Starbucks Stock

Good afternoon, and welcome to Starbucks Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]. I will now turn the call over to Catherine Park, Vice President of Investor Relations. Ms. Park, you may now begin your conference.

Good afternoon, and thank you for joining us today to discuss Starbucks' third quarter fiscal year 2026 results. Today's discussion will be led by Brian Niccol, Chairman and Chief Executive Officer; and Cathy Smith, Executive Vice President and Chief Financial Officer.

This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factors discussed in our filings with the SEC. Starbucks assumes no obligation to update any of these forward-looking statements or information.

Revenue, operating margin and EPS growth metrics referenced on today's call are non-GAAP and measured in constant currency. All other metrics referenced on today's call are non-GAAP. Please refer to the earnings release and our website at investor.starbucks.com to find reconciliations of these non-GAAP measures to the corresponding GAAP measures and supplemental financial information. This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, September 11, 2026. And for your calendar planning purposes, please note that our fourth quarter fiscal year 2026 earnings conference call is tentatively scheduled for Thursday, October 29, 2026. I'll now turn the call over to Brian.

Good afternoon, and thanks for joining. Before I begin, I want to acknowledge the devastating earthquake in Japan. We're grateful that all our partners are safe, and our thoughts are with all those affected. For more than 30 years, we've been part of communities across Japan, and we'll be there to support them as they recover.

So now turning to our results for the quarter. In Q3, we delivered our fourth consecutive quarter of positive global comps and our second consecutive quarter of consolidated margin growth. It's clear proof that our back to Starbucks plan is working. Starbucks mission was built on a simple belief, an extraordinary cup of coffee, human connection and a great customer experience matter. Our strong third quarter proves this enduring truth delivers enduring results.

We bring this truth to life in our coffee houses every day through an experience that engages the census, celebrates the craft of coffee and brings people together. It's in the aroma of fresh ground coffee that greets you at the door, the symphony of sounds of a drink being handcrafted, the pride our partners have when they put on the green apron. It's the moment of connection between a barista and a customer. It's the smile on their face at the first sip and the feeling of belonging that follows. It's about every detail coming together to create an experience that feels distinctly Starbucks. That's the magic of the third place. It's a human need only we can fulfill and a community only Starbucks can create.

We're reclaiming it, one customer, one cup, one coffee house at a time, and we're on our way to becoming the world's greatest customer service company. This is the Starbucks that's taking shape, one that's true to itself, built to perform consistently year after year, and our third quarter results and performance this year give us the confidence to raise our full year 2026 guidance.

Let's start with the financial highlights. In Q3, consolidated net revenues were $9.3 billion, led by sequentially improving global comp growth of 7.9%. Consolidated operating margin expanded 430 basis points year-over-year to 14.4%, and earnings per share grew 70% year-over-year to $0.85. North America continued to lead our performance in the quarter, company-operated comparable sales increased 8.1%, and licensed Coffee House net revenues were roughly flat despite net closures in the quarter. We also reached a milestone with North America operating margin growing year-over-year for the first time since Q1 fiscal 2024.

This was driven by operational improvements across both our company-operated and licensed businesses. Bringing down our performance further. In the U.S., comps were up 7.9%, driven by balanced transaction and ticket growth. And in Canada, comps were even stronger. International company-operated comparable sales grew 5.7%, driven by continued strength in Japan and the U.K. International licensed store revenues grew year-over-year, and in total, our international business posted its sixth consecutive quarter of positive system-wide comps underscoring our global relevance and the power of our diversified portfolio across 90 markets.

Our operational discipline and cost savings work are making us a more focused, nimble company that prioritizes better spend smarter and invest with intent. We're now seeing the benefits of that work. And as our revenues grow, more is flowing through to earnings. We said we would drive sales growth first and earnings would follow. Our results show we're walking the talk. We're on the right path, and we remain ahead of schedule.

Now let me turn to the progress we've made across the business, driven by our back to Starbucks plan. First, we continue to fine-tune our Coffee House operations to sustain momentum and perform with more consistency at scale. This August marks 1 year since we launched Green Apron Service and has become the operating foundation of back to Starbucks. We gave ownership and accountability back to Coffee House leaders. We invested in the tools, our standards and coaching our partners need to deliver with consistency, and we made it clear what great looks like. Our focus on Green Apron Service has been a real game changer for our business. It's given us a platform to fix the operational issues we faced. It's helped us reset expectations, refocus on the customer and remove barriers to growth.

That progress is evident in our simplified Grow Coffee House reporting and ranking system. Across North America, 2/3 of our company-operated coffee houses are now at 4 or more shots up more than 5 points quarter-over-quarter and more than 40 points since it launched last October. We're also getting sharper in how our coffee houses run. Smart Queue is getting smarter as we optimize for greater accuracy and speed. On average, we achieved target service times across every access point in Q3, even with transaction growth across dayparts.

Our supply chain work is creating a better and more predictable experience for our customers, more Coffee House ownership better customer-focused ordering guidance, improved reporting and expanded daily delivery are all working together to get the right product to the right coffee house at the right time. It's improving our food availability rate, which is close to 99% today, that's about 10 points better than it was just a year ago. Our Coffee House leadership is more stable, too. In the third quarter, the percentage of North American Coffee House leaders who have been in role for 2 years or more improved by about 7 points year-over-year.

That's important because we've seen coffee as leisure stability is highly correlated to store performance. Internal hiring for retail leadership, including coffee house coaches, is up year-over-year as well. That creates more development pathways for partners and gives our Coffee House teams the continuity they need to execute consistently. We also built on our long-standing efforts to ensure partners share our success, launching the best of Starbucks Reward at the close of the quarter. This new incentive allows eligible Green Apron partners the opportunity to turn up to $300 per quarter for meeting Coffee House performance goals across sales, operations and customer service.

Looking forward, we're focused on delivering exceptional service with speed. When we get it right, customers feel it in their experience. We earn trust with every cup served, and we become more than just a great coffee company we become the place where people connect and the gold standard for customer service. Second, our brand continues to become more visible, relevant and loved, brand affinity, consideration and purchase intent were all at 5-year highs in the quarter and customer connection on significantly year-over-year. Customers continue to see worth and value in their Starbucks purchase, and we see it in how they behave. Sales growth in Q3 was broad-based across generations and income groups and across both Starbucks Rewards members and nonmembers even with the continued pressure on U.S. consumer sentiment.

Marketing and innovation helped drive that resilience. We built a strong innovation pipeline anchored in customer rituals and amplified by cultural moments. Refreshers remained a standout platform for us in Q3, delivering double-digit year-over-year revenue growth in the U.S. and customizable energy refreshers, Blue coconut and Mango kept customers engaged expanded the platform to new occasions and gave them more reasons to visit throughout the day.

Our marketing team has done a great job putting us back in front of culture, from Cochella and Soccer Captain Cup Sleeves to a Miffy merch drop in our viral Pink Bearistas, we're creating moments that people notice, talk about and want to be a part of. Starbucks Rewards is reinforcing the daily ritual and building more connection with customers. We now have 35.8 million 90-day active members in the U.S. It's only been 4 months since we launched our new program, and we're already seeing members leveling up from green to gold and gold to reserve. The program also gives us more ways to directly engage with customers and turn a visit into a routine.

Pre-mod Monday is a great example. 1 in 3 members who tried a new modification through this benefit reordered it in subsequent weeks. In the U.S., we also provided Starbucks Reward members early access to our Smoore's coffee lineup. Highlighting the value of being a member. Smarter's beverages are resonating particularly well at Gen Z customers and are tracking as our strongest summer coffee LTO launch in the past several years. Taken together, our brand flywheel is working. We're creating experiences people are excited about, turning engagement into rituals and deepening customer connection that fuels long-term growth.

Third, we continue to improve the third place experience with Coffee House uplift, adding back warmth, texture and great seats at a fraction of the cost of earlier remodels. In Q3, we surpassed 1,000 total uplifts across North America, reaching our fiscal 2026 goal ahead of plan. Early data from uplifted coffee houses show transaction lift across access points, dayparts, formats and customer segments. In short, we like what we're seeing, and they're proving to be a strong brand halo.

That's why we're accelerating our pace with the intention of completing at least 1,500 uplifts by fiscal year-end 2026 and accelerating further in fiscal 2027. Turning to international. We continue to position Starbucks as a world-class global licensor with our China business now under the new joint venture, about 90% of our international portfolio is now managed through a license structure. This gives us a capital-light model that lets us scale our brand with discipline through strong local partnerships. We're taking learnings from our North America license business to evolve how our international model works.

These changes allow us to better reinforce brand standards, financial discipline and shared accountability to our growth system and create a more consistent unified performance management lens across our coffee house portfolio. We're also reshaping our international support organization around our vision. We see international as a capital-efficient way to build our brand around the world. and we're building the structure to support that opportunity and help our license business partners grow with us.

Looking ahead, as the business continues to strengthen, we have a clear view of where we're performing well, where we can move even faster and where there are outliers that require our focus. In our Coffee Houses, we'll keep raising the bar by unlocking more throughput, driving a better customer experience and supporting our Green Apron partners who bring it to life. Across branded menu, we will keep showing up in ways that are true to Starbucks.

We're finishing the summer season with a strong menu lineup that includes blended refreshers, our legendary Unicorn Frappuccino and new Orange Cream beverages and we'll begin testing sparkling beverages in select markets. We'll mark the return of a fall with our iconic Pumpkin Spice Latte and kick off the holidays with our fan favorite, Peppermint Mocha and we'll keep driving Fandom with a steady pace of buzzworthy merch launches and continued innovation season after season.

In supply chain, we will continue scaling daily delivery and testing a 24-hour operating clock to improve speed availability and reliability. And in technology, fiscal 2027 will be an important modernization year with new inventory ordering, staffing and scheduling and point-of-sale systems to improve execution and make our coffee houses easier to run. Finally, we're applying more discipline to how we grow our global footprint. We remain excited about the white space for new coffee in the U.S. and around the world, and we're making sure every new coffee house we open earns its place.

We've developed and globally tested new coffee house prototypes that meet our expectations for accelerating international unit growth, and we're applying those learnings to shape our development approach in the U.S. As a result, the composition of U.S. and international new store growth may evolve as we build a stronger U.S. development pipeline and redirect near-term resources to accelerate the pace of our uplift program, where results are already tangible. We remain confident in our global growth ambitions and our long-term opportunity in North America. While net new company-operated unit growth in North America may remain modest through fiscal 2027 and we expect international to be a meaningful contributor to unit growth.

To conclude, our back to Starbucks plan was built on the belief that human connection and a great customer experience win the day every day and our Q3 results prove they do. Our investments are paying off. More customers are choosing Starbucks more often. Partners are creating more moments of connection. Our brand is more visible, relevant and loved. Our Coffee Houses are more warm and welcoming and our business is delivering on its commitments. I want to thank our partners around the world. Your craft, care and focus are making our coffee houses better every day. Customers feel it, and it is showing up in our results. We still have work to do, but the opportunity is significant and clear. We're focused on finishing the fiscal year strong, and we will be relentless in our efforts to reclaim the third place become the world's greatest customer service company and deliver durable long-term growth.

With that, I'll turn it over to Cathy.

Thank you, Brian, and thank you all for joining today. Our third quarter results demonstrate the progress we continue to make on both the top and bottom line and the growing durability of our performance. I want to thank our partners across our copy houses, supply chain and support centers whose execution is helping us advance our Back to Starbucks plan and reclaim the third place.

Let me now take you through our Q3 results, and then I'll share how we're thinking about the balance of the year. Consolidated net revenues were $9.3 billion, down 1% from the prior year. largely driven by the transition of the China retail business to our new joint venture license structure in the third quarter. Global comps grew 7.9%, improving sequentially from the second quarter and led by transaction growth of more than 4%. Our North America segment revenues were $7.4 billion, with comparable store sales up 8.1%, and in the U.S., comps grew 7.9%, led by transactions up 4.2% and average ticket up 3.6%. W

we're pleased with the healthy composition of transaction and ticket growth which we believe reflects the strengthening fundamentals of our business. As Brian mentioned, our growth was broad-based across dayparts, income levels and access points. Average ticket increases were led by sustained strength in our delivery business as well as innovation-led modifications and attach. In fact, food attach reached a Q3 record across our U.S. company-operated business with growth across all dayparts and the strongest gains in the afternoon. Pricing contributed less than a point of ticket growth in the quarter. 90-day active Starbucks Rewards members grew both quarter-over-quarter and year-over-year to $35.8 million.

Our new program is exceeding our expectations on multiple fronts, including engagement and average stored value card reload amounts, which continue to grow. Overall, our North America store base was 18,371 coffee houses at the end of the quarter. This included '27 net new openings across our company-operated business and 41 net closures within our licensed portfolio. North America licensed revenues were roughly flat year-over-year, reflecting these net store closures in the quarter. U.S. licensed Coffee Houses delivered another quarter of positive system-wide comps, led by continued strength in our travel and leisure segments.

Moving to international. Company-operated comparable store sales grew 5.7%, led by a healthy mix of ticket and tractions Japan, now our largest international company-operated market was a key driver of that strength. Delivering compelling innovation tied to its 30th anniversary celebration and supported by both nostalgic beverages and effective marketing. Performance was also helped by a favorable prior year comparison. The segment delivered $1.3 billion of Q3 net revenues, positive system-wide comps across a diversified portfolio and $300.9 million of Q3 operating income.

Beginning this quarter, Starbucks retail operations in China were deconsolidated from our financials and reported as a licensed business with our 40% joint venture economics reflected as part of income from equity investees. This transition is the main driver of the year-over-year changes in our International segment reporting. To help with your models, here are a few data points detailing China's contribution to our Q3 International segment P&L and our current view of how the economics to Starbucks will evolve.

In the third quarter, we reported $53 million of net revenues attributable to China within our international P&L and operating margin above 100%, reflecting the structure's margin accretive nature. As the joint venture moves beyond this transitional period and scales, we expect our economics to build over time. The operating landscape in China continues to evolve and the end market team is working to drive higher-quality growth and local relevance. It is still early, but we remain confident in the joint venture's ability to reinvigorate sustainable growth in China and to reach up to 20,000 copy houses over time.

Our international portfolio ended the quarter at 22,933 coffee houses, including 189 net new openings in the quarter. In Channel Development, net revenues grew 22% year-over-year to $587.9 million helped by coffee inflation. Our multi-serve refreshers concentrate and Sweet Cream are generating strong engagement with trial and repeat rates more than twice what we typically see in the business. In North America, we also recently launched a Zero Sugar option to extend our Starbucks Double Shot Energy beverage platform. We continue to work with our partners to innovate and extend our brand to more customers and more places around the world.

Moving to margin. Our third quarter consolidated operating margin was 14.4% and expanding approximately 430 basis points from the prior year, our second consecutive quarter of consolidated margin expansion. This was largely driven by sales leverage, supported by our cost savings efforts as well as lower inflation paired with reciprocal tariff refunds. The refunds we received in Q3 largely offset related tariffs incurred in the first 3 quarters of fiscal 2026. As such, we believe the year-to-date view provides a more normalized perspective. More precisely, in the quarter, our consolidated product and distribution costs were 30.3% as a percentage of net revenues. We believe the better proxy for a more normalized Q3 COGS rate is the year-to-date metric of 32.3%.

crucially, both consolidated and North America operating margins expanded year-over-year even without the impact of tariff refunds, underscoring the strengthening fundamentals of our operating model. In North America, our third quarter operating margin expanded approximately 280 basis points year-over-year. When excluding the impact of tariff refunds, Q3 North America margin improved more than 100 basis points year-over-year. Stronger sales leverage, operational focus and cost savings are helping offset our investments in green ever and service and menu innovation.

As we expected, coffee remained a cost headwind in the quarter, but the impact was lower than the first 2 quarters of the fiscal year. Consolidated G&A decreased by approximately 20% in the quarter, driven by a combination of our cost savings efforts deconsolidation of our China business and lapping expenses related to our leadership experience in fiscal 2025. Our effective tax rate of 21.8% moderated versus the prior year. reflecting favorable updates to full year tax estimates and a cumulative catch-up adjustment in the quarter.

All in, Q3 earnings per share grew approximately 70% and year-over-year to $0.85, a meaningful step towards earnings recovery. We also made solid progress on our balance sheet during the quarter. Using a portion of the China transaction proceeds we repaid approximately $1.8 billion of our debt and further reduced our leverage to 2.9x, supporting our investment-grade profile and strengthening our financial flexibility. This allows us to continue investing in the business maintain our competitive dividend and create longer-term value for shareholders.

Turning to our outlook. We believe our top line momentum is becoming more durable margin expansion is taking hold, and our balance sheet is stronger. While the current operating environment remains dynamic, these factors support our confidence in the trajectory of our business. As a result, we are raising our guidance for fiscal year 2026. With 1 quarter left in the year, we expect our fourth quarter comp growth in the U.S. to be 6.5% or better. We are encouraged by our strong start to the quarter, but also recognize the year-over-year traffic comparisons we will lap and the continued variability in the broader consumer landscape.

This implies full fiscal year 2026 U.S. comp growth of a little more than 6% and global comp growth nearing 6%. We expect full fiscal year 2026 consolidated net revenues to be flat to slightly higher year-over-year as we continue to account for the impact of our new [indiscernible] structure. We're also raising our full fiscal year 2026 consolidated margin guidance to greater than 11%. We expect the same fundamental drivers that supported margin expansion in Q3 and to continue in Q4. Sales leverage, disciplined execution and continued progress on an cost savings initiatives should help offset investments in our back to Starbucks priorities.

Particularly, as we anniversary the launch of Green Apron Service in August. In Coffee, we expect coffee price pressures to continue easing in Q4, and become largely immaterial to the year-over-year margin comparisons. It is also worth noting that our channel development revenues can move with coffee price trends, given the structure of our CPG business. We remain on track with our $2 billion cost savings plan.

As a reminder, these are gross savings, which we expect to realize through fiscal 2028 and are balanced across product and distribution costs and G&A. This year, the impact of our efforts are most feasible in G&A and our other operating expenses line. We continue to expect our fiscal 2026 consolidated G&A dollars to run below fiscal 2023 levels. For tax, we assume our effective tax rate in Q4 returns to a more normal level in the mid-20s. Putting this all together, we are raising our EPS guidance at both ends of the range to between $2.55 and $2.65.

Finally, from a unit count perspective, our expectation for approximately 600 to 650 net new coffee house openings in fiscal 2026 remains unchanged. This continues to be supported by strong contribution from our International business. And in North America, while overall performance has strengthened, we are gaining deeper visibility into some underperforming coffee houses, which could result in some closures.

As always, we will continue to assess our North America portfolio to ensure we have a healthy foundation of coffee houses on which to build for the future. a future which we believe has a long runway of new copy House growth in both North America and around the world. In conclusion, we are encouraged by the momentum we are building through continued work on our Back to Starbucks plan. Our third quarter results validate our belief that human connection and a great customer experience can drive durable, profitable growth. We still have more to do. We're moving at pace, and we're focused on the work ahead.

And with that, we are now ready to take your questions.

[Operator Instructions]. And your first question comes from David Tarantino with Baird.

Congratulations on further progress on the plan here. Brian, my question relates to a question I've been getting from a lot of investors which is how long can you keep up the same-store sales momentum that you're seeing currently? And I know the long-term plan calls for 3% annually, but I suspect your you're aiming for something higher. So I guess, could you just give us your thoughts on where you are in the journey of recovering the sales volumes? And what are the building blocks to keep this type of momentum or something above the 3% level going for the next few years?

Yes. Thanks, David. And to answer your question on the momentum, the good news for us is, I think this is driven by just better operating practices, Thinking about the green apron service model, meaning we now, I think, are staffed better. We think we have the right routines, the right coaching taking place so that we're giving better customer experiences for all of our customers every single day. And if you look at where the business was there's still lots of space to add more transactions both in the morning and in the afternoon.

And we've made tremendous progress in both dayparts, but there still is a lot of room for growth. And then as you think about the innovation that we brought out, our marketing team, I think, has done a great job on bringing out relevant innovation, both in drinks, food and also merchandise. I think we're just getting started on that front as well. And so we are operating better on a day-to-day basis. And I think our customers are seeing it, feeling it, experiencing it, and our partners, I think, are becoming more and more consistent with the ability to execute the Green Apron service experience. And I just know the business has more room for growth. And when you talk to the customers that have experienced it, they're responding positively. And I still think there is more to come on the innovation side of things, whether it's through our digital platforms or more of the traditional work that we've done on menu and marketing.

Your next question comes from David Palmer with Evercore ISI.

Great. And congrats on these results. So just really a follow-up on the daypart point that you were just making. I wonder how has the daypart growth been if you had to separate morning versus the afternoon, what's happened in the last year? And then also how you're thinking about it over the next year and maybe beyond? You've talked about the afternoon daypart being the next big opportunity. I would imagine maybe some of the throughput stuff has been an outsized benefit to the more compressed morning daypart? So any sort of ways that you're thinking about the opportunities on both those sides? And if you see maybe the baton being passed to the afternoon in terms of outsized growth and when?

Yes. Thanks, David. So obviously, I think we said from the beginning on the Back to Starbucks strategy, we wanted to win the morning and then start trading the afternoon daypart. And what I'm happy to say is our partners in our stores have done just that. They have done a great job of executing great staffing, great deployment and then ultimately, I think, great experiences in the morning so that we win that rich role every morning. And in absolute transactions, it's probably been our biggest winner is the morning daypart.

And then as you kind of move through the day, we continue to see transaction growth just not quite at the same level of what we're seeing in the morning. I think that's going to be a combination of two things to get the afternoon kind of going as well, which is going to be a combination of beverage and food and then also just getting better at our routines in the afternoon. So we're doing exactly what we wanted to set out to do from a strategy standpoint. In the morning, create the afternoon and break down any barriers we have that's preventing us from getting to great throughput in all the modes, whether it's drive-thru, cafe, mobile order pickup or delivery.

And we're seeing great progress in all those access points and really throughout the day with the biggest wins coming obviously in the morning, which is where we had the biggest bottleneck initially.

Maybe I'll add on, David, really quickly and we mentioned it in the prepared remarks, but refreshers had a really great quarter, which we would expect, but that gives us a great occasion for that afternoon beverage. And so we're seeing people take no caffeine, oftentimes in the afternoon. We're still seeing the base refresher with that minimal amount of caffeine. And then obviously, we're now starting to see some routinization in the morning with the refreshers that have extra capping or the energy.

And so I say that because that gives us a great platform along with our Matcha Menu for the afternoon. And then you add on some of the tests we've been doing in food like the wraps starts to give us a really great occasion to expand that afternoon daypart.

Your next question comes from Andrew Charles with TD Cowen.

Brian, curious what you make of what is going on in the coffee category where investors may not be thinking about just burger, chicken, pizza. Just, it appears the category is just not 0-sum nature. And just related to that, you guys talked about the opportunity in 2027 to slow development, step up closures of unperforming stores. And I'm curious kind of why now at a time when the tide is closing listed for Starbucks.

Yes. Look, so first of all, I'm really excited about the momentum we have in the business. Even as you look at how we exited the quarter, the thing that was great to see is the business kind of picked up yet again. So we're seeing really good things happen with the Starbucks business and then obviously the coffee category. Your comment on new units, look, unfortunately, we did not have a great development strategy when you kind of go back 2 or 3 years ago.

And it is just one of those things where we either did really difficult remodels on stores or we potentially put the wrong store in the wrong place. And so we're having to clean that up and fix that up. The good news is as the business responds becomes more clear where you have the true problem stores. And I think I said this at the beginning, we're going to fix them. And then we're going to build the pipeline with the right stores that are going to be in the right locations.

And the good news is the category is strong. The Starbucks business is strong so that when you have these openings, there'll be really strong openings. So that's really the practice. And I think, as a result, Starbucks will be in a much stronger position going forward.

Your next question comes from Sara Senatore with Bank of America.

I guess, maybe a similar bent. One is on refreshers. It stand out platform, but it seems like everybody is refresher. So maybe you could talk a little bit about what customers are telling you about what distinguishes Starbucks and whether when other -- when large QSRs, for example, not beverage specialists advertiser, if that creates a halo for you, and I guess the follow-on is, is that any of that change as you pivot your growth strategy? I think very explicitly, you've talked about markets where maybe there are other coffee specialists, but Starbucks doesn't have a location? Does this competitive dynamic shift at all?

Yes. So I think you're right. The good news is, I think we're the original when it comes to refreshers. And I think the craft and the flavors and now the other ways that you can customize refreshers really is differentiating our refresher platform. And you heard me mention it in my prepared remarks, the growth has been really excellent. And I think it's been a platform, frankly, that we kind of got a little complacent on in the past, and now we are reinvigorating and we're seeing a really positive response.

And I think you heard Cathy mentioned this, the thing that's great to see is the way people are using refreshers, whether it's fully decaffeinated or whether it's fully boosted, those are the different occasions that people want refreshers, whether it's in the morning or the afternoon and whether you're young or old, the platform is resonating. I'm really excited that we're getting ready to go test sparkling. We're calling it spritzers, so refreshers that have like spritzes. We've got those going in a couple of test markets. And most recently, we just added the opportunity to do blended. So you'll see us experiment with other ways to experience refreshers.

And I think our point of difference, frankly, is the craft that we provide, the customization that we provide behind that craft. And then I think our team does a great job on getting to the delicious flavors that are relevant for the customer. So it's been a really strong platform for us. And over the last quarter, it really continued to perform despite all the activity you saw in the space. And I think that was kind of my going-in belief, which is if you're the category leader in the space when other people start advertising in the space and you continue to execute really well, our plan is to get not only our fair share, but more than our fair share. And so that's really the mission of the team on this one. And then your question on how does it rethink kind of the total business.

Look, I think what is definitely clear is there's a trend to cold. But cold beverages are still being executed with coffee, espresso, and the customization that you'd expect around those traditional coffee drinks. And then obviously, we're seeing the refresher business play a really nice role from morning to afternoon. And I think you'll see that continue to be a strong tool for us in the afternoon daypart as we grow that daypart. And you see the competition really heating up in that space as well. So I love the position we're in. I'm really excited about the innovation we've got coming.

And the Refreshers platform, our belief was we had a big platform with the opportunity to innovate against it, and you're seeing us do that now.

And your next question comes from Brian Harbour with Morgan Stanley.

I'm curious how much you think kind of the uplifts are helping you right now in the U.S.? And I guess, how you're measuring the success of that on a per store basis. And I guess just relatedly, when you talk about maybe some more closures, I mean, what are some of the characteristics of those stores?

Yes. So the uplifts have actually been really terrific performers for us. And we're seeing the business respond frankly, which has been our ingoing hypothesis that would benefit kind of all day long, but it would also benefit all access points because people just feel better about even doing their mobile order pickup when they go to a coffee house versus a place that maybe wasn't up to our Starbucks standard. So we're seeing them delivering transactions. We're just seeing them deliver on being a positive on the brand, just perception and how people feel about the brand.

And so we're going to continue to accelerate that uplift program and really get all our coffee houses up to the Starbucks standard and the experience that people would expect from Starbucks as well as the experience that our partners want to provide. So it's also very powerful for the experience that we provide because our partners are truly proud now of their coffee house.

Your question on some of the stores that will -- we may decide we have to close. Look, it's really about performance and location and sometimes where the actual asset is from a standpoint of remodeling versus we'd be better off just building a new store. So it's not a question of whether or not we think Starbucks can work in the trade area. It's more to do with is this the right representation of Starbucks? And are these the economics that frankly, Starbucks should earn. And if the answers aren't yes, and you know what, we're being honest with ourselves and saying, we're going to address the problem now, and we'll build the right Starbucks in that trade area. So I think this is just good hygiene.

Brian, maybe I'll add a little bit more on uplift just for a little bit more color, too. What we're seeing, if you think back the quarter, we were a little over 300 or so stores or I think coffee houses that have been uplifted. So that means we did north of 650 this quarter. And so we've got, obviously, early on that entire population. What we're seeing though is what Brian said, which is across all formats, all channels, all dayparts, all our vanities both cafes and drive-thrus, we're seeing a positive halo. And I think that all just puts the brand in a much stronger position. And I think we shared in the prepared remarks, our brand health metrics are at kind of 5-year highs.

So I think all of that goes together with that great full customer experience, and we're seeing it with the uplift. And then the other thing is they continue to be a really good return on investment. My last plug is the team is doing a great job of closing -- of not closing stores. They do the Coffee House Uplifts overnight, so we don't change the team for our customers. And so the fact that we don't take a copy house offline, I think, is incredibly important and there are a very low level of investment as we shared $150,000 on average. So it's a great return. So I think all of that just to say we're really excited.

Your next question comes from Danilo Gargiulo with Bernstein.

Brian, I was wondering if you can share your assessment on same-store sales and operational performance of your stores versus the licensed stores in North America? And what actions are within your control to maybe align the performance between company-operated stores and licensed stores.

Can you hear me? Sorry. I repeat the question, sorry. So the question was, what's your assessment on same-store sales growth and operational performance of your stores versus the licensed stores in North America? And what actions are within your control to align the operational performance between the two?

I'm sorry, I didn't catch the first part of your question, Daniel. Can you just repeat that?

Yes. So -- what's your assessment on the same-store sales and operational performance of your stores versus those of the licensed stores in North America, right? And so what are some of the actions within your control to close that gap.

So I just want to make sure I got it. So you're asking me company stores, same-store sales growth performance versus licensed stores, same-store sales growth performance and what differences are we seeing there? So what I would tell you is the good news is we're seeing our license stores really have a kind of a great quarter as well, primarily led by the travel category. But in general, what's happening in our license business is we're putting the same rigor in place that we've got in our company stores.

So we're putting in place to grow report, obviously tweaked to recognize that it's a license model. We're also putting a lot of, I would say, specificity around what the expectations are for a Starbucks experience because our goal is there should be no real difference between a Starbucks experience at a company own store or a Starbucks experience in a licensed store. And so the good news is we're seeing more and more examples where that truly is the case and fewer and fewer examples where we've got a big discrepancy.

So the comp performance was really good in licensed stores as what we saw in our company stores, and we continue to see great progress. And obviously, we're working to continue to make sure that the Starbucks experience, there really is no difference between which outlet you experience, whether it's company-owned or licensed.

Next question comes from Zach Fadem with Wells Fargo.

So first, a housekeeping question on the impact of Coffee House initiatives like extended hours, closed stores and delivery and how these factored into the Q3 comp relative to your brand initiatives. And then second question, unrelated on tariff refunds and whether you're anticipating more in Q4 and to what extent the guide contemplates anything there?

So let me start with the first one. And with regards to the impacts of things like extended hours, actually pretty limited. Let me back first up with a 7.9% comp that we drove about half of it or a little bit less than half of it was due to closures, sales transfer, delivery growth. The rest of it is all that great store performance and menu and innovation. So let me start there. The hours of operation piece was actually very small, just a couple of basis points. So really, really small. And I'm sorry, what was the remainder of your question?

Brief funds and whether you're anticipating any more in Q4 in the guide?

Sorry. Thank you. We're excited about the -- first off, the gross -- the operating income margin expand what we saw in the quarter. And we saw that even without the tariff refund as we shared the year-to-date performance is probably the right way to look at our product and distribution costs or COGS because that pretty much nets the impact of increased tariffs and then obviously the refunds.

We believe we've largely gotten the refunds we're entitled to at this point. And so I think that's probably a good place to anchor is that year-to-date performance.

And your next question comes from John Ivankoe with JPMorgan Chase & Company.

First, the question and then I think just a quick follow-up. First on the question, in terms of Green Apron Service, did we absolutely nail it in terms of labor hours in terms of not only your current traffic but potentially increased traffic going forward? In other words, could we expect the number of labor hours to stay relatively steady or perhaps have some efficiency opportunity as traffic has grown. So that's the question.

And then secondly, Brian, I think I heard in your prepared remarks, 24-hour operating model. Does that mean some Starbucks stores could actually be open 24 hours. And I guess, I know that's not an overnight kind of decision. So over time, how much do you think kind of an average extended hours could potentially mean to the Starbucks U.S. system when fully rolled out and optimized?

Yes. Thanks for the question. Look, I think our operators are doing a great job on managing the labor schedule and making sure that we are providing great experiences for the business that we're receiving. I still think there is opportunity for us to get even more growth going in the morning and in the afternoon. And obviously, in the morning, that's where you could really see more efficiency gains out of the labor that we've got there at peak.

And then as you kind of move through the day, I think we're going to start to see the same opportunity eventually we'll earn our way into having the additional hours necessary to match the growth of the business. So I think the team has done a great job of managing the labor hours so that we meet the demands of the business and that we aren't capping the growth off. That's really important to all of us is we still think there's more room for growth in the morning.

We think there's more growth in the drive-thru. We think there's more growth in mobile order pickup. So -- and that's true in the morning and the afternoon. We can just see it because we've got these different cohorts of stores that demonstrate what's possible. So very optimistic about where we go from here and how we take advantage of the new Green Apron service model and the labor that comes with it. And then on your second question, I think around 24 hours, I think you're referring to our supply chain comments that I made. Where what we want to do is make sure that we now have a system that can create pull through the supply chain and get replenishment done within 24 hours.

As you mentioned, we do have a handful of stores that happened to also be open 24 hours. But really, what I was talking more about is I'd like to be able to replenish stores within 24 hours so that we're never out of stock. And then also, hopefully, we can shrink the back of house and have then the right inventory at the right location at the right time, and we'll just be much more efficient in the whole entire supply chain process. So that's really what we're driving towards. And then obviously, it would be great if the demand proves itself that we should have more stores open 24 hours. But right now, that's not a focus area. The focus area is more on the supply chain.

next question comes from Jon Tower with Citi.

Congratulations on continued momentum. This is Karen Holthouse on for Jon. Just curious what marketing spend looked like year-over-year? And as you're thinking about the sort of shift to more being part of the conversation and part of culture, do you think there's still room from here for advertising to you grow in terms of a percent of sales investment and/or just continuing to optimize more of like the media mix side of things?

Yes. Look, the team has done a great job with the marketing budget. I think we spent a little bit more than 2% of sales on marketing. And obviously, as the business grows, the good news is we're not capping that spending. So -- and we're not seeing diminishing returns out of our spending. So the team and Tressie are doing a great job of making sure that we're investing in the places where we believe we can drive transactions drive the brand, build that loyalty and love and make sure people understand what Starbucks stands for.

And I think culturally, we've been on the money. And I think the communication, frankly, is at some of its best moments, the brand has had in a long time. So I love the way they're using the dollars. The budget will obviously continue to grow with the business as we grow. And the team is going to be accountable for making sure that they get great returns for those dollars that we spend. And you know what, they rise to the occasion every single time we have the conversation about it. So I think we're in a really great place. And I'm really excited about the plans that we have for the balance of the year as well as I look at 2027.

Your next question comes from Margaret-May Binshtock with Wolf Research.

I just wanted to ask a little bit about digital menu board. Where does the penetration stand today? And what are you seeing specifically on the afternoon daypart performance in stores that have them? And what, I guess, that menu board can allow you to do for the afternoon?

Yes. So I think digital menu boards now are in -- I think by the time we get to September, we'll be in like 80%, 90% of our stores. And the thing that we've been doing right now is you'll see us dayparting the menu board which has been great. And I think that is helping build our afternoon daypart because we're doing a better job now of merchandising the offerings that we have in the afternoon.

And the team continues to fine-tune how we use those digital menu boards to better drive the daypart communication. And it's going to be really great once we have the entire system on the digital menu boards going forward. So -- and with every uplift, we make sure we put in those digital menu boards as well as then just the digital menu board program that we have in place. So the marketing team, I think, is taking advantage of the technology and the ability to then daypart it accordingly.

Your next question comes from Logan Reich with RBC Capital Markets.

Brian, I just had a follow-up on the remodels, obviously tracking ahead of schedule in '26 and you pointed to acceleration in '27. Just trying to get a sense of where the limit on the remodels you guys can do. Any sense on when that could be completed across the whole system and just what the potential acceleration could be in '27?

Yes. So look, our goal is to try and get it done as fast as we can. Obviously, we want to balance the speed at which we do it, given the other areas that we're also investing in. But I think you're going to see a pretty good step up from '26 to '27. And then obviously, our goal is to try and get it done as quickly as possible from there. So we're building the capability in order to do more than we did this year. and then we'll see how we scale that up because I also don't want to go fast and be sloppy.

I want to make sure that we move quickly and do it with excellence. So that's kind of the balancing act that we got to make sure we execute here because they're working really well. And the last thing we want to do is jeopardize quality because you go and amp up the speed to a level where you don't get the quality performance that we want. So meaningful step-up in '27, and we'll see how it goes from there, and then we'll figure out how much faster we can go from there and hopefully complete all of them in a timely fashion.

And your next question comes from Steve McManus with BNP Paribas.

I had a question on delivery. So as that scales at a higher penetration rate, how should we think about incrementality and the trade-off versus in-store visits? And is there any color you could share around channel margin implications, that would be great.

Yes. So right now, there's no trade-off on margins, and we have yet to see any meaningful cannibalization from the delivery channel. So we're really excited about it. And pretty soon, we'll have it also in our app with obviously a white label partner, which I think will also make the platform that much more attractive because then you'll be able to get rewards or Star as part of the program, which today, when you do delivery, you aren't participating in the Stars program. So we think there's still a lot of upside in it. And right now, there's no trade-off from a margin standpoint.

Thank you. And ladies and gentlemen, that was our last question. I will now turn the call over to Brian Niccol for closing remarks.

All right. Well, thank you, and thanks, everybody, for taking the time. Very proud of our results on Q3. I think as I mentioned before, when we put together the back to Starbucks strategy, it really was built on this simple idea that was kind of the founding idea of Starbucks, which is extraordinary coffee, terrific human connection and obviously done in a way where people can have an experience that they want to come back to. And so I think we're proving that, that is playing out as a point of difference for Starbucks and also that the back-to-starbucks program can deliver results in a meaningful way.

So I think we're in the process of building the Starbucks that we believe we should be and Starbucks that's built for performance. And the Starbucks has built for consistency of that performance. And we've got a clear plan. The team is focused on this plan. I think we have tremendous opportunity in front of us, and I'm excited about what's next. And I'm really excited about where we grow from here because I think the foundational elements that we've put in place really sets the back to Starbucks plan up for enduring performance. So the quarter after quarter. We can talk about the great customer experiences and the great results that come with it. So thank you, everybody. Have a great day and look forward to continuing to talk the business with each and every one of you. Take care.

This concludes Starbucks Third Quarter Fiscal Year 2026 Conference Call. You may now disconnect.

All right. Great. Hey, everybody. I'm David Palmer, Evercore ISI. Really excited about this one. Thanks so much for joining the Evercore Consumer and Retail Conference. I'm pleased to welcome Brian Niccol, Chairman and CEO of Starbucks, to this conference. And congratulations to you and the team so far on many areas of progress from service times to innovation to marketing and loyalty to productivity savings.

There's a ton of initiatives, a ton of things for us to talk about. Comps have turned with fiscal second quarter U.S. transactions, growing across all income cohorts, morning back to '22 levels, and operating income and EPS inflecting for the first time in 2 years. So it does make sense when you talk about -- saying that there's been a turn in the turnaround. At this point, I know investors will want to understand if that 7% U.S. comp we saw last quarter is the start of a durable sales recovery. And of course, I think they'll be wanting to see that be a profitable one as well going forward.

So many initiatives to talk about. You've talked about 5 big ones lately, the Green Apron service, menu and marketing innovation, brand digital rewards, that whole area, the reimagined afternoon and the coffeehouse uplift. So I think I have that right. And so when you think about those initiatives, what's been important so far? And what do you think will become increasingly important in your growth in the quarters ahead?

Yes. Well, thanks, David. I don't know what else we need to talk about. You covered it.

We could do this for like -- this one question for 30 minutes.

Yes, that's fine. So look, I think for any turnaround, you have to get the operational foundation healthy. And that's really where we spent our time. The labor investment was all about reestablishing a great customer experience and reorienting the company back to being a customer-focused company. And I think that's what you're seeing in our stores. And then we've scorecarded the program as well with what we call the growth scorecard. And you hear us talk about, "Did you get 0-shot score or a 5-shot score?" and "Where are you on that spectrum?" And the reason why that's important is twofold. It shows us what stores are performing. It also shows us what stores still have work to do. And it also provides feedback for our store leaders on what's working and what's not working.

And so very proud of the progress that we've made there. Mike and our operators have done a phenomenal job. We now have close to 70% of our stores performing at 4 shots or better. And the reason why that's important is we know when we're above 3 shots, we see really nice transaction and comp performance. And so still work to do because there's 30% of stores that aren't where they need to be. But the good news is now we have clarity of what they need to work on in order to get them to that 3-, 4-shot performance.

On the menu marketing side of things, the good news is once you have a strong foundation, it makes a lot of your menu and marketing work a lot more effective because you're working from a position of strength as opposed to a position of weakness. And I think that's what you saw with our protein launch, our Matcha menu reset, our baked case reset. And what you'll see us going forward is, as we tackle the afternoon, one of the key pieces of that puzzle is we've got to fix the supply chain to support the afternoon, but we also just have to have the right offerings, both in drink and food. And I think that's what you're going to see us continue to do.

And on the refresher side of things, next week, we launch the Blue Coconut Refresher. We've already added to our refresher platform, Energy. What's great about the Energy is both in the morning, people are able to have more energy in their fruit-forward drink and in the afternoon, they're able to take out all the energy, so they can have zero caffeine in the afternoon if they would like, and you're starting to see that play out.

And then when you think about food, our food business looks pretty good in the morning. I think we've got the right assortment. We still have opportunities to be better. But in the afternoon, we do not have the right assortment, and we have work to do on the food offering to attach with the right beverage offering. But I view that as all opportunity.

And then on your point about uplifts or getting the stores back to being a great coffeehouse. We've done this in about 700 stores so far. Our plan is to get it across 8,000, 9,000. And we have seen when we fix the store environment and we give you a great seat and a great coffeehouse experience, people spend time there. And we see an uptake in afternoon business. And we also see people just have more engagement with the brand, period. And also, our partners prefer working in places that are great coffeehouses versus not. And so it's just got an add-on effect for building the brand, satisfying customers and making our partners feel great about the place that they work in. And in the process, we're putting seats back in, which that's kind of store 101. It's good to have seats for customers.

Yes. That would make sense if you want them to hang out, for sure.

You said it with enthusiasm.

It makes you wonder what was happening before.

Dancing.

Yes, what were they doing? The operations turnaround, let's double-click on that a little bit. It feels like you've come a long way. I know sub-4 minutes was a big goal for you in terms of in-cafe and the drive-thru. And you've said that the original Green Apron Service rollout stores, those 650 of them, are still outcomping the system by 2 points. And it makes you wonder like where is the end? What is it -- what do you think this operations throughput stuff, but also customer satisfaction levels from operations might be doing for -- doing to comps right now? And where is the end?

Yes. Look, I mean, the reality is, from a transaction standpoint, we're still not all the way back to 2023 levels or 2019 levels. And 2023 and 2019 were roughly kind of the same level. So there's still a lot of headroom just in transactions. And I would say, I don't know if you're ever done. I think the reality is customers are going to demand experiences to justify spending their dollars. And I think if you're just a transaction, I think you lose in the long run. I think if you're an experience with great craft, I think you win in the long run. And I think, fortunately, for us, that's kind of the Starbucks model, which is craft expressed through customization and a barista that personalizes it for you and then connection, meaning the third place, and also this idea of a community environment.

