Starbucks (SBUX) Fiscal Q3 2016 Earnings Call

posted in: Earnings Call, Notes | 0

Starbucks (SBUX) CEO Howard Schulz said macroeconomic weakness is affecting the traffic to its stores 

“What we did not and could not have fully anticipated was the profound weakening in consumer confidence in Q3 that has caused sharp declines in QSR and restaurant traffic overall and has many of our competitors struggling with negative transaction comps. And as I have mentioned in the past, Starbucks is not immune to macro challenges that impact our competitors and retail overall. But as with weather, we will not hold these challenges out as excuses.”

Starbucks (SBUX) CEO Howard Schulz believes political turmoil and social unrest is having a toll on consumer confidence

“In Starbucks’ 24 years of public life, I can’t recall a quarter quite like Q3 of 2016, when a confluence of social and political turmoil at home, weakening consumer confidence, increasing global uncertainty, and the launch of one of our most significant long-term initiatives of all-time all occurred within a single earnings period.”

Europe grew the slowest of all of the company’s geographic regions

“System comps across our EMEA business grew 2% in the quarter. A slow-growth European economy, Brexit, a weakened British pound, and ongoing security concerns throughout the region have contributed to consumer uncertainty throughout Europe. Our brand continues to hold up well in this challenging environment.”

Starbucks (SBUX) CEO Howard Schulz spoke about what the Starbucks brand represents 

“As I said in my prepared remarks, though, we, at Starbucks, look at this not as an excuse but feel very strongly that what we offer our customers, the sense of community, the longing for human connection, a safe place, an affordable luxury and, obviously, the innovation that we have brought forth gives us the confidence that we will be the kind of company and the kind of brand that will demonstrate to our customers the aspirational connection.  So much of what we’ve been able to do over the years is linked to the equity of the brand which is linked to the experience.”

The company doesn’t want to get in the habit of being promotional 

“What we saw this past quarter and, for that matter, even beyond that, was given the challenges that exist in the marketplace that we’ve all seen and discussed, there is a tremendous amount of discounting and promotion going on in the market where people are buying business. We do not want to be in the business of buying business. We do not want to discount or dilute the integrity of the brand. We know who we are. We know what our core purpose is. And we’ve got to play the long game and have faith and confidence in what we stand for in terms of the experience, the quality of the coffee. What we keep talking about really internally is we want to take the equity of the brand and the position of Starbucks up. The premiumization of Starbucks is linked to the Roasteries and linked to this new format of stores that we are working on that you’ll begin to see in calendar 2017 which is Starbucks Reserve which, in a way, is like a cousin in a smaller format of the Roastery. All of that will shine a halo on the brand, shine a halo on the experience, and we don’t want to do anything that would dilute that halo by buying business or discounting, and we’re not going to get in that game, despite the fact that so many other people are throwing that at us.”