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CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page1of22
Starbucks(SBUX)EarningsReport:Q22015ConferenceCallTranscriptThefollowingStarbucksconferencecalltookplaceonApril23,2015,05:00PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
JoAnnDeGrande;Starbucks;VP-IRHowardSchultz;Starbucks;Chairman,President,CEOKevinJohnson;Starbucks;President,CEOScottMaw;Starbucks;CFOCliffBurrows;Starbucks;GroupPresident-US,Americas,andTeavanaJonCulver;Starbucks;GroupPresident-China/AsiaPacific,ChannelDevelopment,andEmergingBrandsMikeConway;Starbucks;President-GlobalChannelDevelopmentAdamBrotman;Starbucks;ChiefDigitalOfficerMattRyan;Starbucks;GlobalChiefStrategyOfficerJohnCulver;Starbucks;StarbucksCoffeeChinaandAsiaPacific,ChannelDevelopmentandEmergingBrands
OtherPart icipants
SaraSenatore;Bernstein;AnalystKeithSiegner;UBS;AnalystDavidPalmer;RBCCapitalMarkets;AnalystJoeBuckley;BankofAmericaMerrillLynch;AnalystKarenHolthouse;GoldmanSachs;AnalystJohnGlass;MorganStanley;AnalystJohnIvankoe;JPMorgan;AnalystDavidTarantino;RobertW.Baird;AnalystJeffBernstein;BarclaysCapital;AnalystNicoleMiller;PiperJaffray;AnalystDianeGeissler;CLSA;AnalystWillSlabaugh;Stephens;AnalystAndrewCharles;CowenandCompany;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Goodafternoon.MynameisMikeandIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetoStarbucksCoffeeCompanysecond-quarterfiscalyear2015earningsconferencecall.(OperatorInstructions).Thankyou.Ms.DeGrande,youmaybeginyourconference.
JoAnnDeGrande (VP-IR):
Thankyou,Mike.Goodafternoon.ThisisJoAnnDeGrande,VicePresidentofInvestorRelationsforStarbucksCoffeeCompany.Thankyouforjoiningustodaytodiscussoursecond-quarterfiscal2015
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page2of22
results,whichwillbeledbyHowardSchultz,Chairman,President,andCEO;KevinJohnson,PresidentandCEO,andScottMaw,CFO.
AlsojoiningusforQ&AareCliffBurrows,GroupPresidentinUS,Americas,andTeavana;JonCulver,GroupPresident,China/AsiaPacific,ChannelDevelopment,andEmergingBrands;MikeConway,President,GlobalChannelDevelopment;AdamBrotman,ChiefDigitalOfficer;andMattRyan,GlobalChiefStrategyOfficer.
Thisconferencecallwillincludeforward-lookingstatements,whicharesubjecttovariousrisksanduncertaintiesthatcouldcauseouractualresultstodiffermateriallyfromthesestatements.AnysuchstatementsshouldbeconsideredinconjunctionwithcautionarystatementsinourearningsreleaseandriskfactordiscussionsinourfilingswiththeSEC,includingourlastannualreportonForm10-K.
Starbucksassumesnoobligationtoupdateanyoftheseforward-lookingstatementsorinformation.Pleaserefertoourwebsiteatinvestor.starbucks.comtofindthereconciliationofnon-GAAPfinancialmeasuresreferencedintoday'scallwiththeircorrespondingGAAPmeasures.Thisconferencecallisbeingwebcast,andanarchiveofthewebcastwillbeavailableonourwebsiteatinvestor.starbucks.comlatertoday.LetmenowturnthecallovertoHoward.Howard?
HowardSchultz (Chairman,President,CEO):
Thankyou,JoAnn,andwelcometoeveryoneontoday'scall.Q2offiscal2015wasastunningquarterforStarbucksonalmosteverylevel.RecordQ2revenuesof$4.6billion,recordQ2operatingincomeof$778million,andrecordsplit-adjustedQ2EPSof$0.33pershare,allclearlydemonstratingacontinuationofthestrength,momentum,androbustnesswesawinourbusinessduringholidayQ1.EquallyimpressiveisthatourQ2resultsweredelivereddespiteforeignexchangeheadwindsandsoftconsumerenvironmentsinseveralkeymarkets.
Ourglobalcompstoresalesincreasedastrong7%inQ2,with3%comingfromincreasedtraffic,our21stconsecutivequarterofcompsalesgrowthof5%orgreater;andaspectacularresult,giventhatourcompsarenowcalculatedoffofaUSstorebaseofover7,000storesandaglobalstorebaseofover10,000stores.
Nootherglobalretailerapproachingoursizeorstorebasecomesremotelyclosetopostingsuchconsistentlystrongcompperformance.
OurAmericassegmentdeliveredanotheroutstandingquarter,withperformancedrivenbythesuccessfulintroductionofseveralinnovativenewcoffeebeverages,includingStarbucksFlatWhite,ournewtiramisuandcaramelflanbeverage;anexpandedselectionofTeavana-brandedteabeverages;andverypositivecustomerresponsetoournewbreakfastsandwichlineup,allofwhichcontributedtoincreasedfoodattachacrossvirtuallyallregionsanddayparts.TurningtoChinaandAsiaPacific.
Nowwithover5,000stores,ourChina/AsiaPacificsegmentdeliveredacompany-leading12%compincreaseinQ2,almostentirelycomingfromincreasedtrafficandastrongincreaseinoperatingincomeaswell.WealsocompletedtheacquisitionofStarbucksJapaninQ2,andarenowinapositiontoaggressivelygoafterbusinessacrossallchannelsinJapan,bothinandoutsideofourstores,inwaysneverbeforepossible.
Andwearealreadyseeinganaccelerationofourbusinessinthatkey,highlyopportunisticmarket.CAPremainsafocalpointofourfuturegrowth,andweareontracktomeetourgoalofdoublingourCAPstorecounttoroughly10,000locations,triplingourrevenuetoover$3billion,andtriplingouroperatingincometoover$1billionoverthenextfiveyears.
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page3of22
Inaddition,I'maproudtosaythatEMEAdeliveredthestrongestQ2performanceinitshistory,reportingbothrecordoperatingmarginandrecordoperatingincome.AndourChannelDevelopmentsegmentalsodeliveredabannerquarter,witha16%increaseinsalesandstrongincreasesinbothoperatingmarginandoperatingincome,whileatthesametimefurtherincreasingStarbucks'alreadyindustry-leadingshareofpremiumsingleserve,premiumpackagedcoffee,andpremiumpackagedtea.Starbucks,byawidemargin,isthenumber-onepremiumcoffeebrandintheK-Cupcategory,andwenowhaveshippedover2.5millionK-Cuppackssincelaunch.
Starbucks'stellarperformanceinQ2wasmulti-segment,multi-channel,andmulti-geographical,drivenbyourpeopleindistinctmarketsallovertheworld,yetwoventogetherbyacommonthread:industry-leading,partner-centric,andcustomer-facinginnovationandtheongoingstrengthandglobalrelevancyoftheStarbucksbrandandretailexperience.Ourhistoryandexperiencedemonstrate,andourresearchunequivocallyconfirmsthattheinvestmentswemakeindeepeningourconnectiontoourpeoplelinksdirectlybacktovaluecreationforourshareholders.
ByofferingeveryeligiblepartnertheabilitytoprofitalongsideourshareholdersthroughBeanStock,providingpaidhealthcarecoverage,providingcompetitivewagesandincentivecompensationopportunities,reimbursingcollegetuitioncoststhroughStarbucksCollegeAchievementPlan,sharingandadvancingourcommonvalues,andinvestinginthecommunitiesinwhichourpeopleliveandwork,weareandwillcontinuetomakesignificantinvestmentsinourpeoplearoundtheworld.Andtheseinvestmentsarebearingfruitforourshareholders.You'llhearmoreaboutthat--aboutouradditionalpartnerinvestmentsthatwearemakinginafewmoments.
Ontoday'scall,I'mgoingtoprovideyouwithanoverviewofsomeoftheinnovationsandstrategicinitiativesthatwe'veannouncedorthatwebegantoshapeinthequarter,innovationsandinitiativesthatwillenableustofurtherextendStarbucks'globalcoffeeauthorityandleadershiparoundallthingsretailinmobile,andpositionustocontinuetoleadandtowinaroundtheworldinthefuture.ThenIwillturnthecallovertoKevin,whowillsharehighlightsofindividualsegmentandmarketperformanceinQ2.And,finally,ScottwilltakeyouthroughourQ2financialandoperatingresults,andwe'llfinishupwithQ&A.
Leadershiparoundallthingscoffeeremainsatourcore,andwecontinuetoinnovateandinvestinordertomeaningfullyelevatethepremium,highlydifferentiated,locallyrelevantcoffeeexperiencewedelivertoover75millioncustomersforover22,000storesin66countriesaroundtheworldeachweek.StarbucksFlatWhite,anespressoforward,handcraftedbeveragethatcombinespremiumespressoqualitywithcreativeartistryintoadelicioushotbeveragethatweintroducedintotheAmericassegmentearlyinQ2,hasalreadygeneratedastrongcustomerfollowingandisdrivingafoodattachexceedingouroriginalexpectations.
OntheheelsofthesuccessofFlatWhite,wehavealsointroducedbothStarbucksColdBrew,and,incertainmarkets,yogurt-basedfruitsmoothies,incorporatingandleveragingbrandedEvolutionFreshjuices.Whileintheearlydays,eachofthesebeveragesisreceivingahighlyfavorablecustomerresponse,andwewillberollingoutafantasticlineupofinnovativenewFrappuccinobeveragesandbrandedTeavanaicedteasforourcustomersduringthehotsummermonthsahead.