And when you look at this growth scorecard, it's very simple. It's like, are we in stock, are we food safe, are we satisfying customers, are we doing great throughput, our speed requirements, right? And so when you just look at these things, this is like the basics of how you run retail. And the good news is our partners, as a result, understand the feedback and then they can understand the action that they need to take. And the other one in there, too, is are you staffed? So you do those 5 things correctly. Guess what? You end up with a great store.

I remember asking you this. This is a little off script, but I remember when we were chatting a year into when you were running Chipotle, I was asking you about what sort of score would you give the major buckets of the business. Right now, I can think of menu and innovation, operations, supply chain would be on the list there, marketing would be on it. Where do you think -- if 10 is where you really think you can be and let's just say 1 was where you were, where are you on those major areas, do you think?

Yes. I mean the way I kind of think about it is, for the most part, we've got the fixing done on operations and marketing, menu, but there's still lots of opportunity to be better. And so in all these cases, I feel like the good news is now I'm on my front foot for operations, for menu, marketing, but still early innings of what I think we're capable of versus supply chain, I would say we're still in the process of fixing. Technology, we're still in the process of fixing. The store experience through uplifts, still in the process of fixing. The store pipeline, we're still in the process of fixing.

So I think some things are working, and we're on our front foot. Other things, we're still fixing. Better than we were, but still need to be fixed. And then you can turn it into a position of strength. And that's ultimately what I'm after is, operationally, I want to be in a position of strength. Marketing, position of strength. Supply chain, position of strength. And once you have those strengths, then the trick is how do you build on it. Plus, I'll never give myself a 10 out of 10. There's -- you're dealing in a customer business that customers' attitudes, beliefs are always changing. We have to be a learning organization that doesn't get complacent.

What do you -- if you had to go back to just the GROW Report and what you saw with Mike originally with the operations -- just give us a sense of just the operational, the org structure, the accountability, what you're trying to achieve and where you are in that journey? And how important has this been for comps?

Yes. Look, I think it's been critical. Like if you can't operate consistently, it's going to be very hard, I think, to consistently perform. It's just that simple. And the good news is, Mike, I think, is one of the best operators you can find in the industry. He's got 31 years of experience. I think he is best-in-class. And as a result, our operations will be best-in-class because that's the leadership that he expects. And I think the standard will continue to elevate. And I think it will continue to be a source of growth for us, not -- you never want your operations to be something you have to make excuses for. And you see a lot of places make excuses for it through discounts or promotions or whatever it may be. I think at the end of the day, the company has got to be able to stand on great execution, and it's got to be able to stand on great operations, especially when we're operating as many stores as we are with as many people that we are. And I just think at the end of the day, if it's not additive to the business, something is off. And therefore, then we have to fix it.

One of -- the other big areas is menu innovation. It feels like the speed is being improved from idea to shelf. Can you talk about this? And just -- it kind of is amazing to me, some companies I've seen out there in the quick service space, they don't want to overtest things. They don't want to get bogged down by that. They'd rather do a fast-fail type approach. Tell us about what you think your approach is versus what we might see elsewhere and what's working.

Yes. I mean, look, it depends on what the innovation is, right? Like if the innovation requires a huge capital outlay and like we're going to go have to touch all the stores and knock out walls, you're going to test that thoroughly. If it is a syrup, there's low risk to getting the syrup wrong. And so I think you just have to balance the innovation to be like, well, what's low risk, what's high risk? What's something that we need to be opportunistic and go fast on versus something that we can be more programmed on? And you mentioned this, like when I first got to Starbucks, it was taking us 18 months to do a syrup, like that's ridiculous, right? Now on an existing syrup, we can turn it around in 4 months.

And so I always like to have a pipeline that has a plan, but also has the flexibility to be opportunistic. And that's really the process and the organization that we're building, which is if a door opens, we're going to run through that door. And at the same token, we have conviction in what we believe are long-term trends so that we set the brand up to be culturally in front of kind of where society is or where society is moving.

So you got to have both. And that's what we're building into the supply chain. And then that's also what we're building into the organizational structure so that people understand what you're accountable for. And the performance matters. So like, if you put a syrup out there and it doesn't work, we got to have the intellectual integrity to say it didn't work and learn from it. That's how we then get even better and faster.

I remember when it was the Analyst Day, we talked about -- I said what might be the story of '27 by the time we get there. And you said, by then, we will have some operational improvements that will give us some momentum, but we'll also be identifying what platforms are kind of working for us, and we can kind of double-click on those and go deeper on those. Maybe you can talk about just the -- what has been the evidence of what is working so far? And where do you think might be the story of '27 in terms of your menu and innovation?

Yes. So there's a couple of platforms that are working for us. Matcha, protein, or call it, health and wellness, is also working for us. Cold Foam is working for us in a big way, that modifier. And then I think you're also going to see that Refreshers is also a big platform, more specifically Energy right now. But ultimately, Refreshers is going to be a platform. It's over a $2 billion business today, frankly, that we've underleveraged. And it's a huge tool for us to grow from as you look at the afternoon as well as continuing to expand our drink portfolio. Next week, we'll launch the Blue Coconut Refresher, which will be great because now we'll finally go from 2, which is Strawberry Açaí and Dragonfruit, to now 3 with the Blueberry -- I'm sorry, Blue Coconut. Blueberry is coming, getting ahead of myself.

But these platforms are powerful. The baked case that we reset is proving to be another really powerful platform for us because attach is a big deal in the morning. I think you'll see us in the afternoon have platforms around bites, grilled cheeses. And then obviously, we'll continue to drive the Cake Pop platform. That's a big winner for us as well. So the good news is we've got these platforms in our menu. The other big unlock for us, frankly, is getting the third place back. Putting the seats back in with a great environment where people want to spend time and dwell will drive the afternoon daypart and it will also drive the morning daypart. And we're going to get better and better at how we build those stores and how we keep those stores current.

I was just thinking about how you have 2 things that might be unlocked for your afternoon a little bit, obviously, the uplifts and how the hangout factor, but also supply chain and food. They're just enabling some of the stuff you want to get done. I mean, maybe you could talk about that when would be -- when are you going to get the supply chain ready for you to get bigger into food in the afternoon?

Yes. So supply chain, we're going to be at a place where we can have daily deliveries in all our stores by the end of this year. And we're also going to have a replenishment system where now we can replenish things in less than 24 hours. Versus today, we're in like 60% of our stores with daily deliveries and it's a 72-hour replenishment system. It's very hard to run an afternoon business and a food business if you don't have 24-hour replenishment.

And the reason is because -- I'll give you an example, right? If you have a turkey sandwich, a steak sandwich and a vegetarian sandwich, if you're only shipping in cases of those sandwiches, you're not recognizing what's actually being consumed. So therefore, you end up with a lot of waste, is really what happens, or you just end up out of stock. And the principle we've mandated is if it's on the menu, it's going to be in stock. And then we got to have the supply chain to support that menu execution. So getting to the idea of 24-hour replenishment with daily deliveries is going to unlock our food business in a big way because we'll be more in-stock with the right items at the right time.

And by the way...

And also, one other thing, we can shrink the back-of-house. So it also helps our build capability because now we can shrink the back-of-house because now you're bringing in eaches as opposed to cases.

One of the things I wonder about on the innovation front, I was hearing Circana talk about beverages are growing versus food that's declining in America today, which is an interesting thing in and of itself. And 3 of the wellness things that were driving beverage, obviously, hydration, but also energy and protein, conveniently come through that. And I was just thinking about you guys. And I wonder to what degree are you using those sort of basic insights to go after the wellness occasion because a lot of times, we just think of you as coffee shop and maybe a little bit of...

Coffee is the original -- or I guess, the OG of wellness when it comes to drinks. And so I do believe, I mean, exactly what you just said, drinks are a traffic driver. And like, I think if you just stop and think about that for a second, drinks are a traffic driver, both in the morning and in the afternoon, you would have a different frame on what a craft drink company is capable to grow into. And then what we have to do is figure out what are the right attaches to go with those traffic drivers.

And so that's really what we're focused on. And you hit the nail on the head. It is wellness, it is hydration and it is energy. And we actually do all those really well. And I think we're building on the wellness platform with protein. You'll see us do other things, right, collagen, creatine, like the things you would expect. On the hydration, the ability to get into these other fruit-forward drinks and then customize your caffeine allows the hydration game to be played at a different level. And then obviously, on the energy side of things, the caffeine is a really clean way to get to that energy.

Yes. One of the things that we're also wondering about is how you're doing this -- doing so well with Gen Z and millennials, and we hear all the time about the struggle with those generations. You had a 40% increase in Cold Foam mix increases going on across the menu. It's incredible that you're doing that with those generations. So I would just wonder how you think that you are doing that? And maybe -- is it something category? What is the insight there about connecting with those younger generations that you're clearly winning with?

Yes. Look, I think this is where the actual store experience matters. So the coffeehouse experience really matters. And when you can create a space that 15-year-olds want to hang out in as well as 80-year-olds, newsflash, it's called a coffeehouse, okay? So if we can own that third place, we have relevance now with every age cohort you can think of. And you can also think about just about every occasion, too, whether it's the PTA or the retired guys having coffee, like whatever occasion you can think of where people want to have a community experience, the coffeehouse is at the center of those things. So that's why it's -- I'm so passionate about getting this coffeehouse back.

And that's not to say the drive-thru occasion is not important, the mobile order pickup occasion is not important, the delivery occasion is not important. I just think the centering point is the coffeehouse. And that's what makes it magnetic to all these different age groups because they can all realize a connection with that idea of having a community place for whatever age of life they're in. Then you factor in what can we do with food, what can we do with drink to make it even more relevant. And this is where it gets really interesting because, like protein, a protein latte initially, I was like, "Oh, this will be for folks after a workout." Yes, but actually, the 30- to 50-year-old female, it turns out, really liked protein lattes. And we're seeing that continue to grow.

And now what we're also developing is a Protein Cold Foam business in a big way. And you're seeing the Protein Cold Foam have resonance on cold drinks, which is really interesting because now our cold drinks have just become that much more valuable to people. And so -- and also, I think the way we're showing up in social media, advertising, all the ways that we're communicating, I think we're communicating in a much better way, in a much more culturally relevant way from -- we did a store in Nashville with Taylor Swift, where we launched her new album, and we wrapped the place to be Starbies, okay? So it was one store, Starbies, but it turned into a social media platform that lasted for 2 or 3 weeks. One store. Coachella, we did the Unicorn Frappuccino at Coachella. That created all sorts of buzz. In a couple of weeks, we're going to do the Unicorn Frappuccino. But again, we are culturally in these relevant places.

And then our social media, if you just look at what's happening on social media, I think the team has done a phenomenal job of moving away from puns and cringey stuff to things that are connected, relevant and being viral. And then even last night, like if you're watching the Knicks game, hopefully, you saw our Starbucks ad was on with like 4 minutes to go, and it was a coffee ad. And it was a great coffee ad. Unfortunately, the Knicks lost. So I think more people were buying coffee this morning than if they had won. People may not have shown up in the morning. There may not be as many people here right now if the Knicks won last night.

But my point in this is we have the ability to connect with wherever you are in your age of life, wherever you are in your income journey and also wherever you are in your social circles. And the coffeehouse is the third place where it doesn't matter what your age is, what your income is or where you're coming from. It's a place where people connect and create community. And I think we're uniquely set up to do it better than anybody else.

I remember when you were first focusing on this stuff, I think people were thinking that's like a Gen X guy thinking that, that still matters, that it wasn't relevant because people are blowing and going, and they're ordering digital. They just -- and so that was leaning against it at one point.

Yes. Yes. Well, I think we'll prove that the third place is highly relevant. And like I said, I think people sometimes misinterpret that statement of saying that I don't still value the drive-thru occasion. I absolutely do. And you got to win in all those occasions. That's why we created these operating standards where if you're in cafe, you're going to get your drink in under 4 minutes. If it's mobile order pickup, it's got to be on time and accurate. We got a little more grace because you're usually off-premise, so it's 10 to 12 minutes. In the drive-thru, it's got to be less than 4 minutes. Delivery, it's got to be around 25 minutes.

So it's like if you set up the operating model to deliver on those occasions, why can't I also have a great cafe for that occasion when you walk in the store to grab your drink. Look, last I checked, even if you're grabbing something to go, would you like to get that from a place that's great or a place that looks like a hellhole? Like, I know what I would like. I'd like it to come from a place that's great. It makes you feel better about your purchase decision. You have less buyers' remorse if you go into a place that was great, made you feel good, even if you're only there for a split second.

Yes. When it comes to marketing, what's the big picture about -- there was a strategy in the past that was a lot more in-app discounting. You've increased the weighting in traditional and other. Are you where you want to be now? And can you just talk about the marketing strategy from a big bucket perspective?

Yes. Look, I think the team is doing a great job with our marketing spend. We've -- we stopped a lot of the discounting and reallocated those dollars to, I would call it, marketing at the top of the funnel. We still have a lot of work going on with marketing, frankly, at all levels of the funnel, right? If you think about our digital marketing, our Rewards program. But I just think in general, you're better off building a brand through engagement than trying to build a brand through. I think those are borrowed transactions versus earned transactions. And we have a really simple approach, brand over time, sales overnight. And you can do both. And that's what Tressie and the team are tasked with.

And then Mike and the team have to make sure when people show up, they get an experience that says they want to do it again. And I think our partners are doing that. If you haven't been to -- I guess there's a coffee shop just across the street from here, somebody told me her nickname is Java Julie, and she runs a great Starbucks. And I wish every Starbucks had that type of leader so that everybody has that type of connection. And this is kind of along those lines of when you do the marketing right and you get people to really commit and then our partners deliver on the experience, the loyal following is unbelievable. Like I've never seen it in a business, the purchase frequency and how habitual people are with Starbucks is pretty remarkable.

Yes. One of the things that seems to also be a thing, so to speak, right now in restaurants is that young people want more rapid news to keep their attention. I don't know if you'd just agree with that general statement, but it seems like you are -- but with your strategy, you are talking about doing more new news. Could you just talk about what the cadence is?

Yes, yes. Look, I think the reality is culture is moving faster than it ever has. And if you want your brand to stay relevant, you got to be in culture and in front of culture. And that requires, I think, in our case, news happening all the time. But we've got to be purposeful enough where we know we've got news happening at least every 2 to 3 weeks. Now that doesn't mean it's a new product, right? Like, you'll see us this week, we're doing some stuff around the fact that all the soccer is going on, right? And we've got a clever way in on the soccer tournament, right? Next week, we've got the Blue Coconut Refresher. 2 weeks after that, I think, it's S'mores Frappuccino. And then there's a bunch of other fun things happening from a merchandise standpoint.

And I think that's the other thing that we got really complacent on was our merch. And you guys probably saw this when we did the Barista, we finally got back to some great merchandising during the holiday, and that was a huge driver of performance. And frankly, people showing up at our stores at 5:00 a.m. on the nose when we opened. So I think you got to have news across your business. You got to have news, whether it's digital, commercial, packaging, cultural, product or taking advantage of what's happening in culture at the moment, too. You got to figure out how your brand can show up authentically, right? You don't want to show up in a way where it makes people cringe though, right? There are those examples where like, "Eh, that didn't feel good." You've got to show up in a way where people are like, "Oh, they should be there, and I hope they're there again next time."

You say you're going to be doing something with World Cup in a way that's unique to Starbucks. I wonder what that will be or how that will be.

We have a cup.

Yes. Okay. There you go.

We have a World Cup.

Yes, yes. Got it.

And I'm not even in the marketing department.

No, you nailed -- yes, and I got it.

Yes.

Let's talk about Rewards for a minute. You've made some changes there. I know you've been happy with some of the results. What needs tweaking? What have you learned so far?

Yes. Look, the Rewards launch has gone really well. And we did this back in March. I fully expected our kind of user population would go down because whenever you change anything, usually people quit. But instead, we actually saw an uptick in users. So we went to, like, 35.6 million. And usually, at that time of the year, we also see a natural decline as well. So we kind of broke the seasonality of it, and then we also kind of broke the idea of making a change, being able to keep people engaged.

And kind of the key things we heard from this were, well, we addressed the complaints people had about our Rewards program. First was, "Can I have my birthday reward on more than just my birthday?" You wouldn't think that's a big deal, but, apparently, for a lot of people, they want to get their free drink more than just on the day of their birthday. So we addressed that. In the Rewards program, now you have 30 days to redeem your free drink for your birthday, big unlock for people. The other one was they wanted the ability to earn and burn faster. So one of the things we put in here is for 60 Stars, now you can get $2 off a drink. That's proving to be highly, highly effective.

And then the other thing that we did in here is we recognized people for their loyalty. So now you have a Reserve status, a Gold status and a Green status. And there was an element of like, "Geez, why am I treated the same way as the person comes once a year versus I come 200 times a year?" And I think they had a point. And so what we've seen is those that qualified for Reserve or Gold, high levels of engagement. They're more engaged with our Starbucks shop. They're also oddly enough, already -- it's pretty amazing. If you looked in your app and you slide over in your Reserve or in your status, you can see where you are on the journey of maintaining your status or achieving the next status. And I'm amazed how many people have already achieved their status again. So it's like -- it's pretty powerful in that Gold and Reserve area.

And then the other thing that we did, too, is on the reloadable card. You now get differentiation in stars for how you reload your card. So $50 gets more stars of reloadable, $30 and then $25. And so we've seen, as a result, more stored value because people want the rewards that go with it. And then we talked about this earlier. We talked about Cold Foam. We've also introduced this program where once a month, we do Mod Monday, where you can get Cold Foam or a modification for free. And then what we've seen is that becomes really sticky for people and then that becomes part of their new routine. So we're pretty happy with the Rewards program, the way it started. Still early days, but off to a really good start.

Normally, if we were doing this and we were with another company, we would talk about the low-income consumer, how you keep them in the game? And the fact that you say you're growing across all the income demographic buckets, sort of, makes that sort of question moot. But why do you think they're staying in the game, the low-income consumers? And then maybe to the degree that you would recognize that it's not going to maybe get any easier for that side, how do you make sure that stays that way?

Yes. Look, I mean it's clear, like if you -- all the surveys we do, and I think all the surveys you probably do, the low-income consumer is under more stress than they ever have been, and they're going to be more choiceful with the dollars that they choose to spend than they probably ever have been. And so I think this is where our experience and the customization that we provide really is a point of difference that makes them feel good about spending their $10 with Starbucks. And that's -- we're going to have to continue to push to make sure that when they decide to spend $10 with us, they feel like it was a good choice to spending the $10 with us.

And I think you run into a -- you're in a difficult situation if it's very transactional because it's very easy to trade out of that transaction. A lot harder to trade out of an experience that you feel was well worth it. And I don't think it gets any easier. That's why I wish we could get these uplifts done even faster. And we're going to have to continue to make sure that our partners are giving the experience where people walk out of that experience saying like, "Hey, that was worth it." Regardless of what income level you are, you want people walking away feeling like, "Yes, that was worth handing over my $10."

I want to talk about competition a little bit and how you view your strategy when you see that competition. People, here in New York, they might see Luckin doing just digital orders in a very small box at cheap prices, and they could see a higher price artisanal brand down the way, and then they see, in the suburbs, the Dutch Bros of the world. And so they are scared of the increased competition, even though you seem to be coexisting extremely well right now with them. What would you say about what the competition represents to you in terms of opportunities for you and threats?

Look, I think the competition is an endorsement of the category. Like, I think the only reason why you have more players coming in and more players that are growing is because the category is growing, and more people want to experience drinks. And I think in our case, when we do Starbucks correctly, there is no better brand. When we don't do Starbucks correctly, we open the door to competition. But when we compete correctly, I like our chances of coming out on top. And when you put a drive-thru with a cafe just about anywhere, it works. And when we do an in-line cafe with the right seating, with the right partner experience, again, that works. So I think we have opportunities, right?

It's like -- the other thing I love about competition is it highlights where maybe you got a little complacent. I think we got complacent in our refresher business. Like, the fact that we only have 2 really drinks in our refresher business, meanwhile, there are whole businesses that basically exist because of the refresher platform, I think it's a wake-up call. And I think it's a wake-up call that says opportunity because at the end of the day, I've got the scale, and I've got the market share, and I've got the brand.

So I view it as, like, stay on your front foot and you need to compete. And we weren't competing, and we didn't have a small drive-thru execution. We didn't have a 0.5-acre execution with the cafe. Now we do, and we'll start building it. I think we're a little bit behind on energy and sparkling and blended drinks. We're going to get there on that.

Yes. To some degree, I think when you say the food and the sparkling, I hear afternoon, just like with the uplift could help the afternoon. I just wonder from an afternoon daypart opportunity, can you just give us a sense of what that daypart is today, maybe the TAM? I mean, what's the opportunity there?

Well, I mean, so I'll put it to you this way. 50% of our business happens before 10:00 a.m., like, 65% of our business happens before noon. I want to emphasize like winning the morning is not any less important. Like, we have to continue to win the morning and be the premier solution. I actually like what Mike says on this. It's like, "We're going to be the first coffee shop open in the morning, and we're going to be the first choice for coffee in the morning. And we are going to be the first destination in the morning."

Like, by no means saying that we can create an afternoon daypart doesn't mean we take our foot off the gas of winning the morning. With that said, I think there's a real opportunity to create a second peak around the afternoon between like 2 and 5. And I think it can be driven by drinks. And then I think you have -- we've got another tremendous opportunity to put food with those drinks. So ideally, I'd love the afternoon peak to be as powerful as the morning peak. We're a ways away from that, but I don't see why that can't be the case. And we've got a really strong platform with Matcha. We've got a really strong platform with Refreshers. And I think we're going to have a really strong platform with the cafe because it's going to be the third place for where you want to be in the afternoon.

The one thing I wanted to touch on was that sort of incremental margin debate. We would love to see the strong comps and profitability, please, both the combo.

Yes, me too.

So I guess, last quarter, phenomenal comp growth. There was still some North America margin compression. A lot of this is planned. I mean you're obviously still in the labor investment year. But as we kind of cycle past some of those -- that $0.5 billion you spent on Green Apron Service, are we going to see that 60% to 65% incremental margin from that business?

Yes. Look, there's no structural reason that would prevent us from doing that. Now if we don't have growth, it's very hard to do it, right? You got to have consistent comp performance. But assuming we have the consistent comp performance, we're going to have cost discipline. We're going to have a stronger supply chain. And from here, you earn all the additional labor hours. And I wouldn't say I spent $0.5 billion. I would say I invested $0.5 billion into our stores with labor. And I think we're going to see that play out and continue to pay dividends.

So by all means, I think I said this from the beginning, it's like, look, we've got to fix the basics, get the top line growing, and then we will get the bottom line. I share everybody's desire to get to the margins that we experienced in the past sooner rather than later, but it is a process. And I think the good news is we're ahead of schedule on that process. And I think you can start to see, we stay disciplined on the things that matter, we'll get the top line and we will get the bottom line.

One of the things that I know you've been working hard on is the supply chain side of things, and it kind of goes all in for this -- the $2 billion savings, which is 1/3 COGS, 1/3 OpEx and 1/3 G&A. So almost $700 million per area. I guess on the OpEx side, you just got done spending the incremental labor or investing. Are there any savings that are going to come back -- what are the nature of the savings that come out of the OpEx? Is that some of that coming out of the store side? Or are you really talking more about the supply chain when you're talking about that OpEx savings?

I mean you're going to laugh. It's a little bit of both. But what I would say is our goal is to flow as much of it as we can to the bottom line, okay? We talked about it in gross terms only because we know we can control the gross. I don't know what's going to happen between now and the end of the year that would potentially impact some of the $2 billion of savings. What I will tell you is there's no structural big capital program that we're trying to offset $2 billion of savings with.

But I don't know what I don't know, right? Right now, I'm dealing with some higher fuel prices. A year ago, it was high coffee prices and tariffs. And so I think it's just more prudent to tell you, hey, I know I can control getting to $2 billion. And we have a commitment to get as much of that to the bottom line as possible. We'll see how that plays out over the course of time. And it's going to come in phases. It doesn't all happen at once. But the good news is we've got really great line of sight on it. We've captured, I think, clarity on hundreds of millions of that $2 billion, and we see our path to how you get to the $2 billion over the next, call it, 12 to 18 months.

Labor productivity, you guys did a lot of that at Chipotle. The first step was to invest in labor. But now we have a world of AI, which can be an enabler, plus you're going to be refining things with -- as the team kind of gets into a rhythm of how you deploy that labor.

That's right.

Yes. So how can we think about that sort of labor productivity upside from here?

Yes. Look, I think you touched on it. One, we're learning better how to deploy and where -- when you earn the labor, where do we actually put the labor in the stores, to capture the most throughput and ultimately, the most sales and transactions. But the other thing I will tell you is, the good news is as you earn from here, it's not a one-for-one kind of thing, right? It's one of those things where you don't need to add a person because one additional drink went out the door. And by the way, to add a person, that requires a fair amount of transaction growth before that happens.

On the other side of this, too, with AI and technology, ideally, what we want is our technology to be invisible to the customer and invisible to the partner. Because at the end of the day, it's going to be a human experience. You're going to have barista to customer experience. And what you should see with our technology, it's all happening kind of back-of-house, supply chain, forecasting, management of like the Smart Q system of how you sequence tickets, establishing the queue, inventory management, a lot of the tasks that frankly, take our partners away from servicing customers is what we want to use AI and tech and robotics to solve for. And there's even opportunities, I think, in the corporate office as well to embrace the technology to be even more efficient and effective.

So I think the combination of just being smarter about the business and how we deploy the labor, combined with smarter tech to help us do it. And then focusing on the tasks that, frankly, at the end of the day, take our partners away from servicing the customer is a big, big opportunity.

I know we're coming up towards the end. I just want to make sure I ask something about how you spend capital going forward and unit growth opportunities. And I know some people would find it hard to believe that there is an opportunity to double units. Why could that be? And then just double-clicking back on the uplift, what is the uplift -- sales uplift from these uplifts?

So to answer the first part, look, we've got clear line of sight on at least another 5,000 units. And it's not hard to get there when you start looking at the places where we're frankly underpenetrated. And we're really underpenetrated in the middle of the country and, call it, Texas up to Virginia, okay? And for whatever reason, I wasn't around for this, we just have had a West Coast, East Coast bias and didn't develop enough in the middle of the country. Perfect example is even like Nashville. If you look at Nashville proper, I don't think we have a Starbucks corporate store in Nashville proper. We have a handful of licensed stores inside hotels, but we probably should have at least a dozen Starbucks in that area. And then even when you go out to like a Franklin or some of these other suburbs, we have like 1, and we should have like 8, okay?

Then I think if we're successful in creating the afternoon daypart and changing kind of the 4-wall economics, that just opens the door with the smaller footprint that we can now build, right, on a 0.5 acre or an in-line store for sub-1,000 square feet, there's probably another 5,000 sites that we can add on top of the 5,000 that we've already identified. And that's how you get to 10,000 additional stores in the U.S. And then around the world, I know we don't talk about it a lot, but look, we've got 22,000 stores outside the United States. There's no reason why that can't double. And if you just look at our partnership in China, I think in short order, we're going to go from 8,000 stores to 20,000 stores just in China with our partner there. So there's a lot of Sirens to be developed around the world and in the United States.

And then to your question about the uplift, part of the reason why we're so excited about getting going on the uplift is, one, all of them are coming in budget or below budget. So we're spending $150,000 or less, and we're seeing a transaction uptick. And that is really exciting because what we were doing before with this remodel program and the Siren program was spending a lot of capital for not a whole lot of return. And now I think we're doing the right type of remodel uplift and getting a really exciting return. And so the trick is how can we do it faster. We'll have over 1,000 by the end of this year and then hopefully 2,000 or 3,000 next year. And ideally by '28, you'll get to 8,000. So by the time you get to '29, you're like, wow, you're through this program.

Yes. Well, thank you very much. Great conversation.

Yes. Thanks, David.

I appreciate it. Thanks, everybody.

Yes, thank you.

Good morning, everybody. My name is Danilo Gargiulo. I'm the senior analyst at Bernstein covering restaurants and food distributors. And I would like to thank you, everybody, for being here today. [Operator Instructions] We are very thrilled to have Starbucks here on stage today and even more delighted to share the stage with Brian again, first time back as the CEO of Starbucks, Chairman and CEO of Starbucks; and then Cathy, the CFO of Starbucks. This is your first time as a CEO of Starbucks here at SDC.

So before we go deeper, what are the top 3 takeaways that you would like investors to remember by the end of today?

Well, great to be here. And look, I would say you guys heard our most recent earnings call. And to me, kind of the thing that I'm most excited about is the foundation operationally is a lot stronger, and we're now building from a position of strength operationally. So the labor we put in is now performing against the Green Apron Service model. We've got clear metrics for how we're holding ourselves accountable for performance around the growth scorecard. And then we're seeing now the repetitions around those key components of Green Apron Service and those key metrics play out in great customer service experiences.

So that's a critical piece. Obviously, I think our menu and marketing innovation has really struck a cord, whether it was the protein program, the Matcha menu reset, the bake case reset, most recently, the energy refresher program. And then just also all the flavor resets that we've done. So I think we've made our menu and our marketing much more consumer relevant and also much more culturally relevant. And I think you've seen us show up now more in culture, the way that Starbucks historically has shown up. And I think as we go forward, you'll see us continue to lead culture, whether it's at events like Coachella or the World Cup is happening here in a couple of weeks.

You don't go that way. Italy is out of the World Cup, so.

Sad. This is the second time in a row, right?

Third time. Please.

Any predictions on the World Cup? But -- so I think those 2 things are really important. The other thing that I would mention, too, is we mentioned we would get our rewards program to address some of the consumer feedback that we were getting and then launch it with a new kind of tiered system. I'm happy to say that, that launch went really well, and we're seeing really great adoption in all the various tiers that we have. So operationally, I think the team is really performing well.

Marketing-wise, I think we're performing really well. Menu innovation. I'm excited about the pipeline to come. I've been delighted by what we've executed. And then digitally, I think rewards has gone really well as well. So those are probably the top 3 things that are working. Obviously, there are things that we still are working on around tech, supply chain and development. But all in all, I think I've said this along the lines of, one, I feel like we're ahead of schedule. And more importantly, I feel like we've seen kind of like a turn in our turnaround.

Maybe, Cathy, same question for you, maybe with more financial lenses. What are the top 3 takeaways that you like investors to remember?

I think starting where Brian just finished, which is the progress on the turnaround, and we're ahead of schedule. And we have seen this last quarter an inflection in the bottom line. But that didn't come overnight. We saw it coming several quarters ago. About 4 quarters ago, we said we were going to lead with the top line, had to start with those non-rewards customers, then we got to the rewards customers. We had to see the growth in the morning daypart and then the afternoon daypart. And what this last quarter showed was all of that coming together, in which case then we started to see the bottom line inflect.

And I think that's probably the most important part is that, that's all necessary on our path to the turnaround and to continue to grow not just top line but also the bottom line. So we saw that this last quarter, which was great. I think underneath there, though, the second main point would be we see a clear path for the guidance we've given longer term, so we gave guidance 3 years out, and it is the conviction of the turnaround we're seeing and the building blocks. First off, top line was very broad-based, which gives us confidence for the continued growth in the top line. And then the bottom line, we should see that continue to inflect as we start to roll over some of the investments. We're going to see some of the cost of goods sold pressure coming down with COGS with coffee prices coming down in the back half.

And then moving forward, our cost savings program, we have very clear line of sight to the $2 billion of cost savings for the next 3 years or so which should continue to help with that margin expansion. And then lastly, just opportunity. We continue to see not just opportunity on -- we've got the morning daypart back at a really good place, still room to grow there, still growing, and we're particularly excited about what we can do in the rest of the day. And then opportunity to grow our new store footprint around the world and in the United States. And I say that because I feel like we're at the early innings of all of that opportunity as we progress through the turnaround.

Excellent. So Brian, nearly 2 years ago, you joined Starbucks and surely you had ideas on how to turn around a company that was facing some severe traffic losses. What surprised you the most when you joined Starbucks?

I mean, look, the reality is the brand is one of these iconic global brands, highly resilient and beloved. And I think we just drifted away from why people originally fell in love with Starbucks and why they will continue to be in love with Starbucks. And you saw this drift in the marketing. You saw this drift in, I think, tech, you saw the drift in operations. And probably the most visible place where you saw the drift is just the experience when you walk into the stores. And so I always approach these things from the customer perspective. And what it really became clear was Starbucks have become a place you grab coffee on your way to do something as opposed to Starbucks being a place you want to go to and be a part of. And so we started to bring that back and what was clear is we're understaffed, and we had hardened the restaurants. And in a lot of cases, we were building soulless experiences.

And I think at the crux of Starbucks is there is this soul in every transaction and every experience that needs to come forward. And hopefully, you're seeing this already. When you walk into the stores, it may not be a long conversation, but you should see our partners with their eyes up, a smile, they're engaged, they're leaning towards our customers. When you get to the handoff experience, there should be a note written on your cup. There should be a moment of connection at that point. And then when you decide to either stay in the store or if you're going to leave the store, you should feel like you've come in and out of a coffee house. And I think that's really important for every experience. And we've just gotten away from some of those things. And I think the trick for us going forward is making sure that every experience, people feel like that was a unique Starbucks experience and one that they ultimately say is, hey, that was worth it. I want to do it again.

Which aspect of your back to Starbucks plan took a little bit longer than you had anticipated before joining and which one took a little bit less than expected and why?

Yes. Look, I would say one of the things that was great is our partners in the stores quickly adopted the idea of getting back to Starbucks because they quickly -- they knew what that meant because a lot of our partners were long tenured. And when they realized we were going to be doing things that would make their job be one about customer connection as well as the craft of the drinks that they're going to pull together, they were energized and engaged. And to get 250,000 partners at the store level, to basically hear what is the strategy and how we're going to get back on our front foot, that is hugely powerful. So that adoption went a lot faster than I had expected. It also helped that we did the all manager conference right, I think, a couple of months in as well.

And then look, some of the things that took a little bit longer, frankly, was getting the innovation and some of the work done just because as an organization, we were too slow. We didn't have clear accountability, and we weren't able to make decisions quickly to get things done. Now I'm happy to say like when I first got to Starbucks, in order for us to do like a raspberry syrup, the time lines were like 18 months or more. I was like that's not okay. What I'm happy to say now is we've shrunk those time lines down to 8 months, and we'll get it down to 4 months. And so what you're going to see now going forward is we're going to have news on Starbucks every 3 to 4 weeks because we've got the operational capability in the store to support that news. And then you'll see us doing every couple of months, hopefully, what are big movers, right, like energy refreshers, a protein platform, a Matcha menu reset, a bake case reset.

So we're going to have the ability to be in culture with a healthy drumbeat because this business has unbelievable frequency and it has unbelievable loyalty. So if you want people to stay engaged, you've got to stay top of mind and you got to be culturally relevant. And I think we're starting to do a pretty good job on that. So just the speed of decision-making was slower than I had expected. But I think we've done a great job of getting the right people into the right jobs with the right accountability. And I couldn't be prouder of the team that we've assembled. I think when you look at my leadership team, I would argue we've got the best in the business when it comes to finance, marketing, operations, supply chain now, tech, HR. I feel really good about the leadership team that we put together and the culture that we're creating that values the idea of speed and performance.

Cathy, when you arrived at Starbucks, what was the state of the P&L? And which actions have you taken to make the business more flexible through the cycles?

Yes, I love your question about flexibility. What I saw and it showed up in the P&L is we had taken, as Brian said, kind of our eye off the customer and what mattered most, so starting there. But how it showed up in the P&L is we were -- we didn't have the same cost discipline we have today, and we will continue to have. We were investing in a bunch of things that, frankly, just didn't matter as much as some of the things we should have been focused on. And so we had a little bit of cost discipline that needed to happen. And then what we saw with -- and if you looked at the P&L through time, we have become very fixed and less variable throughout the course of the P&L.

And all of those sets of decisions, and it was not no one decision, but a whole bunch of them caused our P&L to pretty much tip over as soon as we lost the top line, which is what you saw then as the business started to shrink back in '24 time frame. And so then obviously, we dropped the earnings. But now the great news is we've made a lot of progress. You've been following our cost savings agenda that we've been working on. But first and foremost, you got to get the top line back, which we have. But then we've been trying to consciously make our choices around focusing on the investments that matter most, starting with a coffee house and the customer and then back and being very, very vigilant there and then making thoughtful choices where we can to make the cost more variable than fixed.

So the P&L can flex with the business a little bit more than it was able to when I first got there. So we've made a ton of progress. We are by no means done, and it always has to start with keeping the customer and the copy house in mind. And if we start with our decisions there and then really critically question everything else that we're doing, I think we're getting to a good place. So like I said, I think we've got a long way to go, but I'm excited about the progress we're seeing. It was nice to see the income inflect this last quarter. It's first time in 2 years, EPS grew. first time in 2 years, we saw operating income inflect. And so one data point that it's the right direction.

And so which areas of the business were underinvesting in and in which other areas of the business you were probably overinvesting? And then you mentioned you're still early in the journey, so there is more to be unlocked. So as you objectively look at the business today, where are some pockets of overinvestment that over time, you're going to be pruning a little bit? And which are some other areas where you think you might need to be investing a little bit more on?

Yes. The clear obvious underinvestment was in the coffee houses and with our team, our partners in the coffee house and that showed up in our customer experience everywhere. And we were asking our partners in the coffee house to do a lot with very little. And so the first thing we did was invested with Green Apron Service back into the coffee houses. We've shared over $500 million of investment there. And that obviously has been a significant part of the turnaround and the customer experience and obviously, the traffic we're seeing is -- starts with that investment. We've had to do a little bit of investment in supply chain as well. The frequency and the replenishment cycle of our supply chain doesn't support the business we have today and the business we want. And so we've done a little bit of investment there this year. We'll finish that up.

And -- but largely, those are the 2 biggest areas of investment. And all the rest is choosing to not invest in places we were. So a lot at the support center. We had forgotten that we need to be serving customers and partners every day, first and foremost. And that just meant we stopped doing a lot of stuff that was just not as important as the support center. And so we've spent a lot of time there. We've restructured a few of our support models like our license business internationally and the United States and have become very clear on what's our value proposition for our license partners, what should we be doing versus what they should be doing. That's helped us to think through the cost structure there. And then going forward, we've shared our $2 billion cost savings agenda, and it's kind of across all parts of the P&L. It's cost of goods sold, it's the operating expenses and G&A.

G&A was the easiest to get out first or the fastest to get out to help us offset some of the investments we were making this year. And the others take a little bit longer, like operating expenses, for example, addressing our repairs and maintenance in our coffee houses. That takes us a little bit to get the tools, the structure, the programs in place to get the savings coming through there like we'd expect, which we will start to see this next year. And then the last one is cost of goods sold. That one tends to take a little longer because those are longer-term contracts. We have to go out and multisource sometimes in many occasions, and that just takes a while at our scale to get vendors online or suppliers online, but we're making really good progress across all 3 buckets of the P&L.

The only other thing I would add is we stopped the remodel program and siren cold, hot and purpose-driven assets. And we replaced it with an uplift program that is focused on kind of to Cathy's point, getting the coffee house back to being a coffee house. So it's a front-of-house uplift program. We've done probably about 600 of them. We'll get over 1,000 this year. Hopefully, we'll have a couple of thousand done next year and get through all 8,000 of the stores that need the coffee house uplift done. And the reason why that's a big deal is you went from spending millions of dollars in closing stores for 3 to 4 months to now spending about $150,000 and not closing the store at all and doing it overnight. And what we've also done with those uplifts is we've returned seats back to which is -- I like the seats as well. So that was a big shift as well. And not to mention all the other things that we've been up to as well.

Can you talk maybe about the balancing between the different consumer journeys. So how are you managing the business for a consumer who's looking for different occasions within the same box from a drive-through to delivery to having the seating. So how are you maximizing the 4 wall for that store?

Yes. Look, I think one of the things that's great about Starbucks is we have all these access points, right? We've got mobile order pickup, we've got delivery, we've got drive-through and we have the cafe. And one of the things that we invested in as well is a technology that we call the Smart Queue, which basically is against an operating standard of if you're in cafe, you'll get your drink from POS to hand off in less than 4 minutes. If you're in the drive-through, we'll get you from order board and out the door in less than 4 minutes. And then if it's a mobile order pickup, we basically want to be on time, meaning less than 10 to 12 minutes and accurate, okay? And so what happens behind the scenes is we've got a technology that's basically sequencing orders.

It's not just first in, first out because one of the things that was happening -- and what this does also is it hopefully syncs up the mobile order for when the person arrives. So you don't end up with a bunch of people just standing around the mobile order pickup station. And then also, it recognizes, look, there's a queue of the drive-through people are here right now, and there's a queue of people in the cafe that are here right now. The next phase of this technology is we will recognize your mobile order when you're on-premise so that we can then can queue you accordingly because now you're on-premise. And so that is what allows us to manage the multiple access points in a very orderly fashion.

Because the reality is what was happening before is if I went up to the POS and tried to order in store, unknowns to me, 20 mobile orders could slot in front of me, and I'm just standing there waiting. And oh, by the way, the Barista doesn't know what the line is like on the mobile orders. They do know what the line is like in front of them, but they couldn't get to the ticket of the person that was in front of them. And so that creates a really difficult situation because the person that's in front of you, they're looking for some service versus the person that's off-premise hasn't shown up yet. Meanwhile, we're making their drink and it's sitting on the counter.

So we had to put order and sequencing into the multiple channels that we manage. And I think it's great is by adding the Smart Queue, our delivery business has really taken off. I mean that is a growing piece of the business. Our cafe business is up. Our mobile order pickup business is up, and our drive-through business is hung in there. And actually, I would say drive-through is the one access point that we were probably executing okay, partly -- but unfortunately, that was at the expense of cafe because nobody was been -- their backs were kind of to the cafe. Their backs were -- their faces were out the window as opposed to seeing their customers are coming in. So I love the fact that we have all these access points, and I love the fact that we have the ability to use technology to manage it in a smart fashion so that everybody gets the customer service experience that they want.

And what was the unlock? Because you mentioned earlier the speed of innovation move from 18 months, hopefully to 4 months going forward. What was the unlock on something like ROIC rate to go from 18 months to 4 months? And how do you make sure that the quality of innovation doesn't decay with accelerated time line?

Yes. Look, it was a function of we just had too many people thinking they had shared accountability. And when everybody thinks they had a little bit of responsibility, that means nobody has any responsibility. And then decisions don't get made and things just take a lot longer than is necessary. And it wasn't that this has no compromise on the quality of the execution or the syrup or the coffee bean or the food that we're making. This is quality of decision-making and speed of decision-making and -- because at the end of the day, our suppliers and partners, they're capable. Like they're ready to go.

We just got to give them clear direction on what we are looking for by when and what the expectation is on the standard of what we want out of this. And so simplifying, I think, the organization and clearing the way for accountability has been a huge unlock for the business. And I also think just adding to our culture, this idea of performance and speed matter. It's like we still have the same mission and values, but there's also an element of performance and speed. And I think those are 2 critical pieces that you'll see always be prevalent in our culture going forward.

