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Starbucks is the world’s largest coffee chain, with 21,000 company-operated stores and 19,000 licensed locations worldwide as of late 2024. Nearly half of its company-owned outlets are in the U.S. Its cafés serve hot and iced coffee, espresso drinks, tea, and specialty beverages, along with breakfast items, sandwiches, and baked goods. Starbucks is also a major coffee roaster and wholesaler, selling packaged coffee and tea in its cafés and through grocery and retail channels. The company recently launched a turnaround plan, “Back to Starbucks,” focused on improving the in-store experience and encouraging customers to spend more time at its locations.

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Starbucks (SBUX): Company Profile, Stock Price, News, Rankings

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Starbucks

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Good afternoon. My name is Diego, and I will be your conference operator today. I would like to welcome everyone to Starbucks First Quarter Fiscal Year twenty twenty five Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

I will now turn the call over to Tiffany Willis, Senior Vice President of Investor Relations. Ms. Willis, you may now begin your conference.

Thank you, Diego, and good afternoon, everyone, and thank you for joining us today to discuss Starbucks' first quarter fiscal year twenty twenty five results. Today's discussion will be led by Brian Niccol, Chairman and Chief Executive Officer and Rachel Ruggieri, 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 ks and quarterly report on Form 10 Q. Starbucks assumes no obligation to update any of these forward looking statements or information.

Revenue, operating margin and EPS growth metrics on today's call are 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, March 14, 2025. Also, for your calendar planning purposes, please note that our second quarter fiscal year twenty twenty five earnings conference call has been tentatively scheduled for Tuesday, April 29, 2025. And with that, I'll now turn the call over to Brian.

Good afternoon, and thank you for joining today. Over the past four months, we've been focused on getting back to Starbucks and those things that have always set us apart, a welcoming coffeehouse where people gather and where we serve the finest coffee handcrafted by our skilled baristas. We believe it's the fundamental change in strategy we need to solve our underlying issues, restore confidence in our brand and return the business to sustainable long term growth. While we're only one quarter into our turnaround, we're moving quickly to act on the back to Starbucks efforts we outlined on our last call. And to date, we've seen a positive response.

As Rachel will outline in greater detail, our financial performance met our expectations for the quarter with a total company revenue of $940,000,000,0.0 a global comparable store sales decline of 4% a global operating margin of 11.9% and overall earnings per share of 0.69 To be clear, these results have room for improvement, but I'm confident the disciplined investments we're making in labor, marketing, technology and stores this fiscal year will help stabilize the business and position Starbucks for future growth. We're also working to change the role, structure and size of our support teams to improve efficiency and accountability. This will ensure we deliver on our commitments and our work to get back to Starbucks. Let me share with you some of the progress we've made through the quarter and what we're focusing on next. Our path back to Starbucks in The U.

S. Is driven by 4 core initiatives reintroduce Starbucks to the world, deliver the customer experience to win the morning, reestablish Starbucks as the community coffeehouse and ensure Starbucks is the unrivaled best job in retail, recognizing our success starts and ends with our Green Apron partners. During the quarter, we moved quickly to refocus the business, our mission and our marketing to align with our core identity as the premier purveyor of the finest coffee in the world. We started by reducing the frequency of discount driven offers, resulting in 40% fewer discounted transactions year over year. We also removed the extra charge for non dairy milk customizations and identified several other steps we can take to make our pricing architecture more transparent for customers.

And just this week, we launched a new coffee forward U. S. Marketing campaign reintroducing the brand to a broader customer audience. Our work to reintroduce our brand is just beginning, but our core business is already strengthening, demonstrating that when we talk about our business, customers respond. Through the quarter, we saw a shift in our sales mix towards coffee and espresso based beverages, which over delivered and compensated for lower than expected performance across our holiday promotions.