YoumayrecallthatinourholidayQ1,werecordedrecord-settingcardsalesandloadsof$1.6billionthatweexpectedtodrivetrafficandpositivelyimpactourbusinessinQ2,andthatispreciselywhatoccurred.Moreimportantisthatwearenowseeinglargenumbersoflastholiday'sfirst-timegiftreceiversbecomeloyal,engaged,repeatStarbuckscustomers,supportingandcontributingtothegrowthweareseeingacrossourglobalcustomerbase.Andwithincreasingcustomeracceptanceofourmobileapp,wenowhaveover16millionactiveusers.
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page4of22
DollarsloadedonStarbucksCardcontinuestorise--thisisareallyimportantnumber--at19%year-over-yearincreaseinQ2alone,inwhich$1.1billioninQ2wasloaded,atrendandafigurethatbodesverywellforourbusinessincomingquarters.WeknowthatincreasedStarbucksCardsalesdrivesincreasedMyStarbucksRewardsmembership,and,inturn,increasedtrafficandsalesinourstores.Weadded1.3millionnewMyStarbucksRewardmembersaloneinQ2,moreadditionalmembersinonequarterthanmostloyaltyprogramshaveintotal,andnowhaveover10millionactivememberswithalmost6millionmembersbeingactiveGoldmembers.
MyStarbucksRewardswillcontinuetobeamongourmostimportantbusinessdriversasnewmemberscontributenotonlytoshort-termincreasesinrevenueandprofit,butalsotolong-termloyaltyformanyyearstocome.
InDecember,weintroducedMobileOrderandPayinto150storesinPortland,Oregon.Sincethen,wehaveexpandedMobileOrderandPaytoover600storesinthePacificNorthwest,andwearenowontracktorolloutMobileOrderandPaynationwidethiscalendaryear.
MobileOrderandPayhasbeenextremelywellreceivedbyourcustomers,enablingthemtoorderahead,avoidlines,avoidwaitingfororderstobefilled,resultinginshorterlines;fasterservice;improved,moreefficientin-storeoperationsandexecution;andanelevatedStarbucksexperience.AndMobileOrderandPayisdrivingincrementality,asweareseeinganincreaseinbothattachanddailytransactionsinthosestoresandmarketswhereMobileOrderandPayhasbeenlaunched.
Inaddition,aswehavesharedwithyoubefore,weareon-plantolaunchdeliveryinSeattleandintheEmpireStatebuildinginNewYorkCityduringthesecondhalfof2015.There'snodoubtinourmindsthatdelivery,likeMobileOrderandPay,willdrivefurtherincrementalityandprofitabilityfortheCompany.Manyofyouhadtheopportunitytoexperiencetheworld'smostpremiumcoffeeexperienceforyourselveswhenyouwereinSeattleforourInvestorDaylastDecember,andvisitedtheone-of-a-kind,15,000squarefeetStarbucksReserveRoasteryandTastingRoom,whatmanyhavecalledtheWillieWonkaofcoffee.WefullyanticipatedthattheRoasterywouldbeasuccess,andthatwewouldbuildadditionalRoasteriesinselectUSandinternationalcitiesintheyearsahead.
ButnoonecouldhaverecentlyhaveanticipatedtheoverwhelmingcustomerandvisitorresponsethattheRoasteryisgeneratinginonlythefirstfourmonthsofitsoperations.LookforoursecondStarbucksReserveRoasteryandTastingRoomincalendar2016inacitytobeannouncedlaterthisyear.AndwhiletheRoasteryisanimmersive,experientialvenue,itisactuallysomuchmore.
OurintentwiththeRoasteryfromdayonewastocreateandbuildanew,ultrapremiumcoffeebrandandbusinessunit.TheadditionalsmallbatchcoffeeroastingcapacityprovidedbytheRoasteryisenablingustosource,roast,blend,andmarketspectacular,limitedavailability,micro-lotcoffeesfromaroundtheworld,andtomeaningfullyelevatethesuperpremiumcoffeeexperiencewedelivertoourcustomers.WearealreadyexpandingavailabilityofStarbucksReservecoffeestoover1,000StarbuckslocationsaswebegintobuildtheStarbucksReservebrand.
AndtheRoasteryisenablingthelaunchof500StarbucksReservestoresworldwide,anewclassofstoresthatwillshowcasethemostpremiumofallsuperpremiumcoffeesintheworld,andthenewestcoffeebrewingmethodssuchaspour-over;siphon;andStarbucks'proprietarybrewingtechnology,Clover.StarbucksReservestoreswillalsoincorporateanintegratedTeavanakiosktoleveragetrafficandgrowingconsumerinterestinsuperpremiumlooseleafandpackagedTeavanateas.StarbucksReservestoresandStarbucksReservebrandprovidesuswithanexciting,innovative,highlydifferentiated,new,globalgrowthopportunitythatleveragesallofStarbucks'strengthsaroundtheworldintermsofcoffeesourcingandroasting,[premiumization],coffeebeveragedevelopment,retailsiteselectionanddesign,merchandising,andcustomerengagement.
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page5of22
WatchfortheopeningofournewStarbucksReserveflagshipstoretowardstheendofcalendar2015,andtheopeningofStarbucksReservecoffeebarswithinselect,existingStarbuckslocationsacrosstheUSaspartofnormalStarbucksstorerenovationcycles.
TheadditionofStarbucksReservecoffeebarswillbothdriveincrementalityinexistingStarbucksstoresandquicklybuildconsumerawarenessofournewStarbucksReservebrand,domesticallyandaroundtheworld.Inclosing,beforeIturnthecallovertoKevin,IwanttosharewithyouwhatmanywithinStarbucksandIalreadyknew,thatKevinJohnsonisapassionateservant-leader,aworld-classbusinessman,anexpansivethinker,andawisecounselor.
ThepartnershipandtheinsightsthatKevinbringstotheseniorleadershipteamasahighlyengaged,six-yearmemberoftheStarbucksBoardofDirectors,andnowasPresidentandCOOofourCompany,areprovidingtobeinvaluableandalreadyhavingatremendouspositiveimpactacrossallbusinesssegmentsandgeographies.Andhe'sjustgettingstarted.SoIwelcomeKevintothecall,andInowturnthecallovertoKevin.
KevinJohnson (President,CEO):
Thankyou,Howard,andgoodafternoon,everyone.Q2wasanexcellentquarterforStarbucksacrosstheboard.Beforeprovidingoperatinghighlightsforeachofoursegments,IthoughtIwouldshareaverybriefupdateonmytransitionintoday-to-daymanagement.SinceJanuary,IhavebeenworkingcloselywithHowardandtheStarbucksseniorleadershipteamtoensureasmoothtransitionandarapidramp-upbeginningonMarch1.Iamnowalmost4monthsintoadeepimmersionacrossallkeybusinessfunctions,aswellasfieldvisitstostoresandfacilitiesthroughoutNorthAmericaandEurope,engagingwithourpartners,customers,andsuppliers.
NextweekmyimmersiontakesmetoAsia,whereIwillhavetheopportunitytovisitStarbucksstoresandpartnersintheregionwithourGroupPresident,JohnCulver.ThisimmersionprocessisprovidingmewithamorecomprehensiveunderstandingofStarbucks'businessandoperations.Butmorethanthat,theimmersionisprovidingmewithanevengreaterappreciationoftheenormousglobalopportunitythatliesaheadforthisfantasticcompanyandtheremarkablytalentedmanagementteam.
I'mcommittedtodoingeverythingIcantocreatevalueforourStarbuckspartnersandshareholders,alwaysthroughthelensofhumanity,aroundtheworld,andintothefuture.ThankstoHowardandalloftheStarbuckspartnersfortheirwarmwelcome,andfortheirhelpinmakingmytransitionintothisrolesoseamless.
NowIwouldliketotellyouaboutQ2.OurAmericasbusinesscontinuestodeliverstrong,consistent,profitablegrowth,witha7%increaseincompsalesinQ2andrecordrevenueof11%overlastyear,recordoperatingmargin,andrecordoperatingincome.OurUSfoodprogramcontinuestobeakeyfocusandatremendousopportunityforus.
I'mpleasedtoreportthatinQ2,USfoodsalesgrew16%year-on-yearandcontributed2pointsofcompgrowthwitheverydaypart,platform,andregioncontributingtotheincrease.Noteworthyhasbeenthesalesofourinnovativenewbreakfastsandwichescontributedtoa35%year-over-yeargrowthinourbreakfastsandwichprogram.Ourlunchplatformalsodelivereddouble-digityear-over-yeargainsaswell.
AsHowardmentioned,weintroducedtheStarbucksFlatWhitebeveragethatwasenthusiasticallyembracedbyourcustomers.FlatWhitebothelevatedtheentirecoreespressocategoryanddroveincreasedfoodattach.Welaunchedanothercoffeeforwardbeverage,StarbucksColdBrew,inselectNorthAmericanmarketswithaplantoofferStarbucksColdBrewinmanymoreUSstoresthissummer.
Whilestillearlyinitsinnings,customerresponsetoStarbucksColdBrewhasbeenverystrong.
