Good afternoon. My name is Diego, and I will be your conference operator today. I would like to welcome everyone to Starbucks Third Fiscal Year 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Tiffany Willis, Vice President of Investor Relations. Ms. Willis, you may now begin your conference.

Thank you, Diego, and good afternoon, everyone, and thank you for joining us today to discuss Starbucks' third quarter fiscal year 2023 results. Today's discussion will be led by Laxman Narasimhan, Chief Executive Officer; Rachel Ruggeri, Executive Vice President and Chief Financial Officer. And for Q&A, we will be joined by Belinda Wong, Chairwoman and Chief Executive Officer of Starbucks China. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially 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 third quarter fiscal year 2023 and the comparative period include several items related to strategic actions, including restructuring and impairment charges, transaction and integration costs and other items. These items are excluded from our non-GAAP results. All numbers referenced on today's call are on a non-GAAP basis unless otherwise noted or there is no non-GAAP adjustment related to the metric. For non-GAAP financial measures mentioned in today's call, please refer to the earnings release and on our website at investor.starbucks.com to find reconciliations of those non-GAAP measures to their corresponding GAAP measures. This call is being webcast, and an archive of the webcast will be available on our website through Friday, September 1, 2023. Also for your planning purposes, please note that our fourth quarter and fiscal year 2023 earnings call has been scheduled for Thursday, November 2, 2023. And with that, I'll now turn the call over to Laxman.

Thank you, Tiffany, and thank you all for joining us this afternoon. In a few moments, Rachel Ruggeri will walk you through the detailed results of the third quarter, and Belinda Wong would then join us for Q&A. To start, our strong third quarter results point to all-around momentum in the business. This quarter, we grew consolidated revenue by 12%, up 14% when excluding more than a 1% impact in foreign currency translation to a record $9.2 billion. Importantly, earnings growth of 19% outpaced revenue growth with margin expanding by 50 basis points to 17.4%. Our strong performance reflects the strengthened foundation of our business, resulting from the significant progress we are making against our reinvention plan. Since stepping into the role, I have now traveled to every region, working directly with partners. I left each interaction impressed by the differentiated global appeal of the Starbucks brand powered by innovation and anchored in our unique ability to deliver human connection. These experiences give me great confidence in the significant growth and margin opportunities in front of us, positioning us well to strengthen the brand and create outsized long-term shareholder value. It was this time last year when Howard and the team identified the must-win opportunities and investments for our foundational reinvention plan. While Rachel will walk you through detailed results, I will now outline the momentum we have from the quarter in five key priority areas while pointing out where we see further headroom. Our first priority, we will elevate the brand by running great stores. This comes to life in the strengthened execution in North America. Our North America team delivered record revenue in the quarter, with a growth of 11% underpinned by 7% comparable same-store sales growth, leading to the highest average weekly sales in our history. Our…

Thank you, Laxman, and good afternoon, everyone. I'm very pleased to discuss our Q3 performance, which beat our expectations as our innovation and our brand continues to resonate with our customers around the world, fueling demand across our stores and digitally. Our U.S. business delivered record breaking performance on many fronts, and our China business continued to recover in line with our expectations. It's clear we have abundant opportunity ahead. Our overall performance was bolstered by the progress we're making against our strategies, specifically our reinvention plan and it's unfolding into tangible financial results. As a reminder, when we set guidance at the beginning of the year, we said that the benefits from our reinvention plan would amplify at the back half of this fiscal year, and that is exactly what we're seeing, highlighting our ability to effectively reinvest in our business for the benefit of all stakeholders. Our Q3 consolidated revenue reached a record $9.2 billion, up 12% from the prior year or up 14% when excluding more than 1% impact of foreign currency translation. The strength of the brand, loyalty of our customers and innovative products fueled strong sales resulting in double-digit consolidated comparable store sales growth of 10%. In addition to the 10% comparable store sales growth, revenue also benefited from 7% net new company-operated store growth globally year-over-year as well as continued momentum in our global licensed market. Q3 consolidated operating margin expanded 50 basis points from the prior year to 17.4%, exceeding our expectations, primarily driven by sales leverage, pricing and productivity improvement from increased efficiency in our U.S. stores. Margin expansion was partially offset by investments in store partners as well as higher G&A costs in support of reinvention. Q3 EPS was $1, up 19% from the prior year, driven by strong performance across…

Thank you. [Operator Instructions] Your first question comes from Jeffrey Bernstein, Barclays. Please state your question.

