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Starbucks Corporation (SBUX)

F3Q12 Earnings Call

July 26, 2012 5:00 pm ET


JoAnn DeGrande – Investor Relations

Howard D. Schultz – Founder, President Chairman and Chief Executive Officer

Troy Alstead – Chief Financial Officer, Principal Accounting Officer and Chief Administrative Officer

John Culver – President, Starbucks Coffee China and Asia Pacific

Cliff Burrows – President


Joseph Buckley – Bank of America Merrill Lynch

Sharon Zackfia – William Blair & Company, LLC

Michael Kelter – Goldman Sachs

David Palmer – UBS

John Ivankoe – JPMorgan

Keith Siegner – Credit Suisse Securities

Sara Senatore – Sanford C. Bernstein & Co. LLC

Jeffrey Bernstein – Barclays Capital

John S. Glass – Morgan Stanley & Co. LLC

Will Slabaugh – Stephens, Inc.

Jason West – Deutsche Bank Securities

Matthew Difrisco – Lazard Capital Markets



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Good afternoon. My name is Lucania, and I will be your conference operator today. At this time, I would like to welcome everyone to the Starbucks Coffee Company's Third Quarter Fiscal Year 2012 Earnings 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 will now hand the floor to JoAnn DeGrande, Director of Investor Relations. Thank you. Ms. DeGrande, you may begin the conference.

JoAnn DeGrande

Thanks, Lucania. Good afternoon. Joining me on the call today is Howard Schultz, Chairman, President and CEO; Troy Alstead, CFO; and John Culver, President of our China and Asia Pacific business. 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 the forward-looking statements or information. Please refer to the financial statements accompanying the earnings release to find disclosures and reconciliations of non-GAAP financial measures mentioned on today’s call with their corresponding GAAP measures. Earnings release can be found on our website at under Investor Relations. As always, this conference call is being webcast and an archive of the webcast will also be available on our website.

Before I turn the call over to Howard, I would like to take this opportunity to make you aware of our Biennial Investor Conference, which will held on December 5 in New York, more details will be coming soon, but we hope to feel there and preserve that data on your calendar and we look forward to seeing you in early December.

With that, let me turn the call over to Howard Schultz. Howard?

Howard D. Schultz

Thank you, JoAnn and good afternoon everyone. I’m pleased to report the record third quarter results that Starbucks announced today, reflecting 19% EPS growth, 13% revenue growth, 7% U.S. comp growth and 6% global comp growth. While these numbers reflect a very strong quarter and on [their own there] would be used positively, in fact as they felt short of our expectations.

While unacceptable can be personally and I can assure you to all of us in Starbucks, the quarter does however, demonstrate the strength of Starbucks business and brand around the world and provide insight into the nominee of the global opportunity that lies ahead for all of us.

With nearly 18,000 stores in 60 countries, serving 60 million customers every week coupled with the rapidly growing, highly profitable consumer package goods business. Starbucks today is the true multichannel global retailer that is both uniquely and ideally positioned to continue delivering solid top and bottom line performance to our shareholders into the future.

Our record Q3 EPS of $0.43 represented a 19% increase over last year’s main record $0.36 per share and reflected the success of multiple innovative channel development initiatives and the continued profitable growth in our business in the key Americas and China and Asia/Pacific regions were comp growth was 7% and 12% respectively.

I’m particularly pleased with the increasing operating leverage, we are seeing demonstrated by 120 basis point increase in our operating margin over the last year and 19% increase in EPS and the 13% increase in sales to a Q3 record of $3.3 billion in the sales. All this translated into our 11 consecutive quarter of record operating results.

Noteworthy is that we achieved our Q3 results beside high legacy commodity costs, primarily coffee and a challenging economic and consumer headwinds in most of the markets in which we operate. We fully expect the operating leverage unique to our business model to enable us to continue driving EPS growth in excess of revenue growth over the long run.

While the record performance, we reported today demonstrates our ability to continue driving significant consistent revenue, and earnings growth as with many leading and restaurant retailers and consumer brands reporting earnings over the last few weeks. The financial global economy, uncertainty in Europe, high-end appointment in the U.S. and resume decline in home sales and further diminished consumer confidence did have an impact on our business in Q3.

Nonetheless, we are responsible for positively navigating through the uncertain economic climate, we are operating in today. And I assure you we are and we’ll continue to do so. In a few minutes, Troy will share more detail around our Q3 performance to such adjustments we have made to our Q4 targets in response to the current environment and share of FY2013 outlook.

So first, I'm going to lay out a few of the steps we are taking to navigate through today's headwinds including redoubling our efforts to examine all factors of our business, and make certain that we are operating and executing with maximum efficiency maintaining a laser focus on cost, deepening our connection with consumers, and delivering an enhanced experience to our customers around the world.

To best accomplished these key objectives, in Q1 we move to a three region global business model in which the Americas, China, Asia-Pacific, and EMEA regions are each headed by seasoned start-up leaders, Cliff Burrows, John Culver, and Michelle Gass respectively each of them has more than 10 years with the company and reports directly to me.

Our new business models have enabled us to decentralized operations; eliminate redundancies, and support center and regional operations become more locally relevant and improved Starbucks execution on the ground in each of the markets around the world in which we can see. And we are already beginning to see the tangible benefits of our ongoing decentralization issues with stabilization of both top line and bottom line performance in the EMEA region as customer facing initiatives and cost control measures initiated by the teams have taken effect and as the team pursues opportunities to optimize our EMEA store portfolio.

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