24 -Jan -2019 Starbucks Corp.

Corrected Transcript

24-Jan-2019

Starbucks Corp. (SBUX)

Q1 2019 Earnings Call

1-877-FACTSET

Total Pages: 20

Copyright ? 2001-2019 FactSet CallStreet, LLC

Starbucks Corp. (SBUX)

Q1 2019 Earnings Call

Corrected Transcript

24-Jan-2019

CORPORATE PARTICIPANTS

Durga Doraisamy

Vice President, Investor Relations, Starbucks Corp.

Kevin Johnson

President, Chief Executive Officer & Director, Starbucks Corp.

Patrick J. Grismer

Chief Financial Officer & Executive Vice President, Starbucks Corp.

John Culver

Group President-International, Channel Development and Global Coffee & Tea, Starbucks Corp.

Rosalind Gates Brewer

Chief Operating Officer, Group President & Director, Starbucks Corp.

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OTHER PARTICIPANTS

Sharon Zackfia

Analyst, William Blair & Co. LLC

David E. Tarantino

Analyst, Robert W. Baird & Co., Inc.

John Glass

Analyst, Morgan Stanley & Co. LLC

David Palmer

Analyst, RBC Capital Markets LLC

Sara Harkavy Senatore

Analyst, Sanford C. Bernstein & Co. LLC

John William Ivankoe

Analyst, JPMorgan Securities LLC

Matthew DiFrisco

Analyst, Guggenheim Securities LLC

Jeffrey A. Bernstein

Analyst, Barclays Capital, Inc.

Karen Holthouse

Analyst, Goldman Sachs & Co. LLC

Andrew Charles

Analyst, Cowen & Co. LLC

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Copyright ? 2001-2019 FactSet CallStreet, LLC

Starbucks Corp. (SBUX)

Q1 2019 Earnings Call

Corrected Transcript

24-Jan-2019

MANAGEMENT DISCUSSION SECTION

Operator: Good afternoon. My name is Hector and I will be your conference operator today. I would like to welcome everyone to the Starbucks Coffee Company's First Quarter Fiscal Year 2019 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. [Operator Instructions]

I'll now turn the call over to Durga Doraisamy, Investor Relations. Ms. Doraisamy, you may now begin your conference.

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Durga Doraisamy

Vice President, Investor Relations, Starbucks Corp.

Good afternoon, everyone, and thank you for joining us today to discuss our first quarter results for fiscal year 2019. Today's discussion will be led by Kevin Johnson, President and CEO; and Pat Grismer, CFO. And for Q&A, we will be joined by Roz Brewer, Chief Operating Officer and Group President Americas, John Culver, Group President International, Channel Development and Global Coffee and Tea.

This conference call will include forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and Risk Factor discussions in our filings with the SEC including our last annual report on Form 10-K. Starbucks assumes no obligation to update any of these forward-looking statements or information. GAAP results in fiscal 2019 include several items related to strategic actions including restructuring and impairment charges, transaction and integration costs and other items. These items are excluded from our non-GAAP results. Please refer to our website at investor. to find the reconciliation of non-GAAP financial measures referenced in today's call with their corresponding GAAP measures.

This conference call is being webcast and an archive of the webcast will be available on our website through February 22nd, 2019.

I will now turn the call over to Kevin.

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Kevin Johnson

President, Chief Executive Officer & Director, Starbucks Corp.

Well thanks, Durga, and good afternoon, everyone. I'd like to start by taking this opportunity to thank our outgoing VP of Investor Relations, Tom Shaw, for his leadership over the past couple of years and to wish him well as he pursues a new opportunity outside our industry. Durga is a five-year Starbucks partner and a 20-year veteran of Investor Relations and I'm thrilled that she's stepping up to lead our IR function in close partnership with Pat.

Now last month, we were pleased to meet with many of you in New York not only to showcase our latest Starbucks Reserve Roastery, but to also discuss the next chapter in Starbucks' growth agenda, which we call growth-at-scale. We shared with you our strategy to streamline the business, drive growth in the key markets of U.S. and China, expand our global reach through the Global Coffee Alliance, while simultaneously returning significant capital to our shareholders. This strategy is working, as evidenced by our Q1 results, and we remain confident in the longer-term outlook for the business.

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Copyright ? 2001-2019 FactSet CallStreet, LLC

Starbucks Corp. (SBUX)

Q1 2019 Earnings Call

Corrected Transcript

24-Jan-2019

Integral to our growth-at-scale strategy is a higher level of focus and discipline to drive predictable, sustainable, long-term growth and shareholder returns. The positive business momentum that we experienced in the fourth quarter of fiscal 2018 clearly sustained throughout Q1. The strength of our results in Q1 has further reinforced the confidence and conviction we have, both near-term and long-term in our strategy.

Now let me give you a few of the key financial headlines for the quarter. Record revenue of $6.6 billion representing 9% growth versus prior year. Comp sales growth of 4%, including another quarter of sequential improvement in traffic comp. Net store growth of 7% on a global basis versus prior year with over two-thirds of our new store openings outside the U.S. Continued digital momentum with U.S. active rewards members growing 14% to 16.3 million and return of $5.5 billion to shareholders through a combination of dividends and buybacks. These results were enabled in part by solid execution during our holiday season.