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page6of22
HandcraftedbrandedTeavanateabeveragessoldinStarbucks'retailstorescontinuedtodrivebothfoodattachandstronggrowthintheteacategoryinQ2,withtearevenueup15%year-on-year,driveninlargepartbyverystrongcustomerresponsetothelaunchofTeavanabrandedshakenicedteasandTeavanaTeaLattes.Teavanarepresentsaverycompelling,strategicopportunityforStarbucks,andweplantoexpandavailabilityofbrandedTeavanateabeveragesthroughoutStarbucksretailstoresinmultiplenewgeographicmarketsinthequartersahead.
BasedonoursuccessintheUnitedStateswithLaBoulangeBakeryplatform,wehavenowbegundeploymentthroughoutCanada.Alreadynearly70%ofStarbucksCanadacafeshavetransformedpastrycases,withthebalancetobeconvertedbysummer.AndourcoreFrappuccinoplatform,introduced20yearsago,remainsverystrongandcontinuestoattractbothnewandrepeatcustomers.BirthdayCakeFrappuccino,availableonlyfivedaysinMarch,wasahugesuccess.
AndasHowardmentionedearlier,wehavesomeveryexcitingFrappuccinoandbrandedTeavanaicedteabeveragesplannedforthissummer.StarbucksChina/AsiaPacificregion,ourfastest-growingregion,deliveredanotherverystrongquarterwithcompsalesrising12%,thestrongestcompsalesincreasesince2012.Withrevenuesincreasing124%--or24%whenexcludingthe$270millionincrementalrevenuefromtheacquisitionofStarbucksJapan--operatingincomerose29%fromQ2lastyear.
WehavemorethandoubledourCAPstorecounttoover5,000storesinthepastfiveyears.We'veadded769netnewstoresinthelast12months.Wewillopenour1,600thstoreinChinalaterthismonth,wherewenowoperatein87cities,andouronourplantoincreaseourstorecounttoover10,000storesinCAPoverthenextfiveyears.
PassionforcoffeeandpartnercustomerengagementinCAPareamongthehighestofanymarketintheworld.Inresponsetocustomerandpartnerdemand,wehaveexpandedavailabilityofStarbucksReservepackagedcoffee,andwenowofferStarbucksReservein136storesacross10CAPmarkets.InQ2,weassumedfullownershipofthestrategicallyimportantJapanesemarket.Japanisamarketwefirstenterednearly20yearsago.
Andnowwithfullownership,wehavetheabilitytofurtheracceleratestoregrowth,expandtheStarbucksbrandacrossmultipleotherchannels,andcross-sellproductsintootherCAPregions.Asanexample,werecentlyintroducedOrigami,ourpremium,singleserve,pour-overpackagedcoffee,formerlyonlyavailableinJapan,intoTaiwan,HongKong,Korea,andmainlandChina,toastrongpositivecustomerresponse.
OurChina/AsiaPacificbusinesscontinuestoperformextremelywell,reinforcingourconfidenceinthelong-termgrowthpotentialofthemarket.TheevolutionofourEMEAbusinesscontinues,withthebusinessreportinga2%compsalesincreaseinthequarter,with2%drivenbytrafficgrowthand1%increaseinticket.WearebuildingourEMEAbusinessbyintroducingnewfoodandbeverageofferingsandinnovativenewstoredesigns,whileatthesametimeincreasingsalesacrossalldaypartsandsuccessfullybuildingcapacityatpeak.
Andwecontinuetoenterhighcustomertrafficlocationsbyaddingadditionalchannellicenseesatvenuessuchastrainstations,airports,andsupermarkets.Equallyimportant,theEMEAteam'slaserfocusonoperationsandtheongoingmixshifttowardslicensedstoresenabledthatsegmenttosignificantlyincreasebothoperatingmarginandoperatingincome,despiteformidableforeignexchangeheadwinds,asubjectScottwilldiscussinafewmoments.
ChannelDevelopment.Nowoperatingin41marketsaroundtheworld,inQ2ourChannelDevelopmentsegment,alreadyoursecond-mostprofitablebusinesssegment,increasedrevenue16%andoperatingincome23%year-on-year.AtthesametimetheChannelDevelopmentteamincreasedshareofevery
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page7of22
productwithinitsportfolio,includingroastandground,K-Cup,VIAandTazoTeas.OurChannelDevelopmentsegmentremainsontracktogrowitstoplineby60%anditsoperatingincomebynearly100%bytheyear2019.
Sincelaunch,StarbuckshasbuiltitsleadingpositionontheK-Cupplatformthroughongoingproductinnovation,includingtheintroductionofsingleorigincoffeesandseasonalandLTOofferings,includingholidayblends.Andbyexpandingourchannelsofdistribution.WewillcontinuetoinnovatearoundoutK-Cupportfolio,includingnewofferingsforsummerrefreshment,includingicedStarbuckscoffeeandTazoicedteaK-Cupstobrewoverice.
AndinQ2ourgrowingfoodservicesbusiness,whichincreasedsales11%year-over-year,beganservingmillionsofcustomerstravelingonDelta,andDeltaConnectionflights,aroundtheworld.Theglobalready-to-drinkcoffeemarket,amarketweareuniquelywellpositionedtolead,islargeandgrowingrapidly.
Ourplanistodoubleourinternationalready-to-drinkcoffeebusinessoverthenextfiveyears.WehavetakenanimportantstepforwardwiththestrategicpartnershipweannouncedlastmonthwithTingyi,amongChina'slargestandmostrespectedbeveragecompanies.CombiningtheStarbucksbrandandour1,600retailstorefootprintinChinawithTingyi'slocalmanufacturingcapabilities,itsgrocerysalesexpertiseanditsbroaddistributioncapabilities,positionsustounlockthehugeopportunitythatexistsforStarbucksready-to-drinkcoffeesinChina.
Amongthethingsthathasimpressedmemostthroughoutmyimmersionhasbeenthepaceofinnovationthat'stakingplaceatStarbucks.HighlightingalltheinnovationcurrentlyunderwayacrosstheCompanyinbeverage,food,storedesign,marketing,merchandising,wouldrequiremanymorehoursthanwehaveavailabletoday.ButIwouldliketoshareafewhighlightsofwhatIbelievetobegame-changinginnovationtakingplaceonthecustomerdigitalexperience.
WearedelightedwiththeinitialresultsofMobileOrderandPay,ourmobileorderingcapabilitynowavailableinover600storesacrossthePacificNorthwest.StarbucksMobileOrderandPayexperienceisaproprietary,fullyintegratedtechnologythatallowscustomerstoordertheirfoodandbeverageselectionsthroughtheirmobiledeviceaheadoftime,andgototheirparticipatingstoretopickupthecompletedorder.
Ourexperiencetodategivesusconfidencethatoncefullydeployed,MobileOrderandPaywilldriveasignificantincreaseinmobilepaymenttransactionsinstoresacrosstheUS.Enhancingourin-storeexperiencewithcustomerfocuseddigitalexperienceslikeMobileOrderandPaycreatesapositiveflywheeleffectonourbusinessandattractsmoreMyStarbucksRewardsmembers.EachnewMSRmemberrepresentsadeeper,morepersonalizedcustomerrelationship.Andmorepersonalizedcustomerrelationshipsallowustobetterservecustomersandgrowourbusiness,asevidencedbythesignificantincreaseinthenumberofactiveMSRmembersweareserving.
Forthefirsttimeever,wenowhaveover10millionactiveMSRmembersintheUS,up27%overlastyear,havingadded1.3millionnewMSRmembersinQ2.Wearenowprocessingover8millionmobilepaymenttransactionsperweek,equalingnearly19%ofourUSstoretender.AndinQ2,wenotonlyexperiencedrecordcardredemptionsfollowingtherecordholidaycardsalesandloads,butwealsorecordedQ2recordcardloadsofover$1.1billionforNorthAmerica,a19%increaseyear-over-year.
WhileMobileOrderandPayisexceedingeveryinternalgoalwehaveset,weareevenmoreproudofthedifferencethetechnologyismakinginourcustomers'lives.Wearereceivingpositivefeedbackfrommanycustomers:studentswhonowhavetimetovisitStarbucksbetweenclasses;parentswhoareabletoeasilyordertheirfavoriteStarbucksfoodandbeverageswhilerunningerrandswiththeirchildren;and
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page8of22
busypeoplefromallwalksoflifewhoareleveragingthisnewcapabilitytoenabletheirownpersonalStarbucksexperience.Wealsoreceivedoverwhelmingappreciationfromdeafcustomers,whoarenowabletoeasilyorderandreceivetheircustomizedbeveragejustthewaytheywant.Customerconnectionhasalwaysbeencoretowhoweareasacompany.
Andweareleveragingthedigitalassetstoexpandandenhancethatcustomerconnectiontowhatisnowmorethan16millionactiveusersofourmobileappsintheUSalone.WeremainontracktofullydeployMobileOrderandPaytoallUScompany-ownedlocationsbeforethisholidayseason.
Atthesametime,wewillbegintestingdelivery.InMarchweannounced,throughacollaborationwithPostmates,aleadingon-demanddeliveryservice,wewillenablecustomerstoorderfoodandbeverageitemsusingStarbucks'mobileappandreceiveon-demanddeliverywithindefinedareas.
Wearealsolaunchingagreenaprondeliverytestwithourpartners,deliveringorderswithinspecificofficebuildings.AsHowardmentioned,ourfirstgreenaprondeliverytestwillbegininNewYork'sEmpireStatebuildinginthesecondhalfof2015.CreatingagenuineStarbucksexperienceforourcustomersandanauthenticandpersonalconnectionbetweenourcustomersandourpartnersiscoretoeverythingwedo.Earlierthisfiscalyear,webeganrollingoutaseriesofinvestmentsinsupportofourin-storepartnerswhodelivertheStarbucksexperience.
