Laxman Narasimhan
Chief Executive Officer at Starbucks
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 ticket growth was driven by pricing, customization and food attach.
Additionally, we continue to see improvements in items sold per labor hour. Operationally, we are seeing evidence that we are executing better. Barista attrition, where we are already industry-leading, has improved further by 11% year-over-year. Through scheduling and staffing improvements, we are beginning to increase the number of hours per partner in store, critical to running great stores and improving partner engagement while also improving productivity. Innovation in beverage and equipment continues to drive our business.
In fact, our cold business reached 75% of U.S. beverage sales this past quarter. As the leader in premium coffee, we are particularly encouraged to see cold espresso beverages were up 13% year-over-year. Additionally, we continue to elevate the premium coffee experience in both cold and hot. For example, the rollout of our Clover Vertica brewer continues as planned, delivering a larger variety of high-quality hot coffee, including decaffeinated on demand.
Our innovative equipment rollout remains on track, are faster and easier to use portable handheld cold form blenders continue to have an outsized impact for both the partner and customer experience. The cold foam blenders are now rolled out to all U.S. company-operated stores in time to meet the summer demand for Starbucks Refreshers' frozen beverages. The new blenders support the additional growth of cold foam, the fastest-growing customization at Starbucks. Modifiers such as cold foam now contribute to over $1 billion in revenue annually.
The Mastrena 2 espresso machines and new warming ovens are also now in all U.S. company-operated stores. Taken all together, our equipment investments that we began last year are supporting labor efficiencies, allowing us to increase capacity during our busiest day parts. These investments are both elevating the Starbucks Experience and further differentiating us from competitors. In this past quarter in North America, we once again saw our unit volume outpace pre-COVID levels by double digits with high attach rates across dayparts, the mornings as well as the afternoons.
Also, in thinking about dayparts, our Starbucks Refreshers platform, which skews to [Indecipherable] occasion has seen double-digit growth this past quarter in every daypart. With this success, we are leaning in even further with a systematic pipeline of innovation across dayparts. This includes this summer's launch of our Starbucks Refreshers frozen beverages, customization in our Oleato beverage platform as well as with our cold-pressed Cold Brew, which enters a testing phase across a few dozen stores this fourth quarter with a rollout across U.S. company-owned stores expected by the end of fiscal year 2024.
Food is also fueling growth. This past quarter, we saw all-time high food attach and sales of breakfast sandwiches. As an attached business, food drove a higher ticket in the quarter, improving volume growth and contributing to the record average weekly sales. Overall, we are excited about the significant opportunity in food as we explore new, elevated and convenient food offerings. We will share more of this in time. We also continue to grow and diversify our store portfolio. We see significant headroom for new store growth in underpenetrated areas in the U.S., including smaller cities as well as new formats in larger metros.
New stores and remodels are where we are first prioritizing our Siren System equipment rollout, and we plan to move all stores to brand-forward digital menu boards over the next couple of years to further sharpen personalization and daypart activation. We are seeing strong growth in delivery. In fact, we are close to creating a $1 billion incremental leg in our delivery business from minimal presence a few years ago. And now we are operationally setting ourselves up for this channel in major markets, starting from a position of strength. As a second strategic priority, we're looking ahead at how we will further strengthen and differentiate our leadership position in digital.
In the third quarter, we continued to grow our digital universe. Our 90-day active Starbucks Rewards customers grew to nearly 75 million globally, growing more than 25% in the quarter. This was driven by a record 90-day active user base of 31.4 million Starbucks Rewards customers in the U.S., an approximate 15% growth or 4 million new customers from the previous year. Starbucks Rewards members in the U.S. drove 57% of tender for the second consecutive quarter, up over 3 percentage points from the prior year.
In China, we hit the highest number of 90-day active users we have ever had at over 20 million Starbucks Rewards customers. This is further evidence of our brand strength, relevance and customer engagement in the market. Starbucks has had a long track record of industry-leading digital innovation. As we approach the fundamental platform transformation underway with AI, we intend to invest to lead in this area using a foundational Deep Brew capability as the launching pad. Our focus in these investments will remain on improving the partner experience while elevating the customer experience and delivering productivity gains.
We are revamping our approach to further accelerate digital innovation, including order, including payment and delivery enhancements, in terms of speed and personalization, which we believe leads to greater habituation by our customers. This includes developments in the U.S. mobile app user experience as well. Additionally, we plan to make significant investments in China to further enhance our digital capabilities in the market.
Our third priority is global growth. As a company with over 100 million customer occasions each week, more than 37,000 stores and operating in 86 markets around the world, the runway for global growth is limitless. For the quarter, we again saw double-digit top line growth across the International segment. The segment delivered record system sales for the second consecutive quarter as well as the highest revenue and operating margin since the fourth quarter of fiscal year 2021.
Excluding the negative impact of foreign exchange, we continue to see double-digit growth in the company-owned markets of Japan and the U.K., while the geographic license partners across the rest of the world all reported very strong performance. Our international store growth was 10% year-over-year. New stores are bringing attractive unit economics for the business while we benefit from strong growth in returns on invested capital in these markets.
Turning to China. I am encouraged by our performance in the quarter. I had the opportunity to spend time in the market recently. I can now fully appreciate the extraordinary strength and resilience of the Starbucks brand, which is known as Xing ba ke. Looking at our third quarter results, our China revenue grew 51% from the prior year or up 60% when excluding a 9% impact of foreign currency translation. Additionally, we sequentially grew our revenue 8% from the prior quarter or up 10% when excluding a 2% impact of foreign currency translation, underscoring the robust long-term health of our business. Despite these early days in our recovery journey, stores that opened in fiscal year 2019 or earlier achieved full sales recovery in the routine morning daypart while other dayparts reported sequential monthly improvement.