We've been focused on simplifying our menu to position partners for success, improve consistency, drive customer satisfaction and enhance our economics. As part of this work, we made some late simplifications to our holiday product lineup and believe we have more opportunity ahead as we follow a disciplined stage gate process to innovate and bring to market fewer, better beverage and food offerings that reflect our premium positioning. In In the coming months, you'll see us begin to optimize our menu offerings, resulting in roughly 30% reduction in both beverages and food SKUs by the end of As we do, we'll work to lead this market with breakthrough beverage and food innovation. We'll do this by being responsive to customer trends and their changing preferences. We'll rely on our highly engaged Green Apron partners for inspiration, like we did with our Lavender lineup last year, and we'll be more responsive and tuned in to cultural moments, like we did with the Dubai Matcha.

We also saw continued improvement in comp trends, driven by back to Starbucks efforts launched during Non Starbucks rewards customer traffic grew quarter over quarter. Starbucks rewards membership and spend grew both quarter over quarter and year over year. And price parity for non dairy milk customizations brought back lapsed Starbucks rewards members. Our U. S.

Category share among QSRs also recovered in following two quarters of decline. These things tell us our actions are resonating with customers. Progress like this shows me that the Starbucks brand is still resilient and strong and that we have significant future potential. More importantly, it shows that we can sell more of our core beverages simply by demonstrating our premium value. A key part of the premium value we provide is quickly and consistently delivering a high quality handcrafted beverage to customers.

The handoff from our barista to the customer is our brand moment of truth, and we've been working hard to get that moment right. Through the quarter, we've continued to test and learn as we position the business to achieve our four minute throughput goal with a moment of connection. It's become clear through our pilot work that order sequencing creates more of a bottleneck than capacity. In short, investments in staffing and deployment, processes and algorithm technology demonstrate the greatest opportunity to deliver a four minute wait time in most of our cafes. As a result, we've started to segment stores by transaction volume and are now targeting installation of CYREN equipment only in our highest quartile stores where it is needed to meet our throughput expectations.

We've also invested additional coverage hours across more than 3000 U. S. Company operated stores through precision scheduling, introduced new brewed coffee and tea routines and simplified beverage builds. And soon, we'll launch a pilot across 700 stores looking at staffing levels to improve our Green Apron partners' ability to serve the world's finest coffee with a moment of connection. We'll use learnings from this to inform the future investments we need to make in store coverage hours to deliver both an exceptional partner and customer experience and further differentiate our brand.

Looking forward, we're beginning to pilot a new in store prioritization algorithm and are exploring other technology investments to improve order sequencing and our efficiency behind the counter. We're also progressing efforts that build on the strength and popularity of the Starbucks app. This includes development of a capacity based time slot model that allows customers to schedule mobile orders and a midyear update that will simplify customization options, improve upfront pricing and provide real time price changes as customers customize beverages. Lastly, we're planning to fully deploy digital menu boards in cafes across our U. S.

Company owned stores over the next eighteen months to make our offerings more easily understood and to better show customization add ons. We also made strides to reestablish Starbucks as the community coffee house. To make it easier for our customers to enjoy a cup of coffee their way, condiment bars will be back in all our U. S. Company owned stores by the end of the week.

We reintroduced ceramic mugs and handwritten notes on cups to better connect with customers and elevate the cafe experience for those who choose to stay and work. We rolled out new cafe service standards and expanded free refills on hot and iced brewed coffee and tea to non Starbucks rewards customers at participating stores. We announced the new coffee house code of conduct to prioritize our spaces for customers and we continue to target a full rollout of Clover Vertica brewers by the end of We're taking a hard look at our store portfolio as well. In The U. S.

Alone, we still see the potential to double our store count while improving the overall health of our portfolio. We'll do this through a strong store renovation program, new store builds and store closures. And we're going to make sure our stores are warm and welcoming with work continuing on store design standards and cost to build. Early customer and partner reactions to our plans show we've got the right strategy, both the reintroduction of coffee condiment bars and the expansion of free refills were identified as top drivers of purchase intent. In the coming months, our teams will be focused on refreshing our menu boards and improving cafe merchandising to reflect the coffee house feel and better showcase our simplified menu.