Conceived,carefullydevelopedandhonedoverthepastyear,thechangeswehaveimplementedarealreadytouching135,000partnersacrossourUSstorebase.Changesincludeincreasedbaristaandshiftsupervisorpayrates,additionalperformance-basedrecognitionprograms,updatestoourdresscode,anewfoodbenefit,aswellasourindustry-leadingCollegeAchievementProgram.
Wearealsoinvestingindigitalsolutionstoautomatestoretasks,freeingupourpartnerstofocusmoreoftheirtimeandattentiononcustomerengagement.Wearebeginningdeploymentofhandhelddevicesconnectedwithascannertosimplifythingslikeinventorymanagement.Thisisjustoneexampleofmanywhereweintendtoleveragetechnologytoempowerin-storepartnersinsupportofourmission.Thisisajourney,andwearecommittedtolisteningtoourpartnersandtodeliveringfurtherenhancementstothepartnerexperience.Wearemakingsimilarinvestmentsinlocallyrelevantwaystoimproveourpartnerexperienceelsewherearoundtheworld.
Inclosing,andasHowardmentioned,ifthereisonewordtodescribeStarbucks'recordperformanceinthequarter,Ithinkitwouldbeinnovation.Innovationaroundnew,locallyrelevantfoodandbeverageofferings;innovationaroundstunningnewstoredesigns;innovationthroughthecreationofnewglobalgrowthplatforms,allcenteredaroundcoffee;innovationaroundhowweserveandengagewithourcustomersandbuildcustomerloyalty;innovationaroundourbreakthroughmobileanddigitaltechnologies;andinnovationaroundhowweinvestinandconnectwithourmostimportantasset,ourpeople.
Innovationwillcontinuetodriveourbusinessinthefuture,andprovideuswiththeconfidenceandabilitytocontinuegrowingourbusinessinmarketsandchannelsonaglobalbasis.AndwhilewewerepleasedwithourQ2performance,weknowthatwehavemuchmoreworktodotoachieveouraspirationofbecomingtheworld'smostrespectedandenduringcustomerbrand.Withthat,IwillturnthecallovertoourCFO,ScottMaw.Scott?
Scott Maw(CFO):
Thanks,Kevin,andgoodafternoon,everyone.IamverypleasedtocommentonthestrongQ2financialresultsthatStarbucksannouncedtoday,especiallyinlightofthefactthateachofoursegmentscontributedmeaningfullytotheresults.Strongglobalcompgrowthof7%inthequarterdemonstratesonceagaintheincreasingstrengthandrelevancyoftheStarbucksbrand.
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page9of22
Transactioncompsof3%,driveninlargepartbyanexcellentexecutioninourkey,fast-growingCAPregion,exceededtransactioncompsintheAmericas,reflectingtheincreasinglyglobalnatureofourbrand.Revenuesgrewto$4.6billion,an18%increaseoverprioryear,despitenearly2percentagepointsofheadwindthroughforeigncurrencytranslation.
GAAPEPScameinat$0.33.Andournon-GAAPEPS,alsoat$0.33,cameinaheadofthepre-splitconsensus.Weraisedourguidancemodestlyatourannualshareholders'meetinginMarch,andtheresultsweannouncedtodayareatthetopendofthatrevisedrange.Excludingnon-GAAPitems,operatingincomeincreased23%overQ2lastyearto$789million,whilenon-GAAPoperatingmarginexpanded70basispointsto17.3%inthequarter.Importantly,wesawameaningfulincreaseinCOGSleveragethisquarter,assupplychaininitiativeswehavepreviouslydiscussedincreasinglybenefitouroperations.
Ouryear-over-yearoperatingperformanceimprovementbecomesevenmoremeaningfulinlightoftheongoinginvestmentswecontinuetomakearoundbuildingnewstoresandrenovatingexistingstores,thepartnerinvestmentswearemaking,andunfavorableforeigncurrencytranslation.IwillnowtellyouabouteachofoursegmentsandhowtheyperformedinQ2.
OurAmericassegmentrevenuesgrew11%inQ2,primarilydrivenbyastrong7%compgrowthandanotherquarterof2%transactiongrowth.Ofthe7%compgrowth,foodsalesdrove2pointsoftheincrease,whilebeverageinnovationandteadrove1pointeach.NoteworthyisthatthecontributiontocompgrowthfromteahasroughlydoubledsinceweintroducedTeavanateasintoourStarbucksstoreslastsummer,adding1pointtocompineachofthelastthreequarters.InQ2,Americasoperatingmarginexpanded110basispointsoverQ2lastyearto22.7%,anexcellentresultasthebulkofourUSstorepartnerinvestmentsbeganinearnestduringthequarter.
Thelargestcomponentsofthenewpartnerinvestmentswerewageadjustmentsandtheintroductionofanewfoodshiftbenefit.Altogether,theseinvestmentsimpactedQ2operatingincomeby$34millionandoperatingmarginby100basispoints.Forfiscal2015,weexpectpartnerinvestmentstototalapproximately$140million,andthisamountwasfullyincludedinourinitialandcurrentguidance.Lookingforward,weexpectmodestfurtherexpansionoftheAmericasmarginduringthesecondhalfoftheyear.
OurEMEAsegmentincreasedoperatingincome65%overQ2oflastyeartoaQ2record$29million.Ourlicensedstoreportfoliointheregioncontinuestoperformexceedinglywell,withhigh-single-digitcompsonceagainthisquarter,reflectingthestrengthandresiliencyoftheStarbucksbrand.
Atthesametime,EMEA'soperatingmarginexpanded470basispointstoaQ2record10.4%,reflectingthecontinuedprogressthattheEMEAteamismakingagainstourplantoimproveoperationsandachievemid-teensoperatingmarginsoverthenear-term.EMEAsawadeclineinrevenueslargelyduetounfavorableforeignexchangetranslationandtheongoingshiftfromcompany-ownedtolicensedstoresinseveralmarkets.Thesefactors,coupledwithcontinuedconsumerweaknessinseveralcountrieswithintheEMEAregion,makethissegment'sQ2performancethatmuchmoreimpressive.
WeremainconfidentthatEMEA'soperatingmarginwillreachtheupperendofour10%to12%guidanceduringfiscal2015.OurChina/AsiaPacificsegmentdelivereda29%increaseinoperatingincometo$112millioninQ2.GAAPoperatingmargindeclinedfrom32.8%to18.9%,reflectingtheimpactofouracquisitionofStarbucksJapan.
AsIhavementionedpreviously,ourJapanstoresremainamongourmostprofitableintheworld.Excludingthenearly15pointfinancialimpactoftheownershipchangeinStarbucksJapan,CAP'soperatingmarginincreasedby80basispoints,drivenprimarilybysalesleveragethroughouttheregion,
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
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includingverystrongsalesleverageinChina.WecontinuetodriveanincreaseinstoreuniteconomicsinChina,andournewestclassofstoresisdeliveringexcellentfirst-yearoperatingprofitability.
TheCAPteamremainslaser-focusedoncontinuingtodeliversubstantial,disciplined,profitablegrowth.AndweareincreasingourCAPoperatingmarginguidanceslightly,aswenowexpectoperatingmargintoapproach20%forallof2015.ChannelDevelopmenthadanexcellentQ2,withoperatingincomeincreasing23%toarecord$156million.Operatingmarginforthesecondquarterexpanded210basispointsto36.5%,primarilydrivenbyefficienciesincostofgoodssold,strongresultsfromourNorthAmericancoffeepartnershipthatdelivereditshighestquarterlyyear-over-yearprofitgrowthsince2009,andsalesleverage.
Wenowexpectapproximately150basispointsofoperatingmarginimprovementinChannelDevelopmentinfiscal2015.Strongresultsduringthefirsthalfof2015enabledustogenerateearningspershareattheupperendofour16%to18%non-GAAPtargetEPSgrowthrange.Accordingly,inMarch,weincreasedourguidancerange,andtodayreaffirmedthatrangewithGAAPEPStargetedbetween$1.77and$1.79,andnon-GAAPEPStargetedbetween$1.55and$1.57.ForQ3,wearetargetingGAAPEPSofbetween$0.39and$0.40,andnon-GAAPEPSintherangeof$0.40to$0.41.For4Q,weexpectGAAPEPSintherangeof$0.40to$0.41,andnon-GAAPEPSintherangeof$0.42to$0.43.
OnefurthernoteaboutourguidanceforQ3andQ4.WhilewefullyexpectmarginexpansionfromQ3toQ4,ourearningsgrowthforQ4willbeslightlybelowouraverageearningsgrowthfortheyear,duetotheimpactofthepartnerinvestments,highernegativeforeigncurrencytranslation,andlappingaparticularlystrongQ4of2014.Revenuegrowthforfiscal2015remainstargetedat16%to18%,despite2pointsofheadwindfromforeigncurrencytranslation.Wecontinuetoexpectcommoditiestoberoughlyneutralin2015ascomparedto2014.