A strong recovery in the third quarter was amplified by the many distinctive competitive advantage that set us apart in China. The first and foremost advantages are in comparable partners who honor the heritage of our company, bring sophisticated appreciation for our high-quality coffee and passion for delivering the Starbucks Experience in ways that are relevant to our Chinese customers. Our second advantage is our vertically integrated operations. We start with a locally relevant and increasingly greener store footprint. Our distinctively designed stores across formats celebrate the Chinese culture in a unique Xing ba ke manner, reflecting local arts, crafts and calligraphy.
In the fall, we plan to open our Coffee Innovation Park, our single largest and most sustainable manufacturing investment outside of the U.S. This next-generation facility with state-of-the-art supply chain operations will also include a unique customer immersion center.
Third, our locally relevant innovation in China for over 20 years has won over customers in what has historically been a tea-drinking culture. Today, we have nearly 6,500 stores and another nearly 2,400 points of customer connection through our We Proudly Serve program in China. And yet, there is so much more opportunity ahead in underpenetrated areas within this market. Some growth facts to think about. The average person in China drinks 12 cups of coffee each year. That significantly lower coffee consumption than in Tier 1 cities like Shanghai, where we first entered the market and now have nearly 1,100 stores. And we still have more room to grow in Shanghai. Compare this also to Japan where our per capita is 200 cups versus the 12 cups in China and the U.S., where the per capita is closer to 380. We are still in our early days in China, one of the largest consumer markets.
With our locally based investments in R&D and locally relevant offerings like our Dragon dumplings, which had an amazing quarter. We have built a brand that is highly relevant for China, in China. And we believe our unique approach has us well positioned to play the long game and win.
Finally, another advantage in China is digital. This will be further demonstrated with highly digital supply chains we run and in the way we engage our customers. We are reshaping our business models, leaning into the remarkable loyalty of our Starbucks Rewards members as well as convenience offerings, including delivery and curbside for our On-The-Go business.
A comment on our international business beyond the U.S. and China. We have seen very strong growth and strong unit economics in these markets. It is becoming an important third leg for us. Looking outside the stores in the third quarter, our Channel Development segment revenue was $449 million, down 6% year-over-year, while delivering operating margin of 46.3%, up 630 basis points year-over-year, reflecting SKU rationalization as well as the shifts taking place with a more on-the-go customer. We continue to see the opportunity for growth in channel-through innovation, as evidenced by the highly successful ready-to-drink Starbucks Pink Drink and Starbucks Paradise Drink introduced last quarter and the Grab and Go series launched in Japan in partnership with Suntory. We saw unprecedented sales during the first month of the launch in Japan, just as we did with our cream cheese lattes in China.
Our fourth strategic priority is fueling productivity. We think of our business as a theater in the front and a factory in the back. We have a clear opportunity to maximize efficiencies and effectiveness while reducing waste by focusing on a vast opportunity in stores and also above stores. We have focused on meaningful improvements in staffing and scheduling to ensure that we have the right combination of the right partners in the right roles with the right hours to fuel both engagement and productivity. We also closed the third quarter on target with our waste reduction goals as we strive to make operations as efficient as possible while preserving the Starbucks Experience.
This is just the beginning of the productivity journey at Starbucks. We have broadened the areas beyond our initial reinvention plan to include our end-to-end supply chain, direct and indirect procurement, how we design and build stores as well as opportunities across technology and our supporting processes. Arthur Valdez, Jr., who joined us recently as the Chief Supply Chain Officer, brings three decades of supply chain and logistics leadership to Starbucks and will be critical in these efforts. Along with sales leverage, what I could see in opportunities with future productivity gains gives me real confidence in long-term progressive margin expansion.
Finally, the DNA of Starbucks is nothing without our culture. This is inherent to the company and something I was quick to learn through my immersion and experience working in stores. Our fifth strategic priority is reinvigorating our culture of human connection. We will measure our success on our business performance through the lens of humanity, just as we always have. And that requires us to reinvigorate our culture. Our partners are the heart of our business for me. We will continue to invest in the overall partner experience through compensation and benefits as well as through in-store improvements.
At Starbucks, we strive to be a different kind of company, but we do recognize that we are operating in a different kind of world. It is through that lens we have spent the last several months rolling out a new unifying mission for the company, new promises for all our stakeholders and soon, a new set of values that will reground the culture of Starbucks in our heritage and a more modernized workplace.
Before I turn the call over to Rachel, I want to leave you with this. It is an honor to be driving such a stellar branded company in one of its best chapters. While we continue to navigate in an environment with a heightened level of macro uncertainty around the world, we will execute with discipline and rigor on our priorities. After all, Starbucks is a strong, resilient brand delivering to customers what the world needs most right now, human connection.
As I look at the runway in front of us, the possibilities to deliver that connection are truly limitless. What I see is a durable iconic business with multiple paths available for us to deliver on our long-term revenue growth of 10% to 12% and earnings growth of 15% to 20%. I look forward to discussing our strategies and plans for fiscal year 2024 and beyond in greater detail in November in an extended investor call organized in a hybrid media format. We would share more details in the coming weeks.
And with that, I'll now turn the call over to Rachel to talk more about our remarkable third quarter financial performance of the quarter. Rachel?