Great. Thank you very much. I had one question and then just one clarification to Laxman's comments. The question is just on the U.S. comp and traffic. It looks like the traffic was modestly positive this quarter, slowing a little bit from last quarter. And I think it's safe to say that there's going to be some slowing in the menu pricing in forward quarters, and therefore, the average ticket. So with the comp slowing and the average ticket likely to slow, I'm just wondering your confidence in the current algorithm for that 7% to 9% comp looking into next year. And the clarification is just Laxman, I think you mentioned that you would update long-term guidance when you report the fiscal fourth quarter. But with that said, I think you did mention the 10% to 12% revenue growth long term and 15% to 20% EPS growth. So is that safe to say that those are levels you're comfortable with as we look out into future years or all things are on the table as you offer your initial guidance next quarter?

Well, there were several questions in there so let me just break this up. There was a question on the third quarter. There was a question about our expectations for the balance of the year. And then there was a question about the -- what I've said earlier about my confidence and the multiple paths to achieving the 10% to 12% growth as well as the 15% to 20% earnings growth, and I'll comment on all three. So let me first start with Q3. Q3 for us was a very strong quarter, as Rachel mentioned as well. It's in line with our expectations. Our comps were consistent every month. We came off a lap in Q2, which was the impact of Omicron, and so we had a 7% comp, very consistent month over bond. The comp in Q3 was lapping a 9% comp from last year, so the 16% comp on a two year basis. And so if you look at this, it's really the strength of the brand, the actions and pricing we took but also the growing levels of customization and the levels of food attach that Rachel mentioned as well. And that is what led to the average weekly sales in Q3 continuing to break records. Now your question on transactions. Transactions in Q3 grew year-over-year across all dayparts. Traffic is below 2019 levels but units per store are above the 2019 average coming from higher food attach. So the food growth along with more customization and judicious price increases led to this record weekly sales that you saw in the quarter. So transactions, as I said, have grown year-over-year across all dayparts. We also had a strong increase in ticket. There's a sort of balance between the pricing, which is very judicious, but also customization and…

Thank you. Your next question comes from Sharon Zackfia with William Blair. Please state your question.

Hi. Good afternoon. I was curious about the comments on the number of hours per partner. Can you give us kind of some color around where that is now and where you'd like that to be in the U.S.? How long you think it takes to get there? And kind of what the associated productivity improvements would be? I assume that's throughput related but would love some color on that.

So we're feeling very good about the progress we are making in this area. Our foundational reinvention plan that we announced last year is essential to the improvements that we're seeing now. We're making very good progress on it. There are meaningful improvements in the store environment as well as the productivity gains that we're making. Our equipment rollout is on track. Our peaks are growing faster than the rest of the dayparts. And we're making strong progress on the scheduling and staffing basis. If you look on the retail team, barista turnover is down, as I said, 9% reduction versus previous year, a 2% reduction versus just the second quarter. And what you see is the combination of investments as well as the scheduling improvements that we're making, the economic proposition, the take-home pay to our baristas has improved by 20% year-over-year and we have more improvements coming. And you're going to see us make improvements month-over-month in terms of improvements that we're making. I mean, we're going to ensure that we continue to increase these average hours through better staffing and scheduling but also work to accommodate their preferences, including the many that we attract to a keen on a part-time schedule. So this is progress that we're making week over week, month over month, and there's more to come next year.

Thank you. Your next question comes from Andrew Charles, TD Cowen. Please state your question.