Yes. I love we very much stand for a culture of getting things done now. And I always say, I look at evidence it's my best way to tell so people can be telling us a lot of effort and a lot of story, but if we don't actually get the outcomes, it doesn't matter. And so we really shifted the culture with getting things done. We put a premium on just completing tasks.

And because I also think it's like it's not real until it's actually in the stores. Last I checked, you can't eat a PowerPoint presentation, you can't drink a PowerPoint presentation. So it's like how can I quickly get from the idea to actually in store so that we can actually see how customers and partners are able to experience what we're trying to do. And the good news is we've got thousands of stores in the United States. We can get these into 5 stores, learn a lot, iterate. And based on the risk that you're taking with the initiative, you can scale up from 5,000 to 10,000 really quickly.

And speaking about simplification of the organization, from a G&A standpoint, do you see more opportunities to continue to simplify the organization from here on?

We've done a lot. I'll start there. And the most recent announcements we made was really kind of taking some of our learnings in the United States and taking them around the world as we've simplified our license structure. And so I think we've done a lot. What we're asking the teams to do from here on is we're tasking everyone to offset their normal inflation merits, wages, that kind of stuff with productivity. And so that's the kind of the ask of all the team in the G&A side of the world is going forward, we don't expect to grow our dollars. We expect to hold them, which means everyone has to be looking at how do they use technology or AI or robotics or whatever it is to drive efficiency or eliminate -- streamline their processes to eliminate some costs so that they can offset their wages and stuff like that.

Excellent. Brian, earlier this year, you shared the new long-term guide to reach at least 5% revenue growth with at least 3% global comparable sales growth, 2% to 3% new store revenue contribution and operating margins of 13.5% to 15% by 2028. On which elements of this long-term algorithm do you feel more comfortable about? And on which ones was that more internal debate?

Yes. Look, I mean, obviously, you got to have comp if you want to get the margin results or the new store results. So that is a very important metric for us. And we've got to have the operating model, the marketing model and the innovation model so that we can ensure we deliver on that 3-year bet. Because if you don't deliver on the comp growth, it's going to be very hard to hit the margins we're talking about. And frankly, you won't be building stores because the economics are going to keep going in the wrong direction. So look, we spent a lot of time on the guidance because we wanted to make sure it was a guidance that we believe if we execute, we will deliver.

And I think that's what we're demonstrating is we're going to execute. We're going to get the comp performance, and then we're going to have the cost discipline and the programs in place so that we can deliver on the margin and then obviously get the new units out into the world. So it's all important. But I would say it starts most importantly with making sure that we're executing with excellence so that we consistently deliver the growth that we need to deliver because then everything flows from there.

And then Cathy, you were talking about the $2 billion cost saving programs that you had announced at the Investor Day, obviously, besides offsetting inflation with pricing. So when you announced the target, you said that you had great visibility in at least $800 million out of the $2 billion cost savings. What's your current visibility? And how much of the identified savings have already reached the bottom line?

Yes. So the $800 million has gone up. It continues to go up, and the team literally works it every day. And so we're pleased with that. And Brian and I get to see that update every week. And so that number continues to go up. And equally, though, how much we're pulling through in the P&L, we're seeing too. And at the end of the day, that's what I'm measuring is I'm getting the savings, but if it's cost avoidance or something, and that's important, and I don't mean to diminish it, but we actually have to see it show up in our P&L. And that's where I make the -- make sure the teams pull it through the forecast so that we see it in the actuals, and we are.

And so obviously, a good piece of the G&A savings that are coming through will be at run rate into this next year. And so a good portion of that's already done. We're already though seeing some of the earlier wins in cost of goods sold and a little bit in OpEx as well. And so I'm actually quite optimistic. I think you'll see a little bit more -- it will weight more towards COGS and OpEx in the next 2 years. And the G&A will be the gift that keeps giving because we're going to hold dollars now. So that one we'll keep seeing the reduction there.

So for context, the $2 billion, there was about 50% coming from the margin flow-through from comps, sales leverage, half of which was coming from a mix of product and distribution cost savings, operating expense savings and G&A, so 1/3, 1/3, 1/3. G&A is primarily executed upon with maybe some more things that you talked about. But can you give us maybe some specific examples on the product and distribution cost optimization opportunities that you see from here on?

Yes. So things like we're optimizing our distribution network right now. That was a little bit of the investment I shared that we've got into the supply chain. And again, the reason why all of that matters is so that we can get to daily delivery so that we can have the customer experience we want. But with that, we've got a few distribution centers in the wrong places. Those will be savings. We'll offset those with, but we had to add a few in a couple of other places. And so that's the work the team is doing right now. That's a logical one on product and distribution.

But probably the biggest ones are things like many of our products we were single sourced in, while that may still be appropriate, I'm not saying that that's not, but we should at least do a price check or a cost to build check, which we're doing and the teams have done. And so that has helped us with unlocking a fair amount of savings just because maybe at our volume, we haven't done that and we should have. And so just good discipline in the procurement function has unlocked a great deal of savings for us, everything from standardized contracts to dual sourcing or multiple sourcing or even reformulating in a few places where we just should have reformulated.

Okay. And, can you indulge us also in sharing more ideas regarding the operating expenses optimization? Because recently, you heavily invested in the Green Apron Service and you've improved the quality of the volume proposition for partners. Why do you stand against the opportunities from an operating environment within the 4 walls?

One of the biggest ones, which Brian shared, we've already talked about the investment in our team, we feel good there. The one opportunity that's going to just be slower coming is the cost to build a store. That comes through, obviously, in occupancy and our depreciation and amortization. And that will take -- come through over time. But that one, if you think about what we used to build, our stores have gotten bigger because we need a bigger backroom. So we were getting to 2,500 square feet. They needed a full acre. And if you start diagnosing a little bit of that, you can realize that we should have a great coffee house experience with all 4 access points on a 0.5 acre and a smaller footprint, that all comes through the P&L. It's just those are all -- those all show up as a cost reduction.

And if I'm no longer building a 2,500 square foot store and if you came to the Investor Day, you get -- you saw a 1,350 square foot store. That's a very different cost to build. And we can do an 1,850 square foot store with 32 seats. It's still a great cafe experience and a drive-through, but you can get that now on a smaller footprint. And those costs are just now starting to -- we're seeing them. We're putting them in our forecast now and we'll execute going forward. And then even like the uplift program that Brian mentioned, putting those new seats back in the stores in that warm environment, we're -- the team is already seeing savings on that one, too. And my whole conversation with the team this last week is, okay, maybe the targets we set should be revisited because we've started to see the savings already there, too, as we ramp to the 8,000 in the entire fleet. So you'll see all of those savings coming through, too.

Great. And Brian, recently, as you mentioned, Starbucks was showing significant acceleration on traffic, same-store sales in the U.S. was 7%. What gives you the confidence that the sales that you have generated in the last quarter are sustainable and not simply a demand pull forward and the next year, you'll be going back into maybe below 3%?

Well, look, we have a simple belief. We have to protect the growth that we've achieved and then we have to build on it. And I believe we've got the operating model that will consistently perform and then we've got the innovation and also, I think, the plan as you look at how we're going to touch these stores and how we're going to create these experiences for our customers that people are going to want to come back. And it's not just winning in the morning, but it's also going to be creating the afternoon daypart. And so when you win the ritual, which I think we're demonstrating we're winning the ritual experience in the morning, and we're starting to make really great progress on the afternoon with like the Matcha menu reset, this energy refresher, the fact that we have seats again in our stores, that's when people like to dwell the most is in the afternoon, especially younger people.

I can see there's still a lot of opportunity for us to grow transactions from where we are today. And the reality is we're not all the way back to where our transactions were just in 2023, and we're definitely not where we were back in 2018 or '19. So we have capacity to service more demand. And I believe there is demand that's out there, both in the morning and in the afternoon. And when you look at what we can do in the afternoon, we've just really gotten started. The energy refresher and the Matcha program demonstrate we can grow the afternoon. And our refresher program, frankly, we have the opportunity to build that platform dramatically, whether it's additional flavors, like we're getting ready to do a blue coconut or it's sparkling, it's blended, it's sugar-free.

Like there are a lot of opportunities for us to continue to expand refreshers. And keep in mind, refreshers is a multibillion-dollar business. And usually, when you create great innovation on big platforms, big things continue to happen. And so that is our mantra. We are going to continue to innovate on these iconic platforms that we have. We're also going to be, I think, smart about blunting in areas where, frankly, we've been a little slow to blunt. And that's probably a perfect example of like the blue refresher. If you look at the refresher business across the industry, I feel like everybody's got a blue drink with me. That's an easy one to blunt, okay? For those out there that like blue drinks, congratulations. You can go to Starbucks in about 2 weeks to get one.

So -- and I know it's like an oversimplification, but it is also just practical. The reality is customers have needs and wants, and we're going to fulfill those needs and wants in a superior experience. That I know we can build on. And that I know we have the pipeline that we can grow from where we are right now, and there's no capacity constraint in those stores. So it's like let's go. And the way I put it to our team is, yes, we'll deliver on 3 or better. I like the better. So -- and the way you ensure you get the better is you have the plans in place so that you can also be prepared for the unexpected. And the things that we can control, we're going to be maniacal about and the things that we can't control, that's where I think speed and the ability to pivot and learn is really valuable in the world in which we operate.

How do you respond to investors who are concerned that beverages is seeing a momentum and could be just a fact that could be disappearing over time when the capacity of the industry is saturated. And we've seen similar story, on the chicken category that now is suffering a little bit with the rise of a lot of players who are interested in capturing some of the demand and the returns that they're getting on their boxes. So how do you respond to investors who are thinking that this could be just a moment in time as opposed to durable same-store sales growth for the category?

Yes. I mean, look, the reality is what consumers say they want and what I believe consumers will desire in the future is going to continue to be great beverages done in customized ways. And more of it is skewing cold. But that's not to say that coffee and hot drinks are no longer relevant. And look, you can always have a debate on a fad versus a trend. My approach has been let's see what the consumer actually votes with their wallet with. And what I've seen over and over again is great experiences with great products always win. And we may find over time, yes, maybe people don't want a blue drink, but that's not what defines Starbucks. What defines Starbucks is going to be a community. It's going to be the Barista customer experience, and it's going to be this idea of craft and customization.

And those are not fads. Those are what people want. And it's even become more prevalent today when you look at how lonely people say they are. Like despite this idea that supposedly we're more connected than ever, people say they're more lonely than ever. And so to have a third place where you can have a great experience with a customized drink the way you want it with food that I think is built for the way you want to eat, that is not a fad. I think that is durability, and I think that is a path for long-term growth. And so that's what we're going to focus on. And look, things come and go. But at the end of the day, those things that I just talked about are human truths and are the foundation of what makes Starbucks, Starbucks. And we're going to be unrelenting on it.

Taking the other side of the spectrum of competition, we are seeing competitors that are expanding their app-driven models. How do you see Starbucks maintaining the premium experiential differentiation over the long run?

Yes. Look, our app is still considered, I think, #1, if not best-in-class. And tech is going to continue to give us opportunities to figure out how we can enhance that app experience. The thing I always remind everybody is even though it's an app experience, you still usually get your drink from the store. I mean you still may have -- I mean, there are those occasions where the delivery driver drops it off. But 90% of the time, 95% of the time, you're getting your drink from the store. So even when it's a mobile order, you come in and you get a handoff experience. That's why it's so important for the coffee house to be a coffee house. You may not decide to sit in dwell, but I'll tell you what, everybody in this room will agree with me. Do you prefer walking into a great coffee house to grab your drink to go? Or do you prefer walking into soulless please to grab your drink and go. I think we know what the answer is, right? And the same thing is true if you're ordering Chinese takeout.

Where do you like to get Chinese takeout from? The place that's hopping and busy and looks like this is a great Chinese restaurant or the place you're like, uh-oh, I'm the only person that showed up here, right? It's the same principle. So the experience, the physical experience is going to be critical whether you choose to have that initial order experience through the app or you actually do it through the drive-thru or you come into the cafe. Now obviously, we're going to continue to experiment with that app experience. I think voice is becoming a really interesting place for how people are going to start doing their kind of Internet searches or how they interact even with apps. We did a little experiment with ChatGPT. But so there'll be evolutions in the app. But at the end of the day, the thing that's great about our app is, boy, it is super fast to get to your reorder. And we've made it super simple, and I love the simplicity of how that works for folks, and we'll continue to build on that strength.

Excellent. Can you walk us through the process around obtaining signal, ideating product and executing at scale. So what's the attrition on signal to full rate in production? And I want to add one part of it here on this innovation cycle. I mean you mentioned that now finally, you can get a blue drain at Starbucks. It's more of a catch-up strategy, fast second forward potentially having a larger scale deployment of something that is already successful in the industry. Do you plan to play that type of role going forward, i.e., I'm going to be providing high-quality differentiated products that is already proven in the marketplace to the masses? Or are you going to be playing more of a forward-looking innovation cycle, introducing things that don't exist, but with the risk of potentially having higher failure rate?

No, I don't think it's an or, it's an and. So we have to -- like this is one of the things that's great about being the market leader. You have the responsibility, I think, and be right to innovate and lead people in culture, in experiences. At the same token, one of the things I learned early in my career is when you have market leadership, you do blunt things. And so there are going to be some drinks and some things that we do that are all about just blunting what's happening in the category. That doesn't mean you can't also be highly innovative. We're still going to have great innovation on coffee. We're going to be working -- you might have seen internationally, we're doing this americano, which is aerate an americano and it gets you like a little head on there, and it becomes a much smoother drink. There's also a long black that we're looking at. And we're going to also introduce people to new flavors and experiences, right?

Like we brought forward the Uber experience for people. So we're going to continue to do those things. Just like we've got these iconic products like egg bites that I think you can pivot those egg bites into an afternoon bite. Like why can't that be a chicken jalapeno bite? Why can't that be a pizza bite? Why can't that be a steak bite? Why can't that have 20 grams of protein and some fiber where it's highly relevant for the GLP user. So there's all kinds of things we can be very innovative on. And at the same token, you'd be foolish not to recognize, look, on some things, I'm just going to be darn competitive. and I'm not going to see an inch. And it's like one of the things that's great is when you have market share leadership, you have a scale advantage and you have the ability to see it all. And then you can pick and choose what you need to blunt and what are going to be the things where we're going to innovate and lead, you can do both.

I would lean on a little bit, too, just even the refresher, Brian kind of said it earlier, but I'm not sure if we were the first, I'm sure we weren't, but we call it refreshers. Everyone else is now calling refreshers. We've been calling it refreshers for a long time. And it's a $2 billion business for us. So it's bigger than some of our competitors entirely, not just their refresher business. But then we built on that platform. So we innovated there early. But we built on that platform. We just recently launched customizable energy in that. It's a way cleaner, way better caffeine variety. But you can now customize more energy in the morning, and we're seeing new occasions there, new people showing up for a caffeine forward drink in the morning that they didn't want maybe a coffee beverage.

And then we're seeing them customize out the energy or the caffeine in the afternoon when they want something maybe for their children or they just don't want the caffeine. And so that's us just building on that platform that we already had a $2 billion platform, and now we've attracted incremental customers and incremental occasions on top of that platform. So you'll see us continue to do that. And then obviously, Brian talked about the blue refresher that's coming. We'll do that, too. And I think that's what Starbucks has always done uniquely well. I think we may have been one of the first with egg bites in any significant way, and that is something we're known for. Our cake pops are iconic and that is something we're known for. And I think the afternoon affords us the same opportunity to be known for some things.

Great. Now switching on to net unit growth. Some investors might share a view that the market might be close to saturation from a number of units. And we see more and more operators that are announcing larger and larger goals in terms of new unit development. And at the same time, you recently announced that you're expecting Starbucks to be doubling the footprint in the United States. So what gives you the confidence that Starbucks could build another 17,000 stores in the U.S.? And where are these pockets of opportunity?

Yes. Well -- and so when I was referencing the double, I was referencing our company stores, so that's the 10,000. But look, we've got clear line of sight on about 5,000. And I think if we're successful building the afternoon daypart and driving the economics that I think we're going to drive and then you add in the fact that now we have a build capability to get on a 0.5 acre and also get into small in-line executions to the 600, 800 square feet, you can quickly see how that 5,000 becomes 10,000. So I think also what you're seeing is we weren't actually competing for those 0.5 acre sites, which is where you would put a smaller cafe with a drive-through. And now we're going to compete for those sites.

And so we have real opportunities if you kind of look from Michigan down to Texas and then Texas over to, call it, Virginia, where with the smaller builds for kind of the suburban execution, tremendous opportunity. And then in these urban environments, to be able to have a small in-line execution presents a huge opportunity for us as well. And the good news is this isn't something radically new for us. We're already doing it around the world, right? Our license partners outside the United States are already doing these small formats and being very creative. We just haven't taken that learning and brought it to the states, and now we are. So look, I'm very optimistic for where we can get to.

The thing that's always tough about development is when you're stopping a program and kind of cleaning it up and then restarting a new program, it takes about 2 to 3 years to kind of shut it down, build the pipeline and get yourself back out there. But the good news is the sites are there. I think our development team was just at this big conference last week for all developers, I can't remember what it's called, IC-something. What is it?

[indiscernible]

ICS, yes. And when our folks were talking about, hey, we're ready to get into the game on 0.5 acres, and we're ready to get in the game on 600 to 800 square feet. Our booth was pretty darn busy. So there is a lot of pull for Starbucks, and there are a lot of deals to be had. Now that we have the right, I think, execution, we can be really competitive for those sites.

Great. And then, Cathy, how should we think about the target average unit volume of the new builds going forward versus the current AUV for a mature store?

Yes. It is going to depend. If we go smaller, as Brian said, obviously, the AUVs will come down a little bit on those, but we can afford to because the cost to build will be much smaller. But our -- so far, AUVs continue to hold in at a couple of million dollars or so. We will see that grow with a successful afternoon daypart. And back to Brian's point, I think I'm particularly optimistic there because that really drives a whole different set of economics that we're not even talking about yet. So not in our near-term guidance anyways that we've shared. So I'm excited. I also see a right for us to win there. I think that will be interesting. And then I'm equally optimistic though, on all the work the development team is doing on just the store format going forward. And I think as Brian said, we can see around the world great examples already, and we just need to start bringing them here.

We've got a couple of questions on your former experience with Brian as well. So the question here is what gives you the confidence that you can replicate the success and the same playbook of your past experience here at Starbucks at a much larger and more complex business with a more significant international footprint.

Well, look, at the end of the day, it's a customer-driven business with a very important partner combined with it. And whether that's 1 store or in our case, 40,000, that's true. If we provide great customer experiences and set our partners up so that they can consistently deliver those experiences for our customers, I'm really confident we'll win. Because at the end of the day, I know we've got the best beans. I know we'll have the best blue drink because -- and by the way, we care a lot about the ingredients of how we build these crafts, right? The blue drink is going to be driven by Blue Spirulina, right? It's a -- I think it's the right way to do drinks. It's the right way to do food. And I think as long as you're centered on the customer and then you make sure that your partners are set up for success to provide a great experience, I love the fact that our wages and benefits are the best in the industry because we need great people to exercise those experiences.

And we need the stability in our coffee houses. And so the fact that 20 hours of work, you got health care benefits or you can get a free college degree by maintaining being a partner goes a long way. And by the way, our wages are best-in-class, too. And now we also have an incentive program where for our partners, if they deliver on key metrics, they, at the hourly level, have the ability on a quarterly basis to earn a bonus. So we're rewarding our partners for great performance. And then we're also setting them up to achieve that great performance. And then we've got a maniacal focus on the customer and the customer experience that we ultimately provide. So that, I think, is a winning formula. And it's worked at other customer-facing businesses, and I'm feeling fairly confident it's going to continue to work at Starbucks.

And you identified 5 different pillars for comp growth. You mentioned green service, menu innovation, brand digital and rewards, reimagined afternoon and the coffee house reinvestments. For each one of these ones, in which inning are you today? And if you think about the sequencing of the impact of the other -- of these 5, when are you expecting the comps to be growing from here on?

Well, look, the thing I love is we're not a one-trick pony, right? So we've got a bunch of growth opportunities in front of us, and all of them we're going to be pushing forward. And I think this last quarter was probably the first example we had a lot of them hit together. And we're going to continue to do just that. I wouldn't say one is more important than the other. I just think there's so much opportunity in this business because at the end of the day, it is a world-class brand with a differentiated experience and with, I think, craft and connection that nobody else can provide. So when you push on all those lanes of growth, I think you get rewarded with transaction growth and ultimately comp growth, and that ultimately flows into earnings.

Great. So we are running out of time. Two final questions in kind of rapid form. How will Starbucks be different 5 years from now? And what is the hardest choice you think you will be facing in the next 5 years?

Well, geez, the hardest choice might be my daughter's boyfriend for other parents out there. I have 2 daughters, by the way. And so look, I think Starbucks, the way it's going to look different from here is they're all going to be great coffee houses. One of the things that frustrates me a little bit where we are right now is you're not sure what you're going to get on the other side of the door when you open the door, right? And ultimately, what we're going to get to is every time you open a Starbucks door, you know what you're going to walk into. It's going to be a great coffee house. You're going to have partners that are eyes up, smiles, engaged and want to commit to being a great community coffee house. And I think you're going to experience that around the world. And we're already seeing this.

I have the opportunity to visit our Starbucks all around the world, and we're seeing the Green Apron Service model show up in all these places. And I think that's what you're going to see over time. I also think you're going to see a business that has 2 peaks. We're going to have a great morning peak, and we're going to have a great afternoon peak. And you're going to see a business that can run multiple access points flawlessly, right? So you're going to have delivery, mobile order pickup, cafe and drive-through. So -- and you're probably going to see a lot of smaller stores, too, along the way. But -- so I'm really excited about what the future looks like for our business. There's so much growth in front of us and so much opportunity.

And then the hardest decision, I'll tell you what, the world is moving at a much faster pace than I think we ever imagined. And I think the hardest thing to do is to make sure you don't lose focus of what you need to do. And so I say this to our team all the time. We got to keep the main thing, the main thing, do not get distracted by the things that we cannot control. And I think it's very easy in the social media environment and an always-on news cycle and let's be honest, a lot of unexpected events that are occurring to quickly get distracted and have you drift away from what's really important. And so I think that's going to be the hardest choices of life, how do we make sure we protect the core of what makes Starbucks, Starbucks while making sure that we're still evolving, but not losing sight of who we are.

Makes sense. Yes, Brian, Cathy, thank you so much for coming. Thank you, everyone.

Thank you. Yes.

Good afternoon. My name is Diego, and I will be your conference operator today. . I would like to welcome everyone to Starbucks Second Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] I will now turn the call over to Catherine Park, Vice President of Investor Relations. Ms. Park, you may now begin your conference.

Good afternoon, and thank you for joining us today to discuss Starbucks' Second Quarter Fiscal Year 2026 results. Today's discussion will be led by Brian Niccol, Chairman and Chief Executive Officer; and Cathy Smith, Executive Vice President and Chief Financial Officer. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and the risk factors discussed in our filings with the SEC, including our latest annual report on Form 10-K and quarterly report on Form 10-Q. Starbucks assumes no obligation to update any of these forward-looking statements or information.

All metrics referenced on today's call are non-GAAP and measured in constant currency. Please refer to the earnings release on our website at investor.starbucks.com to find reconciliations of these non-GAAP measures to the corresponding GAAP measures and supplemental financial information. As a reminder, the financial results discussed on today's call reflect the consolidation of Starbucks China as our transaction closed after the second quarter. This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, June 12, 2026, and for your calendar planning purposes, please note that our third quarter fiscal year 2026 earnings conference call is tentatively scheduled for Wednesday, July 29, 2026. I'll now turn the call over to Brian.

Good afternoon, and thanks for joining. I want to start with the headline. Q2 marked a milestone for the business. We delivered growth on both the top and bottom line for the first time in more than 2 years. Consolidated second quarter company revenue was $9.5 billion, up 8% year-over-year. Global comps were a strong 6% driven by terrific performance across the business, especially in the U.S., and our consolidated operating margin improved to 9.4%, up about 110 basis points. And as a result, earnings grew year-over-year. Positive comp trends have continued through April, and this gives us the confidence to take up our fiscal 2026 guidance for global comp growth to 5% or better and earnings per share to $2.25 to $2.45. .

We believe this quarter reflects the turn in our turnaround, but we know there is more work to be done. Our Back to Starbucks strategy is working because we're executing with rigor and focus and the outcomes are showing up in real and visible ways. Thanks to our partners in the craft, connection and sense of community they deliver for our customers. This is Starbucks. Green Apron Service is setting the standard for world-class customer service. We're winning the morning and building the afternoon with great craft and speed across every access point. Our Green Apron partners are creating more moments of connection with every cup served and our support teams are leaner and faster and built around a culture of listening, learning and acting with intention. Our menu innovation is exciting and moving at the speed of culture. The third place is alive and well in every coffeehouse. And soon, the design aesthetic of our cafes will match the feeling you get in them. Our Starbucks Rewards program is more rewarding and there is trust in our coffeehouse leaders to run their business and create community. And the best job in retail keeps getting better.

Our brand is showing up in more places and the shine is back on Starbucks around the world. This is the Starbucks we're building. The Starbucks customers deserve; the Starbucks, our partners are proud to call theirs; and the Starbucks, we believe will deliver strong performance quarter after quarter.

As shared, we grew both the top and bottom line in the second quarter. So let me break down how we achieved these results. North America led our comp performance with both North America and U.S. comps accelerating to more than 7%, driven by over 4 percentage points of transaction growth. We haven't seen this transaction strength in 3 years. Our U.S. company-operated business grew transactions across all dayparts, with mornings now roughly back to fiscal 2022 levels and we saw broad-based spend growth across all income levels and age demographics. Our delivery business also contributed to both comp ticket and transaction growth in the quarter. We expanded delivery access across our U.S. company-operated portfolio last fiscal year, and it's proven to be a largely incremental revenue stream, growing more than 30% year-to-date across our U.S. company-operated business.

International revenues grew nearly 8% year-over-year as momentum built globally. Comparable sales increased nearly 3%, and our top 10 international markets, including China, all posted positive comps for the first time in 9 quarters. This combination of sales growth, operating leverage and cost management translated into an EPS of $0.50, up approximately 22% year-over-year. We said we will grow the top line first and margin and earnings growth would follow. Q2 is proof our strategy is working.

Starting in the coffeehouse, we focused on continued improvements to staffing, scheduling, technology and leadership to make Green Apron Service work more reliably every day. As a result, in the quarter, customer experience scores continue to rise. Customer service times remained on target even with the greater transaction volumes. And in May, we're rolling out a new feature in our app that lets customers schedule their order pickup time. We expect this enhancement will bring even more order and predictability to mobile order.

Since launching the Grow program, which is our simplified coffeehouse reporting and ranking system back in October, the share of U.S. company-operated coffeehouse is delivering 4 or more shots has increased over 30 percentage points. This progress reflects clear standards, strong performance and more consistent execution from our coffeehouse teams.

The report has become a great new tool to evaluate performance and target improvements and it's helped put us on our way to being the industry-defining customer service and experienced company. Partners felt the difference as well. Confidence on the floor improved with healthy rosters and growing leadership stability and our data shows that coffeehouse leader stability is highly correlated to store performance. In Q2, 80% of our 5-shot coffeehouses had a leader who had been enrolled for more than a year.

We also announced new ways for partners to share in our success. During the quarter, we announced we would shift to weekly pay and introduced a new quarterly reward program for baristas and shift supervisors. This program recognizes Coffee's teams for strong performance across sales, operations and customer service. Looking ahead, we'll continue to strengthen the supply chain behind Green Apron Service. Our focus is on improving costs, availability, flow and accuracy to meet our pace of innovation and support consistent execution as our business grows. Our goal is really simple. If it's on the menu, customers should be able to order it. We're also tackling technology, equipment and process improvements to enable even better craft, connection and speed.

Second, our disciplined menu innovation, energized marketing and redesigned Starbucks Rewards program continue to drive demand. Our lean organizational structure is allowing us to innovate and execute quickly. This is already showing up in the pace of our menu innovation in the quarter, which included new bakery items and an elevated bake case, premium Matcha beverages and our 1971 dark roast coffee. It's innovation focused on what customers want, here for both the morning and afternoon occasion and built for easy execution in our coffeehouses. In April, we launched new energy refreshers and our new mango flavor. Both have exceeded our expectations and strengthen a proven $2 billion platform. Customers can now tailor the caffeine level of the refresher with the same ease and flexibility as flavors, creating more reasons for customers to visit later in the day. We'll continue to build on a refresher platform through the year, and even more flavors and blended versions as well.

Our upcoming summer menu features innovative drinks and merchandise that build on our iconic platforms and mix is soon to be favorites with returning classics. It's designed around what customers want in both the morning and afternoon. A highlight includes the tropical butterfly refresher with a striking look and refreshing flavor and like other refreshers, it will be available with customizable energy. We believe it's a great way to kick off this summer.

Marketing continues to amplify our brand as well. We're back in culture, whether it's major music moments like Coachella, global stages like the Winter Olympics or tech platforms like ChatGPT. We're engaging with customers in ways that feel authentic and distinctly Starbucks and is helping deepen brand loyalty and fuel fandom. U.S. 90-day active Starbucks Rewards membership reached a record 35.6 million with both rewards member and nonmember transactions growing year-over-year. Our new 60 star redemption option has become our most used reward, accounting for approximately 1/3 of all redemptions. And while still early, we've seen a growing number of customers visit 4 or more times a week since launching last month. We've made Starbucks Rewards a growth engine again, positioning it to drive new customer routines, deeper engagement and increased frequency. And that connection is showing up in the brand. Brand affinity continued to rise in the second quarter, reaching 5-year highs in consideration and purchase intent. Gains were led by Gen Z and millennials and more customers now believe their Starbucks purchase is worth it compared to a year ago. This shows what Starbucks continues to become more visible, relevant and loved.

Third, customers are responding to a great coffeehouse experience. Coffeehouse uplifts are driving positive customer feedback and transaction trends, reinforcing the role of the coffeehouse experience in our return to growth. We're investing in that experience at scale with more than 300 uplifts now complete on budget and with 0 closure days. We're accelerating this work over the next 2 quarters and expect to have more than 1,000 uplifts completed in our top 20 markets by fiscal year-end. Our return to growth has also sharpened how we manage our coffeehouse portfolio. The Grow report paired with improving company-wide comp trends is helping us more clearly identify outliers, focus resources and raise standards across the system. We're also applying the same level of discipline to coffeehouse development as we reset our portfolio and begin ramping unit growth.

Finally, broad-based momentum across our international markets in Q2 highlighted the strength and resiliency of our global brand. Japan had an outstanding quarter, led by a record sales week over New Year's, robust tourism and strong additions to our menu. And in South Korea, our Aerocano launch in February drove incredible demand with more than 1 million cups sold in his first week. China delivered transaction-led comp growth for the fourth consecutive quarter as Starbucks remained the top away-from-home coffee choice for Chinese consumers. We also completed our transaction with Boyu after the close of our fiscal quarter, bringing together Starbucks globally trusted brand with Boyu's local market expertise to unlock attractive long-term opportunities in China. With a rebased portfolio, the Starbucks China team is eager to step back into growth, with plans to expand Starbucks footprint from over 1,000 county-level cities today to more than 1,500 in the next 3 years.

As our International business moves towards a nearly 90% license model, we're simplifying our structure and strengthening how we support our business partners. This puts decisions closer to customers and local markets, and it lets us focus on setting standards and sharing best practices. It's a model built for speed, accountability and scale. Taken together, we're encouraged by the progress we've seen across key markets during the quarter, and we're confident in the role of our international portfolio as a durable growth engine over time.

So to conclude, Q2 marked a significant step forward in our turnaround. We delivered growth on both the top and bottom line, reflecting strong execution of our Back to Starbucks plan. Operational discipline is working with labor, throughput and availability moving together and with brand momentum translating into comp growth. Our focus now is on sustaining our momentum and making our results repeatable and durable, all while delivering a healthy cost structure that supports profitable growth. It's how we turn progress into consistent results, and that's how we create long-term shareholder value. This is Starbucks. There is more work ahead and we're focused on it. Our priorities are clear, the organization is aligned, and we're confident in the opportunities ahead. We're building a company that learns as it executes, one that stays close to the coffeehouse moves quickly to scale what's working and keeps getting better over time. We know the path forward will not be linear, but it is clear the changes we're making and the momentum we're building are starting to compound.

I want to say thank you to our partners around the world for the leadership, discipline and care they bring to our coffeehouses every day. You delivered these results, and you should be proud. With that, I'll turn it over to Cathy to walk through the financials in more detail.

Thank you, Brian, and thank you all for joining today. Our second quarter results demonstrate the progress we're making on both the top and bottom line to support lasting profitable growth in our business. I'm grateful to our partners across our coffeehouses, supply chain and support centers whose commitment and passion are delivering the best of Starbucks to our customers every day.

I'll now share our Q2 results and then provide additional insight into the months ahead. Our Q2 consolidated revenue was $9.5 billion, up 8% to the prior year. Global comparable store sales grew 6.2%, driven by continued strong performance across both our North America and International segments. As of March 29, we had 41,129-Starbucks in our global portfolio with 11 net new coffeehouses in the quarter. Our North America segment revenues grew 6% in the quarter to $6.9 billion with comparable store sales growing 7.1%. And in the U.S., our comparable store sales growth also accelerated to 7.1% led by transactions up more than 4%. Average ticket grew nearly 3%, driven by a combination of our growing delivery business, beverage mix, our bakery launch driving greater food attach and the continued popularity of modifications led by our Cold Foam platform.

Cold Foam, our leading modifier, continues to grow in popularity, with platform sales up more than 40% in Q2 across our U.S. company-operated business. Innovation across new flavors and the introduction of protein have further strengthened the appeal of Cold Foam, especially among Gen Z. We also believe Free Mod Mondays as part of our new Starbucks Rewards program will continue to support its growth. Our comp performance reflects our strengthening business fundamentals, world-class customer service through Green Apron Service, menu innovation that shows up in a welcoming third place and a strong, relevant brand supported by our marketing and rewards program. This is the Starbucks that drives durable growth.

Our 90-day active Starbucks Rewards program grew to 35.6 million members in Q2, up 4% year-over-year. We saw steady member growth from Q1 to Q2, which is a positive shift from prior year seasonal sequential declines. Members are adapting quickly to our new loyalty program. And while early, we're encouraged by the level of engagement we're driving across tiers. Also, since launch, both the rate and volume of U.S. card loads have grown steadily, exceeding our expectations. Overall, our North America store base grew by 25 net new coffeehouses to 18,385 at the end of the quarter. This included 44 net new openings across our company-operated business as well as 19 net closures in our licensed store portfolio.

Our North America licensed revenues were roughly flat year-over-year, reflecting these net store closures in the quarter. Notably, U.S. licensed stores returned to positive system-wide comps for the first time since Q1 fiscal 2024. This was led by record airport volumes and growth in other discretionary segments, together with continued recovery in retail and grocery.

Moving to International. The segment reported $2.1 billion of net revenues in the second quarter, growing nearly 8% year-over-year. International comp sales grew 2.6%, once again led by transactions which were up over 2% in the quarter. As Brian mentioned, all 10 of our largest international markets, including China, Japan, South Korea and Mexico, delivered positive comps for the first time in 9 quarters. Of note, Starbucks China delivered another quarter of transaction-led growth with comps up 50 basis points on transaction growth of more than 2%. On a 2-year basis, comps were stable sequentially versus Q1, smoothing out the timing of the Lunar New Year.

Our International store portfolio was 22,744 at the end of the second quarter, down 14 net coffeehouses from Q1. This includes the impact of 55 store closures as part of last September's portfolio decisions. We'll get to guidance shortly. But as we look to the rest of the fiscal year, we're well positioned together with our international licensee partners to return to net unit growth.

In Channel Development, our Q2 net revenues grew 38% year-over-year primarily due to higher revenues from the Global Coffee Alliance. Our new multi-serve refreshers concentrate which we introduced in North America last quarter is shaping up to be our largest CPG launch in over a decade with strong customer reception and repeat purchase behavior. At the end of Q2, we also launched coffee and protein ready-to-drink beverages, complementing our growing protein platform in our coffeehouses.

Moving to margin. Our Q2 consolidated operating margin was 9.4%, improving 110 basis points from the prior year. This was our first quarter of consolidated margin expansion since Q1 fiscal 2024 led by the International segment. International operating margin grew by approximately 790 basis points to 20.3% as the segment continues its broader recovery. As expected, approximately half of our international margin expansion was driven by held-for-sale accounting related to Starbucks China, which temporarily reduced store operating expenses and D&A by approximately $118 million in the quarter. This dynamic concluded at the start of Q3 with the transactions closed.

In North America, our Q2 operating margin contracted approximately 170 basis points to 10.2% as our progress on operating leverage and cost discipline continued to partially offset our annualizing investments in Green Apron Service. Our North America margins in the quarter were also impacted by roughly 190 basis points of product and distribution cost increases as a percentage of revenues and greater-than-anticipated legal accruals. About half of the product and distribution increase was driven by innovation-led product mix, and the remaining balance was inflation largely related to tariffs and elevated coffee prices. While market dynamics can change, we expect these tariff and coffee pressures to moderate in the back half of fiscal 2026, especially given recent trends in coffee prices. As a reminder, our results typically lag the market, both upward and downward due to our coffee purchasing and hedging practices.

And finally, consolidated G&A in the quarter decreased 5.5% as our organizational streamlining efforts continue to actualize this fiscal year. Our Q2 effective tax rate rose to 27.1%, primarily due to taxes accrued in advance of the planned sale of Starbucks China's retail business. Higher pretax earnings and related permanent and discrete tax items also contributed to the increase. All in, Q2 earnings per share grew 22% year-over-year to $0.50, our first quarter of EPS growth in more than 2 years.

Before we discuss our outlook, I'd like to spend a few moments on China. Our previously announced transaction with Boyu Capital closed shortly after quarter end. Beginning in Q3, the retail operations of Starbucks China will be deconsolidated from our financials and will be reported as part of our broader licensed portfolio. We will also cease our quarterly reporting on China stand-alone revenue and comps. In addition, we will make an informational 1-pager available shortly after this call on the quarterly results and supplemental data page of our Investor Relations website. The overall value to Starbucks is anticipated to be more than $13 billion, including the net present value of our licensing economics. As part of the transaction, Starbucks received approximately $3.1 billion in gross cash proceeds before taxes. Prior to closing, we repaid our $1 billion February maturities and expect to deploy the remaining proceeds toward additional debt reduction and ongoing balance sheet management. These actions further strengthen our financial position consistent with our BBB+ Baa1 rating.

Our capital allocation philosophy reflects a disciplined approach across 3 priorities: strategically investing in the business, maintaining a competitive dividend and returning excess cash to shareholders, supported by our investment-grade profile. We believe this framework positions us well to invest opportunistically, navigate cycles and create durable value over the long term.

Turning to our outlook for fiscal 2026. Our Q2 results highlight the progress we continue to make in our turnaround and momentum we've built around our strategy. From the outset, we've been clear that top line improvement would come first with earnings growth to follow. As our comp performance becomes more consistent each quarter, this growth, combined with our cost savings efforts are starting to show up in margins.

Starting at the top of the P&L, we are raising our fiscal 2026 global comp guidance to 5% growth or better, led by 5% or better comps in the U.S. Customer demand trends in our business remain strong today. And while history demonstrates the resilience of our brand through periods of high gas prices, the current macro environment brings heightened uncertainty to our operating landscape and consumer behavior more broadly. Our comp guidance accounts for these considerations. In addition, our guidance now assumes a joint venture licensing structure in China, and in the back half of this fiscal year, we expect our China-related revenues to be less than 20% of what we would have previously reported with China as company operated. As such, we now expect our consolidated fiscal 2026 net revenues to be roughly flat year-over-year.

We continue to expect slight year-over-year growth in our fiscal 2026 consolidated operating margins driven by the net effect of a number of factors. First, we expect sales leverage to build over the next 2 quarters as we execute with discipline and advance our cost savings initiatives. These serve as offsets to our investments in our Back to Starbucks priorities as well as other headwinds. Second, as I mentioned earlier, we expect copy and tariff pressures to start easing as we move into the back half of the fiscal year.

Third, our China JV structure is expected to be margin accretive with roughly half of its revenues flowing to operating income. We remain on track with our $2 billion cost savings plan. These are gross savings, which we expect to realize through fiscal 2028, and balanced across product and distribution costs, OpEx and G&A. This year, the impact of our efforts will be most visible in G&A as much of our realized savings across the P&L are being offset by our strategic investments in our Back to Starbucks plan.

We continue to expect our consolidated G&A dollars to run below fiscal 2023 levels even after incorporating greater performance-based compensation related to better-than-expected financials. Putting this all together, we are raising our EPS guidance at both ends of the range to between $2.25 and $2.45. China's transition to a JV structure is now expected to be relatively EPS-neutral this fiscal year. While global macro factors can introduce variability in our results, our guidance reflects our current view and confidence in the underlying business.

Finally, from a unit count perspective, we still expect to add approximately 600 to 650 net new coffeehouses this fiscal year. We expect International to accelerate its growth over the next 2 quarters to achieve 450 to 500 net new coffeehouses in fiscal 2026, of which China still comprises close to half. We also continue to assume 150 to 175 net new U.S. company-operated coffeehouses this year, and we will continue to assess our existing portfolio as we rebuild our development pipeline.

In conclusion, our results this quarter deepen our conviction in the long-term trajectory of our business and our Back to Starbucks plan. Our improving execution, brand relevance and customer experience reflect who we are and the progress we're making. This is Starbucks. Our work isn't done, and we remain clear eyed about our path forward to deliver a stronger future. And with that, we are now ready to take your questions. Thank you. Operator?

[Operator Instructions] Your first question comes from Brian Harbour with Morgan Stanley.

Yes. I'm curious if you could talk about sort of the -- just the service times. In the past, you've kind of updated us on where where you're on average, if we sort of pulled your employees, do they feel like they're kind of hitting targets there? And how do you think that the algorithm changes you made have supported that. And when you add scheduled ordering, how will that further address some of the service time improvements that you've made?

Yes. So thanks for the question. Obviously, our focus on what I think we've described in the past is 4/4/12. So 4 minutes in the cafe, 4 minutes in the drive-thru and better than 12 minutes for promised times in mobile order pickup is still very much a focus area. And as you mentioned, we're kind of continuing to make, I would call smart -- smarter queue going forward based on learning with higher transaction levels. And so right now, we've got about 80% of our stores or better hitting the metrics. And we believe as we roll out the scheduled ordering, that's going to enable us to improve our performance, more specifically in the MOP arena because we'll hopefully be able to pull some things out so that we have more predictable orders in the queue. And the other thing that we're working on, too, is just continuing to figure out a lot of people order in mobile or in some cases, in the drive-thru via mobile when they're already on-premise. And so we're learning how to sequence those orders better so that they get treated correctly, given where they are in proximity to actually the order taking place. So the team is doing a great job on this. We continue to make great progress. And as a result, I think our customers are feeling -- seen in the cafe and more importantly, getting their orders on time in the right amount of time. And then in mobile order and drive-thru customers are seeing their orders show up on time and again, at the speed requirements that they would hope for. .

Your next question comes from Sara Senatore with Bank of America. .

