Home » Starbucks’ (SBUX) CEO Howard Schultz Discusses Q3 2014 Results – Earnings Call Transcript

Starbucks’ (SBUX) CEO Howard Schultz Discusses Q3 2014 Results – Earnings Call Transcript

Source: Seeking Alpha

 

Starbucks (NASDAQ:SBUX)

Q3 2014 Results Earnings Call

July 24, 2014, 5:00 p.m. ET

Executives

JoAnn DeGrande – IR

Howard Schultz – Chairman, President and CEO

Troy Alstead – COO

Scott Maw – EVP and CFO

Adam Brotman – Chief Digital Officer

Cliff Burrows – Group President, U.S., Americas, and Teavana

John Culver – Group President, Starbucks Coffee China and Asia Pacific, Channel Development and Emerging Brands

Matt Ryan – Global Chief Strategy Officer

Analysts

Matt DiFrisco – Buckingham Research

Keith Siegner – UBS

Jeffrey Bernstein – Barclays

Joseph Buckley – Bank of America Merrill Lynch

Sara Senatore – Sanford Bernstein

David Tarantino – Robert W. Baird

Sara Senatore – Sanford Bernstein

John Glass – Morgan Stanley

Bonnie Herzog – Wells Fargo

John Ivankoe – JPMorgan

Brian Bittner – Oppenheimer

Jason West – Deutsche Bank

Operator

At this time, I would like to welcome everyone to Starbucks Coffee Company’s third quarter fiscal year 2014 earnings conference call. [Operator instructions.] Ms. DeGrande, you may begin your conference call.

JoAnn DeGrande – IR

Thanks, operator. Good afternoon. This is JoAnn DeGrande, vice president of investor relations for Starbucks Coffee Company. Joining me on the call today to discuss our fiscal third quarter results are Howard Schultz, chairman, president, and CEO; Troy Alstead, COO; and Scott Maw, CFO. Also joining us for Q&A are Cliff Burrows, group president, US and Americas; John Culver, group president, China, Asia Pacific, and channel development; and Matt Ryan, global chief strategy officer, who is part of our digital team, along with Howard and Adam Brotman, our chief digital officer.

This conference 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.

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Starbucks assumes no obligation to update any of these forward-looking statements or information. Please refer to our website, at investor.starbucks.com to find a reconciliation of non-GAAP financial measures referenced in today’s call with our corresponding GAAP results.

This conference call is being webcast and an archive of the webcast will be available on our website later today.

Before I turn the call over to Howard, I would like to remind you again of our biennial investor day taking place the first week of December in Seattle. We’re in the early planning stages, and invitations will be sent in the fall. We hope you’ll be able to join us for the first conference in Seattle since 2006.

With that, I’d like to turn the call over to Howard.

Howard Schultz – Chairman, President and CEO

Thank you, JoAnn, and welcome to everyone on today’s call. Starbucks Q3 represents another quarter of outstanding operating and financial performance around the world, demonstrating once again the power and relevancy of the Starbucks brand and the success and scalability of our business model and go-to-market strategies.

Today, over 300,000 Starbucks partners are serving over 70 million customers from almost 21,000 stores in 65 countries every week. I’m particularly pleased to report that each of our reporting segments delivered solid performance in Q3 and contributed to our accelerated 11% increase in revenues to $4.2 billion.

Particularly noteworthy is that our U.S. retail store business delivered comp growth of 7%, ahead of our own expectations and a stunning achievement on a base of over 6,800 stores against 9% comps in Q3 last year and in the face of continuing challenging U.S. economic and consumer environments.

Over the last two years, our U.S. business has produced revenue growth of over 22%. Our business in China, now approaching 1,300 stores, has never been stronger, contributing to a strong comp growth of 7% in China Asia Pacific. And EMEA demonstrated continued progress against transformation plan, delivering comp growth of 3% with key U.K. market comps outpacing the EMEA regions overall.

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Globally, store comps grew 6%, our 18th consecutive quarter of comp store sales gains of 5% or more. Innovation and share expansion also drove strong gains in our premium single-serve packaged coffee and tea portfolios, contributing to a solid 13% increase in channel development revenues.

Overall, our operating performance in Q3 resulted in a 200 basis point expansion in our consolidated operating margin to a Q3 record of 18.5%, and a 22% increase in earnings per share to a Q3 record of $0.67 per share.

The results we announced today reflect the success of our strategies to innovate, identify new consumer need states, and day part opportunities and create innovative, highly differentiated, relevant products to satisfy those need states, all while maintaining a laser focus on our core coffee business.

I’m convinced that the continuing effort to execute against these strategies will enable us to drive further incrementality and deliver even stronger unit economics and greater profitability into the future.

Innovation has also been a key driver of Starbucks business, and today, deep trust in the Starbucks brand, our emotional connection to consumers around the world, and our scale afford us the opportunity to innovate beyond our core coffee business.

I previously shared our intent to reinvent the tea category, just as we did the coffee category, and we are making meaningful progress against our plan to do so. In Q3, we introduced both Teavana Oprah Chai and Teavana Shaken Iced Tea to tremendous customer response. Just last week, we opened our fourth new Teavana tea bar on Third Avenue and 63rd Street in Manhattan, and in the fall, we’ll be opening another iconic Teavana tea bar on Broadway and Ninth Street in New York City’s Greenwich Village.

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