Ourcoffeeteam'spatiencearoundcoffeepricingpaidoff,resultinginourcostsforfiscal2015beingbelowaveragemarketprices.Movingontomargin,wenowexpectamodestincreaseinfiscal2015non-GAAPoperatingmarginoverlastyear,representingaslightincreaseoverourpriorguidance.Westillanticipate1,650netnewstoresinfiscal2015.ButwenowexpectAmericastohaveapproximately600netnewstores,slightlylowerthanpreviousguidance,duetotheimpactoftheclosingofthe132licensedTargetstoresinCanada.OurEMEAnetnewstoretargetmovesupslightlyto200,andnetnewstoresinCAPremainsthesameat850.Allotherguidanceremainsconsistentwithlastquarter.
Aquicknoteon2016coffeepricing.Duetotherecentdropincoffeeprices,wehavebeenlockinginsupplyfor2016,andarenowcloseto70%pricedfor2016atpricessomewhatfavorableto2015.Wewillupdateyouontheimpactofcoffeepriceson2016performanceastheyearprogresses.Finally,afewwordsofcautionaboutextrapolatingourcurrent-quarterperformanceintoresultsabovetheupperendofourguidance.Whilewearecomfortablewiththerangethatweaffirmedtoday,severalfactorsneedtobeunderstoodwhenconsideringtheupperendofourrange.
First,theUSstorepartnerinvestmentsthatbothHowardandKevinspokeaboutwillbefullyrampedupduringthethirdandfourthquartersoffiscal2015,impactingmarginsfortheAmericassegmentduringthebackhalfoftheyear.Wehavefullyplannedfortheseinvestments.However,thefuturebenefitsthatwillflowfromtheseinvestmentsaresignificant.Andwewillnothesitatetotakeadvantageofopportunitiestomakeadditionaltargetedpartnerinvestmentsthatbuildandstrengthenthebusinessaswemovethroughthebalanceof2015.
Second,bothCAPandChannelDevelopmenthadbannersecondquarters.Andwefullyexpecteachsegmenttofinishtheyearverystrong,butwedonotanticipatearepeatofsecond-quarterperformanceforeithersegment.Forexample,inthebackhalfof2015,ourinternalprojectionscallforChannelDevelopmentrevenuegrowthtobecloserto10%,consistentwiththegrowththatwehaveseenoverthe
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
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pastseveralyears.
Finally,foreignexchangeisbecominganincreasinglychallengingheadwind,withover2percentagepointsofnegativeimpactonbothrevenueandearningsgrowthplannedintothebackhalfof2015.Thiswasnotcontemplatedinourplanorourinitialguidancefortheyear,andwearestillplanningtodeliverearningsgrowthof17%to18%,despiteover2pointsofcurrencyimpact.Infact,wemodestlyincreasedboththetopandbottomrangesofourfull-yearEPSguidancelastmonth.Webelievethatthislevelofgrowthwillrepresentbest-in-classperformance,therightlevelofinvestmentinourpartners,andanindustry-leadingreturnforshareholders.
OnefinalsubjectbeforeturningthecalltoQ&A.Inthepast,wehavegivenguidancefortheupcomingfiscalyearduringourthird-quarterearningscall,eventhoughourannualoperatingplanistypicallynotfinalizeduntilSeptember.KevinandIhavebeendiscussingthis,and,giventhesizeandscaleofourincreasinglycomplexandglobalbusiness,havedecidedthatgoingforwardwewillmovefutureguidancetoourQ4earningscall,enablingustocompleteandfullyvetourplanpriortoprovidingguidance.
BeassuredthatthischangeisnotrelatedtoQ3performancetodate.Infact,wearequitepleasedwithhowthequarterhasstarted.Nordoesitsignalanycomingchangeinlong-termtargets;itdoesnot,andourlong-termtargetsremainunchanged.
Instead,wearemakingthisadjustmentforthesoleandsimplereasonthatdoingsowillresultinamorecompleteandinformedforwardguidanceconversation.Q2representedanotherquarterofstronggrowthandexcellentfinancialandoperatingperformanceforStarbucks,allaroundtheworld.
Asweenterthesecondhalfof2015andlooktothefuture,weareideallypositionedtocontinuebenefitingfromtheinvestmentswearemakinginourpeople,inourstores,andininnovation,andtocontinueprovidingworld-classreturnstoourshareholders.Wewillcontinuetoupdateyouonourprogressaswemovethroughouttheyear.NowIwillturnthecallbacktotheoperatorforQ&A.Operator?
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions).SaraSenatore,Bernstein.
SaraSenatore (Analyst-Bernstein):
IwaswonderingifyoucouldtalkalittlebitmoreaboutMobileOrderandPay,acoupleofquestionsrelated.Oneofthemisyou'reabouthalfwaythroughtheyearandyouhave650stores,andyouarelookingtoaccelerateIthinkquitenicelyinthebackhalf.
Ifyoucouldtalkalittlebitaboutwhatyou'velearnedthatwillallowyoutoacceleratethatpace.Andtheotherpiecewearecuriousaboutis,areyouseeingthatonlypeoplewhoalreadyusemobilepayareusingtheorderandpay?Orareyouactuallyattractingnewcustomerstotheuseoftheapp,nowthatyouhavetheorderingcapability?
AdamBrotman (ChiefDigitalOfficer):
ThisisAdamBrotman.Iwilltakethesecondquestionfirst.Theanswerisyes.Weareseeingnewcustomerscomeinanduse--joinMSR,usethemobileapp,andalsouseMobileOrderandPay.Sothisisnotjustleveragingthestrongbasethatwealreadyhaveinourmobilecommerceplatform.Intermsoftherolloutplansandwhatwe'relearning,we'reverypleasedwithhowthishasstarted.
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
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Wewillactuallyseeasignificantlyrampedup,acceleratedpaceofrolloutinthesecondhalfoftheyear,asyoumentioned.Wehaveabigwaveofstorescomingonthissummer.Andwhilewecontinuetolearnandoptimizeacoupleofareas--forexample,theestimatedwaittimepick-up--we'redialinginstorelevelmenuandinventorymanagement.
Theseareallthingsthatwe'regoingtocontinuetoimproveon.But,frankly,we'reecstaticaboutthefactthat,outofthegate,ourcustomersandourpartnersarereallypleasedwithhowthisisgoing.Infact,SeattlestartedoutevenquickerthanPortland.Andaswerollthisintomoredenseurbanenvironments,thatbodesreallywellforhowthisisgoingtocontinuetodrivetransactionsandbeagreatthingforourcustomers.
And,operationally,ourpartnersaretellingusthereisnoimpact,andtheyareveryhappywiththisaswell.Sowe'reexcitedtoacceleratethatrollout,asyoumentioned,intothesecondhalfoftheyear.We'realsogoingtobeaddingthistoourAndroidapp,andlaunchingthisintheUKandinCanadaallbeforetheendoftheyear,sowe'retrulyjustgettingstarted.
SaraSenatore (Analyst-Bernstein):
Great,thankyou.
Operator :
KeithSiegner,UBS.
KeithSiegner (Analyst-UBS):
Congratulationsonagreatquarter.IwanttoaskaquestionabouttheAmericaswiththecheckgrowth.Veryimpressive;it'sthehighesttwo-yearticketgrowthwe'veseeninmanyyears.AndwithsomeofthesenewpremiumproductslikeFlatWhite,likeReserve,likeColdBrew,withthemobileorderrollingthroughoutthisyear,withthefoodattachincreasingasyou'vetalkedabout,lotsoftailwindshere.Couldthisbethebeginningofarunofclosertomid-single-digitticketgrowthintheUS?
Clif f Burrows (GroupPresident-US,Americas,andTeavana):
Okay,thankyouforyour--it'sCliff--thankyouforyourcommentsthereaboutourticketgrowth.Yes,weareabsolutelydelightedwithourticketgrowthinthequarter.We'veseen2%comefromfood.We'veseen1%fromtea.
We'veseenstrengthfromourbasebusiness,whetheritisFrappuccinointhesun-belt;or,asyousay,FlatWhite,allofwhichhelpourticketinthequarter.Plusourroutineanddisciplinedapproachtopriceinthequarter,allhavehelped.Asfarasthefuture,IwillpassitovertoScott.
Scott Maw(CFO):
Yes,IthinktheonlythingIwouldadd,Keith,isthatticketmixwasblendednicelyacrossthethreedriversthatCliffwastalkingabout.So,alittlebitofprice,alittlebitofup-levelpremiumizationwithFlatWhiteandsomeofthethingsthatwe'redoingwithfood,andaniceincreaseinattach.
Sothemixofthatisreallyhelping.Andso,asIsaidinmycomments,Ithinkwe'requiteexcitedabouthowtherestoftheyearlooks,butwe'restillholdingtoourmid-single-digitcompguidanceaswelookforward.
KeithSiegner (Analyst-UBS):
Thankyou.
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
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Operator :
DavidPalmer,RBCCapitalMarkets.
DavidPalmer (Analyst-RBCCapitalMarkets):
Congratulations.AcoupleofP&Lorientedones,perhapsforScott.TheCOGSleveragewasreallystronginthequarter,asyoumentioned.Andyoumentionedinthereleasehowsupplychainefficienciesweredrivingagoodbitofit,particularlyintheChannelDevelopmentsegment.Butaswelookforward,howshouldwethinkaboutthatCOGSline?
That,pluscoffee--willthatkindofleveragecontinue?Andthenseparately,withregardtoG&A,youhadasignificantincreaseinthequarter.Ithinkitwas27%.Whatinvestmentsaredrivingthat?Andhowshouldwethinkaboutthatlineaswell?Thanks.