A couple of questions, maybe a 2-part question about the margin, if I could. The -- I guess you mentioned, Cathy, the impact of innovation on part of the cost of goods. I was just wondering if maybe that is something that you anticipate to persist. It seems like the -- in like the increase in the EPS guide was maybe a little bit less than I might have anticipated for such a big comp beat and raise. And I'm just trying to understand kind of puts and takes and in particular, on the COGS line and relative to, I think, some of what you had portended about maybe cost savings to come in future quarters in the supply chain.

So let me start with the big picture on the EPS raise to our guidance and the implied flow-through and then that will maybe dovetail into the COGS question you had. So we're really obviously very pleased with our continued progress starting on the top line, the success we're seeing both in execution and coffeehouse as well as through the menu and marketing efforts. And so very pleased there. We are seeing also sequentially each quarter the improvements showing up in U.S. company-owned in particular, in North America, as the teams continue to get better and better at scheduling. So we're getting better flow through there on top of our Green Apron Service investments every quarter. But in the macro, we're also cognizant of the macro environment, and we want to make sure we're prudent as we continue to think through the remainder of the year. Obviously, we still have half a year in front of us. So that would suggest a little bit of why you're seeing maybe not as bullish in EPS flow-through given the top line that we're expecting.

With regards to the COGS element of that, though, we are seeing first half of this year continued coffee elevation, price elevation year-over-year. It's almost not quite, but I think it's almost $1 a pound year-over-year change. And then the implications of tariffs as they run through our inventory, obviously, both of those we expect to abate toward the back end of the year. So both the coffee prices, we expect to continue to come down and they have a little bit as we -- our coffee always lags coming through our financials. And then the tariff implications we expect to roll through the inventory very quickly. So the back half, we should see better on both of those.

So all in, though, really pleased with both the performance on labor and the performance in the menu, and we'll continue to tighten that up, and it will show up in our -- obviously, our earnings flow through in time.

Your next question comes from David Tarantino with Baird.

And congratulations on the progress here. Brian, my question is about the operations improvement that you've seen. It's been pretty dramatic over the past, I don't know, 3 or 4 quarters. And I was wondering if you could maybe opine on how much runway you think the operations improvements alone still have in terms of being able to drive comps? I know it's may be difficult to separate that from some of the other things you're doing. But just perhaps you can maybe opine on that and give us an update on how those original pilot stores of the Green Apron Service model are doing relative to the base, that would be great.

Yes. Thanks, David. And I appreciate you pointing out that the operation has really improved. Hopefully, everybody is experiencing it. I know I'm experiencing it as I get to visit markets kind of all over the United States and around the world. And the way that we really are tracking this is through our Grow scorecard. So you heard me mention in my prepared remarks, we've got a huge move forward in the number of stores that are achieving 4 shots. And that is really an important piece of the puzzle. But what I would say is pointing to more opportunity to come. We still have close to 40% of our stores where they're not at 4 shots. And so we know what we need to work on. The thing that's great about the Grow scorecard is it gives you clarity on what's working and where we could be better. And so it gives a very simple tool to coach. And it also gives us a very simple tool to recognize for great results, which we're seeing a lot of those examples as well.

And then when I look at also just the speed of service and the way we're deploying, you kind of heard Cathy mentioned this, I think we're just getting better at how we're deploying, allocating the labor based on the transaction growth that we're seeing in the business across all these different access points, right? The delivery channel is growing for us in a big way, cafe business is growing, as is our mobile order pickup business. So as we learn about those different experiences and how those transactions are coming back to the business, we have the ability to better deploy and even get better customer experience. And the other thing that I think is really important to point out is we only have done the uplift in about 300 stores. And if you've experienced a store with an uplift, the third place truly is alive, vibrant. Our partners, I think, are really proud of their coffeehouse, and they really take to heart the idea of being the community coffeehouse again. And that's going to ramp up to well over 1,000 stores by the end of this year. And then we've got ambitious goals to get that across 8,000-plus stores in very short order.

So we're seeing upside after those uplifts occur, both in the morning and afternoon dayparts. So operationally, I believe there still is a lot of opportunity for us to get more and more performance out of our stores because our partners are going to be the right-sized roster deployed correctly. And then we're going to support them correctly with technology behind the scenes so that the supply chain has the product showing up at the right time for them. And then I think the other key piece of bringing the third place back to life is an opportunity that our customers embrace and ultimately, our partners truly embrace.

So I'm really excited about where we are. I mean, we've made tremendous progress over the last 18 months. And if you think about it, it hasn't even been a year that we've rolled out the Green Apron Service model. It will be a year come August. And we're continuing to see those kind of lead stores still lead. And the thing that I love about that is we're learning from those lead stores. So I'm excited about where we are, but I am -- Mike was here with me, I think he'd be excited about telling you about all the things that are still to come in our operating model and what our partners can deliver in being the best customer experience company.

And your next question comes from David Palmer with Evercore ISI.

Just a quick model question and a big picture one. With regard to the cost of the Green Apron Service, investments in the quarter versus the year. Any changes in how those investments -- how you're thinking about those investments and maybe just a sense of how it staged through the year there versus the productivity that you're planning for this year? Any sense of that by quarter and how it's phasing through the year would be helpful. And then a big picture one. I know a lot of people are focused on the specialty beverage market. There's forces colliding. There's big traditional QSR players that are getting into the market. There are specialty coffee players that are expanding their beverages. And I'm wondering Brian, if you're looking at this big market as you're executing your initiatives, and obviously, those seem to be working if you have a thought about where this market overall is going.

Yes, I'll take the the last piece of that question, and then I can hand it over to Cathy. But what I think is -- we're seeing is just the reality that more and more customers are interested in drink experiences, whether that's morning rituals or afternoon experiences. And I think you're also seeing customers or consumers, frankly, at all different age cohorts wanting to have a third place experience. And so look, it's almost, I think, a complement to the fact that our refresher business is being imitated in so many places. And what my experience has been is when the category starts being talked about, the market leader benefits. And that's going to be us in this scenario. And I believe the innovation that we're bringing to refreshers, the innovation that we're bringing to coffee, the innovation that we're bringing to espresso is going to continue to position us really well in culture. And it's also going to position us well to lead on kind of the growth side of the category that we're going to continue to see. So I think it's a great sign. It's a telling sign that we're actually responding to what customers want. And I think others are trying to imitate and I think we're in a great place with our scale and with our innovation and the pipeline that we've got coming really across how people want to experience drinks. I hand it over to you, Cathy.

Yes. And maybe only because it's become my own personal favorite, I'm going to expand on refresher really quickly. What we're seeing is great incrementality as well with our new refresher customizable energy platform. We built on a $2 billion platform. As Brian said, leading position there. We're seeing it show elsewhere with competitors. But now that we added the customizable energy, we're seeing people take away the caffeine in the afternoon. We're seeing people that weren't energy drinkers in the morning become energy drinkers in the morning with our refresher platform because of the additional caffeine. And so that just showed us that a platform that was already a great and growing platform when we added the customizable energy, it became even bigger and that's become a household favorite at my house.

To answer your question on modeling for the cost of Green Apron Service, as Brian said, we'll annualize Green Apron Service in August. We'll started rolling out, remember, in a couple of like 2-week waves in August. And so we're about the same level each quarter until then. And then obviously, it will come down quite a bit from there. And then on productivity, we watch throughput. Mike and the entire Coffeehouse and Barista team every day are working on that as well. And so we'll continue to get better and better at that, too.

Your next question comes from Lauren Silberman with Deutsche Bank.

Congrats on the quarter. I wanted to ask on the comp momentum, really impressive, especially in the context of the noisy consumer backdrop. Can you give any more color on the cadence of comps as you move through the quarter? And anything that you're seeing in April, given what's going on with gas prices. And then, Cathy, if I could just clarify on the EPS side. Now with the 5% plus comps, I understand you're being a bit more prudent. Can you just help us understand what you would need to see to get towards the top end of the range on the guide and perhaps versus the bottom.

Yes. So I'll take the first part and then I can hand it back over to Cathy on the second part. The good news is we really saw strength all quarter long. And I kind of go back to what I was talking earlier about when I think David asked a question about operational performance. One of the things that was great that we saw month to month to month is just this improvement in our Grow scorecard performance. You heard me reference how many stores now are achieving 4 shots. I want to make sure everybody understands what I mean by that, which is we're tracking now customer comments. We're tracking throughput. We are tracking staffing correctly. Obviously, these are all things that ultimately you see show up in the scorecard. And if you perform on your sales, your throughput, your staffing, your customer performance and your food safety, the ability to get to 5 shots. And where we've seen kind of a real change in performance is once people get north of 3 shots, 3.5 shots. And so what we did see is operationally, we saw that improve every month. And as we enter or I guess, get ready to exit April, we've continued to see that strengthen our operating performance. And we've also continued to see the consumer stay in the business, consistent with what we saw in the Q2 for our company. So we haven't seen a lot of the macro effects trickle into consumer behavior as it relates to Starbucks. But I think we want to be cautious going forward because we're not sure how this will play out as the issues continue to happen, whether it shows up in gas prices or utilities in other ways or other input costs like fuel costs. So -- but we're excited very much about what we're seeing from an operational performance, how the customer then responds to that great operational performance and then the great work that I think the marketing and menu team are doing to bring relevant drinks, and you'll see us continue to push forward in food to go along with those great drinks. And so I'm really excited about where we are. And I'm optimistic that if we stay the course on executing Green Apron Service, executing the third place experience with all these uplifts and then continuing to support our partners with the right rosters, the right deployment and then the right menu and marketing innovation, we should continue to be rewarded with customers' business in any environment. I'll let you cover the second part.

On the EPS guide. So what would you have to believe, as you said, we're trying to be prudent given that we still have the macro backdrop that we do. But what would you have to believe? Well, first of all, we start with top line. So we said 5% plus, it would need to lean on the plus. That will obviously help the EPS in the guidance range between the 225 and 245 toward the top end. Additional things that are contemplated in the back half of the year, we need to see coffee prices abate. Obviously, we continue to take a prudent position there, but we'd like to see those continue to abate. We'll want to make sure we're watching fuel and the implications of fuel, obviously, on our business as we get surcharges but also on the consumer. And then lastly, we'll continue to tighten up our innovation performance on COGS in particular. And as we do all of those things, that would put us at the top end or who knows what. And so we'll start with top line first.

Your next question comes from Chris O'Cull with Stifel.

Congratulations again. Brian, it was interesting that the U.S. is growing transactions across all income cohorts, including, I guess, lower income, which is a segment that has given most fast food or QSR concepts a challenge even with significant discounting. Why do you think the company has been successful in engaging that cohort.

Yes. Thanks for the question. Look, this is one of those things I believe what we see with folks is when you give them an experience that they feel is unique, differentiated, special, a little touch of luxury, it goes a long way. And we're seeing that play out with every income cohort. So if you're somebody that's viewing this as your splurge, they're perceiving this as, yes, that was worth it for a little splurge. And then for others, where they're seeing it as they're ritual, we're getting great feedback that we're now performing with the speed and the consistency that they're looking for. When we're seeing the occasions where people want this to be a community connection point, we're being able to show for them on that occasion. So I think this is what we talked about a while ago when I first said, hey, we need to get back to being Starbucks, which is we have to demonstrate for people that it's worth it. And -- if it's on the low income side where it is seen as a bit of a splurge and it's a little bit of indulgence. And by all means, we need to have those drinks that they want. And then we need to give them the experience where they feel like now for their hard earned dollars well worth to spend. And that's the feedback we're getting. And also, I got to tell you, too, I think, Cathy mentioned this, most recently, with our refreshers work, we're also seeing this play out in a really effective way too with all income cohorts. Where earlier in the morning, you're seeing more of the low-income consumer really adapt to the idea of a higher caffeine refresher. And later in the day, you're seeing some of the higher income people take the caffeine down a little lower, and giving themselves the customization that they want later in the afternoon as it relates to a refresher experience. So we're focused on being a great experience regardless of what income cohort you're in. And I'm really proud of our partners because they are the ones that are executing that coffeehouse experience that resonates with folks where they walk away saying, you know what, that experience was worth it. .

Your next question comes from Peter Saleh with BTIG.

Congrats on a great quarter. I just wanted to ask about the rewards program. I know the changes rolled out in March, so really not that much of a benefit to the second fiscal quarter, yet you did see some growth in the Rewards membership. So hope you could give us a little bit more color on what you're seeing in April? How has that accelerated? And on the flip side, sometimes when you change Rewards programs, there's a little bit of a disruption. Are you seeing a disruption? Or are you seeing an acceleration? Any sort of details around that would be very helpful in April.

Yes. Thank you. And look, I got to give a lot of credit to our Rewards team. They spend a fair amount of time making sure that this program was executed with excellence. And look, I'm delighted to say our rewards, the amount of people in our rewards program went up. We fully expected there will be some disruption, and we'd have to work our way back through it a little bit. But instead, it was just the opposite. And I got to tell you, I happen to be a reserve member. And even on Saturday, I got my new Black Reserve card. And if some of you are at that reserve level, I encourage you going to the app and order your reserve card, it's pretty cool to get. My wife might have had some envy when mine showed up. But the thing that I think is really powerful in this Rewards Program is we are seeing frequency increase, Granted, this is early days. We're also seeing people really take advantage of the new lower kind of stars redemption opportunity, where with 60 stars, you can get $2 off. And the team is doing a great job. And I think it demonstrates you don't have to make our rewards program, a coupon book. which is where I felt like we were when I first got here and we hadn't stopped doing all that discounting. This needed to be about engagement. This needs to be about personalization, and this needs to be about recognition. And that's exactly what you're seeing with our 3 rewards tiers. Now the ability to participate in the Starbucks shop and based on where you are, whether you're black or -- I'm sorry, reserve or green or gold, you even get access to unique items in the merch shop. So I just think the team has hit the ball out of the park on this one. It's early days, but I love the fact that we've already seen more rewards customers jump into the program. And by the way, usually in this quarter is when we usually traditionally see a dip in rewards participation. So we kind of bucked the trend. And then we also rolled out a new program that I feel just has tremendous momentum and a tremendous pathway in front of it for more growth and more engagement.

Your next question comes from John Ivankoe with JPMorgan.

One of the more difficult things to model is labor dollars per operating week, whether looking at versus '23 versus '19, considering Green Apron all the costs, obviously, the additional labor hours and additional people, additional training you put into the store. So really, the question is how maybe just kind of directionally how labor dollars per operating week may settle out in the next couple of years, especially given some of the initiatives and programs that your COO, I know, is planning to put in, in the relatively near term. How much efficiency, in other words, could we get out of existing labor hours to potentially use to drive additional transactions?

Well, let me just on the first piece in regard to like efficiency. I think the way we're going to be more productive is through the ability of driving more throughput with the new rosters and the deployment that we have. We don't see our way forward with cutting. We see our way forward with being creating technology or creating equipment or creating processes to support the labor hours we have in the store to be more productive, meaning more transactions, more throughput. And I think the team is laser-focused on this. We know we have a real opportunity to continue to be better at how we used the Smart Queue system. And we know we have an opportunity to be even better with the deployment. And we also know we've got an opportunity on how we set up the flow, whether it's the cold bar, our food system. And then obviously, I'm really excited about the new Mastrena that we've got coming down the pike where all of a sudden, you're going to be able to get 4 shots done in less than 30 seconds. So I think you're going to see us be able to meet the demand and do it in a way where we're able to drive more throughput, both in peak and in kind of these 15-minute, 30-minute increments that we're tracking. Your other question, we don't actually think about it the way I think you described it, but maybe we can...

Yes. Let me -- maybe I can add a little bit more color there. So as Brian said, we want to make sure we're supporting our Green Apron partners every time they're engaging with a customer to make that the best and most rich experience. So we're going to continue to invest there. If you're thinking through like hours and rates is the way I think about it, every hour that's a customer supporting -- I mean a Green Apron partner supporting a customer, we want to support that. What we would want to do though is help them to be able to deal with more throughput like Brian described or are those non-covered hours, those hours where they're not supporting a customer, if there are things we can do to help our Green Apron partners eliminate those kinds of tasks, then we would love to do that, and we can do that through technology and other ways, which we're doing. So longer term, total hours, I wouldn't expect to necessarily go down, especially as we continue to drive more and more demand. Rate, it will continue to be the area that we'll want to focus on, some jurisdictions require a rate already, and so we'll be thoughtful there. But I would think about it as kind of focusing on throughput in the covered hours or those hours where our Green Apron partners support our customers and then trying to be as effective and efficient as we can on the hours where they're not supporting a customer.

Your next question comes from Jeffrey Bernstein with Barclays.

My question is on the kind of EPS growth algorithm. I think at your Investor Day, the long-term algo you put out there through fiscal '28 pretty much assumed 25%-plus type EPS growth in fiscal '27 and in fiscal '28 to hit your former I guess, it's upwards of $4 target and with revenue being only 5% of that, clearly, the majority of the growth is coming from operating margin expansion. So with that as a backdrop, one, I was just hoping you can talk about the primary buckets of that. I think it's the $2 billion savings and how you kind of see that by year. And then just as you raise, like you just raised your fiscal '26 EPS guidance, should we be flowing that upside through to the former kind of absolute EPS guide approaching again $4, or do you think of that more of just an EPS pull forward of growth and therefore, we should still have that fiscal '28 number kind of as is.

So Jeff, maybe I'll start and then, obviously, Brian can add anything on. So we're really pleased with the performance we're seeing already and to be able to come in and increase our guidance so quickly even after just giving it at Investor Day. Obviously, it's a testament to our strategy that's working. So we'll stick with that. On your point about op margin expansion, absolutely, that is -- the key to the EPS targets we gave for 2028. And it is -- a lot of it's top line. Remember, about half of it is in top line and the other half is in that cost savings program. The cost savings program is a multiyear program, the $2 billion, you're seeing it probably not as obviously this year because we've got a fair amount of savings, but it's helping to offset some of those investments we're making with Green Apron Service. We're also obviously seeing it come through in some of the near-term G&A work we've done. But you should expect it to come through in '27 and into '28 as well. Some of those things we're working on take a couple of a little bit of time to get -- pull it through the P&L, which we're doing. So we've got a robust pipeline. What I can tell you is the number of initiatives have grown since we last spoke. So that's great, and we feel very confident we're on track for the $2 billion program. And then lastly, you asked about flowing it through. I would say we're really not changing our FY '28 targets at this time. It's really early. We have another quarter behind us, let's just keep putting them down. And then at the right time, we'll come back with some different guidance.

And the last question comes from Sharon Zackfia with William Blair.

So I think everyone is really impressed by the operational improvement. And I guess I wanted to drill down a little bit on how you keep the momentum going forward. You touched on this a bit. But are the scorecards fluid, meaning what -- how do you keep those original cohorts improving? Or is it just a matter of muscle memory over time? And then secondarily, in you studied 2023 from the outside, it looked like everything was good until abruptly it wasn't. So how do you -- and what safeguards have you kind of put in place so that you can diagnose any shortfalls to start to happen operationally to address them really quickly.

Yes. Look, this is why having, I think, clear standards and using a clear tool like the Grow scorecard is so important. And obviously, one of the things I will tell you is, as we get more and more people close or more and more coffeehouses close to the performance standard, we raised the standard. And I think that is just the reality of wanting to always be world-class. And the thing that I think is really exciting about the Grow scorecard is it's correlating to performance. And then also, it's giving us clarity of what's working and what's not working. And so that's going to be our best tool to understand what's happening in the coffeehouse. So I also think, too, just as an organization, we are much closer and in sync and in tune with our coffeehouse and the customer that's coming into the coffeehouse. So you got to stay close to what's happening from an operating standpoint. You got to have signals like a Grow scorecard, but you also got to be in the coffee houses, talking to our partners that see what's happening on a day-to-day basis. And I think our team is doing just that. And we will continue to make sure that, that is the case. I was actually just kind of looking at my past 3 or 4 months. And it's great to see how many coffeehouses I was able to visit over the past 3 or 4 months. And there's just -- it's invaluable to be able to be in a store with your partners, with your coffeehouse leader to hear what's working and what's not working. Because we don't have it all figured out. But the feedback I get from our teams is we're moving in the right direction. They love the Grow report, and they love getting the feedback that's simple, actionable and very clear. And so that's probably our best tool to make sure that we don't take our eye off of being a great operating company that's focused on great customer service. But the other key piece for us is whether the consumer is in a tough situation or in a healthy situation. My experience has been if you execute with excellence and you frankly give the customer the best possible experience for their hard-earned dollar, you'll be rewarded with their business. And that's what we're going to stay focused on the things that we can control.

And that was our last question, so I will now turn the call over to Brian Niccol for closing remarks.

All right. Well, look, thank you, everybody. And thanks for all the questions. Look, I just want to wrap up here, and I want to reiterate what we've accomplished, right? So over the past 1.5 years, we set a plan, right? We built, I think, determined teams to really start working with speed and rigor. And thanks to the dedication of our partners, I think, some smart investments, operational discipline. And clearly, we now have some brand momentum. It's great to see that the company is back to growth. So clearly, we have more work to do. But I do believe you've seen a turn in our turnaround, and I'm really confident in the opportunity ahead of us. Because of what I see just changing across our company. And I want to just share a little fun story. I had the opportunity to visit a coffeehouse in Nashville last week. And so I'm going to be specific here. So the team knows I'm talking about them. I was at Charlotte Pike in 22nd Avenue in Nashville. And I got to tell you, the store was transformed from my first visit about a year ago. When I walked in, all our partners' eyes were up, high energy, couldn't be more excited about providing great customer service. There was a true sense of community in the cafe. I had customers that were sitting on couches grabbing saying, "Hey, I love the new furniture. I love the new third place experience." And I'd tell you, it was showing up in their performance as well. And I'm happy to say this was a 4.5 shot growth score, so not just 4 shots, but 4.5 shots. And I'm sure they're on their way to 5 shots. But it was amazing to just see the transformation in 1 year and really the effort that our partners were making to provide world-class customer service. The other thing I want to share, too, is I really do see in our support center that our partners are embracing the accelerated pace of change. And they are really driving forward a lot of work that's making a real difference in the experience that we deliver in our coffeehouses. And I believe our support center is much more focused on the customer. And I believe speed is becoming an advantage as we will start operating with more confidence going forward. So look, together, we really are building a winning culture that makes our Q2 results, I think, repeatable and durable and truly represents what Starbucks is. It's one that's going to get better as we execute, one that's going to stay close to the coffeehouse, one that as we scale things we will scale the things that work and we'll learn from the things that don't, and one that keeps raising the bar for both ourselves and our customers. And I really do believe, Back to Starbucks is demonstrating that we're strengthening our execution. And our execution is now showing up in our results. So our focus will be now on consistency so that today's progress really does become ongoing performance. So again, thank you to our partners really around the world for the care and discipline that they are bringing to our coffeehouses. I want to thank our support centers for the focus that they put on getting the right work done at the right speed. And obviously, I want to thank our customers and our shareholders for your continued trust in the Starbucks business. And I'm sure we'll be talking here in the next couple of months. So have a great day. Thanks, everybody.

Thank you. This concludes Starbucks Second Quarter Fiscal Year 2026 Conference Call. You may now disconnect.

Good morning, and welcome to Starbucks' 2026 Investor Day. Thank you so much for joining us. I'm Catherine Park, Vice President of Investor Relations. And it's our pleasure to host you both in person and virtually, and we have an exciting morning plan for you today.

Before we get into it, I'll direct you to our forward-looking statements behind me for everyone to reference. Now I'll briefly run through our agenda for the day, which begins with presentations from Brian, Trey and Mike after which we will break for about 20 minutes. During our break, those in the room will have the opportunity to sample some of our exciting food and beverage offerings.

And for those joining us virtually, we're bringing a video to you as we'll showcase some of our brand experiences during this time. After our break, we'll resume with Brady and Cathy's presentation, and then we'll close with time for Q&A.

Following the event, we'll make today's presentation materials available on our Investor Relations website. And with that, we're ready to begin. We'll start with remarks from Chairman and CEO, Brian Niccol. But first, we'll share a short video.

[Presentation]

Please welcome Chairman and Chief Executive Officer, Brian Niccol.

Good morning, everybody, and welcome. We're really excited to have everybody here. And on behalf of the Starbucks Board, our executive leadership team that's here. I do want to say welcome and thank you for being here. I think we're going to have a great day. And the reason why I think we're going to have a great day, as you're going to hear us talk about our growth plan.

You're going to hear us talking about the foundation of what makes this company great. our Green Apron service model and our partners. And I think you're also going to hear about our purpose. And I think I want to start there, which is, obviously, you heard our Q1 results yesterday, which I was really excited to share. I think it demonstrates the momentum that we have in this business and how things are really taking hold.

But obviously, we are the Starbucks coffee company, correct? So there's no better way to start off a Starbucks meeting than grounding ourselves in coffee. And so hopefully, some of you got a chance to try the 1971 roast that we're passing around right now. But to really get you up to speed on what makes this coffee so special. I want to invite up here one of our master coffee developers, Sergio Alvarez. He is a long-time partner I think, nearly 20 years. And he's going to come and join me on stage to share what makes this blend so special. So please join us in sharing this. All right. Great. Thanks, Sergio.

Thank you. Good morning, everybody. So thanks for having me. I started nearly 17 years ago in our Pike Place store. You can see the picture I was a little bit younger back then. But really being part of the team that created this blend is truly a special moment for me. So now I'm going to walk you through a coffee tasting and how we started Starbucks, which is with coffee. So first, let's just put our hand over the cup, so we can get a hint of the aroma.

Right off the bat, I get that striking aroma of a bold roast, right, with maybe some hints of caramelized sugar. I'm sure you guys are getting all that. I don't know about you, Brian, but I really get this kind of creme brulee, right before you're going to break that.

Which is one of my favorite.

Yes. Thank you. So now for the most important part, which is the slurp. And usually what I say is, don't be shy, the louder, the better the coffee will taste.

So I want to hear everybody. Now I've faced this coffee 1,000 times. We've been working on it for over a year. But that first step never gets old, to be honest. Notes of toasted sugar in which will now complement a bold yet smooth finish that will warm even the coldest New York winter day. This is a perfect blend of innovation in host -- with those wild spice flavors we love from Sumatra, the complex nuttiness they've come to expect from Colombia and that smooth mouthfeel from Brazil that truly shows what we do best at Starbucks, which is blending and roasting the finest coffees in the world since 1971.

The art and craft of coffee have never been more alive at Starbucks, and we're so excited to introduce customers to 1971 Roast in our coffee houses in North America soon. especially to those who we love dark roast out there, but soon enough around the world. Cheers. And thank you for having us.

Thank you, Sergio Thanks. So actually, too, I don't know if you guys know this, but that 1971 roast is a dark roast that will be now in all our stores, I think starting in February, March timing and we've got a new piece of equipment called Clover vertical, which really is, I think, the best possible way for you to get brewed coffee because you're going to be able to now get freshly grounds, coffee, brewed into your cup every single time you walk into Starbucks. So we know we have the world's greatest espresso equipment. We also now have the world's greatest brewed coffee equipment.

And then I think we're also brewing some of the best coffee in the world with 1971 Roast Pike Place. So hopefully, you were enjoying that. And for those that are big Pike Place users, hopefully, you'll become a big 1971 user as well. So all right, let's get going a little bit on where we're headed for Starbucks and the exciting growth that we have in front of us.

So look, I took this role on nearly about 1.5 years ago because, frankly, I saw an incredible opportunity. An opportunity to leave one of the world's most iconic brands really to build on its incredible legacy and heritage and to help shape its next chapter of growth. And from the very beginning, it was clear that Starbucks has always set out to be a different kind of company.

One that is committed to serving the very finest coffee in the world and to inspiring and nurturing the human spirit, one person, one cup and one neighborhood at a time. So from our original store, Pike Place in the market in Seattle, which I think you saw here, Sergio started his career in. That dream really has grown over 55 years in one of the most iconic brands frankly, beloved brands in the world.

And along the way, we've built truly an incredible business that's driven real value for our customers, partners and our shareholders. But it wasn't just great coffee that fueled our growth and love for our brand. It really was the sense of connection and community, our Green Apron partners, which you guys got to see come out and share that coffee with you. That shows up in every cup every experience that I think ultimately sets Starbucks apart.

And it's that human experience that I think became our competitive advantage and still is our competitive advantage. So clearly, our coffee houses became a third place. They were grounded in human connection, places where they welcomed and frankly, greeted you by name. Places where you could connect with others, take a moment for yourself, places that were woven into the routines of home and work and into the daily fabric of the neighborhoods that we serve.

Our brand is defined by this intersection, of coffee, craft, connection and community that come to life in our coffee houses. And these are our enduring strengths. These enduring strengths, frankly, that tap into a fundamental human truth. And that fundamental human truth is people, which we all are, want to enjoy coffee in a place where they feel connected, whether it's a moment for themselves, to others in their community, or just a place where they know they can be.

And that's why Starbucks became the global leader in coffee. Because our purpose, our partners created an impact in 3 areas that, frankly, no one else can replicate at our scale and no one else can even match. And so the first one I want to make sure we all understand is we have the unrivaled impact on the future of a large and growing coffee market. Our sourcing, our roasting, our blending, our crafting of the world's finest coffee is unmatched.

From Hacienda Alsacia, our farmer support centers, our teams work to research and invest and a resilient future supply of Arabica coffee. Then our skilled team of master roasters, carefully prepare these beans for distribution that go across the globe, okay? And then finally, our baristas using the best equipment and handcraft your drinks and each order with care, truly reflecting excellence from bean to cup.

Second, a real impact for our partners, providing them with competitive pay, industry-leading benefits and a robust career path that make Starbucks without a doubt, the best job in retail. Because when our partners succeed, customers feel the difference. And our entire business gets stronger. And third, a lasting positive impact on the neighborhoods where we do business, reinforcing that a stronger Starbucks contributes to stronger communities.

So let me give you a sense of the scale for the business that we're operating today. So we operate more than 41,000 company-operated and licensed coffee houses in 90 global markets. So this is more than any other coffee brand in the world. We serve more than 20 billion customer occasions across the globe annually with more than 85 million loyal customers actively engaged with our brand at Starbucks Rewards members.

And behind every one of those moments, our more than 400,000 partners who proudly wear the green apron in Starbucks coffee houses and support centers around the world. They are the heart of our brand and the engine of our performance. So this global scale and reach make Starbucks the clear market share leader in a growing away-from-home coffee category, and the most widely accessed premium coffee brand in the world.

From our core coffee forward platforms like our Cortado, which, frankly, is one of my personal favorites to our iced shaken espresso, which is my daughter's favorite, so I had to put these two in here, to other key beverages like Matcha, Refreshers, we win. It's that simple. We went across hot, cold, and we truly provide our customers the personalization of what they want in every drink and experience that only Starbucks can.

So we have an incredible reach and loyalty that extends our brand across millions more touch points through packaged coffee and delicious ready-to-drink products sold everywhere, people buy drinks. So these touch points create a level of familiarity, trust and relevance that no other coffee brand comes close.

So in the U.S. alone, we are the scale leader across the 4 coffee house access points we operate. So it's cafe, drive-thru, mobile order & pay, and delivery. Each of these businesses give customers unrivaled access to our handcrafted beverages and ensure we're able to serve them no matter what the occasion is. So we have the largest footprint of cafes in the U.S., places where customers can sit stay and enjoy their beverage.

Hopefully, you get a chance to check out some of our new furniture, of what we're going to create in our coffee houses as well as the new [ ristretto ] building that we're going to be building, which I personally believe is a home run. And you also find out that -- and I've gotten this question a few times, why are you only talking about the cafe? What about the drive-through, what about mobile order pay? The thing I want to remind everybody is over 60% of our customers just in this last month came into our cafe to order their cup of coffee or their drink.

And that doesn't even include the people that ordered mobile order pickup that came into the cafe to get their drink.

And the reason why that's important is because our cafes are our point of differentiation. It creates the halo that lifts every other coffee house order channel. If you walk into a place and there's nobody sitting in the seats or it's a soul-less place, you don't feel great about what you just ordered.

If you walk into a place and the place is vibrant, it's connected to the community, people clearly are connected to both the baristas and each other, you feel really different about that cup of coffee. So that's why the cafe is so important, and it's such a point of difference. We also operate the largest coffee drive-through business in the United States, generating nearly $10 billion in annual sales.

So that's the size of a Fortune 500 company on its own. It is our biggest channel and with Green Apron service, we provide our customers convenience and connection with Starbucks' quality and personalization. We also have the largest digital business of any Coffee House, driven by our app and underpinned by our rewards program. And this ecosystem drives higher frequency, deep customer engagement and convenience that frankly is unmatched in the industry.

And finally, we're rapidly scaling our delivery business, which surpassed $1 billion in U.S. sales in fiscal 2025 and has significant headroom for growth. And delivery expands our reach beyond our physical footprint and frankly, taps into new customer occasions. Some of you may not know this, but I went to Miami, Ohio for undergrad. And I happen to participate in a coffee delivery because I could not turn off the game, since they were going 21 and 0.

So I took advantage of that coffee delivery experience. So if you haven't seen the Red Hawks, I highly recommend tuning in. And so these are all special occasions, okay? And so these 4 access points to the Starbucks experience really do create a durable competitive advantage and position us to serve more customers, more often in more moments throughout the day.

So to maintain our leadership position, it became clear when I joined the company that we needed to return to our core and refocus on what always set us apart. So before I started, I did what most people do that are between jobs. I spent some time in our coffee houses. And I had a bunch of conversations with partners, customers, and it was great because a lot of folks didn't know I was going to be the CEO of Starbucks.

Eventually, people caught on because I was showing up multiple times a day and just about every day for the next month. And what I heard about was unbelievable strengths, right? And these strengths that frankly define Starbucks, the quality of our coffee, tea, our handcrafted beverages, the craft and the commitment of our Green Apron partners, such passion came through these people.

A long history of innovation, an industry-leading app and rewards program, a brand that is part of people's daily routines and communities for millions of people. But I also heard we had work to do. Customers told me that our menu needed to feel more relevant. Better service needed to be more timely. Partners also shared that our operations have frankly become too complex. And it was great to hear, though, is both partners and customers, they wanted the Starbucks experience.

They wanted that personal welcoming, consistent experience. I heard it over and over and over again. So it became really clear to me to turn this business around and build a platform for long-term growth. We had to change the way our business ran and the fundamentals of how we worked. So that meant strengthening the operational foundation of our business, simplifying processes and restoring clarity and ownership to our coffee house leaders.

It meant creating the conditions for partners to focus on what matters most, which is great craft and genuine moments of connection. So on my second day, I shared an open letter outlining our back to Starbucks plan. And in that, I was pretty clear on what I believe has always set us apart, a welcoming coffee house where people gather or we serve the finest coffee, handcrafted by our skilled baristas. And really, the idea is simple.

Let's get back to Starbucks, so everyone can experience the best of Starbucks. So it's a plan rooted in who we are and what's made us successful. And it's also centered around core pillars that provide us a clear path towards growth and a stronger future. So I'm just going to repeat these for you. I'm sure you've heard these, but we will be the world's greatest customer service company. We're going to be, and we are, the place that offers the best job in retail.

We will be the community Coffee House and our brand will be visible, relevant and loved everywhere. And you're going to see how we're going to be able to accelerate growth around the world. And then obviously, we will deliver on our commitments to create shareholder value.

So Back to Starbucks reconnect us with our core. It gives us a platform to build the best of Starbucks with clarity, confidence and purpose. So for the past 18 months, we've been, frankly, really hard at work putting and following through on what we committed to do. And in that time, we've made meaningful progress, and I believe have built real momentum, which is what we talked about yesterday.

We put the customer back at the center of every decision we make. We've focused our time, resources and investments on work that has the greatest impact, guess where? Inside the coffee house. okay? Second, we made it much easier to run great coffee houses by launching Green Apron service across North America in all of our company-operated stores. It frankly is our largest ever investment in the customer experience and what you've seen happen from this is we've expanded rosters. We've improved staffing. We've established new standards for how we serve customers. And we're operating with more consistency across every coffee house and every access point.

So we've introduced new tools that support partners in real time. For instance, the Green Dot assist. I think some of you might have seen this already or you will get to see it because this helps partners solve challenges on the floor, real-time using AI. Our SmartQ program improves handoff, speed and consistency by optimizing production.

And these tools, frankly, reduce friction for our teams and create a smoother experience for our customers. We've also restored ownership and accountability to our coffee house leaders. And this is a big deal. Our Coffee House leaders are the ones that make the difference in the stores. We cannot run this business based on averages or from spreadsheets from the far. It happens in the coffee house with our coffee house leaders.

And putting that responsibility back in their hands has already improved the availability of products the connection with customers, and we're hearing it in customer satisfaction over and over again. Third, we took important steps to reclaim the third place and bring back the community coffee house. And we brought back simple things to make this a reality. We brought back the condiment bar.

You might have saw the ceramic mugs Sergio and I were experiencing the 1971 roast and that's our new ceramic mug that's going to be showing up in all our coffee houses, hopefully, you'll get to see the new green chair that's going to be a unique element in our coffee houses as well. And the reason why this is all important is because we want people to be in our coffee assets. We want our customers to be in our coffee houses.

One of the things we had to do in order to make that happen is we had to introduce a new code of conduct that frankly, prioritized a great customer and partner experience. Along the way, we also had to reassess our Coffee House portfolio. And we had to make some difficult but necessary decisions to close locations that could not meet our financial expectations or deliver on the environment that our customers and partners deserve.

We also began scaling our uplift program, which brings more warm comfort and seating back into the cafe. And by the end of fiscal 2026, we expect our uplift to add more than 25,000 additional seats across our U.S. company-operated portfolio and replace thousands more with more comfortable options. And customers are already responding with longer dwell times and frankly, improved customer satisfaction and connection scores.

Fourth, we began reclaiming our leadership and culture. We refreshed our approach to marketing, and this work has improved the health of transactions and reach more customers and strengthen brand trust and affinity. And we've also built a disciplined innovation pipeline that includes coffee, espresso, matcha, premium chai, refreshers and artisanal food. And this is going to make our menu more relevant, more exciting and more attuned to evolving customer taste, all while staying true to our craft and our commitment to quality.

And fifth, we define the opportunity and our approach to our growing China business, and we returned our international markets to growth. So most of our work to this point, has really focused on rebuilding those foundations and our brand to support a healthy growing business in the U.S. and frankly, around the world. And I'm happy to say our plan is working. It is working.

And in the first quarter of 2026, you guys heard about this, we achieved same-store sales growth in the U.S. in every major market around the world, driven by transactions. And while there's still more work to do, this is an early but important sign that our turnaround is taking hold, and it shows our growth trajectory is clear. So with these fundamentals in place, we have a strong platform to innovate and accelerate, frankly, around the world.

And in fiscal 2026, we are shifting to playing offense and innovating. We're going to be scaling the work already underway and raising the bar to ensure every visit to Starbucks feels worth it to our customers. So we're not finished with our Back to Starbucks plan or our broader transformation, but I am confident in our strategy.

Our progress, the pace of change and the opportunity ahead of us, I am unbelievably confident. And over the long term, I am confident that this work will allow us to deliver the very best of Starbucks consistently and at scale. So to help execute this vision and deliver on our plan, I do believe we've built an unparalleled executive leadership team.

Each are proven leaders with extensive experience leading retail operations and global brands and each bring a unique perspective to the table to help shape our future. Their breadth of leadership and experience, combined with their commitment to Starbucks' mission and values, give me full confidence in our path forward and our ability to deliver the very best for our customers real opportunity for our partners and long-term returns for our shareholders.

So throughout today, you're going to hear in much more detail from 4 members of our executive team about the work we've done to rebuild a strong operating foundation what we're seeing in our business as a result and how we're positioning Starbucks for sustainable growth in the years ahead. Each leader will take you deeper into one of the core pillars of our Back to Starbucks plan.

and share the progress, momentum and opportunity that they see in their areas. So Tressie will start by taking you through how we're driving demand and building brand love and unleashing our growth potential. She will show you how we're making Starbucks more visible, relevant and loved everywhere from meaningful menu innovation and a next-generation loyalty program to marketing and digital experiences that meet customers where they are and move at the pace of culture.

Mike will then walk you through how we are becoming an operating company that drives repeatable experiences and results in our coffee houses He'll share the tangible progress we've made on throughput, service times and operational consistency. We'll also discuss our new unit growth potential and what we're doing to strengthen our coffee house portfolio.

Brady will share our global growth strategy and how we are building more customer touch points around the world, and he will walk you through our asset-light globally consistent and locally relevant model that allows us to grow with seasoned license partners and how we are strengthening our presence in both mature and emerging markets. Brady will also highlight the opportunity we see globally beyond the coffee house and why our brand, our coffee, our drinks and frankly, our food show up in more customers' hands globally than any other competitor.

And Cathy will bring it all together, with probably the slides you're most interested in. Our plan to deliver on our commitment to create shareholder value for the long term, to walk you through our financial framework, through fiscal 2028 and how our investments translate into profitable, sustainable growth.

So together, these presentations will give you a clear picture of what we've accomplished, what we've done to strengthen the business and our approach to growth over the next 3 years. So my hope is that you need today with the same confidence and conviction that we have in the future of Starbucks that I have in the future of Starbucks and in what this company can achieve when we are at our best. Before I turn it over to Tressie, I want to leave you with a sense of the financial performance we believe we can deliver by fiscal 2028.

So based on the progress that we're seeing in the business and the strength of our plan, we believe we have the ability to consistently deliver both global and U.S. comp growth of at least 3% over the next 3 years. In fiscal 2028, we also have plans for about 2% to 3% revenue contribution from new stores and expect to add more than 2,000 net new coffee houses across our globally company-operated and licensed businesses.

This includes ramping to open approximately 400 net new U.S. company-operated coffee houses annually by that time. And all this equates to consolidated net revenues growing by 5% or more in fiscal 2028. And as earnings outpaced sales growth, we anticipate this will result in operating margins between 13.5% and 15%, which means $3.35 to $4 in earnings per share by fiscal 2028. I'm impressed. You guys didn't take out your phones and take pictures.

So this framework assumes our China retail operations are a status quo. So in fiscal 2028, I want you also recognize this is just a way point for us in our turnaround. Our ambitions extend well beyond this time line. And as we get the business stabilized, grow it and position for greater earnings power in the long term. So Cathy will take you through how we built this framework and how it guides our near-term priorities and financial decisions.

And she will show you how the foundations we're putting in place today support the growth, profitability and the returns we expect. So to wrap up, I want to leave you with a thought. This is not a finish line. This is our framework for how we will win. It reflects what we believe is achievable when we operate with discipline, invest in our partners, deliver exceptional experiences for customers, we continue to strengthen our brand and broaden our reach around the world.

And importantly, it sets us on a clear path to deliver the very best of Starbucks. Because when we deliver the best of Starbucks everywhere for every customer, our potential is truly unmatched. Thank you for being here, and I will hand it over to Tressie.

Please welcome Global Chief Brand Officer, Tressie Lieberman.

I am thrilled to be here to share how we are unleashing the power of this iconic brand. I have the privilege of leading our teams across menu, merchandise, marketing, digital and our CPG business. And I'm so confident in our plans to win today while we create the future, and I can't wait to show you what we have in the works as we reignite the soul of one global brand.

