Starbucks' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Starbucks (SBUX)

Q2 2012 Earnings Call

April 26, 2012 5:00 pm ET

Executives

JoAnn DeGrande -

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

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

Jeffery J. Hansberry - President of Starbucks Channel Development, Seattle's Best Coffee

Clifford Burrows - President of Starbucks Coffee Americas and US

Analysts

Keith Siegner - Crédit Suisse AG, Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

John S. Glass - Morgan Stanley, Research Division

Jason West - Deutsche Bank AG, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

David Palmer - UBS Investment Bank, Research Division

Sharon Zackfia - William Blair & Company L.L.C., Research Division

Bonnie Herzog - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Starbucks Coffee Company's Second Quarter Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] Ms. DeGrande, you may begin your conference.

JoAnn DeGrande

Thank you, Mike. Good afternoon. This is JoAnn DeGrande, Director of Investor Relations for Starbucks Coffee Company. Joining me on the call today is Howard Schultz, Chairman, President and CEO; and Troy Alstead, CFO.

Before we get started, I'd like to remind you that 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 these 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.

This conference call is being webcast, and an archive of the webcast will be available on our website at www.starbucks.com under Investor Relations.

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

Howard D. Schultz

Thank you, JoAnn, and welcome to everyone on today's call. I'm very pleased to report the record second quarter fiscal 2012 results that Starbucks announced today. As we sit here today, Starbucks has 17,420 stores in 58 countries, serving nearly 60 million customers each week.

Our record Q2 revenues and earnings were driven by strong overall global comparable store sales growth, a significant increase in our CPG, what we refer to as Channel Development segment revenues and operational excellence. A strong top line combined with increased efficiencies and continued discipline around controlling costs enabled us to deliver second quarter EPS of $0.40 to our shareholders.

I'm particularly pleased that we were able to accomplish these results despite the challenges posed by high-legacy commodity costs and a particularly difficult consumer environment in Western Europe, further highlighted by the recessionary news out of England just this morning.

I would not ordinarily begin a call with discussion of one particular market, but we had such a memorable trip to China last week that I wanted to share a few of the details with you upfront. Starbucks' business in China is strong and poised for significant disciplined profitable growth. We have seen a tremendous increase in momentum in China since my last trip, as more and more Chinese consumers frequent our stores and connect with the Starbucks brand and store experience.

You almost have to see the customer engagement for yourself to fully appreciate the transformation. In the past, our typical core customer in China was an expat or tourist visiting a store in Shanghai or Beijing. Today, without question, we have made the significant transition to serving local Chinese customers who enjoy a wide variety of locally relevant products and a welcoming third place environment.

We are well on our way to achieving our plan of having 1,500 stores in Mainland China by 2015. In fact, we are so encouraged by the customer adoption we are experiencing and the momentum that has been growing that we announced today that we are increasing our China/Asia Pacific store opening targets for the fiscal year to 400 from 300, with China stores representing half of that growth.

Our comps in China continue to grow at a double-digit rate, reminiscent of our U.S. growth in the early 1990s, and store profit contribution is among the highest we have ever had in the company's history. Our progress and level of customer loyalty in Tier 1 cities like Beijing, Shanghai, Guangzhou and Shenzhen is now being mirrored in the 44 other cities that have embraced us as well. And our China leadership team, led by John Culver and Belinda Wong on the ground in China, are doing a terrific job building the foundational elements of our brand imprinting our partners with our values and delivering a fantastic customer experience in our store.

The team has also engaged in ongoing forums with multiple stakeholders so that we are building our business with great sensitivity and respect for the Chinese culture. While I was in Beijing last week, we brought together for the first time a group of the leading real estate executives from all over the country in order to share our values and long-term growth plans for the China market. The event was an overwhelming success that brought us closer to Chinese developers and landlords and will help us better compete for the choice location as we expand our operations.

Perhaps at no time during the trip was our enthusiasm and optimism greater than as the 2 first-of-their-kind partner family forums we held in Beijing and Shanghai. Following a theme of growing together, the forums provided us with an opportunity to connect with 1,200 of our partners, their parents and other family members. Through these events, we were able to demonstrate our recognition and appreciation of the importance of family in Chinese culture, to share our own tradition and values and to communicate our commitment to investing in and developing our partners so that they and we succeed together. We made it evident to Chinese parents that Starbucks can give their children career opportunities and important life skills that will prepare them for the future. Our Chinese partners are passionate to grow with us, and they are eager for opportunities to share more of the Starbucks Experience with their customers every day.

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