Great. Thanks. It's a two-part question on China. Belinda, it's hard to ignore the amount of discount activity in China by competitive coffee shops, that one competitor indicated earlier today will persist for a number of years. And so curious if you could talk about new strategies in place for Starbucks to help protect traffic without degrading the brand's premium status. And then my other question is either for Rachel or Laxman, but you mentioned margin headroom a couple of times. Amid that volatile China macro, what are the offsets if the model China's performance weakens? The 10-Q, I know, called out a sequential increase in North America productivity improvements from 2Q so maybe that's perhaps an area where there's more to grow or perhaps there's another area that I'm not thinking about that allows for some cushion in the model if we were to see China macro become a little bit more uncertain.

Got it. I'll get Belinda to take the first question, Rachel to take the second, and then I'll come in with some summary comments at the end. Belinda?

Great. Thank you for your question, Andrew. First of all, I want to say that there's no noticeable impact to our sales performance in Q3. In fact, we're very -- I'm very happy with our Q3 performance and the sequential improvement that we achieved. We have been and will continue to stay focused and disciplined in our discount investment to optimize and deliver incremental return. On the competition topic, we welcome competition. They actually expand the coffee market and accelerate adoption and vacancy of coffee consumption. Different brands bring in different value propositions and occasions, and I just want to talk about our value propositions. We're in the human connection business. Since day one 24 years ago, when we entered China, we have been focusing on delivering a premium experience defined by the quality of our coffee and the emotional experience we've built with our customers and our partners that can't be replicated anywhere else. And our China business has strategically built to serve a diverse range of customer needs and occasions, physical and digital, fast and slow. And the unique business model and capabilities we have built that Lex has mentioned gives us distinctive competitive advantages. So we'll double down on our investment in our product innovation store experience, digitalization in our people to create even more distinctive advantages to capture the limitless opportunities in China in the future. Thank you. We're playing the long game.

Rachel?

Yeah. And Andrew, I would just follow that up with as we look at the performance in China, we're encouraged by the healthy margins that we're seeing today. And even as we see a shift more towards digital, which does have a lower margin percentage overall, it's driving more revenue. And that's no better way to drive margin expansion than through sales leverage, so we're encouraged by what we're seeing today. In addition to that, the team has been very judicious about creating operational efficiencies so the margin opportunity in China continues to be healthy. That said, if we do see that there are challenges in the future, we've structured our guidance such that it allows us room, which is one of the reasons why we're very intentional and being more directive around qualitative language on margins, saying this year would be solid margin expansion and the future would be progressive, which will allow us to continue to navigate the business and continue to invest where needed so that we can deliver on that 15% to 20% earnings growth that we've guided to.

Well, let me just close with a couple of observations. I was in the China market for an extended period in this quarter. And I got to actually work with our partners and stores. I got to spend time in our supply chain. I got to spend time in our support centers, including looking at our teams that are leading what we do in digital. And I have to tell you, I've been going to China, studying China, advising on China, running business with China for 20 years. And this is a very unique business. It's been a business that's been built with love, and it's remarkable in terms of the passion our partners have. I was very impressed. I think it is still early days. I mean, when you start looking at the headroom you have, and as Belinda said, the headroom is large. So as people come into the market, they're essentially driving a conversion of tea to coffee, which of course, remember, for 20 years, we've been doing and we've got to 12 cups per capita. The numbers, by the way, significantly higher in Shanghai, but it's still much lower than a tea drinking country like Japan, which has had a history of coffee house culture over time. So the headroom is really large. If you look at what we also do with our brand, don't forget, we have these -- we proudly serve a Starbucks points of customer connection. In addition, our ready-to-drink partnership with is also growing significantly. And we're also available for coffee at home, so our brand is being built across multiple channels and the investments we're making in digital are very strong. With the investments we're making to more vertically integrate our supply chain, it gives a greater flexibility in China and also greater productivity. So I think in addition to that, your other question on productivity, as I look at what I see with regard to the opportunities we have both in the stores and out of our stores, and that, by the way, cuts across all the whole business, we have further productivity options, which just gave us confidence on margin in terms of the progressive margin improvement that we have made. So early days in China, market going to expand and further opportunities for us to get productivity.

Thank you. Your next question comes from Brian Harbour with Morgan Stanley. Please state your question, please. Thank you.

Yeah. Thank you. Good afternoon. I wanted to ask just about the point on kind of supply chain and procurement. I think you guys have been pretty clear on the labor side, what the opportunity is there, what you're doing. Could you elaborate though just more on the supply chain side and where you see the most opportunity there? How that factors into where you think margins can go?