Customer behaviors, technology and culture are changing faster than ever, and I build teams that know how to look around corners, stay relevant and be on offense. I love to be part of brands that have truly passionate customers, and there is no brand with a community like Starbucks. We are truly in a category of our own. From Seattle to Shanghai, Starbucks is more than a coffee brand. It's a global ritual. It's your third place to sit and stay a while where your partner knows you by name.

It's your drive-through that feels like home and our mobile app so easy, you can order half awake. It's that first feeling with your drink too gorgeous not to post on social media and the delight of reward stars appearing like magic after every order. It's our merchandise worth camping out for with your best friend and our ability to make the season start feel official. It's the iconic siren with a handwritten note that makes you proud to carry your cup.

And no other brand delivers this 360 experience with such consistency and equity and certainly not with our scale. But before I took this role, I saw so many treasures to build on, and I was all in on Back to Starbucks strategy. It's been just over a year since I joined Brian and this incredible leadership team, and I wake up every day with deep conviction to protect and grow this brand. And the longer I'm here, the more I realize just how special Starbucks is.

Today, I want to introduce you to our unique flywheel for growth. Our strategy reaches a mass audience to drive brand affinity and visitation while keeping our rewards members feeling valued. As we have built our plan, we have asked if our ideas make Starbucks feel worthy of the customer's visit, sweating the details of every part of the journey. So the flywheel is working, and I want to take a minute to explain the 3 interconnected elements it's fueled by.

First is experiences. When an experience is truly innovative, it sparks cultural movements. We're not just launching new items. We're making icons of our icons and investing in the development of new ones. From the menu to merchandise, we drive momentum by giving our customers things to talk about. Second is rituals. We create moments that fuel brand passion, unleash loyalists and unlock new occasions every day.

And we are doubling down on our core platforms that customers love and evolving our rewards program to make sure every member feels valued. And third is connection. Our partners are the heart of the brand, creating connections across all channels. We have a unique opportunity to connect people over coffee during a time when loneliness is pervasive. We share the stories to remind customers that together is truly the best place to be.

Each element fuels the next. culture shaping products drive demand, an amazing experience in Starbucks Rewards ignite a ritual and deeper connection creates true loyalty and keeps people coming back. It's a flywheel that's uniquely ours. And I am standing here confident that our brand is operating from a position of strength, and we intend to stay there for generations to come. Before the flywheel could truly gain momentum, we had to reclaim our narrative last year.

And we grounded ourselves in a simple, powerful objective: to be visible, relevant and loved everywhere. We sought to make highly intentional work that celebrates what makes Starbucks, Starbucks. Our love of coffee, craft and connection. In 2025, we reintroduced Starbucks to the world with our first ever global brand campaign, Hello Again. We elevated our visual system across every single creative asset from e-mail to social to our menu boards.

We set our team up to move at the speed of culture and ignite brand fandom. But let's take a look at how we have shown up in the last year to accelerate momentum.

[Presentation]

Our customers are awesome. Watching that every time gets me so excited because we're just getting started. And everything you saw there was either coming from our team as creative assets or customers just showing up, being happy, they love this brand. It's an amazing thing to be a part of.

We know how to get people talking with our strong track record of breakthrough innovation. From seasonal lattes to protein cold foam, we have consistently created platforms that redefine the industry. Innovation isn't optional. It's oxygen for our brand. And our brand strength is backed by a global innovation powerhouse. When an idea works in one market, we can scale it around the world.

Take Pumpkin Spice Latte, for example. It began in the U.S. and now it's in more than 80 markets. And the famous Barista, you just saw the fan freaking out about, it first gained popularity in Korea and is now a viral hit in the U.S. Today, I'll focus on the U.S. so you can understand the scale, leadership and flexibility of our menu, and Brady will share more on our global strategy. The U.S. company-operated business represents more than 70% of total revenue and powers the flywheel.

Cold represents 2/3 of all beverages we sell. Our food business has doubled since 2020, now nearly $6 billion in annual revenue, accounting for about 25% of sales. Customization alone is a $1 billion business, unlocking incremental value and driving higher attach. Cold foam is now one of our largest modifiers and represents 1/3 of our $1 billion customization business.

And customers can now make 90% of their drinks a protein drink with an upsell to protein milk or protein cold foam. And protein has been a great incremental driver. Customers love it. And it's pretty amazing that you can get 28 grams of protein in a Grande protein matcha latte. As we look to the future of innovation, we're going to do it the Starbucks way with handcrafted high-quality customizable offerings that you crave.

We will continue winning the morning. In fiscal 2025, we generated more than $12 billion in revenue, and that's over 50% of our U.S. business all before 11:00 a.m. From brewed coffees to macchiatos, our morning loyalists love the rich and wonderful ritual of their Starbucks order, and they rely on us to start the day. We own the morning occasion. We created this ritual, and we will keep it. In 2 weeks, you'll be able to enjoy the Starbucks 1971 Roast, our newest premium coffee that many of you just experienced in the room.

Thank you. Our passion for coffee is unmatched, and we will continue to celebrate our coffee leadership. It is a core part of our heritage and central to our brand storytelling. We will launch delicious espresso, Matcha and Chai beverages with craveable flavors like Ube and coconut coming this spring. We are also updating our core flavors to provide more variety and new always-on options like Pistachio, Lavender and Sugar-free Caramel.

Approaching 30% of total morning sales, food is critical. We created iconic options that people instantly associate with Starbucks like our Egg Bites and our loaves. We'll maintain relevance by continuing to evolve our breakfast and bakery offerings. And this February, we're expanding our bakery case with a curated lineup of globally inspired flavors designed to elevate the customer experience.

And today, you will be amongst the first to sample some of these items, including the strawberry matcha loaf, which is my personal favorite. This bakery case isn't just about the morning. It's also about giving customers choice for that afternoon snack. Midday and afternoon dayparts already generate $11 billion after 11:00 a.m., but we believe there's room to create a true second peak.

We see an opportunity to own a new Starbucks occasion in the afternoon, a true afternoon reset, a culture-shaping ritual that Starbucks is perfectly poised to define and own. Tea is a category that has consistently over-indexed as an afternoon occasion. In fact, tea revenue is up more than 70% since fiscal 2021, and we have led with innovation here. We removed sugar from our matcha last year and innovated with new ways in like this trending Dubai chocolate matcha.

We are also introducing a dedicated matcha menu with more relevant flavors that will be coming just next week. Next up, we'll launch premium chai. Arriving later this spring, it will give customers the ability to customize their sweetness levels and craft the beverage they already love in a new way. And the new fruit forward core flavors we're adding, such as mango and raspberry will give our customers more ways to discover their perfect beverage as we continue to grow the category.

In this spring, we are taking Refreshers, a $2 billion platform that is already one of our fastest growing and changing the game again with energy refreshers. We are revamping the platform to deliver customizable energy from the option to make them decaf to adding an extra boost of energy. And to do it the Starbucks way, we are leveraging quality ingredients. Our proprietary energy blend uses B vitamins and caffeine naturally derived from green coffee extract.

And it doesn't stop there. We are always working on additional ways to extend energy refreshers from blended to sparkling. We're not chasing trends. We're building on a beloved platform and never giving customers a reason to go anywhere else. Offering new afternoon-friendly beverages is the first step on our path towards introducing a new afternoon ritual. To complete the occasion and deliver sustainable growth, we're thinking beyond beverages.

Our food sales in the morning show us what's possible when food and drink innovation work together to exceed customer expectations. You can expect more premium food offerings like flat breads and wraps. And to fuel the afternoon, we'll continue to lean into all day snacking with delicious on-trend grab-and-go options like our recently launched Khloud popcorn and upcoming protein balls. And altogether, you can expect a steady pace of product innovation that builds a brand and drives sales.

Our plan has 2 layers. First, our 5 quarter seasons winter, spring, summer, fall and holiday. These are the anchors, the big bets that guide customers through the year with intention. Second, we are persistently in culture with relevant beats like social first ideas, customer-generated beverages, limited merchandise, nostalgic moments and partnerships, and this is critical in a high-frequency business.

Starbucks sits at the center of culture from family customizations to go viral, the tapping in a cultural moments that naturally align with our values. In short, seasons set or emotional direction and cultural beats add texture and energy to drive relevance and continue momentum. Together, they connect discipline with speed and keep Starbucks shaping culture every day. And now we are structured to identify, support and operationalize these ideas.

To deliver successful innovation, we always start with our biggest advocates, our amazing Green Apron partners. Did you know that our partners post on social media 3x more than employees of other retailers at our scale? They are passionate and engaged with over 85% positive sentiment. One of the first things I learned as a new partner was at a steady pace of product innovation only works if it's grounded in a partner first mindset.

Our approach to innovation is guided by 3 principles: first, an optimized foundation. In fiscal year 2025, we reduced SKUs by 25%, and we continually keep a pulse on our menu performance with ongoing optimization while ensuring we maintain offerings that delight our customers. Second, a simplified beverage framework. By leveraging our core recipes, we can accelerate innovation and deliver on the variety that our customers expect.

This reduces additional training and allows partners to execute with excellence. And third, targeted expansion to fuel growth. We prioritize big ideas, that build on platform innovation and exceed customer expectations. And when an innovation requires a shift in process, we collaborate with partners to simplify the execution while still delivering the best expression of the idea. This approach extends beyond beverage builds to behind the bar space planning other guidelines and back-of-house considerations.

We're also leveraging digital innovation to reduce operational complexities, and Mike will go into more details on SmartQ in our revamped point-of-sale system next. We're focusing on empowering rituals and our strategy unlocks the power of the and, growing both Starbucks Rewards members, and our broad customer base with mass reach and targeted engagement.

And I have to tell you all the rewards program was one of the things I was most excited about when I joined Starbucks. The scale and frequency of our member base is unparalleled. In fact, this last quarter, we reached a new all-time high of over 35 million, 90-day active members in 1 quarter. In fiscal year 2025, rewards showed nearly 60% of U.S. company-operated revenue equating to more than $13 billion in spend.

However, the real super power of this program is the brand love. They're our most loyal customers. Our best customers visit us more than 4 times a week on average. That's 19 times a month and over 200 visits per year. Our rewards program is strong, and we are building from a position of leadership. Our current program has a one-size fit some approach regardless of whether you transact once a year or once a day.

By listening to the member feedback, we saw a huge opportunity to make the experience more personal and more engaging. We also saw the opportunity to drive spend and frequency through tailored benefits and focus discount dollars on what our members value most. Through the filter of member feedback, revenue and efficiency, we identified clear actions to unlock the next generation of loyalty.

Our Reimagine program, which launches on March 10, will reinvigorate what it means to be a Starbucks Rewards member. We're introducing 3 membership levels designed to make every member feel valued and rewarded. Green is our first tier, and it will be our largest. In addition to favorites like the birthday reward and personalized offers, we're adding a new benefit that gives members a free beverage modification monthly.

Members at this level can also keep stars from expiring with monthly activity, which I'm sure will be a crowd favorite. Gold members enjoy all green benefits and their stars never expire, something unmatched by our competitors. Unlocking Gold also means members earn stars 20% faster than green. Our most loyal members at the reserve level will get everything from green and gold plus access to exclusive merchandise and experiences, and they will earn stars 50% faster than gold.

Our new program motivates members to reach higher tiers. This creates powerful incentives to drive frequency and fuel growth. And with the scale of the program, small changes in behavior can compound quickly. For example, if half our active rewards members transact just one additional time each year, we will deliver an additional $150 million in revenue.

And we believe it has the power to deliver up to a point of comp contribution for the U.S. company-operated business. Results will grow with adoption, and we're confident this design sets us up for success. In addition to creating meaningful value for our members, we're also developing amazing digital experiences for all customers.

Building on the most beloved app in the category, we're adding features that make the Starbucks experience even more seamless. One of the first is scheduled ordering, giving customers the flexibility to choose exactly when they want to pick up their order, and we're on the path to scale it nationally this calendar year. We're also making it easier than ever for customers to find their perfect drink.

We've enhanced Discovery in the app with a trending beverage category and the secret menu, harnessing the power of customization that occurs every day in social media and with our baristas. And as we all know, AI has profoundly impacted customer behavior, becoming ingrained in the day to day life.

So I want you to imagine a world where customers can order a beverage not by scrolling a menu, but by describing their mood and goals for the day. Well, we can imagine it, and we're making it a reality. We are actively developing a first-of-its-kind Starbucks ordering companion. Powered by AI, it will use quick customer prompts to discover that perfect drink. For example, say you're in the mood for a banana bread latte.

We'll provide you with a customized beverage recipe from Starbucks, but the value proposition goes deeper than just that drink ideation. We'll also help you find a coffee house and complete your order, making the whole process seamless. We plan to leverage experience-defining technology while relentlessly focusing on our customers. And by doing that, we are reinserting Starbucks into the global conversation.

Starbucks is a brand where the best of humanity and technology coexist. Grounding back in our flywheel, connection is still the core of who we are. The Starbucks brand has always had the power to create moments of connection. We are the world's local coffee house. We are the familiar daily ritual that is rich and wonderful. We will continue to showcase the power of connecting over coffee through premium elevated storytelling throughout the year. We don't copy culture, we create it.

Through our menu experiences, our merchandise, our ownable seasons and our unique events, we make things people want to be a part of. And when culture invites us in, when our community shows passion for something, we embrace it. We are actively listening to our customers, staying attuned to their needs and moving Starbucks forward while staying true to our heritage.

Our flywheel foundation has truly positioned us in a place of strength. So Starbucks is back. Today, 1 in 3 consumers say that Starbucks is their first choice for coffee or tea away from home, and that is the strongest it's been in 5 years. We are the #1 coffee, tea and beverage shop by a mile in the Piper Sandler Youth report. Last quarter, we grew rewards and non-rewards transactions for the first time in nearly 4 years.

And I'm pleased that the recent Restaurant Insights Monitor report shows improvements in affordability perceptions driven by all age groups. We'll continue to translate brand love into growth. Over the next 3 months alone, here's what you'll be hearing about Starbucks. We scaled platform-level innovation from our new matcha menu to energy refreshers. We launched new premium coffee blends and flavors people can't stop talking about.

We redefine loyalty with a new program that makes every member feel valued. We met customers mid-conversation, launching our AI-powered beverage companion to convert discovery into orders. We actively created and participated in culture from MrBeast to Winter Olympics. We deeply believe that as our pipeline rolls out, people will be saying, "I can't wait to try it. And we can't wait for these ideas to be in the world.

Matched with the power of Green Apron service, we believe customers will want to keep coming back. This is Starbucks, bold, visible, relevant everywhere. And this is just the beginning. We're ready to show the world what happens when the best brand plays to win. Thank you for your time.

Please welcome Chief Operating Officer, Mike Grams.

So I'm the operator that gets to follow that. Never is appealing, but I hope I can do a good enough job today to give you confidence that we can do all that. I'm really excited to be here today. Mike Grams, for those I haven't met, Chief Operating Officer. I'm often asked, what do you do all day, whether it's a customer in a cafe, like what do you spend your time on?

You really run a coffee house. And I guess, simply put, my job, my role is to make sure that, that beautiful cup of coffee gets into millions of hands every day. oftentimes in very time-constrained moments across long operating hours and ensuring that it's the highest quality always. But it's more to the job. At Starbucks right now, it's reestablishing a customer-centric culture, building teams that are aligned, accountable, empowered, agile and results driven.

And honestly, I want to have fun, building an operational powerhouse that becomes consistent, repeatable day after day. And so that when we turn up that dial of innovation that Tressie talked about, when we turn that up, it strengthens the coffee house, not strains it. Today, I'm going to talk about why my optimism for the Back to Starbucks plan and Green Apron service, you've heard the words, why my optimism has turned to confidence.

But here's the headline. It's working. It's clearly working across our coffee houses, the energy, the excitement that I see and feel and how it shows up in the results. You saw first quarter, terrific progress. The journey is not over with, but it's showing up in the right way. And for us, winning across all dayparts, particularly in the morning is the most important piece, and I'll talk about that a little bit more.

Before I get going and begin, I wanted to acknowledge our Green Apron partners here today. There's -- they served you coffee in the morning and had your special beverage, which is no small feat, but we have some of the best from our New York region joining us here today, and they represent 400,000 Green Apron partners around the world. So please give them a round of applause.

As I joined Starbucks, I certainly was a customer for a long time, traveling at hotels every which way that I could access Starbucks. But I thought it'd be important to share just a couple of -- there's a lot of advantages with the Starbucks brand, but 2 the most powerful ones, I think, that lend me the optimism and confidence that this brand is going to go bigger places.

First, partners are the heart of Starbucks, and they are our competitive advantage. We have the best team. Our commitment is to make sure working at Starbucks is the best job in retail. And we have the lowest turnover. It's about half of the average, which is pretty significant. And there's a clear reason. I've been in the retail QSR space for 30 years. And I can tell you, nobody offers the competitive pay, the comprehensive benefits we offer.

It's simply unmatched. College degree with 100% tuition paid upfront. comprehensive health care, company equity, 18 weeks of family leave, and there's so much more. All of these benefits that are available for working just part-time 20 hours a week. And we worked really hard to make sure that our partners get that 20 hours because having great partners and low turnover is that competitive advantage, and it shows up day after day.

When our partners are set up to deliver the experience to millions of customers, Starbucks grows. Another early observation is the morning peak. And as an operator, you love the morning peak of what Starbucks has. We do more -- during our busiest hour in the U.S. alone, we serve more customers than our competitors serve -- some of our competitors in the entire day. By 9:30, we pulled enough espresso shots to caffeinate all of Manhattan.

Our scale is a privilege. It is also a responsibility. When I joined over a year ago, we took an honest look at how we are operating. And what I saw was far too many competing priorities, too much centralized decision-making from Seattle, a focus on efficiency over experience and the throughput wasn't keeping pace with demand. And our mobile orders created chaos instead of convenience. The brand was strong.

The customers were there, but we didn't have the operating model built to serve it. So we reset our foundation. We reset it to build a durable, repeatable engine that can perform at a high standard day after day. We approach this by putting the customer back at the center of every decision, bringing decisions closer to where the work actually happens in our coffee houses, listening deeply and responding quickly.

And instead of designing for partners, we began design with them. So that's why we created our Starting 5 program, where we test new ideas in 5 locations with great coffee house leaders to learn in real operating conditions and adjust, learn and scale only what works. One of these early ideas became our service standard and our operating model, Green Apron service. It's how we're improving the customer experience and specifically throughput.

Green Apron service began as a starting 5 pilot in Chicago in May of last year. We expanded to 650 coffee houses. We listened, we learned before finally launching in August. We previously shared we're investing $500 million to ensure we have the right number of partners in the right place at the right time of day. This shows up a lot of different ways. Specifically at peak, it may be an additional partner taking orders at the register, an extra set of hands crafting beverages, a partner supporting a smooth handoff at the handoff point and standardized operating hours across the U.S.

As part of the rollout, we also deployed SmartQ. where we intelligently sequence orders across cafe, mobile, drive-thru and delivery. And over time, it's only going to get better, smarter. Because Green Apron service was built with partners, the adoption has been incredibly fast and the results are powerful. Those same 650 pilot stores, pilot locations continue to outperform our broader portfolio and transaction growth by 2 points.

That tells me there's more runway. On average, in the first quarter, we achieved less than 4-minute service time in cafe and drive-thru during peak across -- and mobile orders were accurate and on time. We said we would bring order to mobile order, and we've done that. We said we win the morning again, and we're winning again. We're setting up our partners for success with Green Apron service because great execution creates better experiences, which drive repeat visits and it fuels growth.

Now we reset the foundation. We've established the operating model. We're building on that foundation to unlock more additional growth. We're shifting away from the previous one-size-fits-all solutions and implementing hybrid solutions that reflect the unique needs of our coffee houses. First, let me talk about how we plan to further scale throughput. Take espresso. It's our most popular beverage platform and modifier.

It's also our most time-intensive. Last year, customers enjoyed more than 1 billion espresso shots, 1 billion. It takes a partner 70 seconds to pull 4 shots using our current Mastrena II. Behind me is our new proprietary Mastrena III. It's not just beautiful or bold. It's fast, and it delivers espresso shots at a higher quality. Our goal is to begin rolling it out in 2027. And when we do, it will cut that 70 seconds in half and double the capacity.

That means theoretically, we could caffeinate not just Manhattan, we could add the Bronx. That kind of throughput is durable, competitive advantage, and we're just getting started. Later this year, based on familiar technology, we plan to introduce a new solution that pulls espresso shots for cold beverages and our coffee houses with the highest demand, freeing capacity where it matters most.

We're also leveraging technology as a force small supplier working -- working in the background to simplify some of the hardest tasks inside the coffee house. Starting later this year, we're going to modernize our point-of-sale, smart logic that anticipates a customer's order and improve speed of service. Our generative AI coffee companion Green Dot Assist surfaces information to partners, everything flows seamlessly behind the bar, saving partners' time.

And imagine how the power of AI can help us save countless hours with schedules, balancing partner preferred, better forecasting, peak demand and even the weather forecast. We're also transforming our broader supply chain. The spirit here is AI-ready platforms with the goal of getting to 90% of our U.S. coffee houses receiving daily replenishment. In addition to equipment and technology, culture is one of our strongest drivers.

To support our coffee houses, we're focused on leadership stability and development, minimizing the unnecessary moves with the expectation that coffee house leaders stay in the same location for 3 years, evolving our assistant manager roles to be a coffee house coach where they learn the skills to become a coffee house leader. and creating structured development pathways that prepare those leaders before they're even needed with a commitment to promote 90% of retail leadership roles to support our coffee house growth.

Stable leaderships build adaptable, confident teams that improves customer experience and it drives growth. We see it in our own data. Our coffee house leaders who remain in their coffee house longer than 2 years outperformed their peers in transaction growth and customer sentiment. That is how culture drives our performance. We make our impact today at Starbucks not from behind a desk, but from a coffee house.

We reinforced our culture with hands-on coaching, including the executive team who are trained to do coffee house walks, green aprons on shoulder to shoulder, observing the key moments, connecting with customers. We spend time in locations where we aren't winning. And we use recognition as fuel to celebrate excellence publicly and often. From daily shoutouts like the Golden Apron, which recognizes those that go above and beyond.

One of the hardest things in this business at operating at our scale is managing performance. We found our solution. You're ready, start typing. Measure what matters most. Before joining Starbucks, I visited a coffee house in Michigan, and I asked the leader, Christine, how do you know if your coffee house is successful? She had her iPad out, bumbling around a little bit. She said we've got a store health pyramid, dozens of metrics, many outside our control and none of it tied to sales.

Probably important metrics for somewhere in the organization, but not inside a coffee house. That's exactly what the Grow program was designed to change. Our key performance indicators are customer experience, the peak, partner scheduling, product availability and health and safety. 5 simple measures, all within the control of the coffee house leader. Each location earns between 1 and 5 shots.

More shots correlate to stronger sales growth. In the first quarter, 5 Shot Coffee House has delivered 3x the same-store comp of our broader portfolio. But even more powerful is the impact on our culture. Every Tuesday at 11:30, 14,000 retail leaders across the U.S. access their Grow results. It's become a catalyst for change. Everyone wants to come in first. Through the first quarter, percentage of coffee houses with 4 or more shots has nearly doubled up to 40%.

I hear it all the time. We're a quadshot coffee house, let's go for 5. That's ownership, that's accountability. That's the culture that's changing. Every time I walk into one of our coffee houses, I'm reminded of the greatest advantage is the way our channels work together as one at Starbucks. Sometimes I hear people ask, why does Starbucks believe in the third place?

Why does Starbucks still believe it needs to have a cafe? The answer is simple. And it's not just because the cafe, the third place is the soul of our brand or because every time we put chairs in cafes fill up. It's because the data shows that our ecosystem of access points reinforce each other. Customers don't visit Starbucks for a single moment. They're across us for many.

The cafe for connection, mobile for personalization, drive-through on the go and delivery for convenience, different occasions that reinforce one another because when you're part of a customer's daily rhythm, every channel makes the other better. That's not a lane. That's an ecosystem. Connection and convenience are not trade-offs at Starbucks. We deliver both, speed and service, humanity and efficiency.

Our cafes create the halo, they are the memory and they are the magnet. When we offer the full Starbucks experience, customers don't -- competitors do not move the needle. So we're leaning in. Across our coffee houses, we're shifting away from the disruptive million-dollar remodels that take us offline. Instead, we're doing targeted coffee house uplifts that add more seats, layer in the third place touches customers have grown to love and told us that they've missed.

These uplift costs roughly $150,000 are completed mostly overnight and they keep our coffee houses open. We've completed about 200 already, expect to surpass 1,000 by fiscal 2026 and finish the program in 2028. Check out some of these photos behind me. The vibe is back. It's early and our sample size is still small, but we're encouraged by what we see from customer feedback, partner feedback and, of course, in sales.

Our cafes are full and the soul of Starbucks is back. In parallel, we're building the next-generation coffee house, a glimpse of which you can see later on over in the room next door. Smaller where it should be, more productive for partners, flexible enough to meet the different dayparts and community needs, lower build and operating costs, yet unmistakably Starbucks.

Same warm, same familiarity, same welcome. And even with our scale, the U.S. coffee house opportunity for Starbucks is big and broad. By fiscal 2028, we expect to ramp up to build 400 net new coffee houses across our U.S. company-operated business, and we're going to do it with discipline and pace. Today, we see up to 5,000 new coffee house opportunities, which will ensure we maintain and grow our market share, particularly in the Central U.S., the South and parts of the Northeast.

As we unlock the afternoon daypart and our AUVs grow, that number should double. Our licensed business extends our reach even further with licensed locations in hospitals, hotels, business campus, places where customers already are and where Starbucks remains part of their daily rhythm. We plan to support our high-traffic locations like airports differently in the future with technology that offers more ways to order Starbucks, but you get the same Starbucks Experience at handoff.

So why will we continue to win? Because we're not a single channel brand. It's not us. We're not just fast. We're not just chasing deals. We're not -- we are a relationship that customers value, built on human connection, powered by digital and anchored in the third place. Each year, more than 1 million people raise their hand and say, I want to work at Starbucks.

And every year, we seek to choose the best. The ones are passionate about coffee driven by the belief that a small moment can make someone's day. You see it when a partner remembers your name, crafts a beverage just the way you like it or offers a genuine smile that just makes you feel seen. That is the work of human connection and what our partners love most about Starbucks.

With Green Apron service, we've given our partners what they need to deliver the craft and connection that define our brand. As we move back to -- if we move from Back to Starbucks to the Best of Starbucks, there is a Green Wave building. So when you walk into one of our coffee houses and you notice our door is now opening at 5:00 a.m., partners with their heads up, leaders present on the floor, seats that invite you to stay, a morning rush that moves with purpose, equipment and technology working quietly behind the scenes and that unmistakable personal touch, know this.

It is all intentional. Growth doesn't require us to become something new. It requires us to be exceptionally good at what we already are. Our coffee houses are ready. Our system is ready. Our partners are ready, and we cannot wait to welcome you back. Thank you.

[Presentation]

[Break]

Please welcome Chief Executive Officer, Starbucks International, Brady Brewer.

I hope you had a little energizing beverage while you were on break and feel energized from the presentations this morning. As someone who has worked at Starbucks for nearly 25 years, people ask me why I have stayed at Starbucks for 25 years, which is nearly 1/4 of a century. And after leadership roles around the world and the experiences I've had, the answer is straightforward.

I've been here for a quarter of a century because of the seductive feeling of this relentless pursuit of excellence and growth and high performance no matter the challenge and doing so in creating genuine moments of connection between people over coffee. Those moments of connection between our customers and our partners are truly the secret to our success in every market where we operate, and I see it all the time.

Truly, what I've consistently seen around the world is that the desire for human connection is universal. And coffee, one of the most widely shared rituals on the planet, plays a powerful role in bringing people together across cultures. Now the good news is that coffee not only connects people, but it is also a growing category globally. Global away-from-home coffee sales grew nearly 8% year-over-year with some markets above 9%.

And with Starbucks as the world's leading global coffee brand, we are uniquely positioned to benefit from that growth. So take China, for example, where the average person consumes just 3 cups of coffee per year. That is just a fraction of the 85 in Japan, 189 in Korea or 100x, 300 cups per year per person in the U.S. So as coffee adoption accelerates in China and emerging markets everywhere, Starbucks is truly poised to meet that demand with beautiful coffee houses that serve the world's finest coffee.

Now we see a meaningful runway for growth, not only through our coffee house expansion outside the U.S., but also our growing sales within our existing portfolio today. Today, our international coffee houses generate about half the average unit volumes of our North America business, and our world-class operators are prepared to capture the significant upside as these markets mature.

You've heard us say that I truly believe our strongest growth is ahead of us. Consistent, durable comp growth is one way we're demonstrating that potential. Our international business returned to positive transaction growth in fiscal 2025, as you've seen, and we shared yesterday that we accelerated to 5% comp growth in Q1. This is driven by the same focus on a great coffee house experience, menu innovation and digital leadership that's propelling the business globally.

Simply put, the momentum is building. honestly, we've only just begun to unlock the full potential of Starbucks around the world. Now I want to show you a picture. It would be easy to think this is a TSA line, but it's not. This isn't even in an airport. This is a store opening a few months ago in Ecuador. Starbucks is already the leading premium coffee brand globally. We hold the #1 position in away-from-home coffee in visitation share.

Or said another way, in nearly all of our top 10 markets, more customers choose Starbucks as their first choice over any competitor. And in China, Japan and Korea, our 3 largest international markets, our brand measurement consistently shows that Starbucks is the most loved brand. So why does that matter?

Because when you combine rising global demand for coffee -- with our expanding coffee house footprint and then you add in the strength of customer love for Starbucks and momentum of our Back to Starbucks plan, the result is a powerful strategic advantage. And we're building on that advantage with urgency. We're expanding access to the green siren for as many consumers around the world as possible as quickly as possible.

And the role of our international business in doing so is very clear. Our international business is an asset-light growth driver for Starbucks that increases Starbucks margins. Our strategy is straightforward: deliver a premium, global and consistent, locally relevant experience to leverage our expanding scale to create efficiencies, and partner with world-class operators locally that we license Starbucks to who operate Starbucks and the brand and help fuel new coffee house development.

Our international growth engine is designed to scale and localize our back to Starbucks plan for consistent, profitable expansion around the globe. Now there are 4 dimensions that I want to talk about to paint the picture of our international growth opportunity. So I'll set the stage with a reminder of International's existing scale within the Starbucks business, and then I'll follow with snapshots about our current growth momentum, growing margins and then our expansion plans.

So first, I'd like to ground us in some numbers about our scale. Our international business today has more than 22,000 coffee houses spanning 88 markets outside the U.S. and Canada. In fiscal 2025, international made up roughly 1/3 of global system sales and generated 20% of total company revenue. Approximately 40% of that revenue came from China. Our International segment delivered more than $1 billion in operating income in 2025, representing a 13% operating margin.

And soon, we expect those margins to increase to the high teens and more on that in a minute. Second, let's cover our current growth momentum. So if you've seen this chart behind me, our international business delivered 8% revenue growth in fiscal '23. Revenue then declined by 2% in fiscal '24, but now 7% growth in fiscal '25, accelerating to double digits in Q1. Now these numbers include China, which has returned to growth for several consecutive quarters.

In fiscal '24, we hit some headwinds, but we course corrected. Those were not structural issues. In fact, it just proved again that Starbucks is agile, we learn and back to Starbucks strategy is working around the world. During our earnings call yesterday, you heard that Q1 sales comp grew in 9 of our top 10 largest international markets, which just again underscores the strength and resilience of the Starbucks brand globally.

Now back to the margins point, I'd like to talk about how we're growing our margins. So this past fall, we announced our joint venture in China with Boyu as our strategic partner. This partnership helps us capture the full potential of the market and will accelerate coffee house expansion in the region.

Now this growth that you're seeing from China comes from our established presence in Tier 1 and Tier 2 cities, and we'll see Tier 3 and Tier 5 cities growing where we have very high brand awareness and where there is plenty of opportunity for a premium brand like Starbucks to grow. Our brand and our business are strong in China, and we're excited to build on the momentum we're already seeing, and this has been fueled by a few things.

You're seeing successful menu innovations. Hopefully, you had a chance to see some of them out there, successful marketing campaigns, profitable growth across both physical and digital channels and continued expansion of our customer base in China. Through our joint venture with Boyu, we're shifting our 8,000 coffee houses from a company-operated model to a licensed model.

And that will shift our international mix of coffee houses from roughly 55% licensed to 90% licensed, underscoring the point that we are an asset-light, higher-margin operating model. So what does this mean for you as investors? Let's go through the before and after. In fiscal 2025, our International segment generated approximately $8 billion in total revenue with operating margins of 13%. And with our joint venture, here's the pro forma view.

Our international revenue will be approximately $5 billion. Yes, that's a little bit lower because Starbucks China is moving to a licensed model, but it yields a structural change in overall international segment reporting operating margin, which we expect to climb to the high teens. And that shift in margin is not something that's delayed, it's immediate once our ownership structure shifts in the spring.

So looking beyond the next year, we anticipate margins will continue to rise and the bulk of new coffee house expansion will occur in licensed markets, which generally have a more favorable margin profile. And with that continued portfolio growth, we believe our international operating margin could exceed 20% by FY '28. Our partnership with Boyu shifts our International segment to a higher-margin business model overnight.

And at the same time, by retaining a 40% stake in China, we'll continue to benefit from future growth along with better returns on invested capital. We drive both growth and brand expansion with superior financial performance by leveraging the right local partner and a more asset-light model. Now switching to store growth. Our growth plan extends beyond China.

So let's take a closer look at how we're expanding access to Starbucks by increasing our coffee house presence across all markets. We see a significant long-term opportunity to double our international coffee house footprint, approaching 40,000 stores outside the U.S. The world wants more Starbucks, and we're ready to meet them and their demand in our current coffee houses and with that new coffee house development.

As we've shared, China remains a major driver with the potential to reach 15,000 to 20,000 coffee houses, up from 8,000 today. And beyond China, we also have a robust development pipeline across all regions, including Asia Pacific, Latin America, Europe and the Middle East. In fact, over the past 2 years -- 3 years alone, our international business outside of China has grown by more than 2,000 coffee houses with markets like India, Mexico and South Korea expanding anywhere from 20% to 60%, and there is more opportunity ahead of us.

Looking out to the next few years, we expect international to grow new coffee houses at double the rate of North America. Growth will be moderate through 2026, but it will then accelerate thereafter. Our strategic focus is on expanding large-scale markets with strong coffee house economics. And 90% of that growth we expect will come from our current licensing partners who are truly world-class operators.

In our current model, we're fortunate to partner with nearly 30 licensees across our international markets, many of them who've been with us for 20 years or more. They're well capitalized and ready for meaningful expansion over the long term. We're using Starbucks global scale to make it more efficient for our business partners to open and operate coffee houses around the world.

That reinforces what Starbucks has always been a compelling investment and a trusted brand for our licensees. Now so far, I've talked about our coffee houses and global footprint, yet as we accelerate our growth around the world, we're also broadening ways that customers can experience beyond our coffee houses. We also have world-class business partners who form the backbone of our asset-light global channel development model for our ready-to-drink and packaged coffee and food service businesses.

This segment extends the reach of the Starbucks brand and products into homes, into offices, grocery stores, convenience stores and beyond and get this, we serve 300 million Starbucks occasions per week around the world through this part of our business. In fiscal 2025, our Channel Development segment delivered nearly $900 million in operating income with operating margins above 40%.

Our channel business is getting Starbucks Coffee into more hands around the world and represents a meaningful opportunity for margin accretive growth. Let's now look at the global Starbucks experience. For customers who visit our Starbucks coffee houses around the world, what differentiates Starbucks is our globally consistent, locally relevant brand.

And our customers know when they visit a coffee house, whether that's in Mexico or Japan or the U.S., they're going to find unwavering coffee quality, the highest customer service and a third place experience that is warm and welcoming and offers a locally relevant menu and innovation. And that's why you'll find the Ajolito Acai Frappuccino in Mexico or Sakura beverages in Japan, all served by a partner smiling and in a green apron.

And as you heard from Tressie, our global brand -- with that global brand, we're able to share successes and leverage successes around the world from one region to another, like the Barista that started in Korea and exploded here in the U.S. or Pumpkin Spice, which started in the U.S. and is now in more than 80 markets around the world, including China. This international exchange of ideas extends beyond product innovation.

For example, we're currently rolling out Green Apron service like you heard about from Mike, and we're doing that around the world. And in places where we've implemented Green Apron service, this as a consistent global standard, we've seen a positive impact on comp. Different markets, locally relevant offerings and familiar experience. Our global brand has a presence in 90 markets globally, each of which serves as a learning lab to innovate and learn and scale things that work across markets.

That is yet another strategic advantage that Starbucks has. Plus, our scale and our diverse portfolio also contributes to business resilience that proves itself time and time again. No matter the market dynamic in one area of the world, our diversified portfolio and presence provides opportunities elsewhere. It reduces dependency on any single international market while providing growth opportunities in emerging markets around the globe.

Now before I turn it over to Cathy, let me leave you with the key takeaways. One, we have a leading brand, a trusted brand and a resilient brand. in the global growing coffee category, and we're leveraging our strategic advantage to accelerate the global business. Starbucks is both the first choice for away-from-home coffee and continues to lead in brand affinity across our international markets.

We're widening our growth potential by reaching into new at-home and on-the-go coffee occasions globally through our global channel development business. Starbucks International is an asset-light growth driver for the company. This structure increasingly expands our margins because we're growing coffee houses faster than our North America business and our international business will continue to increase profitability, adding value to our company and to our shareholders.

We've positioned ourselves squarely in the premium and mass premium segments where the opportunities are emerging and significant. Our strategy is straightforward: drive demand. We know how to do that. Use our growing scale to gain cost efficiencies. We're doing that. Support our licensing partnerships to open profitable new coffee houses.

We're delivering that and accelerate growth, we are on our way. International is a value creator for Starbucks. We're scaling rapidly, and we are positioned for sustained growth. The opportunity is there, and we are ready for it. Thank you.

[Presentation]

Please welcome Chief Financial Officer, Cathy Smith.

Good morning. I'm so energized to be here with you. Before I start, though, I have to say several of you caught me at the break and said, thank you for Brian giving the FY '28 guidance ahead of time and not making us wait for 3 hours. So we listen. Today, you've heard compelling updates about how we're executing our Back to Starbucks plan. Now I want to show you how these initiatives together work to drive sustainable, profitable growth that creates real long-term value for our shareholders.

Even as our businesses face challenges, we have enduring strengths that we're building on. Our brand is iconic, recognized and trusted by consumers around the world. We are the undisputed leader in a growing category, sourcing the world's finest Arabica coffee. We operate at truly global scale. Our business is diversified across not just geographies but ownership structures. And we maintain a strong balance sheet with an investment-grade rating.

This gives us the flexibility to invest where needed while still being fiscally responsible. Our Green Apron partners are our greatest advantage. Their daily interactions with our customers define our brand. And when their exceptional service is replicated at scale, it delivers meaningful measurable growth.

These enduring strengths are what drew me to Starbucks, and they're the foundations on which back to Starbucks is built and why we know it's the right plan. Getting back to Starbucks means returning to stronger financial performance that delivers lasting value for our customers, our partners and our shareholders. Today, I want to share our financial commitment to our shareholders.

This is how we'll run the business and why we are confident we will deliver long-term shareholder value. First, consistent, reliable same-store sales growth year after year. Second, disciplined coffee house expansion, both in the U.S. and across the globe. Third, steady margin expansion, resulting in operating income growth that outpaces revenue growth.

And finally, prudent capital allocation so we can invest where it matters most. Delivering this commitment consistently requires the right strategy and the right leadership team. We have both. Back to Starbucks is our strategy. You heard today about the work that's been done to reset the foundations on which our growth will be built.

That includes investing in over $500 million of additional coffee house labor, investing in coffee house uplifts at $150,000 per store, investing in broad reach brand marketing, continuing to invest in partner benefits, identifying Boyu as our strategic partner in China, significantly streamlining our non-retail organization to create run rate G&A savings, closing underperforming coffee houses, overhauling our procurement function and outsourcing some transactional tasks.

Our plan is working and the turnaround is taking hold. As we look at our Q1 results, we're seeing what we want in our comps, and we're making the investments we need to sustain our momentum through this year and beyond. Earlier in my career, I walked the floor with a seasoned operator about Friday every month. He was one of the best in the business, and he carried this simple little black and white card that read sales aren't the most important thing, but they're right up there with oxygen.

I like that adage because it reminds you what matters most. We're rebuilding the top line with balance, of course, just as we said we would, and we're confident that profitability will follow. On yesterday's earnings call, we laid out our fiscal 2026 guidance. For the year, we expect global comparable sales to grow 3% or better, underpinned by a 3% or better sales comp in the U.S. company-operated business.

Our consolidated net revenues will be in line with our comp growth this year, reflecting a ramping new store pipeline as well as our portfolio reshaping that we did at the end of fiscal 2025. We expect consolidated operating margins to improve slightly year-over-year with improvement beginning in the back half as we lap our Green Apron service investments. And our EPS guidance of $2.15 to $2.40 balances sustainable growth while funding the investments that drive our long-term value.

We have strong momentum, and we're testing and learning at speed. We now have a clearer line of sight to the opportunities ahead and what it's going to take to realize them. So that's why I'm going to provide you with the longer-term guidance for fiscal 2028. Our outlook assumes status quo for our China business. In fiscal 2028, we expect net revenue growth of 5% or more. This includes 3% or better of global and U.S. comps and new store revenue contribution building to 2% to 3% by fiscal 2028.

Starting in fiscal 2027, earnings will outpace revenue, resulting in fiscal 2028 operating margins of 13.5% to 15% and earnings per share of $3.35 to $4. When China moves to a JV structure as contemplated, then the fiscal 2028 EPS would be approximately $0.15 less. Let me share the components of our framework in more detail. Our comparable sales drivers span both transactions and ticket, providing a balanced growth.

We own the morning, and we're building -- we're working to build the afternoon as our playbook to drive demand is extensive from Green Apron service to our menu innovation pipeline to our new Starbucks Rewards platform, new digital experiences and to unlocking throughput and incremental capacity. These comp drivers, coupled with new store growth position us for sustained top line performance.

We expect new stores to ramp through fiscal '26 and '27 and to contribute approximately 2 to 3 points of growth to consolidated net revenues by fiscal 2028. Our coffee house development strategy and new store pipeline is built around 2 key principles. First, coffee house design that aims to reduce average build cost by approximately 20%. We're optimizing our coffee house footprint to make every square count from back-of-house optimization to lobby innovation.

I'm actually excited about what you guys are going to see in there. There's a great ristretto setup and it's going to show -- demonstrate exactly that. Second, we're going to focus our new builds on our omnichannel model. That provides our customers 4 distinct coffee house access points, cafe drive-through, mobile order & pay and delivery. We found that this model outperforms single channel formats, so we will focus on what works best for our customers.

As we rebuild a strong new store pipeline, we believe this approach will allow us to deliver new stores yielding a 3-year cash-on-cash payback in the coming years. All in, our expectations for global net new growth, including both company-operated and licensed, accelerates from 600 to 650 in fiscal 2026 to over 2,000 in fiscal 2028, with our international business outpacing North America, as Brady just mentioned.

