Starbucks Corporation

Good afternoon and welcome to Starbucks third quarter fiscal year 2026 earnings call. All lines have been placed on mute to prevent any background noise. 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' third quarter fiscal year 2026 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 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. Starbucks assumes no obligation to update any of these forward-looking statements or information. Revenue, operating margin, and EPS growth metrics referenced on today's call are non-gap and measured in constant currency. All other metrics referenced on today's call are non-gap. Please refer to the earnings release and our website at investor.starbucks.com to find reconciliations of these non-gap measures to the corresponding gap 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, September 11th, 2026. And for your calendar planning purposes, please note that our fourth quarter fiscal year 2026 earnings conference call is tentatively scheduled for Thursday, October 29th, 2026. I'll now turn the call over to Brian.

Good afternoon, and thanks for joining. Before I begin, I want to acknowledge the devastating earthquake in Japan. We're grateful that all our partners are safe and our thoughts are with all those affected. For more than 30 years, we've been part of communities across Japan, and we'll be there to support them as they recover. Now, turning to our results for the quarter, in Q3, we delivered our fourth consecutive quarter of positive global comps and our second consecutive quarter of consolidated margin growth. It's clear proof that our back to Starbucks plan is working. Starbucks mission was built on a simple belief, an extraordinary cup of coffee, human connection, and a great customer experience matter. Our strong third quarter proves this enduring truth delivers enduring results. We bring this truth to life in our coffee houses every day through an experience that engages the senses, celebrates the craft of coffee, and brings people together. It's in the aroma of fresh ground coffee that greets you at the door. The symphony of sounds of a drink being handcrafted. The pride our partners have when they put on the green apron. It's the moment of connection between a barista and a customer. It's the smile on their face after that first sip and the feeling of belonging that follows. It's about every detail coming together to create an experience that feels distinctly Starbucks. That's the magic of the third place. It's a human need only we can fulfill and a community only Starbucks can create. We're reclaiming it, one customer, one cup, one coffee house at a time. And we're on our way to becoming the world's greatest customer service company. This is the Starbucks that's taking shape, one that's true to itself, built to perform consistently year after year. And our third quarter results and performance this year give us the confidence to raise our full year 2026 guidance. Let's start with the financial highlights. In Q3, consolidated net revenues were $9.3 billion, led by sequentially improving global comp growth of 7.9%. Consolidated operating margin expanded 430 basis points year over year to 14.4%, and earnings per share grew 70% year over year to 85 cents. North America continued to lead our performance in the quarter. Company-operated comparable sales increased 8.1%, and licensed coffeehouse net revenues were roughly flat despite net closures in the quarter. We also reached a milestone, with North America operating margin growing year over year for the first time since Q1 fiscal 2024. This was driven by operational improvements across both our company-operated and licensed businesses. Bringing down our performance further, in the U.S., comps were up 7.9%, driven by balanced transaction and ticket growth. And in Canada, comps were even stronger. International company-operated comparable sales grew 5.7%, driven by continued strength in Japan and the UK. International licensed store revenues grew year over year, and in total, our international business posted its sixth consecutive quarter of positive system-wide comps, underscoring our global relevance and the power of our diversified portfolio across 90 markets. Our operational discipline and cost savings work are making us a more focused, nimble company that prioritizes better, spend smarter, and invest with intent. We're now seeing the benefits of that work, and as our revenues grow, more is flowing through to earnings. We said we would drive sales growth first, and earnings would follow. Our results show we're walking the talk. We're on the right path, and we remain ahead of schedule. Now let me turn to the progress we've made across the business driven by our Back to Starbucks plan. First, we continue to fine-tune our coffeehouse operations to sustain momentum and perform with more consistency at scale. This August marks one year since we launched Green Apron Service and has become the operating foundation of Back to Starbucks. We gave ownership and accountability back to coffeehouse leaders. We invested in the tools, hours, standards, and coaching our partners need to deliver with consistency, and we made it clear what great looks like. Our focus on green apron service has been a real game changer for our business. It's given us a platform to fix the operational issues we faced. It's helped us reset expectations, refocus on the customer, and remove barriers to growth. That progress is evident in our simplified grow coffeehouse reporting and ranking system. Across North America, two-thirds of our company-operated coffeehouses are now at four or more shots, up more than five points quarter over quarter, and more than 40 points since it launched last October. We're also getting sharper in how our coffee houses run. SmartQ is getting smarter as we optimize for greater accuracy and speed. On average, we achieve target service times across every access point in Q3, even with transaction growth across day parts. Our supply chain work is creating a better and more predictable experience for our customers, more coffee house ownership, Better customer-focused ordering guidance, improved reporting, and expanded daily delivery are all working together to get the right product to the right coffeehouse at the right time. It's improving our food availability rate, which is close to 99% today. That's about 10 points better than it was just a year ago. Our coffeehouse leadership is more stable, too. In the third quarter, the percentage of North America coffeehouse leaders who have been enrolled for two years or more improved by about seven points year over year. That's important because we've seen coffeehouse leader stability is highly correlated to store performance. Internal hiring for retail leadership, including coffeehouse coaches, is up year over year as well. That creates more development pathways for partners and gives our coffeehouse teams the continuity they need to execute consistently. We also built on our longstanding efforts to ensure partners share in our success, launching the best of Starbucks reward at the close of the quarter. This new incentive allows eligible Green Apron partners the opportunity to earn up