Great. I'll take that. As I look at what we've been working on over the last six months or so, it's very clear that the investments we're making in our stores is yielding the kind of productivity that you would see, the efficiency as well as the throughput that we get. But what is interesting is if you look end to end, we have opportunities pretty much everywhere, both in terms of what we buy, how we buy it, how we flow products to stores, the services that we provide to our business, the technology investments that we're making, we have opportunities everywhere. And I think that’s part of the reason why you see we’ve added Arthur Valdez to the team. And just an example, the availability of record sandwiches went up over the course of the last quarter. And what you see as a consequence of that is the attach rates went up as a result of it. And so I think that those are just examples of the kind of improvements we’re seeing. Clearly, we’re seeing benefits, as you know, with regard to freight and the cost of it. And the ability for us to rethink how we do what we do is large. And so there is opportunity there for us in terms of bringing automation in, flowing products better, buying better and frankly, developing a supply base that can also keep up with the kind of scale and growth plans that we have.

Thank you. Your next question comes from David Palmer with Evercore ISI. Please state your question.

Thanks. I had a question on transaction growth and what you've seen in your Rewards membership. And I'm wondering if there's an insight there over time, since 2019, you've had over 80% increase in your active Rewards membership. It's 15% higher than a year ago. And you noted that transactions were up 1% in the quarter and down versus four years ago. So it looks like maybe frequency is down. Maybe the consumer is using you differently, consolidating orders, certainly bolstering the check by having more items per order. But are you seeing any sort of solves from a marketing standpoint? You have very good visibility into what your consumers are doing. You have over half of your orders, you know your consumer and you see what they're doing and the frequency they're coming. So I'm wondering about the tools you see from a consumer side versus some of the more operational stuff you've been talking about as ways to unlock growth. Thanks.

I think first of all, let me just clarify something. In your question, I think you suggested -- you made a couple of comments about our Starbucks Rewards members. Let me just give you -- let me just address that. We have more of them, so we had a 4 million growth year-over-year. It's a 15% growth. Our Starbucks Rewards members come in more frequently. So they're not coming in less frequently, they come in more frequently. They buy more after joining the program, right? And as I said, they're also choosing larger sizes as they come in. The investments we have made in marketing and what we're doing with digital, in particular, what it tells you is that we are even further increasing the pace at which we are bringing innovation and changes in terms of what we do. We have a whole list of benefits that we could bring. And we're taking up the agility in the company in terms of the investments we make, which will help us make this even bigger and stronger. So that's the way I would address your question about the Starbucks Rewards members. It's a key area of growth. The other thing you should be aware of is as we have scaled this, we have scaled this to connect, which is all our licensed stores. And I think 40% of our licensed stores today have connect, and we're seeing growth in our license business as well as a consequence of that. Finally, we're scaling this globally. You're seeing us take it to our geographic partners the Starbucks Digital Solutions. There is very strong adoption. And you see the kind of results you see, which our geographic license partners are announcing or are sharing with us. I mean, very strong results, and Starbucks Digital Solutions is extremely capable of delivering that. In China, we're seeing real growth there, too. And in fact, that is where we're making a big investment as well in digital because we see that as a way not just to strengthen our relationship but also to drive results through what we do with digital. So I think overall, this is a big area. It's a big area of focus for me. And it's part of the second big priority for us around strengthening and scaling digital. I’ll make a last comment. We have a fundamentally amazing capability called Deep Brew inside the company. It’s where we have made investments in machine learning and artificial intelligence. I think the ability for us to be at the vanguard of this and to early adopt what we do in this area furthermore, given all the innovations that are going on, and the re-platforming that’s going on just gives me greater confidence in what we do in digital. This will be a key area of growth for us.

Thank you. Your next question comes from John Ivankoe with JPMorgan. Please state your question.

