Starbucks Corporation Q3 FY2025 earnings call

• Back to Starbucks plan is grounded in customer and partner feedback, with meaningful progress made this quarter.
• Operational changes include Green Apron Service rollout, bringing back condiment bars, eliminating nondairy milk upcharge, implementing Coffeehouse Code of Conduct, and rolling out SmartQ technology.
• Transformed coffeehouse portfolio with targeted investments in uplifts, sunsetting mobile order and pickup-only concept, and working on new coffeehouse prototypes.
• Innovation plans: Protein cold foam, reimagined artisanal baked case, new coffee offerings, rewards program enhancements, and digital app improvements.
• International business: China growing and improving profitability, other markets like U.K., Mexico, and Latin America showing strong performance.

Total company net revenue was $9.5 billion. North America: Canada had positive comparable sales, U.S. comparable sales declined 2%, U.S. licensed store portfolio revenue declined; Canada had low single-digit sales comp growth. International: Record-breaking quarterly revenue, 7 out of top 10 markets comped positively, China had 2% comparable sales growth and 6% transaction growth, U.K. and Mexico performing well. Channel Development: Q3 revenues grew 10% year-over-year due to higher revenue in the Global Coffee Alliance.

• No official full-year guidance, but preliminary thoughts on Q4 are conservative due to uncertain consumer environment and ongoing initiatives.
• Green Apron Service is ahead of schedule, and 2026 is expected to see effects of the Back to Starbucks strategy scaling.
• Coffee costs and tariffs are dynamic; coffee cost increases expected to peak in first half of fiscal 2026.

• Uncertain consumer environment which could impact sales.
• Competition from other coffee and food brands.
• Volatility in coffee prices and tariffs which can affect margins.
• Execution risks related to rolling out operational changes and innovation plans effectively.

Q: One quick housekeeping first. Just curious, how many Mobile Order and Pay stores are in the portfolio as you go through the process of system optimization? And my real question is that if I go back earlier this month, there was an 8-K highlighting a bonus contingent on reducing operating expenses through fiscal 2027. Can you help us understand what level of reduction is necessary to hit this?

A: Roughly 80-90 stores in mobile order pickup space. Incentives are a powerful tool to galvanize the organization to get after cost side. Details on exact reduction level will unfold over time, but focus is on better cost structure.

Q: Brian, could you talk a little bit about your decision to expedite the rollout of the Green Apron Service model? So were there any notable surprises or key metrics from your earlier tests across the 2,000 stores last quarter that kind of gave you that confidence to proceed with the full rollout in all of the U.S. stores by the end of the summer as opposed to the 1/3 of the stores by then?

A: Pilots showed ability to hire, train, deploy, and effective SmartQ technology. Saw nice movement in transactions in morning and throughout the day. Clarity on key metrics driving performance with growth scorecard. Expedited rollout to be in place before fall holiday season to set up for 2026.

Q: Great. Brian, just a question on the U.S. business. Investors often express concern around a few things that could limit return to outsized U.S. comp growth, whether it's U.S. competition from above or below, your unit count penetration maybe being already elevated and value perception. I'm just wondering what do you perceive as the greatest challenge among those?

A: Perceive brand value as key. Green Apron Service model is foundational for world-class customer service, which is uniquely Starbucks. Focus on being the best form of itself, with world-class customer service, connection, craft, and community to drive brand value.

Q: Brian, I was hoping you could expand on your thinking around the China business just for a moment. I mean the company has been clear, it's looking for a partner. But I was hoping you could elaborate on exactly what you believe you would gain from a strategic relationship.

A: Looking for partner that shares mission and values, to operate more effectively in local market. Believes Starbucks brand can be one of the best in China with local partner, ensuring long-term growth and success of the brand.

Q: Great. Maybe, Brian, circling back to a topic you kind of hit on a little bit earlier on value. And specifically, I know in previous calls, you talked about the idea of looking at the menu architecture and the pricing architecture. And I'm just curious, with a lot of the innovation that you outlined earlier in the call, I'm just curious how you're thinking about maybe how value fits into the new products that are coming out next year?

A: Innovation will be relevant to daypart and occasion. Consider size, package, and price points for premium value. Pricing is last lever, but will be part of business model when necessary, used minimally. Focus on premium experiences and value for customers.

Q: Great. Brian, I'd like to go back to a couple of topics that you were hinting before, specifically like competition. And at some point, Cathy was also talking about the potential macro pressures in the fourth quarter. And it was great progress on a sequential basis on traffic, sequential improvement on traffic, but it still remains negative on a 1-year basis. So how do you assess that the contraction was actually driven by the lapping of promotions rather than perhaps consumer finding alternatives that could be either potentially evolving competitive landscape or consumers switching to coffee consumption at home?

A: Contraction is a combination of factors. Getting Green Apron Service foundation right is mission-critical. Relevant innovation across menu, digital, rewards is key. Focus on things in control, like valuing customers, setting partners up for success, and staying on offense for the brand. Will continue to grow share and build beloved brand.