This means in fiscal 2028, we expect our U.S. company-operated business to ramp to approximately 400 net new coffee houses and our U.S. licensed business to build to 150 to 200 net new coffee houses. Finally, we expect international net new openings will be at least 1,500 stores in fiscal 2028, far outpacing North America. Shifting to margin.

Our consolidated operating margin framework shows the bridge from where we are to where we expect to be in fiscal 2028. Building on this philosophy, we expect to achieve our 2028 operating margin guidance of 13.5% to 15% through a combination of drivers. First is sales leverage. This is the foundation of our longer-term margin expansion. We also expect additional contribution from cost savings opportunities we've identified across the P&L.

And finally, we expect some targeted pricing mostly to offset inflation. As we think about the build to margin expansion beyond 2026, we expect the improvement to come from equal part sales leverage and cost savings. Within costs, we expect half of our savings to come from product and distribution costs and the other half to come from OpEx. All of this is underpinned by a broader discipline across the organization, allocating our spend towards our top priorities and leveraging technology where we can to drive efficiencies.

I want to talk more about the cost savings opportunities across the P&L. We're leveraging our size and scale to create efficiencies and achieve meaningful cost savings. But we will always do it in a way that maintains our highest standards of quality, supporting our premium brand positioning. In fact, our current pipeline is comprised of over 90 initiatives in various stage gates on which our category pods are actively working.

Starting with product and distribution cost optimization. This isn't just about renegotiating supplier contracts. We're rebuilding foundational sourcing and procurement processes. We're innovating in how and where we source ingredients, and we're eliminating sole-source situations. Second, in OpEx and depreciation savings, they're going to come from across various parts of the organization.

As discussed, we're reducing store build costs, and we're using scale to reduce complexity and streamline processes like store equipment and maintenance. Every efficiency compounds at scale. and they reduce upfront costs while lowering ongoing occupancy and operating expenses over time. Finally, in G&A, our primary savings stem from the recent reorganization of our non-retail team, most of which will be realized in fiscal 2026.

Moving forward, we will offset annual inflation pressures with technology-driven productivity efficiencies where practical. And as a result, we expect G&A expenses to grow more slowly than consolidated sales. While these efforts are concentrated in our North America P&L, we're also applying some of these learnings in our markets around the world. I want to be clear, though, our savings agenda is not about broad cost cutting.

It's about disciplined management of costs and allocating where they should be funded most, which is against our strategic investments. We are optimizing our business and cost structure to drive margin expansion while investing in what matters most. In addition, we expect our China JV structure to be accretive to consolidated operating margins by about 40 basis points on an annualized basis when compared to our 2025 base.

Now let's move to capital allocation. We approach capital allocation with discipline, focusing our investments on proven growth drivers and initiatives that generate lasting returns. Our philosophy reflects a disciplined balance across 3 priorities: strategically investing in the business, maintaining a competitive dividend and returning cash to our shareholders, supported by our investment-grade profile.

Our top priority is investing in our Back to Starbucks initiatives that fuel that profitable growth. We expect our CapEx to be at a rate of about 5% on a consolidated net revenue basis over the next several years. We will balance these growth investments with dividends -- dividend stability. We have delivered more than 15 consecutive years of dividend increases and plan to grow into our payout target ratio over time with measured increases until we reach approximately 50%. Finally, we intend to maintain our BBB+ Baa1 rating.

We interpret this rating as approximately a 3x leverage target and will prioritize delevering our balance sheet over share repurchases in the near term. This approach ensures we are funding growth while delivering shareholder value and preserving our investment-grade profile. At this point in our turnaround, we want to focus our formal guidance on the 3-year period ending in 2028, fiscal '28. But I want to be clear, fiscal 2028 isn't -- is just a milestone or a milepost.

It isn't the destination. While we are moving fast, some of our work, for example, in supply chain and in-store development is going to take some time and will only begin to contribute fully several years out. Across every presentation today, I heard 2 things repeatedly: growth and opportunity. Few businesses have the enduring strengths that we do and few have the opportunities ahead of us.

While we have more work to do to strengthen our operating foundation, we have a clear plan, and we've made a lot of progress. The work underway isn't incremental. It's transformational. The financial framework we shared today shows how we will translate our Back to Starbucks strategy into sustainable, profitable growth and in turn, compelling shareholder returns. Every element is in our control. We're not relying on external factors or favorable market conditions.

This is fundamentally about executing on our core competencies with discipline and speed. For most of our history, Starbucks delivered exceptional shareholder returns, and we are determined to create meaningful value again. This is our commitment to you and to every current and future shareholder. Now let me welcome Brian back to the stage, and he's going to share some closing thoughts.

All right. I was a little surprised by your music choice there, Cathy, but I like it. I like it. I like it a lot. Look, thank you for everybody hanging with us all day, listening to us share where Starbucks is headed. I got to tell you, I am really proud of this team and where the brand stands today and the plan that we've created together and where we're headed going forward. And if you just look at the past 18 months, we really have built a disciplined plan.

I think you've heard me say this before. We've built the plan. We're working the plan, and I'm happy to say the plan is working. And obviously, we're seeing the results that tell you just that. So I want to leave you today with what we truly mean by the best of Starbucks and how that guides our long-term vision for the company. Okay?

It's a customer experience that frankly stays with you because it sets the standard for what great feels like, an experience that's so defining, others, frankly use it as a benchmark. A coffee house in every community that's warm and welcoming, comfortable and alive with great seats, thoughtful design and the absolute right vibe, where you feel you are seen by our partners who bring the third place to life, where you're greeted by name and every order is customized to your taste and delivered to you by hand.

A brand that feels relevant and new, a menu that's on trend with personalized options to help you start your morning and to give you a boost in the afternoon. an app that knows what you like and makes ordering seamless and a rewards program that feels made exactly for you, where your drink is ready on time every time because innovative tech is running behind the scenes to support our partners and where you can tell your barista loves what they do because they have opportunities to grow, develop and build a future with Starbucks.

And where your handcrafted drink is paired with the same great service, whether you sit and stay, stop by our drive-thru, get a mobile order to go or frankly, get it delivered right to your home. And for those moments that you can't visit Starbucks or our range of packaged and ready-to-drink products are never more than an arm's reach away.

And finally, where a siren in your hand gives you a sense of pride, knowing that what's in your cup contributes positively to your community and where every visit to a Starbucks creates real value for yourself and others. This is our vision for the future of Starbucks. This reflects the best of who we are and what we can be. And based on my experience and the momentum I see, I believe we are well on our way.

So back to Starbucks is the strategic currency of our turnaround, and it is working. And our work is ahead of schedule. Comps and transactions across our key markets are growing. Visitation share in the U.S. has grown. Brand trust, affinity is growing. Customer connection scores are in the right place and frankly, are at record highs. Our innovation pipeline is full of breakthrough menu items. And frankly, the shine is back on Starbucks here in the United States and around the world.

So I'm confident that this is just the beginning for Starbucks and our iconic brand. We're building a business that delivers the Best of Starbucks for every customer, every partner and every shareholder. And we're positioning Starbucks for unrivaled success, global growth and frankly, profitability for many years to come. So thank you. And if I can ask you to remember one thing, the shine is back. All right. We're going to move to Q&A now. Okay?

Please welcome back Vice President, Investor Relations, Catherine Park.

We will now start our Q&A session. Let's invite our speakers back on stage.

We have Maggie and Betsy helping us today with the mics in the back. Please raise your hand to ask the questions, and they will bring it over to you. We ask that you please limit yourself to 1 question at a time so that we can accommodate as many questions as possible, and we'll come back for follow-ups as time allows.

We will now take the first half. I'll begin, and Brian can take over. I'll step off stage. We can take the first question from Lauren up here.

Lauren Silberman. So I guess, one, I just want to confirm the $0.15 would be -- is what's not included in the current guide for EPS? And then it's a fairly wide range on EPS? So can you just talk about what's contemplated in the guide? And if you hit the 3% plus comps, can you get to the high end? Is there enough margin lever there?

Yes. So to answer your question on the guide, obviously, I think what we tried to demonstrate is it requires both the sales performance and the cost discipline. But obviously, the sales performance we hit that. We believe we've got the plans in place where we get the cost side of things. So that's how you end up getting to the high side of the guidance.

And then on your China question. Yes, I'm happy to take that one, thanks. So I know we have calls with many of the sell side after this event today. So I'm happy to go even deeper into the China. I know that many of you have questions about it. The $0.15 comment was to say, as -- if we move to a JV as contemplated, our guide currently doesn't include the fact that we would be in a JV structure for China in 2028. So therefore, we anticipate that to be about $0.15 dilution or reduction.

However, I do want to say that's with our current our current plans for the China market. We fully expect with our new partner that actually we would see higher growth in China than what we would currently. I think we have a little bit more modest expectation. And so I would think that we would be able to offset some of that into the future. But we don't want to get ahead of ourselves. We have a new partner there and let's put those growth plans in place. .

Sure. So I guess I'm going to stay on. Sharon Zackfia with William Blair. I was hoping you could talk about the embedded North American margin for 2020. And structurally, do you think there's an opportunity to get the entire business back to a 17%, 18% operating margin? And would that just be sales leverage? Or do you think that's the combination of sales and continued savings over time?

Yes. So obviously, for 2028, it's a similar story where delivering the sales comp consistently gets us to the high side of our margin guide. And then obviously, we're going to have the cost discipline in it. And then as you go beyond 28 we fully believe we have the ability to earn back to where we were back in 2019, which is those 17%, 18% margins you're referencing. So that's what we're trying to say is 28 is really just a journey to where we think we ultimately can get to.

The thing that is required, though, is you've got to continue to have the comp performance. And then we're going to always have some cost discipline in place. Between now and '28 is where we've got, I think, the clarity on the projects on the cost side. And then I think the clarity, hopefully, you saw all up there on how we're going to drive the top line as well. So we're feeling really good about our ability to get back to those margins you mentioned, the 17%, 18% as we get further into the turnaround.

David Tarantino from Baird. So I wanted to ask just kind of philosophically how you're thinking about growth for the business. So 2028, you mentioned is just a point in time and I'm curious specifically on the unit growth side, you mentioned 400 a year in North -- or I guess, U.S. What's your thought on how that number can change as you move beyond fiscal '28 and kind of what contribution do you think you can get from unit growth as you get kind of full speed in your plan?

Yes. So look, one of the things that I think is really exciting on the new unit side of things is, one, we've got a new building that's got lower cost. I think it will be more efficient from a dollars per square foot standpoint. And then what gets me really excited about this is we now have a small format where I can put all access modes with every time we're pretty much building Starbucks. There'll be these exceptions where maybe you do not all the access modes. There'll still be these urban settings where you won't have a drive-through. But nonetheless, it presents a huge opportunity for us as you look around the United States.

And one of the things that gets me even more excited within the 5,000 that we're talking about that we have line of sight on right now, is the fact there's like 1,000 sites out there where there are competitors where we don't have a Starbucks within a mile away. So the ability for us to say that there's coffee demand out there that exceeds where we are today, it's crystal clear. And then when you start adding in the additional average unit volume that I think we're going to grow with the innovation combined with rewards, digital afternoon daypart, you can quickly see how the 5,000 sites that we have line of sight on become many more thousands than that.

The other key piece in this, in order for us to go faster than 400 a year is developing people. And that's why it's so important for us to have this assistant store manager, which we're calling the coffee house coach because that creates the people pipeline to also sync up with what I would call the economic pipeline and opportunity that's out there. So in the U.S. look, I think when we get to opening net new over 400 in '20, we'll probably be talking about how we can do a little bit more than that as we get moving down the line. And the same thing goes for international.

The thing I'm really excited about with our partner in China is, oh, you and I both believe there is line of sight where you can have 15,000, 20,000 Starbucks in China. And there will be a moment where we're opening over 1,000 stores a year in China. It's coming. It's not going to happen this year or next year, but it's coming. And then when you combine that with the growth that Brady's talking about, where you could be opening 1,000 outside the United States and exclusive of China, you start to see how this engine can really ramp up once we get the Green Apron Service rolling with the right innovation and the right partners around the world. So hugely optimistic about where we go beyond 28 and frankly, very confident about what we can achieve by 2028.

All right. Great. Andrew Charles from TDC, and thank you so much for the presentation, the abundant amount of caffeine as well. So first, just a clarification for Cathy. I just want to know what's contemplated the 3%-plus guidance? Do you expect an outsized piece from traffic or check? I would be first helpful.

And then Brian or Brady, I was just kind of curious about -- you talked about the benefits unlocking growth in China, the new joint venture structure. What's your open minded as to potentially refranchise other international company-owned markets like Japan, the U.K. and Canada? And what we potentially do with the proceeds that was something you were to contemplate?

Yes. So on the 3%, we always believe in transaction growth first that tells the health of the business and make sure that more customers are choosing us more often. So that's where I always will start. We did mention, though, that we would anticipate longer term. We always -- price is going to be the last thing we lever we try to pull but we recognize we need to do a little bit of price when there's inflation. So we'll use a little bit there. But ticket will grow from some of the innovation that Tressie went through as well. But the primary growth -- the primary driver is always going to be on transaction for us on top line.

Yes. And look, as far as the partnerships that we identified around the world, I actually had the opportunity to spend some time with our partner in the Middle East, the Alshaya Group. And I think they might even still be here. We have the best partners around the world, which sets us up to expand and I think a really exciting way. Look, we're always going to evaluate what the right ownership structure is as you look around to these other markets. The thing that's great is Japan is a great market. So if we decide the ownership should be different, I'm sure we're going to be able to have a terrific partner to join up with us on a Japan or even our U.K. business.

But obviously, we're going to be 90% licensed. You kind of can tell what our strategy is as far as outside the U.S. that we're going to be a licensed asset-light partner-driven model. And the good news is we've got great partners. We've got tremendous growth in front of us. So that's why you attract the best, right? You attract the best when you've got the best to offer, and I think that's what we have around the world.

Yes, we can see over here. Come in front maybe.

John Ivankoe with JPMorgan. As a U.S. company-operated business, I think this question is particularly important as you think about how to motivate a new generation of employee, which I imagine both creates challenges and very importantly, opportunities as well. So talk about how your ability to motivate these desired outcomes whatever they may be, is changing specifically for this current generation of employee? And whether it makes sense to create an ownership mentality, not just to the GM but also even below the GM much like the successful bean stock program that you put into 1991. In other words, how might that ownership mentality or should that ownership mentality evolve as a structural opportunity to Starbucks at the company-operated system?

Yes. And look, one of the things that I think is really exciting is us putting in this coffee house coach creates a development path for people so they can see how they can grow their career and then also be kind of ready to go to be a coffee house leader and move up. Your comment on how do we make sure we keep people engaged and motivated and excited to be a part of this. I do think the Beanstock program is one that is really special, really unique because to have equity and share in the growth that the company is going to achieve here going forward.

And frankly, the success that we've had to date really does get people engaged. It's really interesting. Like when I walk into stores, they will ask me, what do you think is going on with the stock price? And I love it because you know what that means to care. And what I've noticed is it doesn't matter whether you're 20 years old, 40 years old, 60 years old. And you want to be at a company that you care about being a part of, and you want to be at a company that you think makes a difference in the community that you live in.

And that's ultimately our proposition that we provide to our partners, which is, look, we're going to get a great career professionally. We're also going to get terrific opportunities personally, and it's a place you can be really proud of to tell your friends and family, you work at Starbucks because it's changing just your life, but the community that you operate in. So I've seen this over and over again, and it really is powerful. Whether here in New York City or you're in Omaha, Nebraska. It's a truth with all our partners, and it really is something special to our culture.

And I think it speaks to the simple idea of, hey, we want to be a different kind of company. We want to be the kind of company that people can have a career with but also can ultimately say, you know what, we're doing the right thing for the communities that we operate in. So Mike, I don't know if you want to add anything.

I just build on that on the engagement piece. I think one of the things we've learned about ourselves is how we communicate with people is really important. And this generation is TikTok, Instagram. Tressie has a social creator program. We're now modernizing how we look go to market and launch products. If you want a follow her, name is Vicky Blue Eyes, and we discovered her because she was a partner who was creating hacks and hacks in a way where it's like, how do you do a clean play in a store? And I'd go in coffee houses and partners to be like, "Hey, my you see Vicky Blue Eyes? I don't know Vicky on TikTok. They dial it up and she's like, teaches us how to do it better than our manual.

So it's like getting away from paper in the old environment and moving into a mainstream, how do people interact, which videos, access content that shorten live. It's in process right now. We'll be launching, I think, our first product base case will go out that way. And so we'll continue to involve because you're right, you have to be relevant. It's got to be connecting. And it's got a -- and the voice of a partner is far more preferred than the voice of someone who face the documents.

Right, right. We don't need more corporate ease. Go over here, maybe back left. It looks like Seattle, Pacific North.

Jacob Aiken-Phillips, Melius Research. So my question is on the operating margin. One, I assume that the JV it's business as usual. So how would that affect the operating margin targets when the deal goes through? And then more strategically, what parts of the operating margin expansion are more exposed to execution risk versus stuff that's already been like done within the system?

So I think, well, Cathy can talk to the impact of the margin as it relates to the JV.

Yes. So it's about 40 basis points improvement in margin is what we shared on an annualized basis is what's contemplated currently. .

And then I think your question on the operating margin. How do we get there? I think hopefully, what you saw today is we've got clear plans on how to drive the top line. And we also have clear plans on how we're going to address the cost opportunities that we've identified in the business. We have multiple projects with clear owners, clear accountability, clear deliverable dates. And the thing that's also exciting is we've got more ideas to come behind those projects.

And the thing I love about it is it's not just one big mega solution. This is opportunities across the business that we know we can capture, all right? We've got line of sight on it. It's clear. We've identified it, I believe it's like $2 billion over the next couple of years, 2 years, $800 million of which pretty darn clear on how we're going to deliver that. And then frankly, even the balance, we've got a lot of clarity on how we deliver it.

So we're going to constantly be refilling the pipe on that. There's opportunities for efficiency on how we use tech and AI going forward. And then obviously, the sales leverage from the growth that we're going to consistently drive. So we feel great about our ability to deliver consistently. And I said this over and over again, this frankly is just the beginning, which genuinely just gets me really excited about where we can go from here.

Maybe I'll double down a little bit because I know I've had this question, I got caught on break on it a lot. We feel confident enough, which is why we gave the guidance we did because we today have 90 over 90 projects that add up to that savings. And they're in various stage. We have 5 stage gates from ideation through execution and then measurement afterwards. And we have -- so they're in various stages of it. But they're already identified now. those 90-plus projects that get us to those numbers.

And we're not stopping, as Brian just said. So every single day, and they're in category pods, they're working on their specific to those categories. and it's across the entire P&L. And they're working those every single day. And if for some reason, one of those ideas or initiatives don't bring the same level of expectation or we decided it's not the right answer for the company, then they're generating new ones. And so in their category. So that's what gives us so much confidence obviously, then to put it into our guidance.

Yes. First, here. We've got a bunch of hands up front here. Maybe starting the front then work our way back to. Okay.

Brian Harbour. Can we talk maybe just about supply chain specifically. So obviously, I think there is a number quantitatively, there is a number, and I think in your proxy filings, you kind of had some numbers with and without product cost savings. So could you talk about more specifically what that will be from? And I guess qualitatively, what are still some of the challenges with supply chain. I think my perception is that maybe some of the stuff that was talked about in the past wasn't actioned. Maybe there's still out-of-stock issues. Do you think you're missing sales because of supply chain today? Or I guess, asked a different way, are some of the innovation plans you have kind of dependent on improvements to supply chain? Yes, I can start, and you guys can give on the detail on it.

Look, one of the things I'm delighted about is we've got Sanjay and Anand, a part of our leadership team. And these guys are to pros. And as a result, we're going to be in a place where we're going to have daily replenishment by the end of calendar year '26. And the reason why that's so important is because if we're going to do the food program that we want to do, we've got to have that. because if we're going to put items on our menu, we got to be in stock with those items.

And so one thing we definitely learned is, I mean, this is not earth-shattering news, when you stock do you sell more items. Okay. And what we were discovering is we were out of stock way too often. Now we've improved that dramatically over the last 6 months, partly because now we're finally measuring whenever we demonstrate that we're out of stock. And I remember when I first started with Starbucks, I was listening on a headset to a drive-through experience. And I heard a customer say do you have X? Do you have this. And I'm like, well, that's odd because it's on the menu. Why are you asking if we have it?

And so there should never be a perception for a customer that is kind of rolling the dice. And so we've -- I think we've made tremendous improvement on that. But there's just still a tremendous opportunity for more efficiency and better execution of in-stock with daily replenishment and then the right technology and the right signals happening at the right time. And that's what's going to happen between now and the end of this fiscal year. And so the opportunity on sales, I know is there. And then I also know there's an opportunity on more efficiency. And that's what we're going to go capture as both of those Yes.

So maybe to double down on the efficiency side, it really is across supply chain. So I think the supply chain in 2 pieces. There's the sourcing and procurement side and then there's the logistics and distribution side. Also, the great news is we have opportunity in both. They also -- the great news is that the team is actively working on. So Sanjay and the team have a very good plan around the optimization of the delivery fulfillment type Brian just talked about to get us to a place where we have more regular daily deliveries to the stores so we delight our customers -- and then on the procurement sourcing side, we equally have the opportunity.

Again, we're getting after it, but it's everything from -- I mentioned sole-source situations, which, frankly, at our scale and maturity, we have too many of them. And so we're working on those to making sure that we provide dual sourcing. But we're also seeing simple things like reformulation, where we should have already thought about that, making sure that we have a better customer experience. So it is -- the great news is we have great opportunity, and we're getting after it.

I think I see DavI'd Palmer back there. Or we can to you.

Yes. .

Jeff Bernstein from Barclays. Brian, thinking about your resume over the past many years, you spent time at Taco Bell 100% franchised. You spent time at Chipotle, 100% company-operated I understand at Starbucks, we're talking 90% internationally licensed or franchise. But as you think about the U.S. business, you've been here a business that's maybe 60% company operated, 40% licensed. Just wondering if you were building this business from scratch today, like what's the right balance there? I mean, seemingly, the business is growing well, you'd like to be old company operating. I'm just thinking about which direction we should be pushing that needle, whether more company operated, more licensed?

And then just to clarify something, I think you mentioned -- maybe more for Cathy, but you said you can get the operating margins back to the 17% to 18%. That's over a longer period of time. But I'm just wondering how do we think about the earnings per share I mean it sounds like we're about 25% in the next couple of years to get to that number you talked about. But beyond that, should we just think of Starbucks as a 10% earnings grow? Or kind of what's the baseline that you want people to assume as we think beyond the next couple of years, which clearly you have a lot of opportunity for outsized earnings growth?

Yes. So I'll start with your first question. I love working on all those businesses. And now they have the opportunity to work on Starbucks is equally as exciting. The one thing I'll tell you is it is powerful to be able to have the ownership that we have so that we can make the changes and the impact that we need to make because ultimately, I think the technology that we're going to need to drive long term we have to have the ability to lead and then we'll disseminate that around the world, right? And I think when the operating margin gets back to the 17%, 18%, 19% and the returns that we're going to get on what we're building, we're actually going to want to be on.

So there's a place for the license business in the United States, but there's also a place for meaningful company operations and ownership in the United States. So I'm excited about what that looks like for us going forward, so that we can lead and also demonstrate a really powerful economic model that makes sense for us to continue owning -- and then on your question about okay? When you get to the 17-plus percent margins. I think we just have a really simple principle. We want to be growing earnings faster than we're growing revenue.

And I think that's what Cathy talked about -- and look, we're obviously going to have an acceleration here on the earnings growth. But over time, eventually, we want to get into the sustainable, consistent expectations of consistent performance on the revenue and earnings that are outperforming the revenue. do you want to add anything to that?

Yes. No. And the only other thing I would say is today, we're giving you guidance through 2028 because we feel like we have great line of sight to that, and that makes sense. We're excited to talk to you about next, which is what Brian was talking about. We absolutely believe that there's the path beyond next. But let's take 2028's milestone between 13.5% and 15% first, and then we'll take on what's next. But I think at our scale, if we continue to grow earnings faster than sales, that's a pretty good day.

This time David for real. Jeff, you were great, too.

Dave Palmer, Evercore ISI. I'll squeeze in 2 quick ones. First for you, Mike. I wonder if you could maybe give us a sense of what you think the operational opportunity is for sales. And we've gotten some nuggets from you guys around the Green Apron Service model comping 2 points faster than the overall system. You mentioned the Matrena 3. That should be a nice unlock. You said something about the 5-star stores doing 3x the comps, I think, maybe something like that. Maybe bring it together in terms of what's reasonable to expect in terms of an improvement in terms of maybe the weighted average stars per store, where you think it can go and what sort of comp improvement can happen across all those things?

And then another one, just sort of for Tressie and maybe Brian, in the past, Starbucks didn't get what it was expecting from the innovation. It sort of your spicy lemonade and didn't really work. We did protein, we have energy refreshers coming and new tiered rewards. Give us a sense of like what your certainty is around the lifts of those things and your pipeline ahead and just give us a sense that this stuff is going to be meaningful.

Yes, sure. So you want to start with the operational upside, and then we'll talk about the marketing upside and menu upside. So look, one of the things I love about the Grow Report is it clarifies for where everybody is. And part of the way you get better is you got to know where you are. And that's really one of the powerful things in here. We mentioned everybody about this idea of putting accountability back into the coffee house. That is a great example of how you put accountability back in the coffee house because if you're at 2 shots or 3 shots or 4 shots, you're clearly not at 5. And what this does is it gives you direct feedback on what action you need to take in order to get to that next shot level and ultimately the 5-shot level.

The thing that's also great about this is when we get everybody to 3 or 4 shots, we're just going to shift the expectation and the standard will continue to go up. And so the idea is you want to shrink the performance that's really wide, which we're already starting to do. You don't have nearly the performance on the tails anymore. It's coming in closer. And then you want to move that mean so that ultimately, more of our stores are performing the way we want. Today, we got, what, 2/3 of our stores that are positively comping. And so we have 1/3 of stores that have clarity now on the feedback on how they get to north at 2.5 shots, 3-shot areas so that they're positively comping.

And each of these things contribute, and it's not a perfect science. I wish it was because it would make it -- make this Investor Day a shorter day, but it isn't. And so that's why it's important we have to have multiple elements happening at all times. And I think that's why Mike is consistently making sure that our coffee house leaders know what they're accountable for, how they should be visiting the store and how they should be supporting and developing their partners in the store because that shoulder-to-shoulder aspect and then the clarity of what you're accountable for, that's where you get better customer service, better throughput and then ultimately, better consistent performance. And I think that's really what ultimately the whole Green Apron Service model is all about.

Yes. I would just add 2 things on it. The way this all works together is you have what we measure in the coffee house. You empower the coffee house leader to make decisions. They know their customers better than anyone else. They know what moves at 2:00 in the afternoon and what they need at 5. So you start there, which I think most of 2025 was reestablishing that ownership and empowerment inside the coffee house, establish a measurement that's fun and it doesn't feel like pain because it leads to sales, which, by the way, helps their bonus plans throughout the year. So there's a terrific marriage there.

Then you marry that with district managers that are in stores every week doing a coffee house. And you know what the coffee house walk looks like, the same 5 things on the Grow report. Every week, it's repetition. And as you build the muscle of great operations, I mean you still have the great culture feel of being a partner at Starbucks, but like the energy that people get from knowing where they rank in those 10,000 stores and how am I going to be #1? And then we build our recognition programs at the coffee farms where we celebrate the success. Those are -- it's not new, but it hasn't been part of the recency at Starbucks. So we're really proud to have that back.

And then I would just say the other thing on channel service, we have just scratched the surface. The MSR will help. Doubling the output in half the time is going to change the game at that 2-hour peak in the morning. But becoming experts on drive-thru service, we want to have the fastest drive-thru in America. We do not today. It's good. It's competitive. It's not bad, but it can be a lot better. So as we build capability through stable teams in the coffee house and then you start building and creating experts on channel service and you reinforce it with your field leadership doubling down on that, that all comes together and you see that steady, predictable growth that you've seen work in different ways in other places.

Yes. And so the reason why it's so important to get to the Mastrena 3 or the Presto, which is the shot puller for cold, is I think we now have clarity on what is the innovation we want in operations. The innovation we want is to enable throughput and greater connection. So look, even the AI aspect or the tech that we're going to put in, did you talk about this a little bit where we're going to pilot for like instance in the drive-thru. The person will no longer have to input the order because in the headset, AI is listening and then also our partner is listening. And with the AI listening, it inputs the order accurately so that then our partner can focus on actually making the craft and handing off the product.

But we don't want to lose the person-to-person interaction of actually talking the order, right? So what happens here is our partner actually now has more time to greet and connect while AI takes technically the order and then they have more time to actually focus on the production because they're not worried about inputting the order correctly. So that frees us up on a couple of levels. One, better connection, better speed and then ultimately more accurate execution.

So all these things -- I love Mike's line like, everything we're doing is intentional. It's intentional around throughput. It's intentional about giving our partners the tools so that they can have great connection and also great craft. And so that results in better customer experiences. And what we see over and over again is when we get better customer experiences, they don't just come Monday and Tuesday for their morning ritual. They come Wednesday, Thursday, Friday. And then like myself, you walk the dog with your wife and you show up on Saturday as well. So that's where we're going to get to. And then on the menu and marketing side of things, look, we've been late to the game on some of these clear places that customers are saying they want to have beverage experiences.

Refreshers, Energy is, without a doubt, a proven category that we have a right to win in. And so I have high confidence and high conviction that we're going to get this right. And then the other piece is we're doing it in a way that's uniquely Starbucks because it's personalized, it's with craft because now you're going to be able to personalize the level of caffeine in your energy drink in the afternoon, which I think is a really powerful insight that Tressie uncovered, which is people want a reset in the afternoon. And that reset is different depending on what you've got going on. There are some people that are looking for a reset because they need more energy because they're going to go work out. There are other people that are looking for an end to their day, so they're going to indulge. And then there are other people that are frankly just needing a moment.

And so we need to make sure we can meet all these occasions. And the thing that I love about our menu innovation and our marketing is it's rooted in customer insights, customer occasions, customer needs. And in some cases, there's already a clearly defined category that, frankly, we've been a little bit absent from that we're now going to compete in. And I think we're going to compete really successfully and in a meaningful way. I don't know if you want to add?

Yes. I mean customer obsessed and culture obsessed. Like we are so near in on what we think customers will love. And then when we think about seasons, we're getting incredible feedback as we work these ideas with customers. But I think the important thing to remember is we used to launch a season and everything was hanging on that season. And we were launching that season to our rewards members, right? So we were telling them about one product, riding the season from that.

Now we have a whole flywheel, which you really started to see last quarter, where we have not just one drop of the season, we have mass visible storytelling about connection and us being a place for holiday. You walk into the coffee house. You've got garland and all these beautiful touches that make you feel like this is a place you want to be, a beautiful cup, a beautiful menu board and products that not just started at the beginning, but a drop again in December, merch that breaks through in November, merch that's breaking through again in December.

So every week, we're out with news building the brand to the masses and to the people who love us most through the rewards program, and then they have an amazing service experience, which we really started to see that moving last quarter. So as we go into this next year, we're not hanging everything on one idea. It is a series of ideas that drive momentum to broad and specific audiences that we think will really start to get the flywheel moving.

Brian Bittner from Oppenheimer. As it relates to the new reimagined loyalty program that is dropping on March 10, I don't know if this is going in and out here. Okay. Can you talk about how the 35.5 million current users immediately break down across the tiers of Green, Gold and Reserve? I'm assuming you've thoughtfully constructed this to give yourself the best chance of driving incremental traffic. And secondly, what is the -- in your minds, the most important component of this new loyalty program that is going to drive increased frequency across your rewards space?

I'll let you take that, yes.

I mean most of our best customers, right, they're going to fit within these gold and reserve tiers. And when you think about protecting your core, you want them to feel seen and valued. And we have addressed all of the feedback we've heard about the program through the years that they want to see that will keep them coming to Starbucks, whether it's just points not expiring, their birthday reward lasting longer, it used to last just 1 day for those tiers, being able to give them special experiences and point multipliers. So we're giving more points to our best customers to really keep that frequency driving.

But then with the green customers, so it's a broad audience, but less of the revenue. Those customers didn't feel like it was worth it, right? They're like, well, I'm going to sign up, but maybe I don't come enough to really get a reward. So we've addressed that with everyday value with this free mod Monday. So for the free mod Monday, I mentioned customization is a $1 billion category and people love to take the drink and make it uniquely theirs and experiment, things like cold film, protein cold film. So now they get that once a month, come into Starbucks try it out, and we have the flywheel built to keep them coming back. And then beyond that, we've added a $2 credit that you can earn faster. So that was a big piece of feedback for a broad audience was I'm not earning fast enough, and now you can get 60 stars and earn.

So we've really looked at each piece of the green golden reserve and made it feel special. And even for the reserve, we're introducing our Reserve card. So many of you may be gold card members from the past like Cathy, really engaged Starbucks customer. We're creating these Black Reserve cards. So making those customers feel super valued and special. I think that a lot of rewards programs are actually bearing their terms and conditions about what they're changing. We actually announced our terms and conditions today in an e-mail wholly stating what we're doing because we believe in it. And I think it's going to be a big deal when people get to find out their status. Like I can't wait to see all the TikToks of people sharing reserve or gold and just making everybody feel like they're a part of this community.

So that means I'm going to get a lot of TikToks.

You will. I send Brian a lot of TikToks, sorry.

Christine Cho from Goldman Sachs. My question is related to the license business. How do you plan to engage the 7,000 licensed stores in North America as well as growing international license partners to align with the back to Starbucks strategy so that the customer experience, the brand messaging stays consistent across all of your locations around the world?

Yes. Look, thanks for the question because, frankly, there should be no difference to the customer, whether they go to a licensed store or a company store, no matter where you go in the world. Obviously, you'll have some local nuances. But specifically to the U.S. license business, so we brought in all our license partners. I guess that was probably 2 months ago, 2 or 3 months ago to talk about how do we get back to Starbucks in our licensed business because, frankly, they need to be staffed correctly. And we also need to make sure that they are set up for success with the right menu mix, the right merchandising mix and then the right experience.

And frankly, some of the opportunities we have with our license partner is just a higher capture rate, right? There should be ways for us to get people's order into production faster because in a lot of these situations, it is about time constraint. If you're in the grocery store, it'd be great if you walked in and there was a kiosk and you could order your coffee while you go grab whatever you need to grab and then you come back and your coffee is ready for you to leave. We just put in mobile order in a lot of these places, which is going to be a big unlock as well. Airports is another great example. It kills me the lines that we have. Well, I take that back. It's great to have the lines, but I wish there was a way for us to make those lines move faster.

One of those ways is, frankly, we should have more Starbucks in those locations. The other thing, too, is we're going to work hard to figure out how we can unlock that bottleneck of getting the order into production and then getting handed off on time for people so they can get going. So we have a very focused effort. We've just done a whole lot of restructuring and redesigning our license business so that we have clarity on what are the standards that matter. And then how do we support them so that they can be successful delivering the Starbucks experience. And look, there are simple things, right? Like I think we are forcing some people to carry merchandise or carry things that ultimately is already available in the grocery stores. It's already available in the retail outlet. Like that creates more work, more management of inventory that's unnecessary. We want to get after the things that matter most to the customer and to the experience for our partners.

So back to Starbucks, you're going to see come to life in our license units. And then around the world, the thing that's really exciting is we have partners that want to grow, not a little, a lot. And I've had the opportunity to pretty much get to all 10 of our top 10 markets. And if you've been to South Korea, this is a place that's amazing because there is coffee shops literally next to coffee shop, next to coffee shop, next to coffee shop. And then we've got 3 Starbucks around all those coffee shops. And when you talk to our partner, they're like, "Hey, you know what, we can build more." There's more opportunity. So you're going to see us experiment as well.

I'm really excited like even in Italy, we're experimenting with an espresso bar experience where the ritual in Italy for some people is you walk in, you don't actually queue up, you actually walk up to a bar, get a shot of espresso and go on your way. Meanwhile, younger people are used to queuing up and sitting and dwelling. So there are partners that want to experiment with us, but they're partners that want to protect the integrity of the Starbucks experience and they're partners that want to grow. And you know what, we're listening, we're taking action. And I think that's why Brady is talking about why there's so much opportunity in front of us.

So the back to Starbucks program is alive and well around the world. And I was just talking to somebody, I was just over in Spain, our Madrid partners, which is the Alsea group. They're helping us think through how we can make food even more beautiful and more delicious. And I would say they're arguably maybe ahead of us in the U.S. on creating great afternoon food solutions. So this is the power of being a global iconic brand with great partners that have terrific ideas that are committed to our mission and values. And it really gets me excited because I think there's just so much opportunity. And we have such a place in all these communities around the world.

Can I add one thing on to that internationally? Back to Starbucks is not about going back in time to some different era of Starbucks. It's about, as Brian said, making sure that everyone can experience the best of Starbucks. It's really getting more focused on who we are and doing that even better. And around the world, including the U.S., what that means is the world's finest coffee, a great third place experience and great customer service, the world's best customer service. And so what that looks like in each international market may look different, but they're using the language of back to Starbucks around the world.

The reason I wanted to interject is because Brian and I were recently in Cambodia. And that's a licensed market. We do that -- we lead that market with Maxim. I don't know if Brian will remember this, but we're going into stores, visiting stores and a barista humbly, maybe shaking a little bit walked up to Brian. I was standing next to him and he said, excuse me, Brian, can I tell you what Back to Starbucks means to me? And for me, that was just a moment to say that regardless of the ownership structure, regardless of the distance vertically in the organization or geographically, here we are in Phnom Penh and a barista who had worked with Starbucks for only a short time, walked up and said, I want to share what Back to Starbucks means to me.

And what I think I've seen across all of our licensees is if you're in a meeting with Starbucks, it could be a business meeting with our business partner or it can be like I was recently in Mexico in an auditorium with 1,000 partners, store managers and above. talking about Starbucks, you cannot tell who works for Starbucks and who works for the licensee. It's impossible. Once you put on a green apron in a store, you are a Starbucks partner. And when we sit down with our licensees that we've worked with for 20 years, they are embracing back to Starbucks and making it a reality in their market in a way that's relevant. So a lot of momentum ahead.

I think there's some back there.

Dennis Geiger, UBS. Given the importance of sales to drive margins, Cathy, could you talk a little bit more about what level of North America comps you think you need to drive North America margins, recognizing it's going to depend on where inflation is, what pricing levels you're running. But just sort of what that level might be, maybe with cost saves that you've announced, without the cost saves? Any additional color on that would be great.

Yes. Maybe I can start with historically, we've actually had a really good flow-through or leverage on every incremental transaction. We're not there today right now, but we'll get back to that when we see a path. So we actually historically have. It looks like best I can tell in the very near term, so like is in the next year or so, we probably need in that 1% to 2% comp range. But let's keep asking that question. So I'd encourage you, come ask me that question again in another 6 months because we're learning a little bit more about what really is truly variable versus fixed there.

Greg Francfort from Guggenheim Securities. Can you just help us frame up where we stand on the labor journey? I mean it's been years of investments. I think you had a metric in the proxy about employee satisfaction with their hours. But just any metrics on hours per employee, employees per store and how you feel comfortable we are where we need to be? And then as you think about the $2 billion of savings going forward, I imagine you have to touch the labor line in some way to get there. What does that look like in terms of touching labor, but not kind of going back on the investments you've made in the last few years?

Yes. Actually, it doesn't really have anything to do with our benefits or wages or how we've invested in labor on the cost savings. And to answer your question on how are we seeing as far as satisfaction or engagement, it's frankly at an all-time high. That's part of the reason why turnover is at an all-time low. And so we do these surveys consistently to get feedback across our entire partner network. And over and over again, Green Apron Service has actually, I think, demonstrated that we're listening and that we're implementing things that actually make their job a successful job for their customer.

And ultimately, people go into the job wanting to have a great day. Nobody wants to go in and be out of stock of something or make your drink incorrectly or do something slow. So the more we can set them up where you have a lot of these moments where our customers, frankly, are excited about their experience, the more you're excited about your job. And so that's the cycle that we're after, which is great customer experiences, ultimately driven by great partner experiences, results in a really engaged and I think, satisfied partner. And I think that's what Mike has seen over and over again.

I would say on partner scheduling, you saw it on Grow and it's embedded in our business. We hire partners, select partners to join our team, and we ask for their availability on the front end, right? And we are really committed to making sure they get it. The way that shows up is 20 to 25 hours a week is the majority of what partners want to work. What it's great for our business is because when we hit holiday season, they can go up to 30. And I don't have to go hire a body to necessarily replace it to go down in January, February. So it really gives flexibility inside the coffee house. And we still have a segment that's full time that want more hours or leadership opportunities to grow into management.

But all of the data points to that partner scheduling as being so important. And I do believe it's a big driver of the turnover at Starbucks being as low as it is. And I personally just went through the holiday season. I was -- the average went up to 30, right? For a couple of weeks, there are those peak moments when we launch holiday and a little bit at Pumpkin Spice. So it gives us flexibility to be able to go do that. And then again, as we get the afternoon daypart going, it's going to unlock a whole another segment of ours.

And going back to the comment made over here, the workforce has changed. It's no longer I want to work 35 to 40 hours a week. It's just not -- there are some, but it's not as common as it was 10 years ago. And so us being flexible with that, being committed when they say that's what we want and then making sure we're really clear on the front end, like what shifts we need, too. Like it's -- we don't need it from 2 to 5 generally. We need you in that morning peak, which also means shorter shifts to manage that peak, which having been in the industry, that's a big challenge for everybody is how do I get people in for those 2 or 3 hours versus a complete 6- to 8-hour shift that goes around.

We've got some hands over here. Raise your hand. Go to the guy in the front row.

Brian Mullan, Piper Sandler. Just a question on food in the U.S. business. Brian, you alluded to the opportunity a little bit in an earlier answer, but could you just talk broadly about the vision for the food occasion, specifically after 11:00 a.m., how you see that evolving over the next few years? You said a couple of times today the afternoon is about a reset. You're going to have a beverage occasion to match that. Talk about how food will play a role and what needs to be addressed in order to kind of realize your full potential for that piece of the business?

Yes, sure. So obviously, we want to have the beverage because we know beverage drives the occasion. And then we want to have the food that is the right food that can complete the occasion for you. And the trends are pretty clear. It's more snackable, more bite size, more protein, more fiber. And frankly, we have the ability to do all those things. And we also have the ability to do it in a way that I think is uniquely Starbucks, where it makes sense to have a snackable protein-forward solution, right? We have the Jalapeno Chicken Pocket. That will probably become a protein pocket, right? And that makes total sense for it to go with your energy refresher in the future.

Now the way for us to do this really well, we got to have the daily deliveries, got to have the daily replenishment because these items require that. And so we got to have the supply chain to sync up with the food experience that we want to provide. And so we'll have that capability by the end of this year. And then if there are items that we can execute within the current supply chain system that we have so that we can be in stock and have a delicious, great food experience to go with the beverage, we'll be doing that here between now and that point at which we get the supply chain capability.

But the good news is Tressie and the team, they've got clarity on a pipeline of food and a pipeline of beverage that I think hits the mark on what consumers are saying they want for an afternoon reset, as I mentioned, whether it's energy or indulgence, we're going to be able to cover the game and also health and wellness. So I don't know if you want to add anything?