Hi. Thank you. I was hoping that if you could address the biggest opportunities to kind of regrow same-store transactions versus 2019? I mean, what those -- I guess, as you see kind of the bigger opportunities to be, whether in daypart or specific type of customer. And secondly, with same-store traffic up 1%, do you feel like you are specifically addressing peak hour throughput? In other words, is the factory part of Starbucks, as you would call it, properly set up? I mean, is the engine specifically running such that you can achieve all those peak hour transactions, especially where mobile orders might be coming in at a very short amount of time. Thank you.

I think, John, thank you for the question. Let me first start with your peak question. We're doing definitely better than what we did before because of the investments that we are making, but we still have further headroom. And I think as we make more investments as we sort of further refine how we think about scheduling and staffing, how we ensure that we get the flows right in our store, we will have the ability to take that up even further. So the peak day parts are actually growing and growing really well. Now to answer your question about opportunities, there's opportunity pretty much across the board. If I look at beverage and beverage innovation, terrific, strong innovation coming, more to come. If I look at dayparts, we have opportunities in the afternoon daypart. And our Starbucks Refreshers is a way for us to attack that. And as you know, we have -- it's a big and sizable business, but it doesn't yet fully meet the full needs of what we could do in the afternoon. If I look at food attach, it’s at the highest level we’ve had, but we have the ability for us to continue to elevate and innovate in food in order for us to further grab the opportunity that we have there. Delivery is an opportunity that, as I said, it’s just early days. I mean, we’ve also built a $1 billion lag. And that’s just the U.S. If I look at China, too, it’s growing enormously. So we have a leg there too in terms of what we can do with delivery. And furthermore, I said earlier that we actually have an opportunity with regard to the net store growth in the U.S. There’s real headroom for us to also locate our stores where we see customer growth, smaller towns, different geographies. And we’re clearly looking at all of it, not just with our own stores but also with licensed stores. So John, it’s a pretty rich set of areas as I look at growth and what we could get that is available for us, and this is just North America.

Thank you. Your next question comes from Peter Saleh with BTIG. Please state your question.

Great. Thanks. I just wanted to come back to North America operating margins. Could you maybe give us a sense of some of the drivers of North America operating margins going forward, maybe in order of magnitude? Do you see a path back to, if not, exceeding pre-pandemic levels? And then I guess, within that, do you feel like the mix of drive-throughs maybe heavier on drive-throughs these days versus where you were pre-pandemic? Does that help push the operating margins back up and above pre-pandemic levels? Thank you.

Hi, Peter. This is Rachel. Thank you for the question. We've been encouraged by the performance we've seen in North America, both on the top line and on the bottom line. And year-to-date in North America, we're sitting at about 19.9% (ph) margin with about 40 basis points of expansion, and that's driven by a combination of sales leverage, pricing, the benefits from the reinvention plan showing up in productivity, which is helping to offset some of the investments we've made and we see opportunity to continue to expand margin over the long term as the benefits of the reinvention continue to amplify. And so I would look at that as really the reinvention is a significant driver of our opportunity in terms of margin expansion. Through reinvention, we're unlocking capacity to be able to serve demand that leads to sales leverage. And in addition to that, we're creating efficiency and resiliency in the middle of the business that's also supporting margin expansion. So I look at it more about what we've already seen progress today with reinvention, what we would expect to see going forward. And that leads us to solid margin expansion at the company level this year and progressive margin expansion in the future, which of course, will be driven in large part by North America.

I just want to say one thing. I think we're at the top of the hour but there are a few more questions online. And so we're going to go over and take those questions.

Thank you. And your next question comes from Sara Senatore with Bank of America. Please state your question.

Okay. Thank you. A question and then maybe a point of clarification. I know, Rachel, you talked about the high end of the 7% to 9% same-store sales guide for the full year. But there's a lot going on, still some reopening tailwinds perhaps in China. Certainly, I think in the past, you've talked about even in other markets with more travel. So kind of being at the high end of that range, I guess I'm trying to think through kind of the ability, especially insofar as the first half in the U.S. was -- looks like it will be substantially higher than the second half. So trying to just make sure I'm understanding how you're thinking about the ongoing comp. And then the question I have, Laxman, you mentioned unit growth. I think in the past, when Starbucks has accelerated unit growth, there have been periods where it's coincided with slower traffic and ultimately kind of a need to rationalize the store base or reset it. What are the guardrails in place to change that this time around to make sure the unit growth doesn't conflict with continued traffic growth in your existing stores?

