Starbucks FY 4Q16 Earnings Call Notes

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Starbucks (SBUX) Q4 2016 Results
Howard S. Schultz

China has enthusiastically embraced Starbucks

“Perhaps nowhere in the world has the Starbucks Experience come to life more powerfully and been embraced more enthusiastically than in China, a country we first entered 17 years ago. I personally observed this again firsthand on my visit to the market just two weeks ago. Starbucks stores in China are among our most elegant, efficient and profitable of any stores in the world, and China once again produced record revenues and profits and strong comp store sales growth in both Q4 and fiscal 2016.”

One of the few western companies that has been embraced

“There are countless examples over the last decade of western companies and consumer brands that have tried but failed to achieve relevance in China. Not only has Starbucks cracked the code in China, consistently delivering record operating and financial performance, but our newest class of Starbucks stores in China is delivering the highest AUVs, ROI and profitability of any store class in our history in the market. And we have created partner pride and a deep emotional connection among our customers and our partners in the Starbucks brand in China that rivals any market in the world. By building the foundation of our business in China carefully, methodically and respectfully, we are creating a growth and profit engine that will continue to accelerate for decades to come.”

We are all trying to navigate through a difficult time

“we are all trying to navigate through a difficult time. I mean I would label this time as just a high degree of uncertainty that obviously is domestically driven but has affected the rest of the world. John and I and Cliff just last week we’re in China and Japan, and Cliff and I will be in Europe next week, and I think it’s safe to say that wherever we have been, I don’t think we’ve ever witnessed such concern about what could happen in the U.S. as a result of the election.

And I think there’s no question, as I speak to other retailers and other merchants both in and out of our sector, that there isn’t one exception where everyone is experiencing, I think, a very unpredictable and erratic chain of events where it’s very, very hard. I think what’s equally hard, it’s very hard to cut through all of the noise and try and get access to the customer and try and get your message out.

So I think we’ve tried to be very disciplined and very thoughtful about how we spend our money, both in traditional advertising and social media, so that we are not in any way kind of getting caught into all of this. I think everyone is hoping that post the election, there will be a return to a natural state of affairs in terms of the consumer behavior.”

No doubt over the next five years we’re going to see dramatic level of retailers who can’t sustain their core business

“I was talking to Fred Smith just a couple of weeks ago about his situation at FedEx and he shared with me a piece of research which showed a significant drop in foot traffic on Main Street and in malls, not only domestically and around the world, as a result of e-commerce, the Web, and what I’ll loosely describe as the Amazon effect. As a result of that, you’re certainly seeing large companies and small companies not only not open new stores, but announce closures.

And let me just speak to that. I know this is a little long-winded but I think it’s important. There’s no doubt that over the next five years or so, we are going to see a dramatic level of retailers not be able to sustain their level of core business as a traditional bricks-and-mortar retailer, and their omni-channel approach is not going to be sustainable to maintain their cost of their infrastructure. And as a result of that, there’s going to be tremendous amount of changes with regard to the retail landscape.”

Scott Maw

Consumer remains under pressure

“So the consumer remains under pressure in many places in Europe and Asia as well as here in the U.S., economic uncertainty around the overall consumer environment, around the election, that continues to weigh on our customers around the globe. And I think we can see that continuing as we get into 2017.”