Scott Maw(CFO):
OntheCOGSpoint,theshortanswerisyes.Weexpectcontinuedleverage.Idon'texpectittobeashighasitwasthisquarter.Thiswasareallygoodquarterwithsomeoftheinitiativesthatwetalkedaboutkickingin,andalsoinCliff'sbusiness,significantcontinuedtractionaroundwaste.Butweseethatleveragecontinuinginthequarter.Andwe'vegotanumberofthingsstackedupagainstmakingsurethathappens.AndthenonG&A,thebiggestdriverofthatatthecorporatelevelissometrue-upsthatwehadaroundtotalcompensation.
DavidPalmer (Analyst-RBCCapitalMarkets):
Thankyou.
Operator :
JoeBuckley,BankofAmericaMerrillLynch.
JoeBuckley(Analyst-BankofAmericaMerrillLynch):
Acoupleofclarificationquestions.ForgivemeifImissedit,butdidyougivethemainlineChinasame-storesalesincreaseforthequarterwithinthatstrongCAPnumber?
Scott Maw(CFO):
Wedidn'tbreakitout,Joe.But,asalways,Chinaisobviouslythebiggestcontributortothatgrowth.SowewerereallyhappywithwhatwesawinChinathisquarter.
JohnCulver (StarbucksCoffeeChinaandAsiaPacific,ChannelDevelopmentandEmergingBrands):
Joe,thisisJohn.Iwouldjustaddthatthemaindriverforthecompgrowthhasbeentransactions.Andtheexperiencethatweareprovidingacrosstheregionhasneverbeenstronger.Andinparticular,whatwe'reseeingisthatStarbucksisbecomingpartofthatdailyritualofourcustomersinChina,inJapan,orintheothermarketsthatwe'reoperatingin.
Andtheleveloffrequencyofourexistingcustomersandthenewcustomersthatweareattractingcontinuestogrow.Wearenowservingwellover5millioncustomersaweekacrosstheregion,andextremelyproudofthejobourteamisdoingoverthere.
JoeBuckley(Analyst-BankofAmericaMerrillLynch):
Okay.AndthenjustaquestionontheTingyi--ifI'mpronouncingthatcorrectly--agreement.How
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
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quicklywillthatrampup?Andthebulletinthereleasementionstheready-to-drinkcoffeecategory.Willthatcoverteaproductsaswell?
MikeConway(President-GlobalChannelDevelopment):
Yes,Joe,thisisMikeConway.So,wecurrentlydistributetheFrappuccinoproductinChinatoday,althoughitisinamorelimitedgeographicalpresencethanwewouldhave.Fromatimingperspective,we'regoingtobetransitioningin2016toTingyi.Andweexpectthatwiththestrengthoftheirdistributionandtheirknowledgeofthemarketplace,combinedwithourstrongbrand,thatwewillsignificantlyunlockthegrowthforChina.
HowardSchultz (Chairman,President,CEO):
Mike,youwanttojustspendalittlebitmoretimeonChannelDevelopment,sincewehaven'thadanopportunity?
MikeConway(President-GlobalChannelDevelopment):
Sure.
HowardSchultz (Chairman,President,CEO):
AndalsowithregardtoTingyi,maybeyoucantalkabouthowmanypointsofdistributiontheyhave.
MikeConway(President-GlobalChannelDevelopment):
Yes,absolutely.So,andyoualso,Joe,mentionedabouttea.And,yes,wewill,overtime,belaunchingteaaswellwiththeTingyidistribution.Wewill,fromachanneltodistributionperspective,pointsofdistribution,theyhavewellover100,000pointsofdistributionwithinChina.AndforChannelDevelopmentforthisquarter,weareactuallyverypleasedwithourresults.Our16%growthwas,byallmeasures,quiteexceptional,andwasdrivenbyanumberoffactorsforus.
Firstofall,very,verystrongprogramming,in-storeexecution,aswellasthesuccessofandlaunchofinnovationslikeournewicedK-Cupplatform.Andaswethinkabouttheremainderoftheyear,wehaveotherinnovationscomingonaswell,includingalaunchoficed--orratherourcocoaK-Cupsaswell.Andsoweexpectverystrongperformanceinthebackhalf,althoughexpectittobemoreinlinewithourhistoricalgrowthofaround10%.
JoeBuckley(Analyst-BankofAmericaMerrillLynch):
Thankyou.
Operator :
KarenHolthouse,GoldmanSachs.
KarenHolthouse (Analyst-GoldmanSachs):
Actuallyanotherquestiononthechanneldevelopmentsideofthebusiness.So,we'veseeninthelast,probablyfewmonths,onNielsenorIRIdatathatpricinghasactuallycomeinforStarbucksbothonanabsolutebasisandrelativetothemarket.I'mjustcurious--thelogicbehindthat,ifthatwasseenasanopportunity.Yournetprofitaccretion,ifit'ssendingoffpotentialentrantsintothemarketwithDuncan,movingintomorepointsofdistribution,justsomeofthelogicbehindthat.And,ofcourse,congratulationsforafantasticquarter.
Scott Maw(CFO):
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
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Yes,thankyou.Fromapricingperspective,weactuallyarequitepleasedwiththewaywewereabletobalanceourbasewithpromotionalpricing.Youcombinethatwiththestrongin-storemerchandisingthatwehad,wewereabletoachievesignificantsharegrowthacrossallofourbusinessesduringthequarter.Andsowewillcontinuetomonitorthemarket,continuetomonitorthepricing,andmakeappropriateshifts.Butatthemoment,we'requitepleasedwithhowourpricingisliningupinthemarketplace,andinparticularhowwe'redrivingshareinthemarket.
KarenHolthouse (Analyst-GoldmanSachs):
Great,thankyou.
Operator :
JohnGlass,MorganStanley.
JohnGlass (Analyst-MorganStanley):
Afewquartersagotherewasanotionofmaybegreaterpartnershipsinthetechside,eitherusingsomeoftheirtechnology,maybewhite-labelingsomeofStarbucks'paymentplatforms,etcetera.Sowheredoesthatstandnow?What'syourcurrentthinkingonthat?AndKevin,asyoucometothisfull-time,maybearetherespecificareasthatyouthinkareevengreateropportunitiesthatyoubringyouroutsideexperienceintoStarbucks?
HowardSchultz (Chairman,President,CEO):
IthinkMattandRyanisgoingtostart,andthenKevinwillfollowup.
MattRyan (GlobalChiefStrategyOfficer):
Sure.Wecontinuetobeinanumberofactivedialoguesrightnowaboutanumberofdifferentpartnerships,leveragingmobile.Weseethecontinuedgrowthasbeingourpermissiontodomoreandmoreinthatspace.We'renotpreparedtoannounceanythingspecifictoday.AndwhatIcantellyouisinthemonthsandyeartocome,therewillbemoreonthatfront.
KevinJohnson (President,CEO):
Yes,intermsofopportunitiesforustobetterleveragetechnology,earlyobservation,Ithinkwe'reaheadoftheindustryinthoughtleadershiparoundthedigitalcustomerexperience.Andwe'regoingtokeeppushingtheenvelopeonthat.
Wehavekindofoutlinedthatforyou,andthere'smoreideasevenbehindthat.TheareathatIthinkwehaveopportunitycertainlyiswithourin-storepartners,onleveragingtechnologytohelpourin-storepartnerswiththetaskstheyhavetodothataremoreabouttheadministrativesideofthingslikeinventorymanagement;makingiteasierforthemtodoschedulingofourstorepartners,communicatingwithourstorepartners,thewaywereachin-storepartnerswithtrainingandcommunications.
We'vegotatremendousopportunitytostepupourgameinthatparticularareaandweregoingtodomorethere.Andthencertainlyifyoulookathowwe'reutilizinginformationacrosstheenterprisetomakemoreinformedandbetterdecisions,whetherit'susingdata--bigdatakindsofanalyticstohelpuswithastorelocation,orbigdataanalyticstohelpusunderstandhowtodoabetterjobofpromotingtoourcustomersatdifferenttimesoftheyear.Ithinkthosearethebigopportunitiesthatwesee,andwe'regoingtocontinuetodriveforwardwiththose.
Operator :
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
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JohnIvankoe,JPMorgan.
JohnIvankoe (Analyst-JPMorgan):
HowardandKevin,youwerevery,veryclearthattheMobileOrderandPayhasexceededeverygoalthatyou'veset.SoIwantedtogetjustalittlebitmoreintothedetailsofthis.Onewouldthinkthatmobileorderwouldworkthebestattheconstraintorthepinchpoint,Ithink,inyourwords,wouldbeattheregisterandnotatthebarista.
Andsoasthatrollouthascontinued,whatyou'veactuallylearnedaboutincreasingbaristacapacity.Isitjustanissueofaddingmorebaristas,addingmoreequipment?Andasyouthinkaboutmobileorder/mobilepayovertime,howmuchmorelatentcapacityexistswithintheexistingStarbucksunitbecauseofthistechnology?
HowardSchultz (Chairman,President,CEO):
John,thisisHoward.Cliffisgoingtotakethatintermsofthedetailsofthequestion.Ithinkit'sfairtosaythatwedidnotintend,nordoweforesee,addingequipmentasaresultofMobileOrderandPay.
Theincrementalitythatwe'reseeingintheearlystagesstronglysuggeststhatwe'regoingtobeabletointegratethiswellwithintheengineofStarbucks.Withregardtolaborandhowwe'redeployingit,IwillletClifftakeit.ButIwouldsay,asAdamsharedwithyou,thattheearlysignsofMobileOrderandPayisthisisgoingtobeamuchmoreseamlessintegrationthanwereallyanticipated,bothintermsofcustomerresponseandthelevelofconvenience.
