“This implies full fiscal year 2026 U.S. comp growth of a little more than 6% and global comp growth nearing 6%.”

In context

“Cathy Smith (Executive Vice President and Chief Financial Officer): 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 coffee 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%. 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 1 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 transactions. 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 coffee 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 refresher 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 Doubleshot 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%, 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 Apron 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% 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 China 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 to continue in Q4. Sales leverage, disciplined execution and continued progress against our 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, OpEx and G&A. This year, the impact of our efforts are most visible 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 coffee 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.”