Our holiday plan was informed by insights we gathered from customers who highlighted what they appreciate from Starbucks during the holidays. We leverage those insights to reignite the customer connection in many ways. With improved brand and product awareness, sharper and cleaner holiday merchandising, relevant new offerings such as our limited-edition red cup promotion and an enhanced in-store experience. This comprehensive insight-driven approach delivered results, and importantly, created momentum that provides a solid foundation for future quarters, helped in part by strong performance in our gift card business.

Taking a step back from the solid results in the quarter, I'd like to highlight the broader approach we're taking to sustain growth well into the future, and to update you on the progress we're making to advance this strategy. As a reminder, our growth-at-scale agenda is composed of three key building blocks: Streamlining our business, focusing on three strategic priorities and amplifying the Starbucks brand.

Our streamline efforts over the past six quarters are paying off by allowing us to bring more focus and discipline to our three strategic priorities of accelerating growth in our targeted markets of U.S. and China, expanding global reach of the Starbucks brand leveraging the Global Coffee Alliance with Nestl?, and increasing shareholder returns. Importantly, we are doing all of this while staying true to our brand promise with the understanding that the foundational elements will remain pivotal as we continue to build our brand through the Starbucks Experience, the quality of our coffee and our corporate reputation for doing good. And as with any strong foundation, there're opportunities to amplify these cornerstones of the brand that we continue to demonstrate most recently, with the opening of our New York Roastery and soon in February with the opening of the Tokyo Roastery.

We will consistently use this growth-at-scale framework to guide our communications with investors going forward. So let me share a few more details about the progress we've made against our three strategic priorities, and what to expect for the balance of the year, starting with accelerating growth in our two long-term growth markets: the U.S. and China.

In the U.S., we're focused on three operating initiatives: Enhancing the in-store experience, delivering beverage innovation and driving digital relationships. Enhancing the in-store experience encompasses building customer connections and creating those best moments that keep customers coming back time and time again. Our Starbucks store partners who proudly wear the green apron are at the center of connecting with customers and we are on a mission to support them by simplifying work and reducing some of the non-customer-facing tasks that historically have taken up to 40% of their time. This is freeing up more time for our partners to connect with customers.

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Copyright ? 2001-2019 FactSet CallStreet, LLC

Starbucks Corp. (SBUX)

Q1 2019 Earnings Call

Corrected Transcript

24-Jan-2019

For example, we've shifted certain cleaning tasks to afterhours and we're automating product planning and replenishment, which reduces store clutter and time away from customers. This work will span multiple quarters. The actions taken thus far are already paying off as our customer connection scores continue to improve in Q1 on both a sequential and year-over-year basis, and importantly, across both the morning and afternoon dayparts.

We're also creating a new channel for customers to engage through Starbucks Delivers. Our partnership with Uber Eats is gaining momentum and we expect to bring delivery to nearly a quarter of our U.S. company-operated stores by April, including our second market in San Francisco, which launched earlier this week. Our early experience is encouraging and has provided us a blueprint for how to operationalize this new channel, an important step to create a seamless workflow for our partners. From a customer perspective, Starbucks Delivers is being seamlessly integrated into the Uber Eats mobile app, enabling full beverage customization and fully integrating into our store operations to ensure a premium Starbucks Experience.

Moving on to our second U.S. priority, beverage innovation. Our focus here is ongoing, led by the momentum we are seeing with cold beverages across multiple dayparts. The focus of our latest beverage innovation evolves around iced espresso, draft Nitro beverages and Refreshers. We have expanded the deployment of our Nitro offering from about one-third of U.S. company-operated stores last quarter to 40% in just one quarter and we remain on track to reach our goal of 100% penetration by the end of fiscal 2019. Draft Nitro beverages represent a significant opportunity for the brand. This platform is differentiated, provides theater and drives incrementality.

We also made great progress on our third U.S. priority, driving digital relationships, our enabler of convenience, awareness and value. To build our digital ecosystem, we widened the aperture of digital reach and created a funnel of activation that is leading to increases in active membership in our Starbucks Rewards program. Since we started these efforts last spring, we have acquired 13 million digital customer registrations and we're excited about the potential this has to drive our Starbucks Rewards program.

I'm pleased to share that in Q1, we expanded our active member base by an impressive 1 million customers, a 14% increase, that takes active reward membership to 16.3 million. This result was driven by leveraging our increased digital reach as well as a more seamless customer onboarding experience, greater Mobile Order and Pay adoption and enhanced personalization features. Between digitally registered and active rewards customers, we are now approaching 30 million digital connections in the U.S.

Starbucks Rewards continues to be a powerful enabler of loyalty and we are thoughtfully evolving the program to provide greater choice and flexibility for Rewards members. We will enhance the program this spring to enable loyalty customers to earn and redeem more quickly and redeem those awards across a broader range of items in our stores. We have leveraged learnings and customer insight from prior changes to the rewards program to inform our work ahead of this launch. This includes a robust marketing activation plan to drive not only awareness of the changes, but overall awareness of the program and key customer benefits. As we've shared in the past, lack of awareness has historically been one of the limiting factors to customer adoption and we have a significant opportunity to amplify a powerful message around loyalty.

Having covered the U.S., let's talk a bit about our second largest and fastest-growing major market, China. This month marks the 20th anniversary of Starbucks in China and we continue to play the long game with our purposedriven growth agenda. We recognize the tremendous opportunity ahead requires navigating a rapidly-evolving competitive landscape, changing consumer behaviors and a dynamic economy. With a large and growing addressable market around coffee, we expect competition to remain highly promotional and disruptive.

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