AndalsoIwouldn'tunderestimateoneotherthing,whichwelearnedwithFlatWhite,andthatisourpeoplearesoexcitedandsoproudofthisinitiativeandthistechnology.They'veembracedit.They'reenthusedaboutit.Andasaresultofthatthat'soneoftheprimaryreasonswhyit'sworkingsowell.Cliff,doyouwanttoanswertheissueofincrementallabor?
Clif f Burrows (GroupPresident-US,Americas,andTeavana):
Yes,letmejusttalkaboutthis.Ithinkoneofthethingsthatwe'reseeingisconvenience;improvedrelationshipbetweenthecustomerandtheirstorewhere[their]order.Theyfeelmuchmoreincontrolofit.Foodattachisstronginit,andjusttherepeatnatureofthesetransactionsisreally,reallyhelping.Itisconvenientforthecustomer.
Theyhavenoqueuetime.Theyarecominginandgoingstraighttothehandoffpointandcollecting.That,inturns,isfreeingupspaceinthestoresandtakingstressawayfromtheregistertransaction.Andweareseeingreallyencouragingsignsofgrowthatpeakinourbusieststores,whichiswhatismostexcitinghere.
Thosebusieststores--wecanonlyreallytalkaboutSeattle--butwherewehaveputinMobileOrderandPay,weareseeingreallystronggrowthatpeak.Andtherehasbeennoadditionalequipment,overandaboveputtinginaprintertoreceivetheordersfromcustomers.Andit'sreallyencouragingthatwewillbeabletogetmorecapacityatpeakoutofexistingstoreswiththeadditionofMobileOrderandPay.
HowardSchultz (Chairman,President,CEO):
Adam,canyouorKevinjusttalkabouthowthishasbeenintegratedintotheecosystemwithregard--thisisnotabolt-on.Thankyou.
AdamBrotman (ChiefDigitalOfficer):
Yes.Firstofall,theecosystemyouarereferringtoisthemobilecommerceplatform,whichincludes
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
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loyalty,themobileapp,ourcardprogram,ourPOSsystemsinourstores.Wehaveintegratedallofthosetogether.Andit'sactuallythatentiremobilecommerceplatformandecosystem,andasyouheardearlierisaccelerating.We'reseeingunbelievablenumbersofactiveMSRmembers,mobileusers,mobilepaymenttransactions.
Soit'sintothatmomentumthatwe'velaunchedMobileOrderandPay.Sothisisnotabolt-on.Thisisgettoleveragethatexistingecosystem.AndIthinkthat'swhy,frankly,ourcustomersarelovingit.Theydon'thavetodownloadanewapp.Theydon'thavetolearnsomethingnew.Thisisjustseamlessforthecustomers,justlikeitisforthepartner.
HowardSchultz (Chairman,President,CEO):
That'sgreat.Thankyou.
Operator :
DavidTarantino,RobertW.Baird.
DavidT arantino (Analyst-RobertW.Baird):
Justafollow-upontheMobileOrderandPayinitiative.ItsoundslikeyoumightbestartingtoseesomeincreasesinMyStarbucksRewardsmembersalsoasaresultofrollingthisout.Sojustwonderingifyoucanmaybecommentonthethoughtprocess,orhowyouthinkabouttheincreaseyouareseeingintheloyaltyprogrammembers,andhowyouplantoutilizethatasyougetthisrolledout.Maybemoreone-to-oneoffersthanwhatyou'redoingcurrently,ormaybethat'snotpartoftheplan.Butanythoughtstherewouldbehelpful.
MattRyan (GlobalChiefStrategyOfficer):
Sure.ThisisMattRyanagain.Thankyouforthequestion.Therearetwowaysoflookingatthis.Therearelotsofwaysthatwe'reactuallygrowingourmembership,andMobileOrderandPayisoneofthem.Weareactuallyincreasingthestrengthofourvaluepropositionovertime,withmoreoffersthroughone-to-one.Peoplearerecognizingthat.Peopleseetheconveniencewithinthestores.Andbecauseitisanoverallinitiativetorecruitmoreandmorepeople,weareseeingthegrowthintheplatform.
Thatbegetsavirtuouscirclewherebywecandomorethingswiththatplatform.Certainlytheabilitytobecomemoreandmoretargetedandsendmoreofferstotherightpersonattherighttime,inthewaythattheywantit,isacapabilitywe'vebeengrowinghere.Butthegrowthofthatplatformis,infact,thepermissionthatwehavetodomore,overtime,inthedigitalspace.Becauseaswegrowthatengagedbaseofcustomers,theadjacentthingswecandowiththem--startingwithMobileOrderandPay,movingontodelivery,andontootheropportunities--isgoingtobeanenormouslong-runplayforus.
DavidT arantino (Analyst-RobertW.Baird):
Thankyou.Andhaveyouseen,infact,thatthemembershiplevelsintheNorthwesthasincreasedsinceyourolledtheMobileOrderandPayout?
KevinJohnson (President,CEO):
Well,IthinkasAdamcommentedearlier,wehaveseenincreaseinMSR,withnewMSRcustomerscomingtouseMobileOrderandPay.And,granted,we'rejustinthePacificNorthwestrightnow,soit'sstillearlydays.ButIthinkthat'safantasticexampleofafeaturethatisacustomer-focusedfeature.It'sallaboutthatbenefittothecustomer,theconsumer.Andwethinkofferingthosetypesofbenefitsandthosetypesoffeaturesaspartofourmobileapp,itwillbringmorepeopleintotheMSRprogram.
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page18of22
DavidT arantino (Analyst-RobertW.Baird):
Great,thankyou.
Operator :
JeffBernstein,BarclaysCapital.
Jef f Bernstein (Analyst-BarclaysCapital):
Justtwoquestions;oneontheAmericascomp.Idon'tknowifyoumentionedthis,butintermsofthetrafficgrowthacrossalldayparts,Iwaswonderingwhetheryouwereseeing,again,stabilityacrossallthosedayparts,andwhetherornotthatwouldimplythatatthispointtherestillnorealsignsofthroughputconstraints,despiteobviouslytheoutsidecompgrowth.
AndthenmyotherquestionwasjustontheAmericasunits.Iknowthatinfiscal2015,Iguesshalfofyouropeningisgoingtobelicensed.Justwonderingwhetherthere'sanyunderlyingstrategyincomingyearstomovetowardsmorelicensedovertime,notunlikeIguessmanyofyourinternationalmarkets.Thanks.
Clif f Burrows (GroupPresident-US,Americas,andTeavana):
Thanks,Jeff,andI'lltakeboththequestions.ThisisCliff.Aswesaidearlierinthescript,wehaveseengrowthintheAmericasinalldayparts,allgeographies,andacrossallplatforms.Itreallywasaverybalancedportfolio.Andweareseeinggrowthatpeaktimesinourbusieststores,whichreallygivesustheencouragementthatweare--westillhaveroomforcapacity.AndMobileOrderandPaywillonlyhelpthatinthecomingmonths.
Secondly,aroundstoregrowth,thisquarter,aswesaid,wasabitofananomalywiththeclosureofthe132licensedstoresinCanada,sothatwilldistortthenumberalittlebitthisyear.ButIthinkoverthecomingyears,youwillseeuscontinueabalancebetweencompany-operatedandlicensedstores.Theremaybetimeswhereitgoesupordown,onewayortheother.Butintermsofstrategy,wecontinuetolookforopportunitiestogrowbothourcompany-operated,andevenhereintheUS,westillseeaveryhealthypipelineofnewopportunities.
AndweopenverysoonourfirstsmallfootprintstoreinNewYork,whichgivesusanotheropportunityforgrowth.AndasHowardsaidearlier,withthepremiumnatureofthe--buildingofftheRoastery,wehaveagainanotheropportunityforgrowth.So,weseethepipelineoutintothefuturebeingveryhealthy,balancedbetweencompany-operatedandlicensed.
HowardSchultz (Chairman,President,CEO):
Letmejustaddafewthingstothat.ForthoseofyouwhohavefollowedtheCompanyformanyyears,itwasn'tthatlongagothatourstoresclosedearlyintheevening--7,8o'clockatnight.Andmostofourbusiness--50%orso--wasdrivenbefore10,11AM.Inthelastfewyears,IthinkCliffandhisteamhavedoneawonderfuljoboftwoprimarythings
Butthebignewsinthelastcoupleofyearsisidentifyingdaypartsandneedstatesthroughuniqueproductsinwhichwecouldleveragethefixedassetofthestore.Solunch,asanexample,isdrivingasignificantlevelofvisitsandincrementality,bothintrafficandinticket.Thenewopportunitywithsmoothiesintermsofhealthandwellness,identifyingthatneedstate,andleveragingthatdaypartopportunity,whichismostlyrefreshmentintheafternoonandhealthandwellness.
Andthenonethingwehavenottalkedabout,eitherinthescriptortheQ&A,istheadvancementofevenings,whichwe'reveryexcitedabout.Andsoallthesethingshavegivenustheabilitytointegrate
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page19of22
newproduct,newlevelsofinnovation,andidentifyneedstatesanddaypartsthatfiveyearsago,candidly,werenotpartoftheunitaveragevolume.IfyoulookedattheaveragevolumeofStarbucksbothintermsofmaturestoresand,probablymostimportantly,newstores,weareexperiencingthebestperformingnewstoreclassinourhistory.AndoneoftheprimaryreasonsiswhatI'vejustdescribed.
