Laxman Narasimhan
Chief Executive Officer at Starbucks
Thank you, Tiffany, and thank you for joining us this afternoon. Let me start by laying out our results for this quarter. Our Q3 total company revenue was $9.1 billion, up 1% year-over-year and 6% over Q2. Our global comparable store sales declined 3% year-over-year, driven by a negative 2% comp growth in North America and a negative 14% comp growth in China and partially offset by strong performance in Japan.
Our global operating margins contracted by 70 basis points to 16.7% and overall earnings per share for the quarter was $0.93. Our total company results were in line with guidance, but international performance, particularly in China, was challenged. We are not satisfied with the results, but our actions are making an impact. Leading business and operational indicators are trending in the right direction ahead of our financial results, and our runway for improvement is long.
We see green shoots in our U.S. business driven by the three-part action plan outlined last quarter: first, meet and unlock capacity for new demand through a relentless focus and improvements to our U.S. store operations and on elevating the experience we create for our partners and customers; second, attract new customers and drive transaction growth by launching and integrating more exciting new products with relevant marketing while maintaining our focus on core coffee forward offerings; and third, reach new customers and demonstrate our value by making sure customers believe the Starbucks Experience is worth it every time.
First, our largest opportunity, meet and unlock capacity for new demand. A relentless focus on improving operational execution across our nearly 10,000 U.S. company-operated stores is the cornerstone of our near-term plan. While it is early days of progress, our plan is working. If you walk away from today's call with one thought, let it be the significant changes and long-term upside potential taking place within our U.S. stores and across our end-to-end supply chain to unlock growth, enhance the customer experience and drive cost efficiencies.
Within our stores, we've seen material positive momentum across core store health and performance metrics with notable improvements in partner scheduling and turnover, critical store issues and inventory management. Stores ranked in our top 2 operational performance quartiles reached a new high during the quarter, a 28% upwards shift from Q2, but we have more opportunity.
Our focus on operational excellence driven by our reinvention plan has led to a multi-second year-over-year improvement in out of the window times. The nearly 50% reduction in calls received by a customer contact center for, "My order took too long," and Mobile Order & Pay and delivery uptime rates of 99%, these are key indicators of our work to drive growth by addressing customer wait times, product availability and the customer experience.
This quarter, we also introduced Phase 1 of our Siren Craft Systems, which includes several process and partner-driven enhancements to our U.S. store operations. Changes include a new Peak time Play Caller role, strategic investments in partner hours, training, new routines, simple enhancements to technology and an evolved beverage build process.
Early deployment across 1,200 stores demonstrated a material incremental improvement across key performance, throughput, efficiency and reliability metrics. Encouraged by this, we fully deployed Siren Craft Systems process improvements across our entire portfolio of U.S. company-operated stores this week.
Later this quarter, we will begin rolling out a simple refit to our espresso machines, which we expect to improve espresso throughput by up to 15% without compromising quality. And with a minor software change in our store production systems, we have a similar ability to improve food throughput. When paired with Siren System equipment announced as part of our reinvention plan, these new processes become a force multiplier that we expect to drive a true step change improvement. Early assessments demonstrate the capability to drive a 10- to 20-second wait time reduction and a resulting comp opportunity range of 1% to 1.5%.
Leveraging our Deep Brew analytics platform, we have identified customer experience outlier stores, approximately 10% of our network and have developed targeted plans to address and improve them, including accelerated Siren System deployment. Similarly, we are accelerating the pace of our new store builds and renovations with 580 net new builds and more than 800 renovations planned in North America for FY 2024.
Store development efforts are focused on Tier 2 and Tier 3 cities where we see population growth and forecast both underserved demand and high incrementality. Increasingly, these new store builds and renovations also include Siren System equipment. In line with prior guidance, we remain on track to deploy equipment in less than 10% of company-operated stores by the end of FY 2024 and about 40% by the end of FY 2026.
Building on our pilot, Starbucks and Gopuff have agreed to terms for an expanded relationship to open 100 delivery-only kitchens across the U.S. We're also accelerating the rollout of digital storyboards with target deployment across most U.S. stores in the next two years, a year earlier than originally anticipated.