We'll start an expanded test of risers and shelves at point of handoff to help separate the cafe and mobile art experience, and we'll begin to scale projects to increase and diversify seating across more of our cafes. To deliver a great customer experience, we also have to deliver a great partner experience. It's why everything we do starts and ends with our Green Apron partners and why I'm committed to ensuring Starbucks is the unrivaled best job in retail. In the past quarter, we more than doubled paid parental leave for eligible U. S.

Store partners and we made a new commitment to promote from within 90% of retail leadership roles over the next three years, helping thousands of partners grow their careers and their incomes. As a result, through the quarter, shift completion, average hours per partner, partner retention and hourly partner engagement improved. Looking forward, we'll continue to prioritize efforts that help our Green Apron partners succeed both at work through continued improvements to our staffing model and in their lives through industry leading benefits, competitive pay and careers that create lasting economic opportunity. Turning to international, I've had a chance to see our operations in Italy, Japan and South Korea and meet with our international licensed business partners over the past few months. As I shared with them, many of our international markets set an example for the experience we aim to deliver in The U.

S. And present a great long term opportunity, particularly as we continue to grow our store footprint and recover our business in certain challenged markets. Just last week, I also made my first market visit to China. While there, I saw firsthand the strength of our brand, our team and the premium customer experience we offer. I saw how dynamic the market is and the opportunities ahead.

I also saw several near term changes we can make to stabilize and strengthen our business, while continuing to explore strategic partnerships to grow in China. We're processing these learnings and we will share more as we do. From my time there, I also believe there are several lessons we can learn from the strength of our supply chain in China to realize opportunities in our North American business. If you take 1 thing from today's call, let it be this. Despite near term challenges, we have significant strengths and a clear plan.

The response we've seen since fundamentally shifting our strategy to get back to Starbucks gives us confidence we're on the track to turn the business around. We are where we want to be 1 quarter in, but much of our work is just beginning. As we continue to learn and implement our back to Starbucks plan, I believe we'll make it easier to be a customer, and in turn, I believe they'll visit more often. We'll also find more ways to set our partners up for success, so they're able to deliver a great customer experience every time. In doing so, we'll reinvigorate our brand, drive stronger financial returns, and return Starbucks to growth.

There is important work ahead and I look forward to bringing you along. With that, I'll turn it over to Rachel.

Thank you, Brian, and good afternoon, everyone. As Brian shared, we're pleased with our start to fiscal year 2025 with our performance meeting our expectations. Our back to Starbucks strategy has already driven early progress, including gradual top line improvement, giving us confidence that we're focused on the right priorities. Our consolidated revenue was $940,000,000,0.0 flat to the prior year, reflecting 7% net new company operated store growth over the past twelve months, offset by a 4% decline in comparable store sales. Our global comparable store sales decline was primarily due to a 4% decline in The U.

S. U. S. Comparable store sales improved sequentially throughout the quarter, most evident in the morning day part as non Starbucks rewards customers grew from our strategic shift to broader marketing. Our ticket growth in The U.

S. Remained strong at 4% due to the benefits from the prior year pricing, attach and fewer discounts. These drivers more than offset mix shift into lower priced beverages and removal of the extra charge for non dairy milk customizations. Turning to store growth. We opened three seventy seven net new stores globally in and in The U.

S, our new company operated stores contributed nearly 90% revenue incrementality to the trade areas. As we continue to evaluate our stores globally, we will make disciplined decisions to further strengthen and grow our portfolio, reestablishing ourselves as as the community coffeehouse as we drive sustainable long term growth. Shifting to margin. Our consolidated operating margin was 11.9%, contracting three eighty basis points from the prior year, primarily driven by deleverage and the investments in support of back to Starbucks, including store partner wages, benefits and hours and the removal of the extra charge for non dairy milk customizations. The contraction was partially offset by annualization of pricing and out of store efficiencies largely within our supply chain.

Given the margin contraction, I want to provide additional insight into the investments as well as the offsetting efficiencies. Let me start with investments, a critical initial step for the back to Starbucks turnaround. As Brian shared, to deliver our customer experience to Win the Morning, we invested additional coverage hours to support the service model of a four minute wait time and enabling our hospitality point of difference, moments of connection. These additional hours, coupled with wage and benefit rate increases, resulted in 180 basis point margin pressure in the North America segment, excluding labor productivity. As we focus on delivering the customer experience, we continue to evaluate labor needs across our store portfolio as we surgically optimize staffing levels.