Yes. I mean it's a pipeline plus the merchandising because we have some menu items today, for example, our grilled cheese that people love, but we have low awareness of them. And as we're moving to digital menu boards in all of our U.S. company-operated locations by the end of this fiscal year, we'll be able to really show you different things within the experience in our coffee houses on the digital menu board as well as how we're thinking about the bakery case display and the cold's case that's being rounded out, adding in -- we have new yogurts, overnight oats and we're looking at cottage cheese and other things that are just like easy grab and go.

And then our app as well, we have not been smart, right? Like we have the best app in the world, but it's not highly personalized and relevant right now, as well as CRM. So being able to get the right message to you to help drive that afternoon occasion, show you the right menu item that's going to be best to pair with your particular beverage, not just any beverage. So I think that we just have a ton of opportunity, especially with the assortment we have as well as what's to come to make sure we're merchandising those ideas to customers.

Gentleman right here in the front.

It's Eric Gonzalez from KeyBanc Capital Markets. And I just want to appreciate you guys having us here today and certainly appreciate the coordinated outfits. So thanks.

Well, thank you.

Just regarding the $2 billion to $3 billion in cost savings you talked about, can you frame that and how you're thinking about that in terms of whether you expect that to flow through to the bottom line or perhaps you're contemplating reinvesting a portion of that into the business? It would seem like you might need to flow through a fair amount of that to get to the upper end of the guidance range. So just wondering if that's a fair assumption. And then also, is it possible to talk about the pace of the savings and over the 3-year forecast period?

I'm happy to start. First off, you said 2 to 3. It's not 2 to 3, 2. So let's start there. So I would expect it to be about -- timing-wise, it's over multiyear, which we've shared. So it's 2026, '27 and '28. So think about it over the 3 years. And obviously, Brian already shared what's kind of contemplated through this year. We are also expecting to make sure we continue to invest in what matters most. And so you see it this year with the Green Apron Service investment. We know we've got a little bit of investment we need and it's contemplated in our supply chain organization. We also see opportunities for offsets. And so that's all contemplated as well in our expectations. So you'll see a little bit of both. We have some investment, and we have some -- obviously, some savings expected.

And Daniel, he's been -- he's behind the poll. He's way back.

I guess I ask my questions to honor how we drink coffee in Italy. Okay. So first a clarification for Cathy. I wonder if you can expand on your point of the 1% to 2% comp needed for the margin to be expanding. And specifically, if you can help us understand the marginal contribution of the marginal dollar post reaching this, call it, like 1.5% in the middle point. And Mike, I was wondering if you can give us the time line and the biggest opportunities that you see for harmonization of the best practices between the licensed stores and the company-operated stores, specifically because you are under some physical constraints in the licensed stores and as well, there are some actions that you cannot directly take like staffing levels. So I was wondering what is the time line and the biggest opportunities for this harmonization?

Yes. So maybe I can start, and then I'll turn it to Mike. On the where do we have leverage or where do we start to lever as we continue to grow the business, think about our businesses every single transaction, then we want to make sure we've got the right partner experience to have the right customer experience. So that's where we start is what do we need in additional labor. Obviously, there's the cost of goods sold that goes with whatever the item is as well.

So as I've continued to look at that, which is why the company historically has seen around a 65-or-so percent flow-through on incremental transactions. Like I said, we're not there today, but I see a path to get back into the right range. So let us keep -- we're continuing to invest to make sure we have that great customer experience. We're continuing to drive the right cost profile across our cost of goods sold.

So again, like I said, let us come back and let's keep having that conversation because I think our underlying cost structure is continuing to evolve. Best I can see and based on all the modeling we can see is somewhere between that 1% and 2% comp is what's needed to cover the fix and then we start to move into the bigger flow-through.

And on the license opportunity, first, we've met with gosh, I guess, the last couple of months with Target, Kroger, Albertsons, most of the partners. Brian mentioned, we did a bit of an organization, and that was really meant to establish a business consultant, operational consultant relationship because each one -- those 3 businesses on the retail side, they show up differently, right? It's a different customer set. The airports obviously certainly bring a lot. Tremendous opportunity in all of them to deliver the Starbucks experience.

What I took away from the call was, hey, we love -- they're customers of other coffee houses and then at Starbucks and they're like, "Hey, we love Green Apron Service. How can we do that in our environment?" I think what we have to do as a brand to help them become successful is, as Brian mentioned, we're a little too rigid on the wrong things. and create -- like I don't really care where they get their salt package. You don't need to buy those from Starbucks. You can -- you're in a grocery store.

So that's a small example, but there's many examples where as we build the relationship, ConnectMe, which is the mobile device is a huge unlock. Everybody benefits when you turn on ConnectMe. We're making good progress on that. The third-party brand standard reviews, we've got quarterly now service standards that are in place and evaluated. So we can go back and coach and truly consult on how to make the Starbucks experience better. The opportunities to grow in license are endless. The travel cruise line, amazing. Hospitals, all those little regional hospitals you see up, you put a Starbucks center, and it's impressive to see just what's happened. So we've got a lot of opportunity to grow.

We've made progress in '25 on just getting core operating framework, standards in place. And then I think we got a lot of feedback from those -- our partners in those meetings about what we can be better at when it comes to what we expect of Starbucks, which is great craft, great connection. And what I ask for is that it's a consistent experience every single time I go in there. Airports, I mentioned we're going to show up differently and use some -- think of order ahead and how that could change the experience, right? So there's a lot of little things, but the relationship is in a much better spot, I think, because we have clarity on both sides and what we can do for each other, which will unlock more growth as we get going down the road.

All right. I think we've got time for one more question here.

We can go over here, if you want.

Well, thanks for the last question and hosting us all today. My question is in regards to owning the day. So as you invest across beverages, food, store experience and you expand relevance into the dayparts, how much is that incremental contribution from owning the day already embedded to the outlook? Or put differently, should investors view that as upside on top of the 2028 outlook?

Yes. Look, obviously, we do have an afternoon daypart right now, but we think we can meaningfully grow it. And the good news is there's some clear opportunities where we have missing elements in our menu that I think demonstrate there's incremental opportunity for the afternoon daypart. And then obviously, look, the rewards program the digital enhancement, the Green Apron Service model, the throughput improvements that we're going to have because of technology, equipment, that's going to benefit us in the morning, the afternoon and frankly, all day. So it's not just one component, but I definitely think there's a big incremental opportunity in that afternoon daypart.

So look, I want to wrap it up. And first of all, I want to thank these guys. I started my conversation today saying, I believe we've built a world-class team. Hopefully, you agree with me. I do believe they are the best in the industry when it comes to marketing, operations, Starbucks, Brady has got years of experience. I always love traveling with him because I always learn something about Starbucks. So thank you. And Cathy, I think is one of the best when it comes to being a financial partner that's focused on growth as well as being smart about how we deliver the earnings. So a world-class team. So honored to work with each and every one of you. So thank you.

And also, I couldn't be prouder of where we are as a company. And you know what, I love the questions that we're getting because you're talking about growth with us. And those are the questions I love talking about because Starbucks has the opportunity to, I think, become something really special around the world. And the brand is back. The plans are clear. We have deadlines, dates, names, people that are going to deliver. And I couldn't be more confident in where this business is today and where this business is headed in the future. And hopefully, you share that confidence with me. I'm excited about the guidance for '28, but I'm also excited about what happens once we achieve what we've outlined for '28 and where we go beyond there.

So thank you for being here. Thank you to you guys for doing a great job. And look, I look forward to seeing all of you in Starbucks really soon. Take care. Thank you.

Good morning. My name is Darryl, and I will be your conference operator today. I would like to welcome everyone to Starbucks First Quarter Fiscal Year 2026 Conference Call. [Operator Instructions]

I will now turn the call over to Catherine Park, Vice President of Investor Relations. Ms. Park, you may now begin your conference.

Good morning, and thank you for joining us today to discuss Starbucks' first quarter fiscal year 2026 results. Today's discussion will be led by Brian Niccol, Chairman and Chief Executive Officer; and Cathy Smith, Executive Vice President and Chief Financial Officer. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factors discussed in our filings with the SEC, including our latest annual report on Form 10-K and quarterly report on Form 10-Q. Starbucks assumes no obligation to update any of these forward-looking statements or information.

GAAP results in the first quarter fiscal year 2026 include restructuring and impairments and transaction costs that are excluded from our non-GAAP results. Revenue, operating income, operating margin, EPS and EPS growth metrics on today's call represent non-GAAP measures and are measured in constant currency. G&A and effective tax rate metrics also represent non-GAAP measures. Please refer to the earnings release and our website at investor.starbucks.com to find reconciliations of these non-GAAP measures to the corresponding GAAP measures and supplemental financial information.

This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, March 13, 2026. Also for your calendar planning purposes, please note that our second quarter fiscal year 2026 earnings conference call has been tentitously scheduled for Tuesday, April 28, 2026.

I'll now turn the call over to Brian.

Good morning, and thank you for joining. I look forward to seeing many of you tomorrow for Investor Day, where we will lay out our future vision for the company, our path to sustained growth and profitability and how we plan to deliver the best of Starbucks for our customers, partners and shareholders. Today, though I want to focus on the continued progress we've made on our back to Starbucks plan and the momentum we've built across the business through Q1 fiscal 2026. I'm most excited that our turnaround plan is coming to life in the way we envision. .

First, turn around the top line and then earnings growth will follow. I am delighted to say we are now achieving top line growth driven by transactions, and we have clear plans on how we expect to turn top line growth into margin and earnings growth. We started the fiscal year strong with a focus on disciplined execution at scale. As a result, in Q1, global revenue grew by 5% to $9.9 billion, and global comparable store sales accelerated to 4% growth. We delivered 128 net new coffee houses globally, and we delivered operating margins of 10.1% and EPS of $0.56.

Our North America revenue grew 3% in the first quarter to $7.3 billion, across North America as a whole and our U.S. business, company-operated sales comps were both 4% led by 3 percentage points of comp transaction growth. And across our international business, sales comps grew by a healthy 5% led by strong performance across our company-operated markets in China, Japan and the U.K. In the U.S., where much of our turnaround work has been focused company-operated transaction comps grew year-over-year for the first time in 8 quarters, and we grew transactions across all dayparts in the quarter. Starbucks Rewards 90-day active members reached a record 35.5 million customers during the quarter. Rewards transactions grew year-over-year for the first time in 8 quarters and non-rewards transactions grew even faster. In fact, this was the first quarter we grew both rewards and non-rewards transactions since Q2 of fiscal 2022. That's nearly 4 years ago.

It is clear from our top line results that are back to Starbucks plan is working, and our turnaround is taking hold. As we return to growth, we can also see more clearly where we will go further. Over the past several months, we have surfaced legacy models and processes in our business that we are now fixing. For example, transaction growth has shown us continued opportunities to strengthen our supply chain and reevaluate menu offerings to ensure product availability while reducing future waste. We will keep moving with speed to identify and implement practical changes like these that we know are good for our customers and for our business.

We're also continuing to refine our labor model because we see some opportunities to fine-tune it based on store format and performance. There's also opportunity to better enable efficiencies with technology solutions in our coffee houses and across our support centers around the world. We're pleased with our progress, and we believe we remain ahead of schedule, and we're confident on our path forward. But we also recognize that we're still in our turnaround. And as we expected, the strategic investments we're making to fix our operating foundations will take time to flow through to sustainable earnings growth. A key piece of our path forward is technology.

And I'm excited to share that Anand Varadarajan recently joined Starbucks as our new Chief Technology Officer. Anand joins us following a successful 19-year career at Amazon where he most recently served as President of Worldwide Grocery Technology. I am confident his leadership and knowledge will result in step change improvements across all our technology platforms. I want to use the remainder of my time today to share with you what we've done to drive top line growth through Q1 and why I'm confident we're on the right track to deliver improved growth in fiscal 2026 and beyond.

First, our Green Apron Service standard continue to improve our Coffee House experience, creating value for our customers and underscoring our growth potential in North America. Through the quarter, we leveraged bigger rosters, new customer service standards continued low hourly partner turnover and our SmartQ algorithm to deliver more consistent, timely and personal service. As a result, across our U.S. company-operated coffee houses, positive customer comments grew in the quarter. all day and peak throughput steadily increased. We addressed throughput challenges during peak with average cafe and drive-through service times, both below our 4-minute targets, even with meaningful transaction growth and we brought order to mobile orders, ensuring they remained accurate and on time.

To instill more ownership of the coffeehouse experience and the results they deliver, we rolled out new expectations for coffeehouse leaders to stay enroll at least 3 years. That's because we know leadership continuity strongly correlates to a better culture and improved coffee house performance. We also launched the Grow program, a simplified reporting system to evaluate, rank and improve coffeehouses performance. We're measuring 5 key metrics that closely tied to comp growth and are within coffeehouse leaders control. While it's only been a few months, leaders across our North America operations are already using the new report to help them better run their coffeehouses and take ownership of their action plans to improve performance.

To better support our Green Apron partners, we fully scaled Green Dot assist across our North American coffeehouses this past November. This new AI-powered knowledge search tool provides a real-time resource to look at beverage builds, troubleshoot operational issues and adjust deployment plans. It also provides a strong foundation to test and learn then develop and scale thoughtful AI solutions that reduce friction for partners and help them focus on craft and connection with our customers.

Second, our overhauled approach to marketing and menu innovation is putting Starbucks back in the cultural conversation and back into a leadership position. Our holiday offering featured an exciting menu and new merchandise, including our Barista Mug, which created real energy and buzz that drove more customers into our coffee houses. Our partners also showed up with enthusiasm and a desire to connect with our customers, delivering a record revenue holiday launch week for our U.S. company operator business and driving sustained performance through the quarter. We also saw brand performance improve Brand affinity in the U.S. remained strong during the quarter with continued improvements in visit consideration and Starbucks ranking as a customer's first choice.

Connection scores improved with more customers saying our partners make an effort to get to know them. convenience scores improved significantly as customers responded to our Green Apron service standard and improved in-stock levels and more customers said Starbucks offers great tasting food and healthy menu choices. Value perception scores also held strong in Q1. And when paired with average ticket growth, it clearly shows that we're delivering greater value through menu innovation and customer connection, not through discounts. These are all clear signs that we are creating a more valuable brand for more customers.

Going forward, we will continue to build on Starbucks proven seasonal strengths with engaging marketing on-trend menu innovation and seamless digital experiences that work together to create moments our partners can deliver with excellence, and our customers want to be a part of and share. Third, we continue to scale our Coffeehouse Uplift program, bringing more warmth and great seats back into our coffee houses. To date, we've completed approximately 200 uplifts primarily in Southern California and New York City. And we're on track to complete more than 1,000 by the end of fiscal 2026. We believe these investments in our cafes and the customer experience will continue to have a positive impact on our business as we reclaim the third place.

Within our International segment, we grew revenue by 10% to $2.1 billion, and we grew comps in 9 of our 10 largest international markets, underscoring the strength and resilience of the Starbucks brand globally. China was a standout. Comps accelerated to 7%, marking our third consecutive quarter of comp sales growth, led by transactions. This performance reflects the progress we are making to strengthen our competitive position as the leading premium coffee brand in the market. Looking ahead, we are sharpening our focus for our long-term future in the region. During the quarter, we identified Boyu as our partner to maximize Starbucks' potential in China. This partnership will help us expand into more cities, deliver exceptional coffee experiences, create new career opportunities for partners and strengthen Starbucks' position as a global brand for long-term growth.

We continue to expand our footprint with discipline and pace. In the first quarter, we opened 79 net new international coffee houses, reflecting 130 net new licensed coffee houses and 51 net closures in our company-operated business. India crossed 500 coffee houses and we announced expansion into 6 new cities in our Latin American and Caribbean markets, along with plans to surpass 1,000 coffee houses in Mexico this year. International remains a powerful growth engine for amplifying the Starbucks brand and we are confident in our ability to deliver consistent, profitable growth in this business longer term.

So to conclude, we've continued to build momentum across our business through Q1, and we are clear on our long-term vision. We will be the world's greatest customer service company. We will offer the best job in retail. We will be the community coffee house. Our brand will be visible, relevant and loved everywhere, and we will accelerate growth around the world. And finally, we will deliver on our commitments to create shareholder value. As a result of our disciplined work over the past 18 months, we are now delivering the top line results we set out to achieve, and we're creating the room we need to invest thoughtfully in our future.

As I said last quarter, we have a plan, we have been working the plan, and the plan is working. Our work is not done, and we are clearly in the early stages of our turnaround, and we have clear plans to maintain our top line performance while improving the foundations of our business. I don't expect the path forward to be linear, but we will continue to test, learn and refine our approach to deliver the best of Starbucks and drive durable, profitable long-term growth. Before I turn it over to Cathy, I want to thank our partners across our coffee houses and support centers around the world for their continued focus and relentless effort to execute with excellence. Our Back to Starbucks plan is the strategic currency of our turnaround, and their work is the foundation of our progress and our performance.

Together, we've grown comps and transactions. Brand affinity and customer connection is strong, our innovation pipeline is stacked with breakthrough menu items and new digital experiences and the shine is back on our brand, both in the U.S. and around the world. o

With that, I'll turn it over to Cathy to walk us through our Q1 financial results and to share our fiscal 2026 guidance.

Thank you, Brian, and thank you all for joining us this morning. We made meaningful progress in the first quarter as we executed our growth priorities to build long-term strength in the business. I'm incredibly proud of how our partners showed up for our customers throughout the holiday season, and I want to thank them for their dedication and hard work. .

I'll now share our Q1 results and then provide additional insight into how we're setting up for the months ahead. Our Q1 consolidated revenue was $9.9 billion, up 5% to the prior year, reflecting 1% net new company-operated store growth and a 4% increase in global comparable store sales, driven by strong performance across both our North America and international segments. Our North America segment revenue grew 3% in the first quarter to $7.3 billion, with comparable store sales growing 4%.

In the U.S., our comparable store sales growth also accelerated to 4% with transactions up 3%, fueled by the first full quarter of Green Apron Service embedded in the daily operations of our company-operated coffee houses. Average ticket grew 1%, driven by a growing mix of espresso and tea-based beverages alongside the continued rise in the popularity of our cold phone platform. Our U.S. comp performance is a compelling proof point for our Green Apron service standard, menu innovation and marketing efforts. This combination drove broader reach and deeper engagement with customers as evidenced by our 90-day active Starbucks Rewards member base, growing 3% year-over-year to an all-time high of 35.5 million members. And as Brian mentioned, our Starbucks Rewards member transactions grew year-over-year in Q1 for the first time in 8 quarters. And Starbucks Rewards customer transactions grew even faster.

Our U.S. licensed store portfolio revenue declined in Q1 primarily due to ongoing trends within the grocery and retail channels. steady growth across other areas of our portfolio, including business and offices, collagen universities and health care continued to serve as partial offsets. Overall, our North America portfolio increased by 49 net new coffeehouses to reach 18,360 at the end of the quarter.

Moving on to International. The segment reported $2.1 billion of net revenue in the first quarter, growing 10% year-over-year. International's comp growth of 5% was led by transactions, as customers celebrated the holiday season with Starbucks around the world. Most of our largest international markets, including our company-operated businesses in China, Japan and the U.K. contributed to our comp sales performance in the quarter. China continues to showcase strong momentum. Starbucks China's comparable store sales grew 7% in Q1, with a 5% improvement in comparable transactions powered by product innovation effective marketing and continued growth in delivery.

In our Channel Development segment, our Q1 net revenues grew 19% year-over-year due to higher revenue from the Global Coffee Alliance as well as our ready-to-drink business. In the first quarter, we launched our new multi-serve refreshers concentrate in our North America market, which was met with incredible demand. We will continue to work with our partners to innovate to maintain our leadership position in the North America at home and ready-to-drink coffee categories.

Shifting to margin. Our Q1 consolidated operating margin was 10.1%, and contracting 180 basis points from the prior year. This was led by North America's operating margins, which declined by approximately 420 basis points year-over-year primarily as our investments in support of Back to Starbucks continue to annualize. Approximately 1/3 of North America's margin contraction was also driven by our product and distribution cost inflation, led by tariffs and elevated coffee pricing. As our fiscal year progresses, we are expecting these pressures will begin to abate. Consolidated G&A in the quarter decreased 7% as our work to streamline the business last year begins to actualize this fiscal year. Our Q1 effective tax rate of 26.8% was higher year-over-year, primarily driven by lapping some discrete tax items from last year. All in, our Q1 EPS was $0.56 cents, down 19 % from the prior year. I look forward to providing our longer-term targets at our investor day tomorrow, but today I'll focus on fiscal 2026.

But before I do, let's spend a few moments on China. In November, we announced an agreement to form a joint venture with Boyu Capital to more strategically capture the significant white space we continue to see in China. Under the agreement, Boyu will acquire up to a 60% interest in Starbucks retail operations in China, and Starbucks will retain a 40% interest in the joint venture. We will also continue to own and license the Starbucks brand and intellectual property to the JV. We currently expect to close in the spring of this year, subject to regulatory approvals. For your modeling purposes, here are some considerations for how this impacts our financials in the near term.

In Q1, we classified the assets and liabilities of Starbucks China's retail operations as held for sale. This required us to cease property, plant and equipment depreciation and right-of-use asset amortization, resulting in reduced G&A and store operating expenses. This means starting in December, we are recording approximately $39 million less in monthly expenses than we otherwise would have recognized prior to announcement. We expect these dynamics will likely continue through the transaction close date. Upon closing, we expect Starbucks China's retail operations will fully deconsolidate from our consolidated financials and we expect to convert our 8,011 company-operated coffee houses to license stores within our International segment. Under the equity method of accounting, Starbucks will record our 40% share of income from the joint venture recognized as income from equity investees.

We will also collect revenues from the joint venture for sales of coffee and other products as well as royalty revenues. Our proportionate share of gross profit resulting from these revenues will also be included in income from equity investees.

Turning to our outlook for the year. As we assess our Q1 results, we're seeing exactly what we want to see in our top line at this point in our turnaround, and we are pleased with our continued comp strength in January as well. Our strategy is working and gaining traction. We have always said that we expect the top line to come first and then earnings will follow. As such, our guidance reflects strategic flexibility to leverage our growing top line as we uncover opportunities to further strengthen the business longer term. For fiscal 2026, we expect 3% or better global comp sales growth led by 3% or better comp sales in the U.S. as well. In fiscal 2026, we expect approximately 600 to 650 net new coffee houses as we work to rebuild our development pipeline. This includes 150 to 175 net new U.S. company-operated coffee houses, a slight decrease in North America licensed coffeehouses and 450 to 500 net new international coffeehouses of which China comprises close to half.

We plan on providing more details of our accelerating pace of growth beyond this year at our Investor Day. We expect our consolidated net revenues to grow at a similar rate to global comp growth for the full fiscal 2026 as our portfolio repositioning at the end of fiscal 2025 offset our new store openings. We expect consolidated operating margins to grow slightly year-over-year, driven by improvements in the back half of the year. Remember that our quarterly margin rates follow natural seasonality in the business and our second quarters are usually the lowest margin quarters of the year. Our expectations for margin improvement are driven by the following: first, we will anniversary our Green Apron Service investments in Q4. Second, we expect sales leverage as we continue to refine and execute our back to Starbucks initiatives and improve our supply chain. And third, while market dynamics can change, we continue to expect coffee prices and tariff pressures to peak in Q2 and find some relief in the back half of the fiscal year.

Following our structural reorganization last fiscal year, we expect fiscal 2026 consolidated G&A dollars to run below fiscal 2023 levels providing partial assets to our investments. We also expect continued discipline on costs more broadly and to find more efficient ways of working across our broader organization around the world. Our EPS guidance of $2.15 to $2.40 reflects our measured approach, investing strategically in the first half to establish momentum than building on our work for growth in the second half. Note that our guidance contemplates business as usual, China operations in the second half of fiscal 2026. We have taken this approach as we believe it provides the cleanest view of our expectations for the underlying business.

Furthermore, the timing of close and our use of proceeds from the transaction can influence certain P&L line items, increasing variability in our results. That said, if we assume a joint venture structure for the second half of fiscal 2026, we expect slightly lower consolidated revenues and comps, partially offset by slightly better consolidated operating margins relative to our original guidance. And on an annualized basis, we believe that the new structure could be approximately 40 basis points accretive to our consolidated margins. While subject to change, we currently plan to use our transaction proceeds for debt reduction, strengthening our balance sheet and allowing us to execute our long-term growth strategy with greater financial flexibility. Collectively, we expect the transaction to have a $0.02 to $0.03 dilutive effect relative to our current EPS guidance.

In summary, our Q1 performance demonstrates the momentum that we're building in our business and gives us confidence we are on the right path. It's also clear that our work isn't done. We remain focused on driving top line performance and managing our costs to deliver sustainable, profitable long-term growth. And we look forward to speaking further about our future vision tomorrow at our Investor Day.

And with that, we are ready to take your questions. Thank you. Operator?

[Operator Instructions] Our first question come from the line of David Tarantino with Baird.

Congratulations on the progress you're seeing. I had a question about the North America traffic performance. And maybe first, if you could perhaps clarify how much benefit you might have seen from the transfer of the sales from the stores that you closed during, I guess, late September. And then just kind of give us some sense of kind of what the underlying improvement was in the business? And then secondly, I guess, Brian, could you maybe frame up what you're seeing in some of the earliest stores that got the Green Apron Service model and whether those are continuing to ramp in terms of the traffic benefit from that service model?

Yes. Thanks, David. And so to answer your first question, what we're really delighted about is the North American comp result is driven by transactions. And specifically, the fact that both nonrewards customers grew transactions and rewards customers through transactions. So 2 things happened. People came back to the brand and we also drove engagement or more frequency with our existing customers. So that's a really strong foundation. To answer your specific question, about 0.5 point was driven by, call it, the sales transfer in the comp is what we're seeing. So the strength really is broad-based.

The other thing that I love is we said from the beginning, we wanted to win the morning, and that is exactly what we're seeing. Our partners have done a terrific job of staffing, executing the Green Apron service experience in the morning and frankly, balance of the day because we're growing transactions throughout the entire day but the place where we saw the biggest move was in the morning. And then in regards to your question about the pilot stores, this is actually something that we're really excited about. Our 650 pilot stores continue to outperform the fleet by about 200 basis points in comp, and we're seeing most of that -- it is all pretty much driven by transactions.

So what we continue to see is a great customer service experience in a great place with our partners doing their craft continually resonates with customers. And then I think you heard me talk about this, too. I think we're just getting the brand back on its front foot, both in its marketing communication and also the innovation that we're bringing forward. So I'm really delighted by where we are in this phase of the turnaround.

Our next question come from the line of Brian Harbour with Morgan Stanley.

I think sort of inherent in what you talked about was some additional cost opportunities. And it sounded like that's this year, but also over the next couple. Could you elaborate on what some of those will be and what you expect the timing to be? .

Yes. So I'm sure you guys probably saw this in some of our materials that have been released of late. We've got a clear plan in place to basically track down about $2 billion of cost. We really started that work in 2025. And I think it's going to unfold over the next 2 years in front of us. And so it really is across the entire P&L. So obviously, we've made some progress on G&A. We're going to continue to make progress in our procurement efforts. We think there's tremendous opportunity with using technology to drive efficiency in the work that we're doing. And the thing that I love is -- and this is really to Cathy's credit and the team is it's not just one project that we're counting on, okay? We've got a list of projects with people's names next to it, clear deliverables. And the thing I love about the power of our organization is when one idea doesn't work, we get another idea that's up.

And so that's what gives us confidence to be able to deliver on the cost side of things while we continue to drive the top line. So it's going to be an ongoing program. We've identified the $2 billion over the next couple of years here. But I will tell you, it's something that we're going to be unrelenting, and it's going to be a consistent piece of our program going forward.

Our next question comes from the line of David Palmer with Evercore ISI.

Wanted to ask a little bit about the earnings guidance for fiscal '26, perhaps if you think there's some elements that you would, I guess, to appreciate that might not be so obvious. I'd love to hear about that. And relatedly, the earnings side seems just a little wide -- a little wider than I would have thought. What scenarios do you think would get you to the high end and the low end? What do those 2 scenarios look like? .

Yes, sure. Thanks, David. So the thing that gets us to the higher end is maintaining the performance on comp. First and foremost, and that's why we're really excited about the underlying strength that we're seeing that's driving the comp. And then obviously, we're going to continue to do the work on the cost side of things. But really here in the near term, it is going to be driven by comp, which is going to be supported by terrific execution on Green Apron Service model, the marketing menu innovation, and I think you'll hear it at our Investor Day all the comp drivers that, frankly, we have across digital, rewards, menu.

I'm really optimistic about our future. But that's going to be the key piece. We got to continue to drive the top line, and we need to do it in a healthy way so that we maintain the integrity of the experience, and we give our customers access to the food and beverage that they want to experience in Starbucks.

Our next question comes from the line of Lauren Silberman with Deutsche Bank.

Congrats on the quarter. I wanted to unpack some of the same-store sales momentum. The non-rewards member growth outpacing the rewards member growth, I think, over the last several quarters, it's great to see there are rewards member back to positive. What's driving the differential between the 2? And what do you see as the biggest opportunities to narrow the gap if that's how you think about it?

Yes, yes. So thanks for the question. This is something that when I first came into Starbucks, I wanted to address because I had seen nonrewards customers declining for a consistent trend and that's never healthy in a business. You have to win both with your rewards customers and call it the light or infrequent customer. And so when Tressie and I set out to discuss how we get back on our front foot, we knew we had to make sure that we had the marketing that was broad, and we had to have the message about Starbucks that was broadly appealing. And I think that's what we're seeing happen with customers. And then look, the innovation, I think, has been on trend. We're getting back into culture, leading culture.

Most recently, the Barista Mug was I would call it a lucky strike extra. Tressie would say that was intentional. But it is one of those things where you have to be relevant, leading culture so that you get the infrequent customer to hopefully grow with your brand. And the thing that is exciting to see is our rewards customer user base is getting bigger. So we surpassed $35 million. And what is great about what's happening in a rewards customer is it's through better engagement that we're getting people to be active, not through discounting and couponing, but rather giving people the Starbucks experience and the thing that really makes Starbucks unique, which is our personalization.

So when we do that personalization through the rewards program, we get rewarded with more visits from those customers. And then I think you're going to hear really exciting things about the rewards program at our Investor Day on how dressing the team are going to make that program feel like it is made for you. And I think you'll see us have a step-up in performance with our rewards program as a result without letting up on driving our nonrewards customers well. I almost hate calling it nonrewards customer because they're just as valuable. Every customer matters in every transaction matters, and we're going to give that type of experience to everybody so that they know they matter.

Our next question comes from the line of John Ivankoe with JPMorgan Chase.

The question, and really, this is observation base, certain coffee chains have kind of separated both in the U.S. and around the world. Their morning execution from the afternoon execution. And I'm really wondering what kind of opportunity that might mean for Starbucks morning that might be faster and more consistent. But afternoon, that might be more innovative, specifically around, for example, handcrafted blended energy is just one idea. So if you could kind of address that theme of AM versus PM daypart execution? And secondly, and I think this is related, there's a lot of competition in the space that's accelerating, in fact, in some markets, almost all of it is drive-thru and takeout focus.

I'm wondering if that's something that's really on your competitive radar at this point? And if there's anything specific that Starbucks should do or could do to perhaps blunt some of the sales momentum that some of these chains are seeing?

Yes. Thanks, John. So first, to answer your question on the afternoon day part versus the morning daypart, I think the way we think about it and the customer thinks about it is the morning is very much a ritual. There are a lot of habits that people have versus the afternoon is really a reset. And depending on where you are in that reset, you sometimes want a blended drink. You sometimes want an energy drink. You sometimes want a sparkling drink, okay? And you sometimes want protein.

And what you're going to see us do, and this is why I'm really excited that we're going to finally be done rolling out digital menu boards. It will be across our entire system. It will allow us to daypart the menu and drive against these 2 key insights, right? The afternoon is a reset, the morning is original. And in the afternoon, you're going to see us, and Tressie is going to be talking about this, we will have customized energy.

We will have sparkling energy. We will have those indulgent drinks that people want, right? The frappuccinos that we've made famous. And we will also have food that complements it. That's very much on trend. So the good news is we've got a strong base already in the afternoon. I just think there is tremendous opportunity to unlock that afternoon daypart further by having more relevant beverages for how people want to reset in their day and also complement it with food. And then we're going to use, I think, the traditional tactics you would do in order to market and merchandise that we are the right solution for that afternoon. And frankly, some of these places, we've been slow to develop. And so presents a tremendous opportunity for innovation pipeline to address it.

To your question on drive-through, mobile order pickup, one of the things that I've been really excited about is it really is an entire ecosystem, John. When we've got the cafe, the drive-through and mobile order pickup all working together, we are unmatched. And when I put that execution on any street corner, I am confident we will win. And there's an opportunity for us to put a lot more stores with that ecosystem all across the country and be very competitive. So Mike and Meredith, they know our goal is to put our entire ecosystem through, I think, cost-effective buildings that ultimately, our partners can run with excellence and give our customer the experience that they want.

Because I know customers want those moments in the cafe. They want those moments in the drive-through, and they want those moments for mobile order pickup and we can do all of it and we can do it with excellence. And so I really like where we're headed, and I'm excited about how our pipeline is being rebuilt. And as we get back to building at the clip that we're capable of, because we will have people capability as well to go with that building. So thank you for the question because it really is areas that I think drive a lot of opportunity in this business, building the drive-through cafe, mobile order pickup experience with our cafes and then really building out an afternoon daypart on the strength of our morning daypart, I think is just tremendous upside for us.

Our next question comes from the line of Sara Senatore with Bank of America.

A question -- another question on same-store sales and then a clarification, I think, on Cathy, one of your comments. So just on same-store sales, you mentioned kind of service. I think that it sounds like service, Green Apron maybe a couple of hundred basis points, if you could disaggregate it. Maybe you could just talk a little bit about, as you think about the comp how much was maybe the service versus innovation versus marketing? I know that's a hard thing to do, but just as I think about sort of the sustainability of the comp going forward?

And then Cathy, you mentioned guidance embed flexibility to, I guess, to identify projects. I interpret that as perhaps investments as well as savings. So I just wanted to make sure I understood, is it plausible that you might find additional investments that you want to make this year in addition to the kind of annualizing the $500 million in the labor model.

So I'll take the first part of that, and then I can hand it over to Cathy on the second part. So the first part is where you kind of ended your question, it's hard to separate these out. But what I can tell you is a strong operating foundation makes all the other initiatives that much more effective, right? So we would not have had the holiday experience that we had with the innovation that we had if we did not have our partners executing Green Apron Service model. And we heard it in the customer feedback, right? The customer feedback was, "Hey, something is different, and it's different in a good way. I feel the service experience." I love how Mike says it's like you're going to see our partners with eyes up. You're going to see our partners moving towards customers.

You're going to see our partners wanting to make sure that their craft is being experienced the way it's intended to be experienced. And so we heard it over and over again. We had the lowest level of customer complaints. We've seen over the last couple of years. We've also seen that customers felt the speed or the convenience so I think these are all service things. And then we also heard things like, "Hey, your menu is much more relevant. It seems more health relevant. It seems more flavor relevant. " And so that's a sign that the marketing is working, connecting. And then also, I don't want to walk past the fact. We've put seeds back into our cafes. We've not put uplifts everywhere, but we've tried everything we can to get at least seats back in dollar cafes and you know what, every cafe I walk into, guess what? People are sitting in those seats enjoying a cup of coffee or a beverage and dwelling.

And that's what we want to have happened because when you walk into a cafe and grab a mobile order to go and it's full of seats, you feel better about your purchase decision, you just do. And if you're driving through the drive-through and you see through the window, a thriving cafe, I think we all have had these experiences where it's like, well, on Saturday, when I'm walking the dog, I'll probably stop by the Starbucks and linger. So it really is working in harmony. It was why it was so important that we get the operating foundation strong and that then we ultimately dial up the marketing and the menu innovation. So it's hard to distill it. What I can tell you, though, is the fact that they're both working together is why we're seeing the transaction performance that we're seeing. And then on your question about the cost side, I'll hand it over to Cathy.

Yes, Sara, look forward to seeing you tomorrow. When we talk about having flexibility, it's really about our first objective is to make sure we're supporting the business. And so we're going to continue to do that or back to Starbucks strategy and our plan. And so we want to make sure we've got the right flexibility to do that. We're -- you'll hear this again tomorrow. But this is not about broadest cost cutting. We are making sure we invest in what matters most. And so we want to make sure that we've got that flexibility inside the P&L and our guidance. .

Obviously, we've talked about the Green Apron Service investment we're doing. We'll continue to evolve our supply chain, which will have a little bit of investment here and there, but we equally see the opportunities for reduction or savings there as well. And all of that's embedded inside of our guidance.

Our next question comes from the line of Jeffrey Bernstein with Barclays.

Great. As I think about the U.S. portfolio, comp growth is often volatile, but the unit growth is more stable in terms of a revenue driver over time. Brian, I think you just mentioned putting more restaurants on corners across the U.S. and being able to still win versus the competition. Just wondering if you could talk conceptually about one, the rate of reacceleration in the U.S.? And two, kind of how you think about the opportunity over time. I think last year, you mentioned talking about doubling the long-term store counts. I'm just wondering how you think about that, whether there's some sort of penetration analysis that you've done to give you that level of confidence and kind of the cost versus return analysis, any color at least conceptually in terms of the glide path to reacceleration and where you could ultimately get to would be great. .

Yes, yes. Thanks for the question. And obviously, we'll get into a lot more of the details on the new unit growth opportunity, both in the U.S. and around the world tomorrow. What I will say right now, though, is like there are thousands of sites that we've looked at, and I've identified right now. So there's no barrier on unit growth. frankly, the issues we needed to address was making sure that we're building the right unit, and we have the people capability to open up those new units successfully. And so we put both things in place, right? We're going to have what we're calling out coffee house coaches, which are our assistant store managers.

That's going to be a pipeline to enable new store openings from a people standpoint, right? Because it also creates, I think, a great career path for our partners on their path to becoming a coffee house leader. And then it also allows us to have more stability in the system while we add new units versus what I saw when I first got here is new units were very disruptive on our people, and we can't have that happen. The other thing that we're addressing is the build cost and the actual, I would say, flow that we're going to build. And so I love the new building. We called it the ristretto, right? We've got the tall and grande executions on that ristretto and then we also have a pico version of ristretto.

And so I love the fact that we've got flexibility in the size and we can execute all of our access modes. And then we've got the people capability system set up to also then support the people that you need to open these stores. But we'll get to a lot more of these details tomorrow. I'd just leave you with, there's thousands of opportunities in the U.S. and there are thousands outside the U.S. And our growth opportunity on new units is exciting.

Our next question comes from the line of Gregory Francfort with Guggenheim Partners.

There were some comments, I guess, in the proxy about adding a couple of platforms as part of the turnaround efforts. And I guess I'm wondering, where does the menu stand today versus when you got there in terms of either SKU or products? And how much have you cleaned up? And then as you look at holes in the menu, where are you looking to identify opportunities to maybe add back some excitement and some marketing to the customer.

Yes, sure. Thanks for the question. Yes, I believe we've reduced the menu by like 25%. And then if you can go back further, we've reduced it even further than that. But based on my time just here, it's probably been a reduction of like 25%, 30%. And then the platforms that we're after are like a health and wellness platform, which we started with protein you'll continue to see us push against the health and wellness platform going forward. I think there's an afternoon platform, both in beverage and in food. And that's surprising in beverage. I think it is going to be this personalized energy that can be executed as still sparkling and blended. So there's a pipeline for that platform. .

And then also just to give you an example, on food, I think there's a real opportunity, not surprising to make sure we have food for how people want to eat, snackable protein, fiber, right? These are the things for how people want to eat and reset in their afternoon. So most recently, you probably saw us talking about another platform area, which is making the bay case more artisanal. So you're going to see us have pastries that I think you're going to want to eat with your eyes, okay? And that is really the heritage of Starbucks, like it is about craft, it's about artisanal, and I think we can do this in bakery. We can do this in what I would call, snackable food.

Obviously, we're already doing it in breakfast, right? Our egg bites. I think, are iconic and I think we have the opportunity with these platforms to create more iconic food and beverage. And I think you guys are going to be really excited when you see the customized personalized energy platform that really leverages a strength, which is our Refreshers platform. So that's what we mean by we want to be building platforms into the business. It's things that we can then innovate against without having to introduce at the same time.

Our next question comes from the line of Peter Saleh with BTIG.

Congrats on the quarter. I did want to ask about the throughput initiatives, Brian, I think you mentioned you're now below the 4-minute promise. Is that where you want to be for Starbucks at this point? Or do you feel like there's more opportunities to improve throughput? And if so, where do you think we can get to over the next year or so?

Yes. Thanks for the question. Look, we've made great progress on throughput at peak. We still have opportunity on the tails, though. There are still too many occasions throughout the day where we aren't hitting our metric. So there still is opportunity, frankly, to get the entire business, every transaction to be under 4 minutes. We've not achieved that. But what we have achieved is, I think, great performance during peaks which is really, in my opinion, my experience in this industry, you have excellence at the peaks, you can then win with the shoulders and then ultimately balance of the day. .

That really is kind of what I mean by fine-tuning the model. And I think one of the things that is crystal clear to us is there is demand when we can get the speed and convenience right as evidenced by getting more standard opening hours. All our stores now are pretty much opening at 5:00 a.m. And you know what, I wouldn't be surprised if 5 a.m. becomes 4:30 a.m. because of the throughput and the experience that we provide. It's just a matter of time, and we'll earn our way into that. And then the other thing I will tell you, too, is our teams are just getting more reps. The more reps they get, the better we perform.

And then you see that in, I think, the 650 stores that are part of the lead pilot. And then you also see that, frankly, in our grow program. And having our teams really focusing on just a couple of key metrics that are in their control really is a big unlock. It eliminates a lot of the complexity, it eliminates a lot of the noise and it allows them to focus on great craft, great speed and ultimately, great experiences. So there's still lots of upside in our mobile order pickup business. our cafe business, our drive-thru business. And I didn't really talk about this much, but we've also got a really nice emerging delivery business.

So we just got to get our Green Apron Service labor model dialed in get our teams the reps they need with stability and then keep with consistent metrics so they know when they perform, they're recognized for their performance accordingly. So I think Mike and the team, and you'll hear more about this tomorrow at Investor Day. Have a great plan for how we unlock the demand that Starbucks has.

Our next question comes from the line of Zack Fadem with Wells Fargo.

Brian and Cath, is there any color you can offer on the magnitude of operating margin performance in the first half of the year versus the second half? And you mentioned about 1/3 of the pressure today related to product and distribution inflation. Is there a glide path in your mind in terms of these pressures rolling off?

Yes. I'll start and maybe I can let Cathy fill in. I think you heard Cathy say some of the inflation, specifically coffee and the tariff headwinds start to peak here in Q2, and we start rolling off of it into the back half as well as we start to roll over the initial big investment into our Green Apron Service model and then compound that with we've got a very conscious effort on cost, which is this $2 billion program over the next 2 or 3 years. So I obviously envision that earnings will continue to pick up as we maintain the top line momentum that we have. But Cathy, I don't know if you want to add anything. .