Lastly, we're working on other ways to enhance the cafe experience. This includes new and expanded seating options that elevate many stores while upholding a safe and inviting place for partners and customers. A key outcome of our operational efforts has been material and sustained improvements to the partner experience. Driven by precision partner-centric staffing and scheduling efforts, we ended the quarter with a new post-pandemic low partner turnover rate, the best shift completion rate in two years and a 13% improvement in average hours per partner, now the highest on record. These initiatives create more stability in our stores, provide more predictability for our partners and sustain our experience flywheel.
Looking beyond our stores, we continue to realize new efficiencies, cost savings and performance improvements across our end-to-end supply chain, thanks to strong support from our suppliers, and we see even more headroom. We have a structured process to realize significant continued improvements across our end-to-end supply chain. We are ahead of plan on productivity. We expect our productivity to drive efficiency and unlock capital from areas that don't touch the customer. In turn, these savings will enable us to target investments that drive value for our customers beginning later in Q4, reigniting our North America flywheel for growth. We're early days on this journey, building both our strategic sourcing and revenue management capabilities.
Our second priority is to drive demand through relevant product innovation of coffee at our core. We've seen meaningful improvement here as well. This quarter, we drove traffic into our stores through an engaging and innovative pipeline of products supported by integrated marketing campaigns.
Core share was up 1% year-over-year, representing 76% of our beverage mix through the quarter. Our newly formulated iced coffee received positive feedback. Our strength in cold espresso innovation continued to drive the platform's growth, up 4% year-over-year. And we launched Starbucks Milano Duetto whole bean coffee in Milan ahead of a global launch this October.
Beyond coffee, our new Summer-Berry Starbucks Refreshers, beverages with pearls, drove the highest week one product launch in our history. Their success buoyed the entire Starbucks Refreshers beverage platform to an all-time high during the quarter. As mentioned in Q2, we continue to build out our 24-month product pipeline while accelerating our pace of innovation. For example, recognized the growing appeal and opportunity created by the energy category, we launched the new handcrafted iced energy beverages across our U.S. stores in just three months compared to a normal 12 to 18.
Looking forward, we believe our Q4 product offerings, including the return of Pumpkin Spice, combined with supporting marketing activities and offers, provides the right formula to drive customer interest, demand and deeper engagement with both new and existing customers.
Our third and final near-term priority is to reach new customers and demonstrate the value we offer by ensuring the Starbucks Experience is worth it every time. Recognizing the premium position of our brand, we've been measured in our use of offers. During this quarter, only 14% of our transactions were driven by offers compared to a competitor average of 29%. And of offer-driven transactions, 10% was star-based offers targeted to Starbucks Rewards members. Only 4% were driven by price-based offers.
Our best offers are in the app. Together, offers and other integrated marketing activities, when paired with exciting product innovation, successfully grew Starbucks Rewards membership, reactivated many lapsed Rewards members, and drove customer traffic on promotional days and product launch weeks. Active U.S. Starbucks Rewards members grew to 33.8 million during the quarter. Members across every decile increased the frequency of their visits. We're focused on the continued growth of the program because the average active member spends materially more annually and drives a higher lifetime value for the business than a nonmember.
Research also tells us that the most inactive Starbucks Rewards members don't realize they've lapsed. This demonstrates a continued opportunity to drive return visits, active member growth and deeper customer loyalty. Looking forward, we will continue to use more targeted offers coupled with select pricing actions, funded by efficiency initiatives to drive traffic and conversion. We plan to leverage a mix of paid media, acquisition and retention offers, disruptive signage and partner education to drive transactions and increase the frequency of visits with a focus on product launches and continued Starbucks Rewards member growth.
It's worth remembering the ubiquity of the Starbucks brand and our ability to intercept customers. For instance, our business is up 13% in airports and up 9% in hotels. Pointing to these trends, leveraging our brand and our ability to intercept customers while demonstrating value not just in price but through a premium experience remains a sizable opportunity across our entire store portfolio.
