Starbucks Corporation (SBUX)

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Starbucks Corp (SBUX)

Goldman Sachs Global Retailing Conference Call

September 10, 2015 15:10 ET


Scott Maw - CFO


Karen Holthouse - Goldman Sachs


Karen Holthouse

Afternoon everybody. We're going to go ahead and kick things off. So we are delighted to have Scott Maw, the CFO of Starbucks and Head of IR, JoAnn DeGrande with us this afternoon on who the company that largely needs no introduction, 22,000 unit retailer with industry leading technology integration one of the strongest brands in the world and perhaps most impressively a clear path to growing its $20 billion in sales in the low double digits for the next several years. That's growth the comes not only from continued food beverage and knowledge innovation but outsized growth in markets like China and new consumer products verticals.

I will turn it over to Scott for some prepared remarks and then we'll move into Q&A from there.

Scott Maw

Great thanks Karen. I'll keep my prepared remarks relatively short I just want to save most of our time for Q&A but I thought given the fact that we're wrapping up our fiscal year this month and starting 2016 maybe I talk to you just a little bit about kind of the Starbucks growth agenda and how I see that playing out currently in the business and maybe a little bit about how to play out in 2016 and maybe the best place to start on that journey is about a year ago where in the fourth quarter we had 1% transaction comps in the company which was a level that we wanted to improve upon obviously and I think there was a fair bit of concern and skepticism understandably in the investment community about our ability to turn that trend.

What we knew and what we could see inside of the company was really an unprecedented level of opportunity around innovation, around investments in digital technology around investments of technology in our store what we call partner digital technology so technology that enables our partners to move more efficiently and better serve our customers we knew we had a holiday lineup that was unlike any other we've ever had and we knew broadly that was we accelerated those investments that comps would turn and I think a lot of companies in that situation would have probably moved back from investment but what we did is we leaned in, we talked in the latest earnings call we put about $140 million of investment into the U.S. P& L and when you look at the holiday results we did turn those comps we had two points of transaction comps and strong overall comp growth and that was a result of the holiday lineup. We had some of the seasonal offerings that were a result of some of the marketing investment we had around an ability to win for sweepstakes My Starbucks for Life and that was around a whole bunch of things we did on one to one marketing and digital and MSR that landed very well.

And then as we rolled into the calendar year in January we started those partner and partner digital investment that included a broad based change in wage across our U.S. business but also pretty heavy investment on benefits side so a food benefit on shift not only give our partners a food opportunity but also to reinforce what's the fastest growing category within Starbucks is food.

Also we invested pretty heavily in our college achievement plan so we moved it from two years of coverage and intuition reimbursement to four years and we've seen an enrollment pick up significantly and new partners are coming to Starbucks and are staying at Starbucks longer as a result of that program and then we did some other things including I would highlight on the technology and the stores, we’ve moved from paper inventory where we were literally asking our partners to sort of tick and tie on a checklist inventory to scanner technology and we're rolling that out in the stores. We've improved the Wi-Fi which benefits our customers but also increases the bandwidth that our partners can access to do many of the things that we do and increase the speed of systems like our point of sale system in our stores generally and I think the most important thing about all of those investments is that they're working and so when you look at comp growth in the last two quarters particularly most recent quarter we had eight points of comp growth in the U.S. with four points of transaction. It is absolutely completely tied to those investments, it's tied to some of the other things that I'm sure we'll talk about that in Q&A that we're doing on the product and digital side but we know those partner investments are paying off.

So we'll continue to invest in those, we will continue to accelerate investment where we have a winner and we know what's working, we won't hesitate to lean in and just to give you one example of that I'll use Mobile Order & Pay as an example of that. So when we announce Mobile Order & Pay and we rolled Portland in December we let you know that we would finish the rollout of all 7500 or so company owned stores in the U.S. by the end of the calendar year 2015. Then we saw how well Portland did, we rolled Seattle and the rest of the Pacific Northwest that did even better on all of the metrics and so with that time we told you we want to get the company owned stores rolled out by holiday then in the middle of June we rolled out about 4000 stores across the country across the Sunbelt and Midwest and those stores once again did better than Seattle which was doing better than Portland and what I'll tell you today is we’re accelerating the Mobile Order & Pay roll out will have all company owned stores rolled out by the end of this month including right here in New York so very soon you'll be able to call up a menu and place an order from a conference right at the end of my very interesting and exciting comments and then swing down and pick it up. So that's really important and we've leaned in on that investment. We've spent the money and taken the cost to do that because we know we have a winner and it's running ahead of our expectations, that also set this up very well for delivery and so as we think about leaning in on delivery and getting into our next fiscal year what we will talk about in Q&A but two types of delivering one is Starbucks partner with delivery and one is a partnership that we have with Postmates in Seattle.

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