Starbucks Corporation (SBUX)
Q2 2010 Earnings Call Transcript
April 21, 2010 5:00 p.m. ET

Executives

JoAnn DeGrande – Director of Investor Relations
Howard Schultz – Chairman, President and Chief Executive Officer
John Culver – President, Starbucks Coffee International
Troy Alstead – Executive Vice President, Chief Financial Officer and Chief Administrative Officer
Clifford Burrows – President, Starbucks Coffee U.S.

Analysts

John Glass – Morgan Stanley
Sharon Zackfia – William Blair & Company
Sara Senatore – Sanford C. Bernstein
Steven Barlow – Bank of America/Merrill Lynch
John Ivankoe – J.P. Morgan
Matthew DiFrisco – Oppenheimer & Co.
Jeffrey Bernstein – Barclays Capital
Nicole Miller – Piper Jaffray
Mitchell Speiser – Buckingham Research Group

Presentation

Operator

Good afternoon. My name is Amanda and I will be your conference operator today. At this time, I would like to welcome everyone to Starbucks Coffee Company’s Second Quarter Fiscal Year 2010 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. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Ms. DeGrande, you may begin your conference.

JoAnn DeGrande

Thank you. Good afternoon, ladies and gentlemen. This is JoAnn DeGrande, Director of Investor Relations of Starbucks Coffee Company. With me here in Seattle today are Howard Schultz, Chairman, President and CEO; Troy Alstead, CFO; and John Culver, President of our International Business. Before we get started, I’d like to remind you that this conference call will be containing forward-looking statements.

Forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements and should be considered in conjunction with cautionary statements in our earnings release and risk factors 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 Investor Relations section of Starbucks website, at www.starbucks.com and to the financial statements accompanying the earnings release to find disclosures and reconciliations of non-GAAP financial measures mentioned on today’s call along with their corresponding GAAP measures.

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

Howard Schultz

Thank you JoAnn. Good afternoon and thank you all for joining us this afternoon. The second quarter results we announced today demonstrate the success of our efforts over the last two years to dramatically transform Starbucks business and to position the company for sustained profitable growth into the future. I am pleased to report that our Q2 results reflect the strong underlying fundamentals of our business and the significant improvements in revenues, comp store sales, operating performance, margins and earnings per share that we sought to achieve.

Our top to bottom transformation has created new discipline throughout our company and a solid foundation from which to grow. Starbucks today enjoys a leaner, vastly more efficient operating structure, increased operating leverage, a highly relevant pipeline of innovative new product offerings, both in the market and yet to be introduced, powerful marketing muscle, a deeper, stronger connection with an increasingly more satisfied customer base and a renewed passionate, committed 200,000 partner workforce in 52 countries around the world.

We hae learned valuable lessons over the last few years and we are now sharing and integrating these lessons in order to improve our operations across the globe. Global retail expansion in the future will be achieved by combining our coffee leadership position with cost discipline and operational excellence as unequivocal prerequisites.

We have created an innovative differentiated model to adapt to the changing rules of engagement in traditional marketing and have embraced social networks and digital media as part of an ongoing 360 degree conversation with our customers all over the world. The success of these efforts has resulted in our becoming the number one brand on Facebook and one of the leading brands on Twitter.

We have infused this digital mindset into all of our marketing and communications to leverage our already effective brand voice, enabling a powerful, highly relevant low-cost customer acquisition vehicle. And we will continue to innovate and strive to be best of class in all aspects of our business internationally and domestically. We have also refined our longer term strategy beyond the retail experience and can now offer consumers innovative new coffee products in multiple brands, form factors and across new and established categories, formats and channels.

Taking together, these efforts and initiatives represent a strategy that we believe will provide us with a runway for disciplined, profitable growth long into the future. The results for Q2 exceeded our expectations in many ways and let me just touch on a few. Consolidated net revenues increased 9% to $2.5 billion.

U.S. comparable store sales increased 7%, driven by a 3% increase in traffic and a 5% increase in average ticket. Importantly, this is the first quarter in 13 in which we saw a return to traffic growth in our U.S. stores. International comparable store sales also increased 7%, driven by a 6% increase in traffic and a 1% increase in average ticket.