Starbucks Corporation (SBUX) Earnings Call Transcript & Summary

Thank you, everyone. I'm Brian Harbour. I'm the restaurant and foodservice distribution analyst in Morgan Stanley. First of all, it's a joint forum here. So I just wanted to thank everyone for being here. It means a lot. And just a couple of stats. Sorry if this sounds like an earnings call. But since 2019, we have 30% more investors here. We have 30% more companies, 65% more meetings compared to our 2019 conference. So thank you all for making it so successful. And thanks especially to the team behind the scenes that's organized all of this. And now, I'm very excited -- we're excited to have Starbucks here, the new CEO, relatively new CEO, Laxman Narasimhan.

You pronounced that really well.

I had some coaching, so thank you. And Starbucks certainly needs no introduction. So actually, if you have any opening comments, I'll turn it over to you.

Well, first of all, I don't see a drink and this is our holiday.

Next year, we'll have Starbucks coffee.

Well, first of all, thank you all for being here. Starbucks as a company is a very strong brand. We're focused on human connection. And I think the need for human connection is even more relevant today than it ever was. I've just come out last night of launching our values across our entire company. In fact, it's been a 9-month process of us landing the mission, the promises and the values. And I joined Starbucks because at the heart of it, it's a giving company. If you look at our -- if you just look at our promises, our promises say that for our partners, we bridge to a better future. For our customers, we uplift the every day. For the farmers, we ensure the future of coffee for all. For the communities, we contribute positively. For the environment, at our best, we give more than we take. And what that leads to, at the end of it is, for our shareholders, it's results and enduring long-term returns for our shareholders. I've worked in stores in many, many countries around the world. And particularly, as you see the environment right now, I have had an international career over 30 years where, you work across the public sector, the private sector, and the social sector, and it's clearly quite an intense environment out there and the headwinds in what you see there are actually quite large. And we, as a company, are a company that is a -- we are against violence of any kind, everywhere and all the time. And we're clearly pro joy and pro belonging, which were 2 of the values we talked about as a company. We talked about craft, coffee and what we bring, results, courage, belonging and joy. And I think it needs to be said at this moment in time because there's no question that what you see out there, the geopolitical challenges, are large. There are clearly headwinds out there. And just as an example, what you see in areas of conflict with our business in some of those places. Additionally, what you see as a context is, and you've read this to the press and everywhere else and everything that's going on, is we're operating in an environment where the U.S. consumer is slowing. And despite all those different headwinds, if you think about what we stood for and what we talked about a month and a week or so ago about our strategy, which is the Triple Shot Reinvention with the 2 pumps, it's an extremely relevant strategy for the long term. So it will help us in the long term really realize a large amount of value for our shareholders, for our partners, for our customers, as well as for the communities in question.

Okay. Great. One thing I just wanted to address upfront. You created a new committee on your Board. Could you maybe talk about the impetus for that and how we should think about that?

Well, first of all, I think as I've joined the company, governance is obviously front and center on our minds and we think long and hard about it. And the Board, Mellody Hobson, our Chair; Jorgen Vig Knudstorp, who is the head of the Nomination Committee; and I have been working very intensively on how we ensure that we make Starbucks, and we continue to make Starbucks, a paragon for governance going forward. And so in this world that we're in, there are a bunch of commitments that we've made, be it to the environment, be it to the partners, be it to the communities that we live and work in. And if you look at what's coming with regard to the changes taking place in regulations in places like Europe, for example, particularly on climate, if you look at the assessments that we've been doing internally on us as a company, we felt it was appropriate to actually put a committee together that would actually oversee what we do in this entire space of environment, partners, as well as of the community and the community impact that we have. And so in our meetings in July and even in September, we agreed that we would actually put this committee together, which we announced just some time ago. We have Beth Ford leading it. Beth, as you know, is the CEO of Land O'Lakes. And she comes -- she's obviously a uniquely capable and qualified person. She provides the oversight for the community -- for the committee. And what she does, along with a nomination committee and a chair provides us the ability to ensure that we're living up to the commitments that we have made. And so I feel good about it actually. And it's going to continue to step up in governance of the company.

Okay. What surprised you most when you joined Starbucks?