As you likely saw, we dialed up our marketing communication, including linear TV media as part of our priority to reintroduce Starbucks to the world. We were pleased with the positive customer reactions and improvement in our comp trend. Overall promotional spend, which is inclusive of marketing spend and discounts, remains largely neutral relative to prior year. To improve value perception, we also removed the extra charge for non dairy milk customizations, an impact of 60 basis points on the segment's margin in the quarter. Following this announcement, we saw strong increases in customer interactions with our brand, as Brian shared previously.

Additionally, non dairy customizations grew mid single digits year over year off a double digit decline in the prior year. Collectively, these targeted investments are showing signs of early progress. While there is a near term impact on margin, we expect that through our disciplined approach to test and learn, we will make the right investments to drive long term growth. Importantly, we also continue focusing on driving efficiencies across the company as we balance our investments while driving margin expansion over time. In our in store efficiencies increased as a result of improved partner stability as we focus on the Back to Starbucks strategy.

Out of store, we further optimized our supply chain and recalibrated rates, resulting in meaningful sourcing efficiencies in the quarter. Collectively, in and out of store efficiencies yield savings of approximately 150 basis points in We will continue to secure additional efficiencies to help fund investments as we leverage a disciplined and data driven approach to our turnaround. Shifting from efficiencies to G and A. For fiscal year 2025, we expect our G and A percentage to be higher than prior year as we lap lower performance based compensation. Specific to we expect G and A as a percentage of revenue to spike as we transform the support organization incurring near term restructuring charges inclusive of severance pay and related benefits.

At this time, we're still working through the impact of this transformation work and will share more details regarding the financial impact during our earnings call. EPS was $0,.69 down 22% from the prior year, primarily reflecting the impact of deleverage and heightened investments. EPS also included a $0,.02 year over year benefit from a lower effective tax rate, primarily driven by a discrete item which is not expected in the balance of this fiscal year. Now looking at our full fiscal year 2025, although our guidance is suspended, I'd like to provide some insights into our quarterly earning shape. EPS is expected to be the lowest in on an absolute basis due to seasonality, the organizational restructuring I just spoke about and elevated investments, with year over year pressure also in testifying in the quarter.

EPS is then expected to improve in the latter half of the fiscal year 2025, both sequentially and year over year. Some additional aspects to consider as you think about our full year 2025 include the coffee landscape and our Channel Development segment. In regards to the coffee landscape and the trajectory of C price, given our overall practices and hedging strategy, our year over year coffee price impact was minimal in We currently estimate EPS to be pressured by approximately 0.01 net of hedge gains. As a reminder, our total cost of green coffee is typically limited to 10% to 15% of our product and distribution costs. In addition to the direct coffee pressure on EPS I just mentioned, Sea price volatility also impacts our channel development segment and in a more meaningful way.

Although we can pass this cost to our business partners, higher prices to an already pressured consumer will likely impact our segment volumes and ultimate revenue and profitability. Finally, our balance sheet remains strong and we remain committed to our BBB plus credit rating. We continue to prioritize shareholder value through dividends, providing a predictable return of capital while we turn around our business. In closing, we are encouraged by our results, which demonstrated the effectiveness of our back to Starbucks strategy. Although we are in the beginning chapter and have much more work ahead of us, my thanks goes to our incredible partners across the globe who are unwavering in their commitment to bring our strategy to life.

And with that, Brian and I are happy to take your questions. Thank you. Operator?

Thank you. Your first question comes from David Tarantino with Baird. Please state your question.

Hi, good evening. My question, Brian, is on the sales improvement you saw through the quarter. I believe Rachel mentioned that comps improved as the quarter progressed. I guess, can you maybe talk about whether that was comparison related or do you think you're seeing some underlying structural improvement? And if you're seeing some structural improvements, what do you think is driving that in terms of kind of the key components of your plan?