Sure. Thanks, Sara. I'll take the first question around comp. And when we look at the balance of the year related to comp, we just expect the momentum in the business to continue. So when you think about in North America in this current quarter, we were encouraged by the fact that our growth in comp was a combination of transaction growth. So we saw transactions grow above prior year in every single daypart. And that was coupled with an elevated ticket. And that was a combination of not only strategic pricing but a balanced contribution from increased customization as well as record attach. That drove strong growth in the quarter that, I would say, from a revenue standpoint, we have fundamentals from a revenue perspective that are broad. And we would expect that to continue, that momentum to continue as we look at the balance of the year and going on a full year basis. So that will continue to be fueled through innovation as well as through continued growth in our digital customer rewards membership and our increasing capability around convenience, including growth in digital. So we see all of that as signs to help support the 7% to 9% comp range that we've guided on a full year basis. Now when you think about outside of North America, we'd say we expect our recovery to sustain in China, and that was through the guidance I gave around a low to mid-single-digit comp on a full year basis as well as contribution from International and the momentum we're seeing. So we think across the board, the momentum we're seeing, the recovery in China, coupled with the strong performance we're seeing in North America gives us the confidence to be able to maintain the 7% to 9% comp range on a full year basis for North America and then at the high end of the range for total company.

Sara, to your question about our store network and how we see it, I am not concerned. I mean, I think there's a very small number of stores that you would normally consider, that we would consider in the normal course of business that we would look at and say we may have a challenge with them. But there's nothing in there that concerns me. What I'm looking at more from the standpoint of net store growth are the opportunities we have to further enhance our presence in many markets where we are underpenetrated but also exposed in some of our core markets, multiple formats. I think we've referenced this before as purpose-driven formats in terms of what we can bring into markets in order to meet various needs that customers have.

Thank you. Your next question comes from Joshua Long with Stephens. Please state your question.

Great. Thank you for squeezing me in. A couple of times in your prepared commentary, you referenced somewhat would sound like to be normalizing demand within the at-home coffee channel within Channel Development. So just curious if you could unpack that a little bit. I'm just curious if you're seeing shifts within the portfolio on that side or if that's kind of an ongoing shift back into kind of retail brick-and-mortar as we get back to kind of return to office or just additionally, any sort of commentary you can provide there in terms of how you're attacking that and capturing share as the chips continue to unfold.

Right. We have very strong share in out-of-home coffee. I think we're tied for #1 so we feel good about that. At the same time, what you are seeing with the customer is the customer is becoming more on-the-go. And what you are seeing with that is if you stop looking at channels where we have products like we have with our North American coffee partnership or frankly, our stores or our licensed stores, we're clearly benefiting from more from customers on the go. So you see some of that shift take place. But at-home coffee, our shares are very strong. Go ahead, please.

But I would add that we are seeing a balance in the portfolio. So that's one of the things we're encouraged by is that while we are seeing consumer behavior shift some, we're seeing an increase in our ready-to-drink both domestically and internationally. And that's helping to support the margin expansion we saw in this quarter and the mid-40s margin that we're guiding to on a full year basis. So I would say in this case, it's the strength of the diversified portfolio that's working to our advantage.

Your next question comes from Danilo Gargiulo with Bernstein. Please state your question.

Just a question on the Siren System in the United States. How many stores have the Siren System today? And is the number on track with your internal expectations? And what kind of uplift in productivity margin is this initial rollout hinting at?

Rachel?

Yeah. From a Siren System standpoint, we're in the -- just the testing phase today. We're on track to be able to launch in conjunction with our renovations in new stores next year. And next year, we expect to be less than 10% of our stores will have the Siren System, reaching about 40% of our stores by the year 2026. And so we're encouraged by the progress we're seeing, we're seeing good results, and we do expect it will help lead to margin expansion in the future. It will be one of the many, what I'd say, equipment investments we're making as well as the investments we're making in the staffing and scheduling within our stores as well as the overall operational excellence focus that the team has. The combination of all of that in North America will lead to a more stabilized production environment, which will help drive margin expansion well into the future. And so we're encouraged by what we're seeing today and we're looking forward to furthering the launch.

