growth. Our focus now is on sustaining our momentum and making our results repeatable and durable. all while delivering a healthy cost structure that supports profitable growth. It's how we turn progress into consistent results, and that's how we create long-term shareholder value. This is Starbucks. There's more work ahead, and we're focused on it. Our priorities are clear, the organization is aligned, and we're confident in the opportunities ahead. We're building a company that learns as it executes, one that stays close to the coffee house, moves quickly to scale what's working, and keeps getting better over time. We know the path forward will not be linear, but it is clear the changes we're making and the momentum we're building are starting to compound. I want to say thank you to our partners around the world for the leadership, discipline, and care they bring to our coffeehouses every day. You delivered these results, and you should be proud. With that, I'll turn it over to Kathy to walk through the financials in more detail.