Is it whether it be advertising or store operations? Maybe you can frame that up for us? Thanks.

Yes. And yes, as Rachel said, the good news is we did see kind of sequential improvement throughout the quarter. And I think I mentioned this in some of my remarks. The thing that was nice to see is as we stepped away from discounting and went into more broad based marketing efforts to demonstrate the craft of our coffee, as well as the experience or the premium experience you get from Starbucks. We saw non rewards customers respond, with more traffic and more transactions, which was really nice to see how that progressed kind of quarter to quarter.

The other thing too that was nice to see is we saw our morning day part continue to show improvements quarter to quarter as well. And so I think it's a combination of shifting the approach as far as reaching both rewards and non rewards customers with, I think, a compelling message around the craft and the quality of our coffee and our experience. And then also, you know, I think our partners in the stores are really embracing getting back to Starbucks and enjoying making the espresso drinks and providing people that craft experience. And as you've seen even most recently, the new back to Starbucks rollout that we've got in progress, I was in some stores even this morning. And the energy is really exciting to see, both from our partners and our customers.

Our customers are feeling the enhanced experience coming from our partners. So, definitely baby steps in both of these areas, but all moving in the right direction.

Thank you. Your next question comes from Andrew Charles with TD Cowen. Please state your question.

Great. Thanks. Brian, can you talk a little bit more about Jesse Lieberman's plan of attack to help build on the initial marketing work around reintroducing the brand? And curious, last year it was disclosed about $600,000,000 of advertising spend. What level can we think about for 2025?

Yes. Look, what we're definitely doing right now is switching the dollars out of discounting into what I would call working dollars for the brands and the brand experience. And so what you're going to continue to see is, you might have saw, we just broke a new ad over the weekend, highlighting, I think, a key point of difference for Starbucks, which is centered on this connection that our baristas and our green apron partners have with our customers. And 1 of the ways that comes through is writing on cups. And so what I love about this is, look, we're taking these dollars, allocating it to talk about the brand experience, and it's in such a way where it's very executable for people to actually experience it through our partners in the stores.

And so you're gonna continue to see us use these dollars to turn it into working dollars, to drive towards a brand commitment, but then also an experience commitment where, you know, hopefully every time you come into a Starbucks, not only do you get your coffee or your drink, but you also get this connection. And, you know, that's what we're going to continue to do. I think we're still finalizing exactly what does that spend look like ongoing. But I like the transition that we've made and I'm optimistic about the campaign that we've just started, because there's a lot of additional elements still to come.

The way to think about it too from a marketing as a percentage of revenue, we are increasing it. You could say close to doubling it, but we've reduced the discount. So we've increased, overall net revenue, while we're, putting it towards, as Brian said, the working dollars in marketing. So it's neutral to the business overall, but you will see a shift in terms of how it shows up in the P and L and in the business.

Thank you. And your next question comes from Danilo Gargiulo with Bernstein. Please state your question.

Hi. Thank you for the question. Brian, I was wondering if you can help us quantify the impact of the operational improvements that you're starting to see at Starbucks. Maybe specifically, given as I understand, maybe what percentage of the stores are operating in line with the four minute handover timeline that you are expecting from the stores? And what kind of comp differential do you see between the stores that are operating at the level of efficiency that you are expecting versus the ones that need some incremental time to transform?

Yes. So what we've done so far is we've definitely put the stores into kind of quartiles as it relates to how many transactions they're working through. And what we've through this work, what we've discovered is more of the challenge comes through, frankly, the mobile ordering system not having a sequencing system. And what happens is, you know, that counter area gets really crowded, congested. And what occurs for our partners is the work switches to the task of just trying to get drinks and food solved for the rush as opposed to being able to consistently deliver the moment of connection while they still deliver the coffee drinks.

And so the good news is we have a high percentage of stores that are already comping positively. Because and when we look at those stores, we see that the connection and the craft is being executed. And we're not in as many of these bottleneck situations. And so that's what we're focused on is how do we eliminate these bottleneck situations where the mobile ordering really overwhelms kind of the production experience to the point where we can no longer provide a great service experience. And so we've seen the difference in performance.