to $300 per quarter for meeting Coffeehouse performance goals across sales, operations, and customer service. Looking forward, we're focused on delivering exceptional service with speed. When we get it right, customers feel it in their experience. We earn trust with every cup served, and we become more than just a great coffee company. We become the place where people connect and the gold standard for customer service. Second, our brand continues to become more visible, relevant, and loved. Brand affinity, consideration, and purchase intent were all at five-year highs in the quarter, and customer connection improved significantly year over year. Customers continue to see worth and value in their Starbucks purchase, and we see it in how they behave. Sales growth in Q3 was broad-based across generations and income groups, and across both Starbucks Rewards members and non-members, even with the continued pressure on U.S. consumer sentiment. Marketing innovation helped drive that resilience. We built a strong innovation pipeline anchored in customer rituals and amplified by cultural moments. Refreshers remained a standout platform for us in Q3, delivering double-digit year-over-year revenue growth in the U.S. And customizable energy refreshers, blue coconut and mango kept customers engaged, expanded the platform to new occasions, and gave them more reasons to visit throughout the day. Our marketing team has done a great job putting us back in front of culture, from Coachella and soccer captain Cup Sleeves to a Miffy merch drop and our viral pink Bearistas. We're creating moments that people notice, talk about, and want to be a part of. Starbucks Rewards is reinforcing the daily ritual and building more connection with customers. We now have 35.8 million 90-day active members in the US. It's only been four months since we launched our new program, and we're already seeing members leveling up from green to gold and gold to reserve. The program also gives us more ways to directly engage with customers and turn a visit into a routine. Pre-Mod Mondays is a great example. One in three members who tried a new modification through this benefit reordered it in subsequent weeks. In the U.S., we also provided Starbucks Reward members early access to our s'mores coffee lineup, highlighting the value of being a member. S'mores beverages are resonating particularly well with Gen Z customers and are tracking as our strongest summer coffee LTO launch in the past several years. Taken together, our brand Flywheel is working. We're creating experiences people are excited about, turning engagement into rituals, and deepening customer connection that fuels long-term growth. Third, we continue to improve the third-place experience with coffeehouse uplifts, adding back warmth, texture, and great seats at a fraction of the cost of earlier remodels. In Q3, we surpassed 1,000 total uplifts across North America, reaching our fiscal 2026 goal ahead of plan. Early data from uplifted coffee houses show transaction lift across access points, day parts, formats, and customer segments. In short, we like what we're seeing, and they're proving to be a strong brand halo. That's why we're accelerating our pace with the intention of completing at least 1,500 uplifts by fiscal year-end 2026 and accelerating further in fiscal 2027. Turning to international, we continue to position Starbucks as a world-class global licensor. With our China business now operating under the new joint venture, about 90% of our international portfolio is now managed through a licensed structure. This gives us a capital-light model that lets us scale our brand with discipline through strong local partnerships. We're taking learnings from our North America licensed business to evolve how our international model works. These changes allow us to better reinforce brand standards, financial discipline, and shared accountability through our growth system and create a more consistent unified performance management lens across our coffeehouse portfolio. We're also reshaping our international support organization around our vision. We see international as a capital efficient way to build our brand around the world. and we're building the structure to support that opportunity and help our licensed business partners grow with us. Looking ahead, as the business continues to strengthen, we have a clear view of where we're performing well, where we can move even faster, and where there are outliers that require our focus. In our coffeehouses, we'll keep raising the bar by unlocking more throughput, driving a better customer experience, and supporting our Green Apron partners who bring it to life. Across brand and menu, we will keep showing up in ways that are true to Starbucks. We're finishing the summer season with a strong menu lineup that includes blended refreshers, our legendary Unicorn Frappuccino, and new orange cream beverages. And we'll begin testing sparkling beverages in select markets. We'll mark the return of fall with our iconic pumpkin spice latte and kick off the holidays with our fan favorite peppermint mocha. And we'll keep driving fandom with a steady pace of buzzworthy merch launches and continued innovation season after season. In supply chain, we will continue scaling daily delivery and testing a 24-hour operating clock to improve speed, availability, and reliability. And in technology, fiscal 2027 will be an important modernization year with new inventory ordering, staffing and scheduling, and point of sale systems to improve execution and make our coffee houses easier to run. Finally, we're applying more discipline to how we grow our global footprint. We remain excited about the white space for new coffee houses in the US and around the world, And we're making sure every new coffee house we open earns its place. We've developed and globally tested new coffee house prototypes that meet our expectations for accelerating international unit growth. And we're applying those learnings to shape our development approach in the U.S. As a result, the composition of U.S. and international new store growth may evolve as we build a stronger U.S. development pipeline and redirect near-term resources to accelerate the pace of our uplift program, where results are already tangible. To conclude, Our back to Starbucks plan was built on the belief that human connection and a great customer experience win the day every day. And our Q3 results prove they do. Our investments are paying off. More customers are choosing Starbucks more often. Partners are creating more moments of connection. Our brand is more visible, relevant, and loved. Our coffee house is more warm and welcoming. And our business is delivering on its commitments. I want to thank our partners around the world. Your craft, care, and focus are making our coffee houses better every day. Customers feel it, and it is showing up in our results. We still have work to do, but the opportunity is significant and clear. We're focused on finishing the fiscal year strong, and we will be relentless in our efforts to reclaim the third place, become the world's greatest customer service company, and deliver durable, long-term growth. With that, I'll turn it over to Kathy.