Release Date: April 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Starbucks Corp (SBUX, Financial) reported a total company revenue of $8.8 billion with a global net new store growth of 213 coffeehouses.
• The company has launched a new Green Apron service model to improve peak throughput and customer experience, which will be scaled to more than 2,000 US locations by the end of the fiscal year.
• Starbucks Corp (SBUX) has seen early indicators of recovery in its North America business, with partner engagement up and turnover dropping to a new recorded low.
• The Canadian business has returned to positive comps with positive transaction growth, indicating a successful turnaround in that market.
• The company is focusing on brand and coffee storytelling, with a new US brand campaign that generated record-breaking customer engagement and drove the second highest Monday gross sales day ever.

Negative Points

• Starbucks Corp (SBUX) reported a global comparable store sales decline of 1% and a global operating margin of 8.2%, which are below expectations.
• Earnings per share (EPS) for the quarter were $0.41, down 38% from the prior year, reflecting expense deleverage and heightened investments.
• The US market experienced a 2% decline in comparable store sales, with transaction declines improving but still at negative 4%.
• The company's Q2 consolidated operating margin contracted by 450 basis points from the prior year, primarily due to additional labor costs.
• Starbucks Corp (SBUX) is facing challenges in China, with comparable store sales flat for the quarter, although there are signs of progress with positive transactions and expanding margins.

Q & A Highlights

Q: Can you provide more details on the labor investments and order sequencing over equipment to improve speed and throughput? A: Brian Niccol, Chairman and CEO, explained that the combination of staffing, deployment, and technology is proving effective in achieving the desired customer experience. The company is scaling its labor and algorithm programs to improve service speed and connection, with plans to expand to over 3,000 stores by the end of the fiscal year. The focus is on judicious cost management and leveraging growth to enhance margins and financial results.

Q: With margins down in North America, is there a fundamental change in the economics of Starbucks stores? A: Brian Niccol noted that while Starbucks has invested in labor, the assumption that equipment could replace labor was inaccurate. The focus is now on staffing and technology to enhance customer experience, leading to improved transactions. The company is evolving its Rewards program and focusing on quality transactions, which are expected to drive growth and improve margins over time.

Q: What are the plans for evaluating the store portfolio and unit growth? A: Brian Niccol stated that Starbucks is reassessing renovation and new build costs to ensure they align with providing a great customer and partner experience. The company plans to slow down current builds to refine design and cost structures before ramping up growth, with the long-term goal of doubling the store count.

Q: How is the menu simplification impacting transactions, and what is the approach to innovation? A: Brian Niccol emphasized that simplifying the menu allows for more relevant innovation. The percentage of stores with positive transaction comps has increased significantly, indicating progress. Starbucks is using a stage gate process to ensure meaningful innovation and is building a robust pipeline to support future growth.

Q: How is Starbucks addressing potential macroeconomic challenges and protecting US traffic? A: Brian Niccol highlighted the importance of the third place experience, emphasizing connection, speed, and quality. The company is focusing on providing a simple everyday luxury that remains appealing despite economic challenges. Starbucks plans to leverage its innovation pipeline and adjust strategies based on customer feedback and market conditions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.