We've seen the difference in and that's from a comp and financial performance. And we've also seen the difference in partner satisfaction, customer satisfaction. So, we're working through exactly how we measure these things because unfortunately, currently, we don't have a great system in place to measure the time frame on these things, which we are putting into place. But, you know, as I mentioned earlier, the good news is I was in 1 of our stores this morning where we've already started to put this algorithm in that happens kinda behind the scenes. And it smooths out, I would say, those rushes of mobile orders such that our teams are able to provide great moments of connection for the in cafe customer and the mobile order customer as well as our drive thru customer.

So, and we're still now we're only two weeks in on this by the way and it's only in 3 stores, but we're seeing really good performance both in the financial performance, partner satisfaction and customer satisfaction.

Your next question comes from Sara Senatore with Bank of America. Please state your question. We'll move on to the next question. Our next question comes from David Palmer with Evercore ISI. Please state your question.

Thanks. Wanted to ask you a question about productivity. There was a previous belief that there might be a $4,000,000,000 productivity opportunity over the four years ending 2028. Obviously, that's a big number, could be two fifty to 300 basis points of margin help before considering other investments. And that was going to be largely COGS driven.

Do you still see does Starbucks still see that sort of opportunity before considering investments that you might be making in the business?

David, this is Rachel. Thanks for the question. What I'd say is we're continuing to be focused on efficiencies and we see continued opportunity both in our store as well as out of store, which is largely, as you pointed out, COGS or through our supply chain. And as I shared in my prepared remarks, we had about a collectively about a 50 basis points of, margin expansion this quarter due to the efficiencies. So we continue to believe that's an important part of how we think about our back to Starbucks strategy, helping us to balance the investments we'll be making and eventually leading to margin expansion over time.

But I think as far as it relates to the 4,000,000,000, we're still working through what's going to be the right level of efficiencies for us as we go forward. And so I wouldn't, I wouldn't stick to the 4,000,000,000. I would just say that we will continue efficiency work as we think about how we drive margin expansion in the future.

Thank you. And our next question comes from Brian Harbour with Morgan Stanley. Please state your question.

Yes. Thank you. Good afternoon. Just on some of the announcements you made about the support organization, you've also made some management changes. What needs to change there?

I guess, how much do you expect that to change? And sort of related to that, Rachel, I understand the comments on G and A in Is this something where you might expect some favorability as we get into and you sort of start to see those changes take hold?

First of all, I would say the purpose of the changes is to get more accountability into our key lines of business. So you saw we have a we're creating the role of a Chief Store Officer. Mike's responsibility is going to be all about driving excellence in our stores. Putting a Chief Development Officer in place, again, ensuring we're building the right sites with the right design, at the right cost in return, we're still having a clear line of sight. And so similar to what we're trying to do for driving that accountability through our stores, which is really where the business happens, we wanna make sure that we've got the support center, also focused on supporting the stores in an efficient manner and an accountable manner, to where the business happens.

So structurally, that's what's going on. You know, and we're in the process of evolving that over the next couple months. You know, the second half of that, I'll let Rachel chime in on that piece.

So Brian, in terms of your question about the G and A and the impact, as I as we think about the full year, we would expect, while we'll have the spike in as I shared in my prepared remarks, we would expect to see start to see some savings in related to that particular, effort. But I think what's important to remember is that we're also lapping lower performance based comp this year, and that starts to take an even greater impact in and So net net G and A this year will still be higher than prior year as a percentage of revenue, largely given that lap of lower base performance comp from last year. But, yes, you would expect just from, the restructuring itself, you would see some benefit in And then of course, we will expect this will drive leverage over time.

Thank you. Your next question comes from Crystal Cole with Stifel. Please state your question.

Thanks. Brian, as we thought about the business, our view has been that improving the partner experience is somewhat intertwined with improving the customer experience. Are there specific customer experience issues you believe the company can resolve that should also help expect the mobile ordering algorithm changes to be implemented?

