Starbucks Fourth Quarter and Full Fiscal Year 2026 Earnings Conference Call - STARBUCKS CORP

Financial Performance:

• Q4 2026 net revenues were $9.1 billion, down 3.9% YoY due to the deconsolidation of Starbucks China's company-operated retail operations in favor of a licensed joint venture model.
• Full-year 2026 net revenues reached $37.9 billion, a 2.1% increase YoY.
• Global company-operated comps grew 6.2% for the full year (Fiscal 2026) and 7.2% in Q4, marking the fifth consecutive quarter of comp growth.
• U.S. company-operated comps were up 7.7% in Q4 and 6.5% for the full year; international comps were up 3.7% for the full year.
• Consolidated operating margin expanded 450 bps in Q4 to 14% and 200 bps for the full year to 11.9%.
• Q4 EPS was $0.80 (up 54% YoY); full-year EPS was $2.72 (up 27% YoY), exceeding the high end of guidance.
• North America operating margin expanded 440 bps to 16% in Q4, driven by sales leverage and cost savings.
• Starbucks Rewards 90-day active members reached a record 36 million in Q4.

Guidance and Future Outlook:

• Fiscal 2027 (53-week year) consolidated net revenue is expected to decrease ~1% YoY, primarily due to lapping China's deconsolidation.
• Fiscal 2027 North America comp growth guidance is raised to ~4% (previously 3%+), driven by operational excellence and innovation.
• Fiscal 2027 consolidated operating margin guidance is 13.5%–14%, up ~190 bps at the midpoint from FY26.
• Fiscal 2027 EPS guidance is $3.15–$3.25, representing ~18% growth at the midpoint.
• Global unit growth for FY27 is projected at ~1,200 net new coffeehouses, with International expected to lead with ~1,100 openings (approx. 3 per day).
• North America is expected to add 90–100 net new units in FY27, with a longer-term goal of adding ~5,000 additional stores over time.
• Fiscal 2027 CapEx is projected at ~5% of net revenues, focused on store uplifts and digital modernization.

Business Segments and Product Lines:

• North America: Company-operated comps up 7.9% in Q4; launched smaller format coffeehouses and completed 1,700+ store "uplifts" by year-end.
• International: Q4 revenue $1.3 billion; China is now reported as a licensed joint venture (40% equity share), deconsolidating its P&L.
• Channel Development: Q4 net revenues declined 8.9% due to the absence of coffee price tailwinds and the Global Coffee Alliance exit; revenue growth remains driven by at-home coffee leadership.
• Product Innovation: Strong performance in espresso, refreshers (including caffeine-free options for afternoon), matcha (>$1B platform), and food attach; record launches included "Unicorn" and Peanuts collaboration.
• Digital: Integrating delivery directly into the Starbucks app in Q2; testing AI for drive-thru order accuracy and mobile ordering.

Market and Competitive Landscape:

• Starbucks is shifting from a turnaround to a growth strategy ("Back to Starbucks" initiative), citing improved brand affinity and customer experience.
• International unit growth is accelerating via a licensed model strategy, with a long-term target of expanding from 23,000 to nearly 40,000 international locations.
• The U.S. market shows balanced growth across income levels and day parts, with delivery revenues tripling over the past five years.
• Competitors are being countered by a focus on "Green Apron Service" standards, inventory availability (90% daily delivery), and operational discipline.

Risks and Challenges:

• Revenue headwinds in FY27 from the deconsolidation of China's retail business (impact of ~$700M) and fewer new North American store openings.
• Inflationary pressures on labor and goods costs, though mitigated by recent efficiency gains and cost savings programs.
• Coffee price trends (deflation expected in FY27) and potential volatility in consumer spending habits.
• Execution risks related to new technology pilots (AI in drive-thru, new POS systems) and the rebuilding of the North American development pipeline.

Management Commentary and Tone:

• Tone is highly confident and optimistic, stating the company is "ahead of schedule" on its Fiscal 2028 framework.
• CEO Brian Nickel emphasized that the "Back to Starbucks" plan has successfully transitioned from a turnaround to a sustainable growth strategy driven by fundamentals.
• CFO Kathy Smith highlighted the durability of earnings growth, noting that sales leverage and cost savings are translating effectively to the bottom line.
• Management expressed strong confidence in the "Green Apron Service" investment, stating labor costs are now stable and enabling higher throughput.

Analyst Questions and Answers:

• Comps Cadence: Management expects FY27 comps to be more balanced across quarters (less seasonality variation) compared to FY26, driven by consistent transaction volume and product innovation.
• Margin Expansion: FY27 margin growth is expected to be driven by sales leverage (4% comps), lapping of Green Apron labor investments, and continued cost savings (50% of $2B program achieved).
• North America Unit Growth: FY27 U.S. growth is limited to ~90-100 net openings to reset the pipeline, with a ramp to 300+ openings expected in FY28.
• Afternoon Strategy: Management is successfully building a "second peak" in the afternoon via food platforms, caffeine-free refreshers, and tea initiatives.
• Rewards Program: The new tiered structure (Green/Gold/Reserve) is driving frequency increases, with members moving up tiers based on spend and visit frequency.

Other Key Points:

• Capital Allocation: Dividend raised to $0.63/share (16th consecutive annual increase); ~$1 billion expected for share repurchases in FY27.
• Store Uplifts: Over 1,700 stores completed with upgrades to create a "third place" atmosphere; 2,000+ uplifts planned for FY27.
• Technology: Fiscal 2027 is a major tech modernization year involving new staffing, scheduling, and POS systems to simplify tasks for partners.
• China Transition: The shift to a licensed model in China has stabilized the business, with 6,000+ coffee houses in Asia Pacific and >1,900 in Latin America.
• Supply Chain: Daily delivery coverage in North America is near 90%; further improvements to replenishment cycles are expected within 6-12 months.