Just one thing I'd add to is our pipeline of equipment innovation is very strong. And the way we manage the portfolio, the way we manage the pipeline is very strong. And if you look at some of the commitments that we have made around investments like the portable cold foam blender, it's one of the fastest rollouts in our history in terms of how it's reached all our stores. So when we have them ready, when we do the renovations, when we have new stores built in automatically, they are actually getting the Siren System. And I feel very good about the way we are managing the portfolio of investments that we are making in this area.

Your next question comes from David Tarantino with Baird. Please state your question.

Hi. Good afternoon. I have a follow-up question on the commentary related to the longer-term targets. I know we're going to get more details in November on this. But I think the comments were that you have multiple paths to deliver both the revenue and the earnings targets. And I wanted to focus in on the revenue part of that. I guess if you continue to grow at the rate you're growing from a unit growth perspective, I think you would need to maintain that comp outlook that you gave previously to get to the revenue guidance, unless I'm missing something. So I guess the question is, are you signaling that maybe the unit growth element could change and the comp element could change and you could still get there? I guess, maybe any clarification on that front would be helpful.

Great. Let me take this point on the top line. First of all, Starbucks is an iconic brand with a very strong appeal and durability. If we just look in the last year, the affinity of our brand has strengthened, right? The brand has ranged across consumer segments, across geographies, across occasions. So to your question on top line, we have a historically high number of customers who visit our stores. But it's also in many of the markets around the world, even as China recovers. We have a strong pipeline of innovation across beverage, across food and equipment, and there are even more opportunities across the world with different formats, as I mentioned earlier, with dayparts and a focus on dayparts and how we can bring more innovation, particularly on the daypart side and with new business models like delivery. We built this billion-dollar lag, and it's only now beginning operationally refocused on that and saying, how do we ensure that we continue to support that kind of delivery with an operating model that would actually help. I mentioned earlier that we have terrific capabilities in digital as well as in artificial intelligence and machine learning that we're just unleashing with even more agility in terms of how we strengthen and scale with digital. And it's not just our stores but it's also in the Connect stores, and it's at Starbucks digital solutions across the world. We have strengthened pricing capabilities. And as we make these investments, we're going to get even better in terms of revenue management, building on the great work that's already been done in terms of managing mix, in terms of managing sizing and in managing customization. We have a lobby that is further opportunity for us in terms of how we grow. So I think just in terms of that, there's real opportunity. In terms of net store growth, as I mentioned earlier, we do have even more headroom in new store builds, both in the U.S. as well as internationally. Our China number is the milestone to even get greater penetration. And some of the opportunities we see and the unit economics that we see in Asia, Europe, Latin America and Africa is real. And we have a range of formats where we can deliver this third place experience but also deliver experiential convenience powered by digital in an omnichannel way. So I look at its brand, I look at its consumer appeal, I look at its durability, I look at its strength, I look at its range, it feels very good to me that we will get to a revenue growth of 10% to 12%, and by the way, the earnings growth of 15% to 20% over time.

Your next question comes from Zack Fadem with Wells Fargo. Please state your question.

Hey. Good afternoon. So following up on the long-term algo. If your comps were to slow to a mid-single digit level for whatever reason, would you say that your 15% to 20% EPS is still on the table? And if so, could you talk about what margin and other levers that keep you confident? A – Laxman Narasimhan: So thank you for your question. As I said earlier, we see significant margin improvement opportunities at work that will come to productivity. We’ll set the appropriate details of this at a later point. But I can just tell you this, as I look at the investments we’re making in store, but importantly, what we see about the store. We have opportunities. So I feel very good about the 15% to 20% earnings growth.

Thank you. That was the last question. I will now turn the call over to Laxman Narasimhan for closing remarks.

Thank you all for joining us on this third quarter 2023 earnings call. I deeply appreciate it, and I look forward to seeing you all in November. Until then, thank you.

Thank you. This concludes today's conference. All parties may disconnect. Have a great evening.