Yes. Look, I think you're absolutely right. The idea of setting up our partners to be successful in every customer interaction results and I think great experiences for our customers. And they are highly intertwined. And I actually believe that's why it's so important that we have got kind of that great greeting moment and that great handoff moment.

And what I'm seeing in the kind of the early days of this small pilot is just that, where 2 things are happening. 1, the partners are set up to deliver these craft drinks with a great kind of human touch or connection at the speed that makes our customers feel really great about getting their drink or their total order. So, you know, they're kind of working in tandem, because what the algorithm does is it takes the stress out of the system of, you know, having the partner have to figure out how to solve these mobile orders that just came in that weren't sequenced. Now what it does is it sequences those mobile orders so that it can allow the cafe order to get fulfilled in a timely fashion and with a touch of humanity. And then the same thing happens with the mobile order, because now we're better sequenced up for when people come in to give them their drink.

So, you know, we're gonna continue to expand the pilot. There's some other things we wanna test around this with also adding the idea of time slots, how that compares to just changing promise times. So ideally, you know, over the next couple months, we're gonna get a lot of learning, which then will give us clarity on the right timetable to to roll out. But don't have definitive timing just yet.

Thank you. And your next question comes from Jeffrey Bernstein with Barclays. Please state your question.

Great. Thank you very much. Brian, I know comps always goner outside the tension and justifiably so, but just wanted to talk about unit growth for a minute. I know in The U. S, obviously, the unit growth could be a more unit growth could be a more consistent driver of top line.

And I think you said opportunity to double the store count in The U. S. I believe you were referring, I guess, to the company operating system, which in The U. S. Is already pushing 10000 plus.

So the doubling, I guess, caught me by surprise that was above my expectation in terms of the total addressable market. I'm just wondering, as you think about that doubling, like, what do you think is the rate of growth that's appropriate as you look to achieve that? Maybe how do you arrive at that doubling? And are the particular geographies or store types that have greater opportunity than others? Just curious how you think about that TAM in The U.

Yes. Look, 1 of the things I'm really excited about is our ability to execute a smaller format that still has a great seat, okay, and delivers the partner experience or the engine behind the counter so that we can provide these craft drinks in a timely manner with, you know, that that personal touch. And so when you combine our ability to do the drive through, the cafe, the mobile ordering in small, medium, large kind of executions, it just starts to open up trade areas, that you get really excited about. And, you know, we're having tremendous success in places like Texas or the Southeast. And as we continue to open stores in those areas, they open with great economics.

And that's what gives us a lot of confidence versus there are other markets that frankly, we have a lot of work to do on just resetting the estate, so that we have the right mix of the small, medium, large and the right mix of the access points. So, you know, the good news is the brand has a lot of flexibility in how we execute the experience. And that's what gives us the confidence that we could double the store count. And then obviously, we get the sequencing figured out on mobile ordering. I think that just frees us up to another degree that we still haven't totally comprehended, I guess.

Thank you. And our next question comes from John Ivankoe with JPMorgan. Please state your question.

There's been at least some conversation about perhaps limiting the menu in the morning, products that were really some of the high repeat products that would be focused on speed, accuracy, consistency and maybe opening up the afternoon to products that were more differentiated and have more customization. So I wanted to get your thought if that was a possibility of maybe having different offerings kind of in the AM and the PM at Starbucks. And secondly, and I think related to that, food warming cabinets does seem to be 1 of the easiest ways to speed up transaction times, specifically in the drive thru. Could you give us an update on that element of CYREN specifically in terms of what you might expect to rollout to be?

Yes, thanks for the question. And look, that's 1 of the key pieces of driving our digital menu board execution is that does give us the flexibility to do the merchandising of kind of different food experiences or drink experiences in the afternoon versus the morning. And as I mentioned, I think in my prepared remarks, we are dialing back the menu both in food and beverage to the tune of roughly 30% between now and the end of our fiscal year, which then frees us up frankly to make sure we've got what I would call the right, food offerings in the morning. And then also we're looking at how do we provide the right kind of snackfood offerings as you get further into the day. And like I said, the digital menu boards allow us the flexibility then to merchandise accordingly.