Brian hit really the kind of the 4 big ones. The we've got the anniversary of the investment in Green Apron Service, which you talked about, that will we get anniversarying it by the fourth quarter. The savings program that we've got in place, while we have been working hard and at speed, a lot of that starts to come to fruition beyond some of the restructuring we already did come to fruition toward the back half of the year. And then the tariff and coffee, we do expect to abate in Q3 and Q4. And then the most important one is the sales leverage, just to make sure that we continue to drive the top line like we expect. So all of that will weight it a little bit more to the back half of the year.

Our next question comes from the line of Danilo Gargiulo with Bernstein. .

Excited to see that you're focusing even more on health and wellness platform. And I was wondering if you can -- maybe Brian start to dimensionalize a little bit how much of the shift in men and expansion of your menu could be contributing to your comps going forward? Specifically, if you can comment on how much the protein beverages line up is mixing today? And what's your expectations as it grows over time and potentially how other platforms will complement that?

Yes. Thanks for the question. So we launched the protein platform back in early Q1. And what I'm happy to say is, here in Q2, as we -- not surprising revisited the platform in January. We saw a nice recommitment to the platform from customers. So it is one of those examples of being very much on trend with how people want to eat and drink. And this is a platform that I think was going to continue to build for us. As a matter of fact, I might have started my day with a vanilla protein late. But look, the thing that is most exciting is customers when they experience it, they really like it.

Awareness is still pretty surprisingly low, but the trial and the repeat rates are really really great. So meaning when someone tries it, we see a high level of repeat and it has proven to be highly incremental. So this is when we would keep doing. And as I said, the thing I always love is you don't want to launch and leave things, you want to launch and leverage things. And that's exactly what we saw with our protein platform in January.

Maybe I'd add just 2 more things really quickly that we're excited about for protein is it's -- we have seen it's a traffic driver, meaning it's the intention of why the customer is coming in. So that's getting us to access new customers or at least new occasions. And then the other thing is that maybe has been a little surprising is the popularity of the cold foam and protein in the cold foam. It's a great way to get that extra 15 grams or so of protein for our customers, and you can put it pretty much on every single drink. And so I think those have been maybe 2 of the positives or highlights we found out of the protein launch. .

Our last question will come from the line of Chris O'Cull with Stifel.

I know you mentioned you aren't taking your foot off the gas in terms of broad-based marketing. Could you just elaborate on how instrumental that's been turning the tide for non reward customers? And then Cathy, as you look at the 420 basis points margin contraction in North America, how much of this marketing step-up should we kind of model as a permanent rebasing of G&A OpEx line versus maybe a temporary marketing turnaround cost?

Yes. So I'll start, and then I'll hand it over to Cathy. The marketing, I think, has done a great job of getting the brand back in front of all of our customers. And the metrics that we track, right, are brand affinity, the trust. And we're seeing all those metrics move up. We're also seeing our brand value scores move up. And what I ultimately say is like it's one thing to see what people are claiming. It's another thing to see it in their behavior. And what I'm seeing in their behavior is every age cohort has increased their visitation with Starbucks over the last couple of months.

And so that just demonstrates to me that we're doing a great job of making the brand relevant, making the brand a leader and making the brand one that innovates on the right things at the right time so that people want to engage with Starbucks. And so I really have to give Tressie and the team a lot of credit both our digital efforts, our personalization efforts, our menu innovation efforts. And I think just -- I don't know if you've seen the most recent add that together ad that we have running personally, it's one of my favorites. It makes you feel good about the brand. It makes you start to see the soul of the brand. And I think that's what we're bringing back. And that's what I mean by the shine of Starbucks is back. The soul, the feeling, the emotion that you get when you get to have a moment to connect with humanity. And I think people want it. And when we get it right, people love it. And we're seeing that happen that that's relevant with every age group and every income group.

How we think about our investment in marketing is we look at our total spend, looking at discounts as well. And those were not quite as effective. So we've taken some money and repurposed it into marketing. What I can tell you is this, we believe that, that's an ongoing we think it's important and important investment in the brand. So that is something you should continue, but it's all included in our guidance. But we really have just effect reallocated some of the less effective discounts into more -- far more effective marketing dollars. .

That was our last question. So I'll now turn the call back over to Brian Niccol for closing remarks.

Yes. Thank you, and thanks, everybody, for the questions. And I really do look forward to seeing, hopefully, everybody at our Investor Day tomorrow. The long-term plan that we have in place is one that I'm really excited about. And I think you'll see our executive team and our leadership team share the growth story that we have in front of us. I do want to just leave you with a few things. Obviously, we are very delighted with where we are on the top line, and we believe we're going to continue to drive that momentum. And then the earnings will obviously come behind it. And I also want to emphasize, in any turnaround, the path is never linear, but I do believe we've got the right plans, the right team and the right focus going forward. .

And our Back to Starbucks plan really is the strategic currency of our turnaround. And I really do want to thank our partners, both in the stores and in our support centers because they really are the foundation of the progress and the performance that we're achieving. So I couldn't be more excited for them and the Starbucks company to be able to have the shine back and I couldn't be more excited to share our story with everyone tomorrow at Investor Day on our long-term plans for continued growth and just how much opportunity there is for Starbucks, not just in the U.S. but around the world. So thank you, and look forward to seeing everybody tomorrow.

Thank you. This does conclude Starbucks' First Quarter Fiscal Year 2026 Conference Call. You may now disconnect.

Good afternoon. My name is Diego, and I will be your conference operator today. I would like to welcome everyone to Starbucks' Fourth Quarter Fiscal Year 2025 Conference Call. [Operator Instructions] I will now turn the call over to Catherine Park, Vice President of Investor Relations. Ms. Park, you may now begin your conference.

Good afternoon and thank you for joining us today to discuss Starbucks' Fourth Quarter Fiscal Year 2025 results. Today's discussion will be led by Brian Niccol, Chairman and Chief Executive Officer; and Cathy Smith, Executive Vice President and Chief Financial Officer. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ from these statements.

Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factors discussed in our filings with the SEC, including our latest annual report on Form 10-K and quarterly report on Form 10-Q. Starbucks assumes no obligation to update any of these forward-looking statements or information. GAAP results in the fourth quarter of fiscal year 2025 include restructuring and impairment charges, litigation settlements and transaction costs that are excluded from our non-GAAP results.

Revenue, operating income, operating margin, EPS growth and G&A metrics on today's call are also measured in constant currency and represent non-GAAP measures. Please refer to the earnings release on our website at investor.starbucks.com to find reconciliations of these non-GAAP measures to the corresponding GAAP measures and supplemental financial information.

This conference call is being webcast, and an archive of the webcast will be available on our website through Friday, December 12, 2025. Also, for your calendar planning purposes, please note that our first quarter fiscal year 2026 earnings conference call has been tentatively scheduled for Wednesday, January 28, 2026. With that, I'll now turn the call over to Brian.

Good afternoon and thank you for joining. A year ago, we launched our Back to Starbucks strategy to get us back to the exceptional craft, connection and welcoming coffee houses that define the Starbucks Experience and set us apart. Since then, we've been focused on executing our plan and accelerating it where we've seen opportunity. We took the significant step of scaling several key pieces of work during the quarter, and it's clear from our results that our plan is working, and our turnaround is taking hold.

We finished the fiscal year strong with 5% global revenue growth and global comparable store sales growth of 1% in the fourth quarter, making it our first positive quarter in 7 quarters. Our North America company-operated comps improved to flat year-over-year, driven by flat U.S. comp and positive comp growth in Canada. And in both markets, transaction comps continued to improve sequentially from the third quarter.

Across our U.S. company-operated portfolio, we more than tripled the percentage of coffee houses with positive transaction comps from a year ago, with year-over-year transactions improving across all regions and dayparts. And we're getting back to winning the morning with flat morning daypart transactions that outpaced our overall recovery in Q4. Notably, our U.S. company-operated sales comp turned positive in September, driven by transactions, and it's remained positive through October, reflecting the momentum taking shape in our business.

Our international segment continued to demonstrate the resilience of our brand, delivering 3% comp sales growth in the fourth quarter, led by strength across our top markets, including Japan, which bounced back into positive comp territory in the quarter as well as China, the U.K. and Mexico. Earnings per share of $0.52 in the fourth quarter continues to reflect the investments we're making in the business to execute our strategy. As I've said before, we expect to grow the top line first and then earnings will follow.

These results demonstrate meaningful progress we've made on our Back to Starbucks plan as we bring our work to scale, and they show the early impact of investments we've made across 3 key areas in fiscal 2025 to deliver exceptional customer service, improve the look and feel of our community coffee houses and get back into culture with an overhauled approach to marketing and menu innovation. First, we've continued to invest in and scale Green Apron Service as the new standard for our coffee house customer experience.

August was a milestone as we went live with a new standard across our full U.S. company-operated portfolio. We made much needed investments in staffing and hours to put more partners on the floor at the right times. We reassessed and extended hours of operations for about half of our U.S. company-operated portfolio so that nearly all are now open consistently at or before 5:00 a.m. We expanded rosters and maintained healthy hours per partner.

And as a result, we had strong partner engagement, record low hourly partner turnover and improved customer experience scores in the fourth quarter. Even though we're only 2 months in, we're seeing the results we want from Green Apron Service, and we're encouraged by the future opportunity we expect it to create as our partners adopt the standard and our customers experience the difference. We set throughput goals to ensure customers get their order on time every time, whether it's in cafe, mobile order or in the drive-thru.

As part of our Green Apron Service rollout, we launched our Smart Queue sequencing algorithm. Since implementation, more than 80% of our U.S. company-operated coffee houses had cafe service times averaging 4 minutes or less, even with greater transaction volumes following our fall launch. Average drive-thru service times are still below our 4-minute target, and Mobile Order and Pay remains highly accurate and on time. Our delivery business in the U.S. has also continued to expand rapidly, growing nearly 30% year-over-year in the fourth quarter and surpassing $1 billion in sales for the full fiscal year.

And we will be nearly complete with the rollout of our Clover Vertica brewer in our U.S. company-operated coffee houses by the end of Q1, making it easier than ever for customers to get a fantastic and freshly brewed cup of coffee of their choice. Second, we're now delivering a great customer experience in coffee houses that are more warm, welcoming and connected to their communities. Earlier this year, we shared that we were assessing -- reassessing our North American portfolio.

The reality, as we came to learn was that we were operating some coffee houses that didn't demonstrate a viable path to profitability or create a warm welcoming space for our customers and partners. As a result, for the full year in fiscal 2025, our North America company-operated store counts declined by approximately 1% on a net basis. With a healthier base of coffee houses, we see meaningful opportunity for growth. We're taking a disciplined approach to how, where and what we build to improve both the customer experience and unit economics.

We are piloting a new Coffee House prototype with lower build costs and optimized space utilization that still deliver a full coffee house experience aligned to our brand. In fact, last month, we converted one of our pickup-only locations in New York into a small format version of this prototype. We're excited to test, learn and iterate. Our teams are also working at pace to ramp up our uplift renovation program, bringing warmth, texture and seating back into our coffee houses.

As of the fourth quarter, we completed nearly 70 uplifts, primarily across New York and Southern California. It's a small sample size, but we are encouraged by the improvements to sales and transactions we've seen to date. We are working to complete more than 1,000 of these uplifts by the end of fiscal 2026. Third, we've overhauled our marketing and our menu innovation, and it's driving stronger customer perception scores and market share growth in the U.S.

On the heels of a successful fall launch, we introduced Protein Cold Foam and Protein Lattes at the end of September. They taste great and they're made from premium ingredients, living up to the Starbucks standards. And they kick off a steady pace of disciplined stage-gated innovation in our menu pipeline. We're only about a month in, and we're learning a lot. Customer awareness continues to build, and it is bringing less frequent customers into our coffee houses.

We're excited about the incremental nature of this platform and its long-term role. Our measure for brand affinity accelerated in the quarter, reaching its highest point since 2023, and Starbucks ranking as customers' first choice was a 5-year record high. We saw the biggest gains in service time, connection and care perceptions, demonstrating the power of Green Apron Service. Non-Starbucks Rewards customer transactions grew year-over-year for the second consecutive quarter across all dayparts, validating our approach to marketing.

And value perception strengthened across all generations in the fourth quarter and for the fiscal year, driven by our investment in Green Apron Service and our proactive moves to bring back the condiment bar, simplify our pricing architecture and remove the extra charge for non-dairy milks. We know our value equation extends beyond pricing. And when we provide great customer service alongside handcrafted personalized beverages made with high-quality ingredients, we provide unmatched value to our customers.

Turning to international. Our growth agenda and Back to Starbucks principles span well beyond North America. In the fourth quarter, our international business reached record revenues of $2.1 billion and ended the year with an all-time high of $7.8 billion. We continue to extend our global reach, opening 316 net new coffee houses in the fourth quarter for a total of more than 900 in fiscal 2025. We also opened brand-building Starbucks flagship coffee houses, including inside the legendary Santiago Bernabeu Stadium in Madrid with more flagship coffee houses in store for 2026.

We'll bring one-of-a-kind experiences centered on coffee and craft to even more customers around the world. In China, the team continues to drive demand in a competitive marketplace, delivering 2% comp growth in Q4, its second consecutive quarter of positive comps, and our portfolio crossed 8,000 stores. On the strategic front, we have had very strong interest from multiple high-quality partners, all of whom see significant value in the Starbucks brand and team.

We expect to retain a meaningful stake in Starbucks China and remain confident in the long-term growth potential in the region. As I reflect on fiscal 2025, we did important work to rebuild our core and strengthen our foundation, and we're entering fiscal 2026 on stronger footing. Looking to Q1, the holiday season is a cherished moment for our customers and for our business. It's the first time we're bringing all our work together. Our coffee houses will be more warm and welcoming.

They'll be better staffed; orders will be better sequenced. We'll have a relevant menu with holiday classics like the Peppermint Mocha and Snowman Cookie, alongside returning favorites like the Eggnog Latte, which customers have been asking us to bring back for years. We'll have engaging new ads and great new merchandise that's worth gifting, like our limited edition Bearista glass mugs and Hello Kitty collaboration. And we'll have newly designed gift cards, which have become a holiday staple.

As we bring it all together, I'm confident the holiday season at Starbucks will be iconic, and our customers will see and feel the difference. Building on investments made in fiscal 2025, we're focused on executing with excellence and driving growth through innovation in fiscal 2026. Our intent is to become the world's best customer service company. To do this, we'll double down on Green Apron Service by empowering our leaders in and above the coffee house.

We'll scale the assistant store manager role across more company-operated coffee houses, and we'll dramatically simplify store-level reporting from nearly 2 dozen metrics down to a scorecard of just 5 KPIs that best correlate to comp growth. These are focused on the customer, the partner, transactions, inventory availability and food safety. We are giving our partners the tools, roster and processes to consistently deliver our standard.

And as we work to deliver a consistent customer experience across every coffee house, we're also improving how we work with our licensee partners to provide more tailored support, drive operational excellence and profitably grow together. Just last week, we hosted our North America licensee partners here at our support center, and we're excited for what's ahead. As we work to lead in culture, we're driving continued menu innovation that wins the morning and helps us earn the afternoon.

In 2026, we'll introduce an up-level bake case that features new artisanal bakery products and elevated service wares to mirror our coffee house vibe. And building on our recent matcha reformulation, we'll continue to optimize and up-level our matcha menu with more customizable offerings that meet customer needs and stay true to our brand. Work continues on our supply chain to support our pace of innovation and improve inventory availability. And through 2026, you'll see us announcing improvements to our rewards program and mobile app and new brand activations.

Our strategy is only as good as the people who are executing. And over the past year, we underwent significant change and fast. We asked a lot of our partners across the company, and they're delivering with excellence to build a stronger Starbucks. I would like to take a moment to thank our Green Apron and support partners who are working hard to bring our strategy to life every day. You really can feel the energy and excitement in our coffee houses and the change is real and our partners are leading it.

Whether it's Melissa and her team in Austin that's built up such a strong community there, Jessica and Mari Beth in Nashville, who are clearly dialed into what it takes to deliver great customer service or Oscar in New York and his commitment to coffee house excellence. Your focus on coffee, craft and connection is truly making a difference. So as I conclude, let me put it simply.

We set a plan, we're working the plan, and the plan is working. We have more work to do, but we're building momentum. Regardless of the headwinds and tailwinds we may encounter, I'm confident we have the right team and strategy to deliver long-term sustainable growth. I'll now turn it over to Cathy to share more detail on our financial results.

Thank you, Brian. I'll start where Brian ended by also thanking our partners around the world for their focus and commitment to building back a better Starbucks. Their hard work helped us gain traction in the fourth quarter and deliver on some critical objectives that we believe will bring us back to sustainably growing both the top and bottom line. I'll now discuss our Q4 results.

Our Q4 consolidated revenue was $9.6 billion, up 5% to the prior year, reflecting 2% net new company-operated store growth and a 1% increase in global comparable store sales, driven by international outperformance, positive comps in Canada and continued progress in our U.S. business. In the U.S., our comparable store sales were flat year-over-year, with ticket up 1%, reflecting fewer discount-driven offers in the current year.

While U.S. company-operated transaction comps were down 1%, we marked our fourth consecutive quarter of improvement. We are rebuilding our transaction base as we focus on improving the overall value proposition for our customers. We were especially pleased to deliver transaction-led comp sales growth approaching 1% in September as we benefited from the first full month of Green Apron Service across our U.S. company-operated coffee houses as well as the timing shift of our fall launch.

Our 90-day active Starbucks Rewards member base grew 1%, both quarter-over-quarter and year-over-year to 34.2 million members. This was led by higher reengagement and fueled by customers returning for their seasonal favorites and new offerings as part of our fall launch. Transactions among this cohort also continued to improve in the fourth quarter, and our intentional shift away from last year's discounting strategies drove a healthier mix of no discounted transactions.

As Brian mentioned, non-Starbucks Rewards customer transactions in the fourth quarter grew year-over-year for the second consecutive quarter. Our U.S. licensed store portfolio revenue declined in Q4, primarily due to trends in the grocery and retail channels. Travel remains a bright spot, however, with airports delivering positive transaction and ticket growth in the quarter. The College and University segment also showcased year-over-year growth, supported by a good start to the fall semester.

Moving on to International. This segment reported 9% year-over-year net revenue growth in the fourth quarter, delivering another record of over $2 billion. Many of our top international markets contributed to strong comp sales performance in the quarter with China, Japan, the U.K. and Mexico leading the way. China continues to grow and improve profitability. Starbucks China's comparable store sales grew 2% in the quarter, driven by a 9% improvement in comparable transactions.

The market's comp growth was driven by continued product innovation, particularly in its tea latte lineup and a fast-growing delivery business. The team remains nimble in optimizing its product and pricing architecture in a dynamic marketplace. Moreover, Starbucks China's healthy unit economics keep us motivated to capture the abundant white space we continue to see in the region. As Brian mentioned, we remain focused on our search for the right partner to help unlock our future growth potential in China.

As a reminder, the value to Starbucks in a potential transaction includes 3 things: the upfront investment by our future partner, Starbucks retaining a meaningful stake in the China business and future royalty payments. In our Channel Development segment, our Q4 net revenues grew 16% year-over-year due to higher revenue from the Global Coffee Alliance. We remain market share leaders in the North America at-home and ready-to-drink coffee categories amid a challenging coffee price environment.

We continue to work with our partners to adapt and innovate to broaden our reach beyond our cafes. In fact, the 2024 launch of our protein drink in the U.K. has exceeded our expectations, resulting in growth into 8 additional markets in 2025. We have expectations to expand this further next year, including in the U.S. through our North American coffee partnership. Shifting to margin. Our Q4 consolidated operating margin was 9.4%, contracting 500 basis points from the prior year.

This was primarily driven by inflation, led by coffee prices and tariffs as well as investments in support of Back to Starbucks, largely in labor hours. Consolidated G&A in the quarter decreased by 2% versus the prior year to reach approximately 6.6% of revenues. And with our interest expense and effective tax rates generally coming in line with our expectations, Q4 EPS was $0.52, down 34% from the prior year. In the fourth quarter, we took decisive action on multiple fronts to accelerate getting Back to Starbucks.

This included the completion of our assessment of our coffee house portfolio and identified closures as well as a simplification of our broader support organization to one that is streamlined and more closely aligned to our future growth priorities. Let me walk through some of the impacts to our financials. In the fourth quarter, we had 107 net store closures globally as part of the restructuring we announced in September. These coffee houses were deemed unable to meet our standards for customer experience even through a potential uplift or for profitability.

Many fell under both categories. As a result of these closures, we expect a reduction in our baseline North America company-operated revenues, partially offset by sales transfer to nearby coffee houses that remain open. We also expect the impact to operating margins to be slightly accretive. As we look to the future, we are focused on disciplined capital deployment with work underway to reduce build costs and improve the profitability of new coffee houses while continuing to deliver a warm welcoming coffee house environment.

Given that our development pipelines naturally carry long lead times, we expect the benefits of these strategic changes to flow through our P&L gradually over a multiyear period. In the near term, however, we expect that the cost reduction related to streamlining our support structure will have more immediate impacts to our P&L. As such, we expect that our consolidated G&A in fiscal 2026 will run lower than fiscal 2023 levels, serving as a partial offset to our Back to Starbucks investments.

While we expect to provide our near- and longer-term outlook during our Investor Day in late January, the following are some initial considerations for our U.S. company-operated business for fiscal 2026. We're pleased with the progress we've made to date with our positive comps in September continuing through October. Our Green Apron Service standard is ramping, and we're no longer lapping heavy levels of promotion in fiscal 2026. We're excited about a strong holiday lineup, future menu innovation and our coffee house uplifts.

We also recognize that we have more work to do as we continue to rebuild our transaction base. Turnarounds are difficult to forecast. And while we have good reason to believe that our U.S. company-operated comps should build through the year, we also know that recoveries are not always linear. Moving to earnings. We remain disciplined on costs as we focus on allocating our resources to our Back to Starbucks priorities. Our investments in Green Apron Service will annualize through fiscal 2026.

We'll also stay nimble in navigating the current environment where tariffs and coffee prices remain dynamic. As we continue to grow, our goal is that every transaction is higher quality and more profitable. We're on a multiyear turnaround. Q4 was a turning point, having delivered the first quarter of global comp growth in 7 quarters, and we're encouraged by our trends to date in Q1.

We're focused on driving our top line and managing the costs that are within our control, giving us confidence in our path to sustainable, durable long-term growth. As a token of such confidence, we announced an increase to our quarterly dividend earlier this month, recognizing our 15th consecutive year of increase. We are clear-eyed about the work ahead of us, and we're excited about our future. And with that, we are now ready to take your questions. Thank you. Operator?

[Operator Instructions] And our first question comes from David Palmer with Evercore ISI.

I'll just -- I'll try to squeeze in a couple of parts to my one question. Brian, one of the things that we often find ourselves discussing with Starbucks is this Back to Starbucks often feels like back to the old Starbucks, which might have been much more of an in-cafe coffee, espresso, hot beverage. And today, Starbucks is obviously many more channels than that. It's much more cold beverage and the competitive set itself, the way younger consumers are using the brand. It's a lot that's different.

So getting back to Starbucks, people wonder if that will bring the same sort of comp energy that the old Starbucks used to have if perhaps that Back to Starbucks is addressing a fraction of the business. So maybe that's a general question that's worth discussing. But right now, some of the things you've done feel like it would be activating more of the cafe part of it. I wonder if you're seeing differences in your comps by part, by order type and maybe address that general concern about maybe activating part of the in-cafe may not be enough to drive the overall business as much.

Yes, David, thanks for the question. Yes. No, Back to Starbucks is comprehensive. I think the way to think about it is, I'm talking about the definition of the brand, which is the soul of the brand is around customer connection and our craft as it relates to every beverage. Now that's not to say we aren't going to continue to innovate across all the different access points.

I think the place we got the most off strategy or off brand was with the cafe and the way that we handled mobile orders actually distracted us from executing really well in the drive-thru as well as the cafe and for the kind of the new emerging channel around delivery. So what I would actually say is the thing that I love about where we are with Back to Starbucks is we've now established a new Green Apron Service standard.

And that standard, okay, is going to be able to support the simple idea of what makes Starbucks a Starbucks, which is great craft, great connection. And that crafting connection can happen in mobile order. It can happen in drive-thru, and it can happen in the cafe. And I think what we saw throughout the quarter is just that. When we launched the Green Apron Service standard in the middle of August, we saw the business respond so much so that in September was the first month where we actually had comps -- positive comps driven by transactions, a point of transaction comp growth.

So Back to Starbucks is a reference around the whole brand proposition. And it gets us, I think, centered on providing a great customer service experience, which separates this brand from everybody else. The foundation is this customer connection. I think the visible transformation, you'll see in our uplifts, but I think you'll also experience it when you interact with our baristas and our coffee house leaders.

With the Green Apron Service model, we've actually freed our partners up to get back to focusing on moving towards customers, providing that connection and providing that customization in the beverage that people want, whether it's hot, cold, coffee, refreshers, and you're going to continue to see us innovate across matcha. So it's holistic. And what I love about it is I see it really playing out nicely in transactions right now.

And your next question comes from Danilo Gargiulo with Bernstein.

I wanted to ask you a question on the reception of the protein platform. And specifically, what has been the feedback on the pricing point of the protein platform? And in light of the increased ticket that this might be driving, what's your updated view on the pricing that you think would be sustainable to be taking in 2026 and beyond?

So yes, Danilo, I want to make sure I got your question right. I think I heard you asking how is the protein platform performing? And what's been the response to, I guess, the pricing architecture on protein. If I missed it, chime in after I give you the answer. So first of all, the protein platform, I am really excited about how this has come out of the gates. Awareness is still building. And one of the things that's great about this platform is you can now have protein in over 90% of the drinks you get from, okay?

So whether that's cold foam or that's through the protein milk. And the feedback from customers, whether it's been in matcha, in Iced Americano or a latte has been, you know what, this is really delicious. And that is what we need. And it also is able -- we're able to provide the protein into the customization of the way people want to have their drinks. We're not boxing them into a certain way that they have to execute it. And we also allow you to flavor it how you want.

Oddly enough, one of the top cold foams is our Pumpkin cold foam. So it's a protein pumpkin cold foam is one of our top ways that people are experiencing cold foam. I will also tell you, our value scores, and I think I mentioned this in my earlier remarks, as -- when we look at this both ways, is it worth it? And how are our value scores. They continue to increase. And the feedback we've heard on the protein specifically is it's a tremendous value with the customization, the amount of protein that you can get, so the macros associated with it.

So I'm very optimistic as the awareness builds, this platform will continue to build. And this is really just kind of the first step, I think, in continuing to drive health and wellness built on, frankly, arguably one of the greatest health and wellness drinks out there called coffee. So I'm very optimistic about where we are with this. I think the marketing team has done a great job. Our partners in store have done a great job, and the feedback from our customers, not surprisingly, has been really positive.

And your next question comes from David Tarantino with Baird.

My question is on the Green Apron Service model. And Brian, I presume this takes some time to really get the full consumer response to the changes you've made. So I guess, can you talk about where you are in the journey after only maybe a couple of months in place? And maybe you can sort of compare your current state of the ones that were upgraded to this service model in August to the ones you did earlier in the year and how that may or may not be different as you look at sort of the duration effect that this could have on the business?

Yes. Thanks, David. Great point. So you're right. We started Green Apron Service standard middle of August, and we really kind of rolled it out in 3 phases over the course of the last 2 or 3 weeks in August. So I would say we're really only like 8 or 9 weeks in on it. And the good news is it does appear that it continues to build week-to-week for a couple of reasons. One, our teams have to get used to operating with the additional hours and the bigger rosters. There's also an element of hiring.

And then there's also an element of giving the customer the experience so that they realize like this isn't just a one-timer. This is now the new way they're going to experience Starbucks. And probably the best evidence I have for that is the initial 650 stores that we piloted on continue to outpace the rest of our company performance. So I'm optimistic that what's going to happen is over time, as our rosters get populated, our teams get more reps with the additional investment.

They understand the 5 key moments, the coffee house walks and then our customers experience it over and over again, I think we're going to continue to see us hopefully close the gap on those first 650 stores and build just like what we saw in those 650 stores. So I think it is a little bit of time and experience, both for our partners and our customers, but it's been great to see how it's been building. And frankly, Mike and the whole operating team has done a phenomenal job with the rollout and our coffee house leaders have done a phenomenal job getting their teams excited about the new way we're going to serve customers.

And your next question comes from John Ivankoe with JPMorgan.

The question is also on Green Apron. And I'm wondering if Green Apron was done fairly defensively, in other words, to maybe fill some gaps that were in the system to really help traffic decline or if there is a more offensive element of Green Apron to actually drive traffic? And if that's the case that more hours, more staffing is leading to more transaction growth, if we have an opportunity to step up Green Apron even further?

In other words, is there a 2.0 or a 3.0 have kind of taken this even further from a staffing perspective? That's really the first part. And secondly, other than just having customers come back into the store, how do we communicate to the customer base broadly in America, some of whom may have dropped out of Starbucks to come back in and experience a better Starbucks than maybe they might have remembered it a few years ago?

Yes. So thanks, John. So what I would tell you is, look, obviously, we had an incoming hypothesis that our stores weren't staffed correctly and that we weren't, I guess, sorting orders correctly or sequencing orders correctly between the drive-thru mobile order and the cafe. And I think as we learned, we figured out that, that hypothesis was correct.

And what required was both the Smart Queue technology to better sequence orders and then increase staffing so that our partners were able to either stay focused on the drive-thru, stay focused on their food stations, stay focused on the customer, provide a great greeting when people came in or give them a great experience at the handoff. So I think it was a combination of fixing some missteps and then putting us on the offensive because I believe we're best positioned to provide the best customer experience in the industry.

And one thing that I've heard consistently from customer feedback since we've launched this out broadly is, wow, I noticed the difference. I feel the difference. I see the difference. And it is as simple as just being greeted when you walk into our stores. And that has changed, I think, people's perceptions pretty quickly. The one thing that's great about our business, John, and you probably know this, is the frequency is so high, right?

So I've never had the opportunity to work in a business with such high frequency that if we stay consistent with the Green Apron Service standard, our customers realize it quickly. And we're also a very social brand. It gets shared pretty quickly as well. Now obviously, it's really important we continue to provide innovation so that we bring people in. And one of the things I didn't mention on protein is one thing that's great about protein is we're seeing low-frequency rewards customers show up with more frequency. So it's going to be the combination of consistently great execution.

It also -- what's nice, too, is as we perform better at peak, we actually earn even more hours, which then allows us to open an hour earlier. And then it feeds itself where, call it, whatever Phase 2 is, or Phase 3 is we're kind of earning our way into those as opposed to having to do the course correct that we had to do initially with Green Apron Service. So I love how the flywheel once it gets going on this, the experience builds for a partner and the experience builds for our customer. And then I think the transactions build in our results.

And your next question comes from Lauren Silberman with Deutsche Bank.

You talked about flat morning transactions outperforming the overall business. What's driving the relative outperformance in the morning? And as it relates to the afternoon, do you think it's more reflective of the macro or competitive dynamics? I know there's a lot of discussion around energy and whether there's some shift to energy. So just how are you thinking about Starbucks' future in that category?

Yes. So look, I think the reason why -- well, the reason -- the data would suggest the reason why we're winning in the morning is because we're better staffed, we're providing better speed of service. while still providing that craft and that connection. And so we've just seen consistent improvement in the morning and specifically number of transactions that we are delivering per 15 minutes. And that's translating into in Q1, what was a flat transaction performance. We've also, though, seen sequential improvement in the midday and afternoon.

Not all the way to where we want it to be, but I think we have opportunity, frankly, on some of our drinks and food offerings in the afternoon that you're going to see us focused on going forward. And the good news now, too, is our staffing levels are no longer at just minimum staffing once you get to around 11:00, 12:00. We now are staffed correctly where we can better service the business in the afternoon, too. And so I think just like what we saw in the morning, you get better staffed in the morning, you get better throughput, you get better customer connection, we get better business results.

The same thing is happening in the afternoon, and that was kind of the second and third phases of the Green Apron Service model was we first rolled out the additional staffing in the morning, then we brought it into the afternoon. And I think we're seeing the sequential improvement accordingly. But we've always said we want to win the morning, and then we'll grow our way into the afternoon. And that's exactly what I think you're seeing the business do.

And your next question comes from Brian Harbour with Morgan Stanley.

The investments associated with that, I guess I'm referring specifically to kind of added staffing, right? Is that in place by this point? Or I guess when you talk about leveling up Green Apron Service, could you talk about what that means from sort of an incremental investment perspective at this point? And then I guess just also on the product cost side of things as we go into '26, could you talk about -- I think you've targeted some savings here. Obviously, there's also sort of commodity inflation. Can you talk about how those things may balance each other out or not?

Yes. So we've made kind of our initial investment into the Green Apron Service model. And now as it becomes our operating standard, we really will earn our way into the additional labor that comes with the growth. So we don't foresee additional investments, I would say, to be able to make the Green Apron Service standard come to life.

And then on your second question in regard to commodity or coffee prices, obviously, coffee prices have not retreated. They still have stayed elevated, and we're dealing with that accordingly. We're trying to find offsets where we can in the business. But hopefully, we'll start to see that recede, but it hasn't happened yet. Cathy, I don't know if you want to add anything to that.

Yes. Maybe just a little bit more on the investment in Green Apron Service. It started to roll out. We've been ramping it through our test program. And then it started to roll out more, obviously, earnestly in August. So you'll see that continue to annualize into the early parts of this year. We've got the full investment in the stores, but they will need to continue to annualize. So you'll see that. And then ASMs or the assistant store managers or coffee house leaders, we did say that those -- we would lag that investment a little bit.

We've started with our initial pilot. They're all hired, and we'll start to roll that. And there's a little bit of a differential there, which we talked about, too. On the product inflation, expect coffee to continue to be a headwind at least through half a year. All of our best thinking would say that we're going to start to see some relief at the backside of the year.

Your next question comes from Sara Senatore with Bank of America.

I wanted to ask about the coffee houses that you're closing. You said they didn't demonstrate a viable path to profitability, but I wasn't sure if that's because AUVs are lower, or the costs are higher. Just trying to think through like sales transfer. And in that context, Cathy, as you think through the margin for the business over time, should I be thinking about like lower restaurant level margins, but also lower G&A to get back to kind of operating margins that look similar to where they were maybe pre-COVID. So just sort of the impact of store closures on top line and margins and then margin over time.

Yes. So first off, we looked at, obviously, our entire portfolio to say, can it first represent the customer experience we want going forward? That was the most important criteria. Then we also ran a financial filter, as you would expect on can it also give us a return that we would be proud of. And the combination of those got us to the closures, which we don't take lightly. And to your point, as we said in the prepared remarks, it's going to be slightly accretive to our profitability going forward because they were unprofitable.

To answer your question on why is that? It's a combination. But at the end of the day, what makes a coffee house a great coffee house is that you have to grow top line. So you've got to have a great top line. Generally, when we stood up those coffee houses, they had a good -- they were a good investment. They had a good occupancy. We expected the right labor. So it really starts with the top line. And if we can't get the top line or the revenue where it should be, that typically makes the coffee house not viable.

So I'm not saying there aren't some nuances in occupancy and labor and all that, but the biggest one is top line. So then to answer your question -- and by the way, on transfer, we do see some transfer. We've been pleased. It's been a little higher than we expected, which is great. And we kept great density wherever we could. So we are seeing some sales transfer. Going forward, though, to your question, first off, I'll put a plug to our Investor Day. We're excited to see everyone at the end of January for our Investor Day, where we will lay out a more complete financial algorithm and picture.

But to think about what do we need to be true going forward for our coffee houses, they've got to be a great return. So we've got to get an AUV. By the way, there's a pretty big spread in average unit volumes that we can make in a viable coffee house, but we have to get a good top line store, and then we'll make sure that we sign up that pro forma with a great P&L coming through it. So I say that because I wouldn't expect holistically big differences in the future. We've got to have great coffee houses, and that will drive the sales.

And your next question comes from Jeffrey Bernstein with Barclays.

Great. Cathy, I appreciate the qualitative color in your prepared remarks, and I think you actually just alluded to more of an update in late January at an Investor Day seemingly around earnings. But I'm just wondering if you can share any thoughts on fiscal '26 and longer term, whether there's any guardrails you can share today, top or bottom line as we think about the comps maybe returning modestly positive and the profitability that comes from that.

And just tying to that, I mean, I know there was often talk about cost savings in the past. I don't know if there's any kind of ballpark range as you've had more time to think about it of potential savings or maybe the greatest buckets of opportunity. I know former leadership used to talk a lot about the dollar opportunity per year or whatnot, but any early thoughts on either the top and bottom line and the cost savings surrounding that?

I'm going to, I'm sure, completely disappoint you in my response. First off, we'll give you 2026 and longer-term guidance at our Investor Day. We hope to see you there. But as you can imagine, Brian already shared, we're really excited that we've now gone from 6 quarters of negative comps to a positive in our seventh quarter, and we hope to build from here. And so it starts with top line.

We hope to continue to see those transactions grow, and we are optimistic there. We've got the right plan in place that Brian has outlined. So I would say that. And then over time, earnings are going to lag. So we've said that you grow top line first and then the earnings will follow. We are taking all the necessary actions now, though, to make sure that every single transaction is more profitable going forward. And that's where I would leave it for now.

And your next question comes from Andrew Charles with TD Cowen.

I'm curious how the improved value perceptions play into your 2026 pricing plans and if pricing is contemplating your belief that '26 same-store sales should build through the year. And then Cathy, just separately, the past 2 calls, you've helped set the stage on the current quarter outlook, not guidance, but more outlook for North America same-store sales. And I'm wondering if you could provide some help just on how to model that for 1Q.

So to answer your first question on value and worth it, obviously, it's great to see our value scores moving up and is the brand worth paying for also moving up. We always are keeping an eye on our value proposition. as we think about pricing going forward, we're going to be very strategic, very targeted with and when we use it. I don't envision us just doing broadscale pricing across our menu.

So obviously, we'll continue to monitor what happens with the inflation that we have to deal with, both wage and commodities. And then we'll be smart about the growth that we get. And if we need to use that lever of pricing, obviously, we'll always keep an eye on what happens with our value rating scores as we -- if we have to move on pricing going forward. Maybe the second part of the question, I'll give to Cathy.

Yes. On Q1, Andrew, so we did share in the prepared remarks, we were pleased that September had turned positive, and that trend had continued through October. So that's a good way to start thinking about the quarter. And so we would expect the quarter to be led by positive transaction comps.

And as I have shared before, obviously, earnings are going to lag as we continue to annualize now that Green Apron Service investment that we've been making. We will start to see some of the offset coming through in some of the cost structure work we've done. But just it's premature to give guidance, but I would say top line growth led, and earnings will lag even versus -- obviously, not to the extent we have in the past.

Your next question comes from Christine Cho with Goldman Sachs.

You mentioned that the college and campuses are doing well in the quarter, but there are some broad concerns about the macro pressures on the younger consumers. Are you able to comment on how the consumer spending behavior evolved with that younger consumer cohort under age 35 over the last few months and how that informs kind of your go-forward strategy? Do you view this as kind of an increasing headwind for the coffee industry in the near term?

I would just say, as we look at every kind of generational cohort, we have seen a really nice response both in transactions and sales over this most recent quarter. And what we know we have to do is we have to deliver a great experience for these customers because I think they are going to be more choiceful with where they choose to spend their dollars. But that's why I think it's so important that when they do choose to spend their dollar with Starbucks, they walk away feeling like that was worth it, and they got a good value.

And that's what we're continuing to see happen. Definitely in the morning day part and then as throughout the balance of the day goes, we continue to strive to make sure we give them a great experience. So they say, you know what, that was a good way to spend my dollar. And that's what we saw over the quarter, and I think it was reflected in kind of the movement we saw in transaction growth.

Your next question comes from Andy Barish with Jefferies.

You mentioned some work on the last call and then reiterated the license business. Can you kind of give us a sense coming out of your meetings with them, what's going on there? And is there an opportunity maybe to sort of streamline that business to help the company-owned stores?

Yes. Well, as you would expect, we took a hard look at both our strategy and structure. And what we've realized is there's a real opportunity for continued growth in our license business. And we also think there is a different way of working with our license partners that will set us up for success. So that's why we also had to do some of the restructuring work in how we support that business. But we do believe there's the opportunity for us to grow from a unit standpoint.

And we've got some terrific partners, some that are at small scale and others that are big scale. And we're focused on making sure that we build the right next kind of set of units and that they get operated up to the Green Apron Service standard going forward. So that was really what this whole license summit was about. We have to provide some tailoring to the execution for the certain channels. But for the most part, I think the licensor and the licensee in this case, both believe there's tremendous growth to be had in our license business.

The last question comes from Chris O'Cull with Stifel.

Brian, how is Starbucks impacted by just increased competition from all the emerging beverage brands, especially maybe in the markets where you do have a significant amount of overlap? I'm just trying to understand how you guys are thinking about this new group of beverage concepts.

Yes. Look, I think the way I have been approaching it is we got to be on our best offense. And our best offense is to make sure that we stand for the craft around our coffee and drinks and food and then the customer connection and experience that we provide. The good news is we provide all the access modes that all these new emerging concepts provide. I already have the biggest drive-thru coffee chain in America. I already have the biggest mobile order and digital coffee business in America. And I also have the biggest cafe coffee business in America.

And one thing I learned early in my career is scale matters, and we have scale in all those access points. And then we also, I believe, have a unique positioning around the craft and connection and the customer experience that we provide. So what I believe is we got to be on our best offense, and I think competition will make us better. And I've asked our organization to be focused that way where we need to be better than we were yesterday, and that's how I know we're on our best offense.

That was our last question. I will now turn the call over to Brian Niccol for closing remarks.

All right. Well, thank you for all the questions. And look, I want to -- I appreciate everybody joining because I know this is a busy day of earnings. So thank you for joining. But as we wrap up, I want to leave you with 3 things. First, we made real progress in fiscal 2025, okay? We worked really quickly to execute the Back to Starbucks strategy. We accelerated things we knew we were working like Green Apron Service, and we've seen momentum build across our U.S. business.

And I think we have a clear line of sight on the growth that's in front of us in our U.S. business. It's also nice to see that our China business is back to growth. And you know what, we're seeing tremendous opportunities for growth around the globe. Second, I do want to point out because this is kind of David Palmer's initial question, Back to Starbucks is not a slogan. It is -- it's an enduring model for growth that, frankly, is centered on customers and it's going to be driven by our partners in our stores and it's for every access mode that people want to experience Starbucks.

And it really is getting us back to what we do best, which is exceptional craft, genuine connection and welcoming community coffee houses. And third, I think on our fourth quarter results, it gives us confidence that we really have turned the page to a new chapter in our turnaround. Our work is to be the world's best customer service company, and we want to have the best job in retail.

And I think the fourth quarter marked kind of a turn for us in our U.S. operations. So clearly not declaring any victory. We still have a lot of work in front of us, but it's clear we're moving in the right direction. And I believe we're in the process of building the best Starbucks yet. So have a great day. Thanks for joining. And obviously, we'll be talking to you in January. Take care.

This concludes Starbucks' Fourth Quarter Fiscal Year 2025 Conference Call. You may now disconnect.