ThenyouleverageMSRandMobileOrderandPayonthat,andyourimaginationcanreally--Ican'tbegintothinkabouthowmuchvolumewecanputthroughthesestores.AndIthinkwe'rejustgettingstartedwithalevelofinnovationwethinkthatfoodteamcancreate.Andsothat'swhywe'resoexcitedaboutthefutureintermsoftheopportunitytodriveincrementalityinexistingandnewstores.
Jef f Bernstein (Analyst-BarclaysCapital):
Helpful.Thankyou.
Operator :
NicoleMiller,PiperJaffray.
NicoleMiller (Analyst-PiperJaffray):
WhoeverputthecoffeeinDelta,thankyousomuch.Andonthatnote,canyoutalkalittlebit--orjustwalkusthrough--Ithinkit's100%ofcoffeeislockedforthisyear.Weknowit'sfavorable.Canyougiveusanycoloronhowmuch?
Wewerealsosupposedtoseeabenefitoflowerdairyanddiesel,Ithink,inthebackhalfoftheyear.Areyouseeingthat?Andthenalso,thankyouforthecoloron2016andthelockthere.Priceisloweragain--byhowmuch?Justwondering,canweflowthatthrough,ordoyouwantustoassumeyou'llmakeinvestmentsagainstthat?Thanks.
Scott Maw(CFO):
Thanks,Nicole.Soasitrelatesto2015,whatyouhavetorememberisthatcoffeepricesthroughout2014werequitelow.Soforalongtime,theywereinthe$1.20and$1.30range.Andso2015coffeeprices,despitethefactthatwewerepatientandwaitedoutallthespikesabove$1.90andboughtitfarbelowaveragemarketprices,ourcoffeeisactuallyalittlebitunfavorableyear-over-year.Butthat'smuchmoreabouthowlow2014wasthanitisaround2015.Weactuallydidareallygoodjobbuyingbelowthemarket.Soalittlebitofunfavorability,andaverylittlebit,offsetbyfavorabilityindairyanddiesel.That'skindofhowtheyearisshapingup.
Whenwegaveguidanceallthewaybackinthesummer,weexpectedcoffeepricestocomedown,justgivenwhatwesawinthemarket.Wedidn'tknowtheyweregoingtocomedown,butweexpectedthat.Wewaited,andwewerepatient;andwhentheycameintoourtargetrange,wefilledupourneedsfortheyear.Sothat'showtothinkabout2015--roughlyflat,alittlebitunfavorableoncoffee,alittlebitfavorableondairy.On2016,becausewedidsowellin2015,despitethefactthatwe'velockedatslightlylowerprices,again,thatfavorability,whilemeaningful,itisprobablynotashighasyoumightcalculatebaseduponaveragemarketprices.
Sowe'llgiveyoumoreupdate.Westillhaveafullthirdofourcoffeetoprice.Wewillgiveyouabitmoreupdateaswemoveinto2016andbecomemorespecific.
NicoleMiller (Analyst-PiperJaffray):
Thankyou.
Operator :
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page20of22
DianeGeissler,CLSA.
DianeGeissler (Analyst-CLSA):
IwantedtoaskontheCPGbusiness.IthinkDanoneannouncedonitsearningscallthatitwasco-brandinganEvolutionFreshproductwithyou,yogurtproduct.ObviouslytheTingyideal,Ithink,isabigdealintheCPGspaceinChinafor2016.So,justgoingbacktwoanalystdaysago--whichwould'vebeen,Iappreciate,quiteawhileago,whereyoutalkedabouttheCPGspace,andhowyouthoughtitcouldrivalthesizeoftheUSretailbusinessatsomepointinthefuture.
CouldyoutalkaboutyourgrowthplanswithinCPG?WhichIthinkyou'veobviouslycrystallizedaroundtheK-Cupbusiness.Butthere'slotsofopportunitiesinalotofdifferentaislesinnotonlytheAmericas,butalsoinChina.Socouldyoutalkalittlebit--maybeaddalittlebitmoredetailaroundthat?I'dreallyappreciate(multiplespeakers).
JohnCulver (StarbucksCoffeeChinaandAsiaPacific,ChannelDevelopmentandEmergingBrands):
Yes,Diane,thisisJohnCulver,andletmejusttakethat.ClearlytheCPGbusiness,firstoff,hadaverystrongquarteranditcontinuestogrow.Andourexpectationisthatitwillcontinuetogrowatthatdouble-digitrateintheforeseeablefuture.Now,aswelookatthegrowth,thatgrowthisbeingdrivenbyourcorecoffee,andreallyK-Cupsisabigpieceofthat.
Aswelookatotherareasofgrowth,though,weseetremendousopportunitytogrowoutsideofcoffee.Thebiggestistheteaopportunity,andinparticularwiththeTazoTea,andthenasweintroduceTeavanateadowntheaisleandthroughready-to-drinkaswell.
Andthenwe'vealsoworkedverycloselyonEvolutionFresh.AndEvolutionFreshtodaystandsinover11,000doorsacrossthecountry.TheCPGsharethatwehavebothinnatural,aswellasintraditionalFDMisaverystrong,anditcontinuestogrow.Wejustrepackagedtheproduct.Andwenowhavenewpackaging,an11-ounceanda15.2ounce.
Andthenwe'vealsolaunchedEvolutionFreshsmoothiesinourstores.AndweanticipatelaunchingEvolutionFreshyogurt,withfruitonthebottom,inourstoreswithourDannonpartnership.So,forus,theseareallinvestmentsthatwecontinuetomakeinourchannelbusiness,giventherelevanceandthestrengthofthebusiness.Andalsoweareveryoptimisticaboutthefuturegrowthofthebusinessgoingforward.
DianeGeissler (Analyst-CLSA):
Okay,great.Thankyou.
Operator :
WillSlabaugh,StephensInc.
WillSlabaugh (Analyst-Stephens):
Onemorequestiononchanneldevelopment,butmoreontheinternationalfront.Idon'tknowifyouhadanupdatethatyoucouldgiveusthereonsomekeymarketsinternationally--whereyoustandnowversuswhattypeofgrowthyoumightexpectinthosekeymarketsinthenextcoupleofyearsasyoumighthityourgoals.
MikeConway(President-GlobalChannelDevelopment):
Well,thankyou.ThisisMikeConway.WeseechannelAspecificasbeingoneofourmostimportant
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page21of22
marketsgoingforward.CertainlywiththepartnershipwehavewithTingyi,Chinawillbeabigmarketforus,particularlydrivenbythesizeoftheready-to-drinkenergyandcoffeebusiness.Andwealso--Japanisoneofourlongest-standingready-to-drinkmarkets.
Whileitissomewhatmature,atthesametimethere'salotofgrowthforusthere,particularlywiththemovethatwemadenowfullyowningtheJapanmarket.
Beyondthat,thereareanumberoftheemergingmarketsthatwe'rereallyfocusedon.WestillhavehavefairlyemergingbusinesswithinourLatinAmericaregion.Andwe'relookingatmarketslikeBraziltoestablishapresencethere,anotherbigmarketforus.
Andthenwehaveanestablishedrelationshipin(technicaldifficulty),butwehaveprobablythelargestnumberofmarkets--onsorry,inEurope--wehavethelargestnumberofmarketsintheEMEA,andwearegoingtocontinuetodriveourbusinessthereaswell.ButtheUK,France--thosearesomeofourlargestmarkets.SoasIthinkaboutthesignificantgrowththatwehaveforready-to-drinkcoffee,wearereallylookingattheCAPregionaswellasLatinAmerica.
WillSlabaugh (Analyst-Stephens):
Thankyou.
JoAnnDeGrande (VP-IR):
Operator,thiswillbeourlastquestion.
Operator :
AndrewCharles,CowenandCompany.
AndrewCharles (Analyst-CowenandCompany):
JustwantedtotouchbasewithAdamonthemobilepaymentjustjumpingtoroughly19%;ithadbeenstuckforawhilearound15%.Justwantedtoknowwhatyouattributedtheincreaseinmixto.
AdamBrotman (ChiefDigitalOfficer):
Thanks,Andrew.ThisisAdam.It'sagreatquestion.IwouldsaythecoreecosystemthatHowardandIweretalkingaboutearlierisaninterconnectedsetofpartsthatareall--havemomentum.SothefactthatMSRs--you'veseenthemomentuminMSR.You'veseenthemomentuminmobileactiveusersingeneral.Youareseeingthemomentumincardloadsandcardredemptions.
Andthosethingsarealltiedtogether,soliketheflywheeltheyallpoweroneanother.Andsoit'snotasurprisethatwe'reseeingthatkindofaccelerationhappenwhenitcomestomobilepaymentsaswell;over8millionperweek,approaching19%-plusintheUSintermsofpercentageoftender.Anditjustspeakstothemomentumandtheoverallmobilecommerceplatformingeneral.
AndrewCharles (Analyst-CowenandCompany):
Thankyou,Adam.Greatquarter,thanks.
JoAnnDeGrande (VP-IR):
Thanks,Mike.ThisconcludesStarbucks'Q2fiscal2015earningscall.Thankyouallforjoiningustoday.
Operator :
CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure
EventDescription:Q22015EarningsCallMarketCapasofEventDate:72.54BPriceasofEventDate:49.43
©2014TheStreet,Inc.Al l R ightsReserved Page22of22
ThisconcludesStarbucksCoffeeCompany'ssecond-quarterfiscalyear2015earningsconferencecall.
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