Regarding, the Huddlehold equipment, what we find is, you know, that's a great solution depending on the volume or transactions that we have in the store, regardless of whether there's a drive through or not. You know, and so you're right. Obviously, if we had a hot hold when the person just showed up to the order board, it could be much faster. But we find the trade off in that hot hold versus just cooking it fresh to order, at those moments, it it's not the right trade off in investing in that type of equipment and also the experience that you get from

know, right now it's much more contingent upon the volume thresholds than it is, moving speed along kind of for all day, kind of experiences is the way I would describe it.

Thank you. And your next question comes from Catherine Griffin with Bank of America. Please state your question.

Okay. This is Catherine on behalf of Faris Anatol. So earlier, I think, Rachel, you were talking about having less promotions as a positive impact on revenue. I think the goal from here is to move towards more of a traffic driven same store sales growth model, but we didn't see much of that this quarter. I think you mentioned that promotional transactions were 40% lower year over year, but can you quantify what the impact of that was on ticket?

And was that because of fewer promotions? And then I guess to the extent that you're encouraged by these results, is that what you're looking at? You're looking for more full priced sales?

I would start by saying, you know, we're looking for a combination. I mean, our rewards customers continue to be incredibly important, but we've seen value as we speak to all of our customers. And as we've shifted out of, discounts into more broad based marketing, that's helped us reach a broader base of customers, which this quarter, even though we're early in the turnaround, we saw good signs of progress. We as Brian had shared, we had growth in the morning day part. We had growth growth across our customer base, but our non SR customers grew quarter over quarter.

And importantly, we saw their growth, as high as where we were about a year ago. So that gives us a lot of confidence that it's the right strategy. And in terms of the impact on ticket, as I had shared in my prepared remarks, our ticket in North America was about 4%, little over 4%. And within that ticket, that was benefiting from annualized pricing, but it also benefited from fewer discounts. And that was partially then offset by the mix shift towards lower priced items as well as the decision we had made to remove the Altair pricing.

So we see that removal of the discount or shifting of the discount. We're still discounting, but shifting the discount as a way for us to strengthen ticket, but also strengthen the overall proposition as we speak to more customers more broadly.

Thank you. And your next question comes from Peter Sala with BTIG. Please state your question.

Great. Thanks for taking the question. Brian, I want to ask about the Siren system. It sounds like you guys are only going to implement this in the highest quartile stores. Just curious, it sounds like it's a little bit of a difference from what you were initially expecting last quarter.

And I know it's early, but why don't the other stores, the remaining system need it? And can they get to the four minute coffee time without this system? And just curious as to the timing on rolling this Siren system out to the top performing stores? Thanks.

Yes. Look, you're right. It is it's a new learning that we've picked up over the last couple of months, specifically as we've gotten very focused on getting the four minute solution and bringing order to mobile ordering. And what has become clear is it's not in most stores, it is not driven by a lack of capacity. It's more the process combined with the algorithm to sequence the mobile orders with the cafe.

So there's a threshold where the volume gets to a place where the additional equipment is necessary. But that's only happening in like the top quartile of stores. And in the majority of our stores, just kind of putting the right process, the right deployment combined with the algorithm, we see a big unlock in, you know, transaction throughput capability. So that's what we're focused on. And, you know, it's a learning we've picked up over the last couple months.

And, you know, I think this is what's great about taking the test and learn approach is as we learn, we adopt and what we're adopting towards is making sure that we get the best experience for both the partner and our customer.

Thank you. Your next question comes from Christine Cho with Goldman Sachs. Please state your question.

Thank you. So Brian, as you come into the coffee business with fresh pair of eyes, I was hoping to get your assessment on the challenges of drawing younger customers back into the stores. Do you still view this as an important strategic focus in your turnaround plans in North America? And if so, why do you think they're more hesitant? Is it premium prices?

Starbucks (SBUX) Q1 2025 Earnings Call Transcript

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