Moving on to digital. As part of our action plan, we made continued improvements to our Starbucks app, including wait time algorithm enhancements that have improved order ready accuracy by nearly 50 percentage points. This combined with in-app offers helps drive a 10% year-over-year growth in Mobile Order & Pay revenue and a 7% year-over-year increase in MOP transactions.
Looking deeper, our data shows that 1 in 4 non-Starbucks Rewards members want the ability to use Mobile Order, Pay. Nearly 80% of those customers don't want to join a rewards program or create an account to do it. In response, we opened MOP for all to provide those customers the convenience they seek while removing perceived barriers to entry.
We believe these enhancements to the digital experience, coupled with more effortless ordering, will continue to drive Starbucks Rewards membership over time with customers increasing frequency and spend. Once customers are in our digital ecosystem, they're more likely to remain engaged across channels and drive greater lifetime value.
In summary, our plans are beginning to work. We're recovering our brand from misperceptions. We're rebuilding the operational foundation of our stores and supply chain. We're reducing costs to support investments. We're sustaining partner experience improvements, and we're working to make the Starbucks Experience worth it every time. While it's early days, I'm confident in the trajectory of our U.S. business and the operational improvements we're making, and I'm reassured by the impact our work is expected to deliver in FY 2025 and beyond.
Looking outside the U.S., we continue to see weakness in parts of our international business and strength in others. Headwinds persist in the Middle East, Southeast Asia, parts of Europe, driven by widely discussed misperceptions about our brand. In some European markets, consumers are stretched. At the same time, we see significant strength in markets like Japan and parts of Latin America.
China is one of our most notable international challenges and an area I'd like to talk about in more detail. The competitive market dynamics in China are reflected in our recent results. We've continued to face a more cautious consumer spending and intensified competition. In the past year, unprecedented store expansion and a mass segment price war at the expense of comp and profitability have also caused significant disruptions to the operating environment. Still, we have made progress in important areas.
Through Q3, metrics like average daily transactions, weekly sales and operating margin improved sequentially quarter-over-quarter. Starbucks Rewards members grew by 1.6 million to a record-high 22 million active members. And customer connection scores reached a new high, while partner turnover reached a new low.
We've built an amazing business in China over the past 25 years, a business for China built by an outstanding local team. We've pioneered the growth of the premium coffee industry in market with our Starbucks and Starbucks Reserve brands, and brand equity remains distinctive.
We are incredibly committed and expert partners with an unmatched depth in coffee and craft. Our stores are distinctive and industry leading, and our supply chain is world class. New stores have expanded our presence to more than 900 county cities and continue to drive exceptional cash-on-cash returns and a payback of less than two years. We're looking beyond near-term challenges and towards long-term opportunities in the market.
We built Starbucks in China around 3 principles. A great customer experience is grounded in a great partner experience. Our coffee will always be distinctive and high quality, with low penetration relative to other markets, which provides continued headroom. Our beautiful stores will celebrate the culture and traditions of China and their local communities. Even in a challenging market, we have stayed true to these principles and our relative premium positioning. This is reflective in the competitive margins we have sustained in the face of price competition.
Over the past 25 years, we've gone through different phases of growth in China and have relied on different strategic partnerships to grow our business and capabilities, like joint ventures and strategic partnerships in technology, real estate and supply chain. As we look forward, we see higher growth and margin opportunities in China. We're building the next generation of Starbucks grounded in our premium brands and with a business that is even more digital innovative and locally relevant.
To do so, as our strategy evolves, we are in the early stages of exploring strategic partnerships to further enhance our competitive position to accelerate growth and innovate to win in the long term in China. We remain completely committed to our business and our partners in China for the next 25 years and beyond. The long-term opportunity for us is significant.
Before I close, I would like to confirm that Elliott Management is a shareholder in our company, and our conversations to date have been constructive.
On the business, my continued confidence is rooted in the focus, energy and effort of our partners across the business and around the globe. Our growing culture focused innovation and relentless execution continues to enhance our capabilities, operational muscle and executional discipline, driving forward our action plan and our long-term Triple Shot strategy while helping return the business to sustainable algorithmic growth.
And with that, I'll turn this over to Rachel.
