Q2 2024 Earnings Summary
- Reaffirmed Long-Term Growth Targets: Starbucks management remains confident in achieving its long-term growth algorithm, targeting 5% same-store sales growth and over 15% EPS growth for 2025 and beyond, despite short-term challenges.
- Progress on Siren System Implementation: The company is on track with the rollout of its Siren System across stores, aiming to enhance operational efficiency and reduce wait times, which is expected to drive customer satisfaction and sales growth.
- Maintaining Premium Brand While Balancing Value: Starbucks is committed to preserving its premium brand positioning while strategically introducing value initiatives to attract occasional customers without compromising brand integrity.
- Starbucks faced a challenging quarter with sharper and more accelerated headwinds than expected, particularly with consumer pressures, raising concerns about the company's ability to meet its ambitious growth goals.
- The recovery in China has been choppy, with more intense price competition than anticipated, which could impact Starbucks' growth prospects in a key market.
- Implementing value strategies to attract customers may dilute Starbucks' premium brand positioning, potentially affecting the long-term health of the brand.
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Long-Term Growth Guidance
Q: Is the long-term growth guidance still valid?
A: Despite a tough quarter, we see no change in our long-term business outlook. We believe we'll return to growth and maintain our guidance of 5% same-store sales and 15%+ EPS growth for 2025 and beyond. -
China Competitive Environment
Q: Are China issues transitory, and will competition ease?
A: We observe intense price competition in the mass market segment in China, especially in tea overlapping into coffee. We're choosing not to participate in this price war, focusing instead on our premium brand. We anticipate a shakeout among competitors unable to sustain this intensity. As the Chinese consumer resumes spending, our healthy business with strong store operating margins will grow. -
U.S. Comp Performance
Q: How did issues arise so quickly since last year's strong demand?
A: Consumer headwinds and pressures have been sharper and more accelerated than expected. In China, recovery has been choppy with more intense price competition. While this quarter was tough, we're committed to the long term. -
Value Strategy and Brand Impact
Q: How do you balance value strategy with brand health?
A: We have no intention of broad discounting that could harm our premium brand. Our brand remains strong. We're focusing on targeted value offerings to attract occasional customers without eroding brand equity. -
Engaging Occasional Customers
Q: Is there a brand or product resonance issue with occasional customers?
A: Our overall brand equity continues to be strong. Occasional customers face economic pressures and seek variety and value. We're focusing on connecting with them through new products and by bringing them into our app ecosystem to demonstrate the value we provide. -
Global Unit Growth Confidence
Q: How confident are you in maintaining outsized unit growth, especially in China?
A: We see strong cash returns from new stores, with reduced costs and efficiencies. The headroom internationally is high; in China, we're in over 800 cities with potential for more than 3,000. We’re confident in our expansion plans, particularly in lower-tier cities where returns are even stronger. -
Loyalty Program Trends
Q: Why did Active Rewards members decline quarter-over-quarter?
A: The decline in 90-day active members is due to less frequent visits from occasional customers amidst consumer pullback. However, we still have a large Rewards membership with 6% year-over-year growth, and we continue to see strong engagement through Mobile Order & Pay and delivery. -
Siren System Update
Q: What's the status of the Siren System rollout?
A: The Siren System was never on the back burner. We're on track to install it in less than 10% of stores this year as committed. We've added underlying processes to reduce wait times inside stores, which will serve as a base for full Siren System implementation. -
Operational Improvements (Toyota System)
Q: How will the Toyota production system improve operations?
A: We're working on store deployment and peak time processes to better engage customers. The estimated 1 percentage point improvement is conservative; fully deployed, we expect even greater benefits. Accelerating these initiatives is part of our plan. -
U.S. Comps and New Products
Q: How did new products like Lavender impact comps?
A: Lavender was highly successful, resonating with Gen Z and millennials, particularly in the afternoon. However, since it launched later in the quarter, it didn't significantly impact the exit rate. We have more innovations coming and expect upcoming actions to balance consumer headwinds.