The amount of coffee knowledge people had. It intimidated me actually because it was a -- it's very, very deep inside the culture of the company. But on a more sort of serious note, what surprised me most about the place was actually how partner-centered the company actually is, the strength of the brand and what it really meant. And I think if I think a little bit about the commitment that we have made over time, the ability to appeal for this brand globally is actually really quite large. And things changed on Starbucks over the course of COVID. COVID was tough on the company. And I think as we came out of it, we recovered from it, it was clear that with the right level of investment and with a focus strategically as to where we would go, we would have the ability to truly capture those limitless potential. So what surprised me in a very positive manner was what you have to work with, the strength of the partners, the strength of the management team, the base from which the business is starting, the international presence. But even though we were international, we were frankly not fully tapped, let alone -- especially in the U.S. If I look at what's going on in the South or the Southeast and our businesses in many of these places, Tier 2, Tier 3 towns, the potential for this brand is actually really quite large. And so I think that if I look at food, it's an opportunity. It's an attached business to beverage, still play. If you look at the merchandise in the stores, opportunity. If I look at Starbucks Reserve over time, an opportunity. So there's many things, the digital piece of the business, which I know surely you want to talk about. It's really untapped in terms of the full play that we have. So I think there are several elements of this business that actually have a bigger play, and that is at the heart of the Triple Shot Reinvention with the 2 pumps. Productivity, by the way, is the other one that we'll touch on.

Don't worry, we'll get to it.

I'm sure.

One more general question, I think. Your U.S. business did quite well in fiscal '23, You're still driving traffic growth. What do you think is kind of behind that, right? Do you also think perhaps there's just less likelihood for people to trade down to at-home coffee? What do you think has continued to drive that strong performance?

I think first of all, if they do want at-home coffee, we are the #1 brand there. So we have presence there, with the business there. So coffee clearly is there. I think if you look at the U.S. business, what you now have is a business that, through COVID, has evolved enormously. I mean it's got a digital footprint that is much larger than it was. There's a delivery business which didn't exist. And I think we're just tapping the surface of it. If you just look at the different occasions when our stores aren't open and the demand that we have, and we know this through things that we've looked at and pilots that we run, there is, in fact, further potential which we haven't fully tapped into. If you look at the afternoons, we still have play there. But we now have a business that actually is digital. The mornings are obviously the heart of the business. The afternoon is still a play. We still have geographical penetration in the U.S. that could be large. But we have a strength with our loyals, with our people who are on the app. We have 33 million people now, and it's growing every year. But when we see frequency going up -- we have a large number of people we have access to that are not in the 33 million that we haven't fully tapped into. But at the core of it is innovation, product, what is it that people come into the store for, customization at the heart of who we are, the experience that they get in the stores, and what that's about. And if you take all that into account and what the brand stands for, the ability for us to deliver consistent quality mostly -- and I've realized that sometimes it doesn't really happen. Our ability to do all of that makes us very distinctive in this world. And so that's what I believe is actually going on in the U.S. business and contributed to the kind of performance that we saw last year, where if you ignore the effects of foreign currency last year, the FY 2023, we grew at 14%.

Yes. Let's talk about product innovation a bit. I think one thing you mentioned quite a bit last month was PM daypart opportunity. So maybe talk about what kind of opportunity you see there, what we should look forward to in the next couple of years on the PM daypart.

So if you just look at our business and on the beverage side, it has shifted heavily to cold. But what we're seeing in the PM daypart is there's even more potential. And it's going to be innovation that is going to be highly targeted that we bring in. We already have the footprint. There'll be a lot of people who say we're targeting the PM footprint. But we actually have stores and we have the ability and the capacity to be able to do it, including the innovation. So on the beverage side, it's really quite large. Possibilities are real. But in addition to that, we have a food attach opportunity. I mean this breakfast business, which I think we went into reluctantly many years ago, right, all of a sudden, it's a huge business. And we're selling a lot. What we see from our customers is they would like all-day breakfast. They would like all-day snacking. They would like to find a way to attach our food to the beverages they buy. And particularly as you think of drive-throughs and you look at what's going on with Mobile Order & Pay, it's much easier to customer attach what we have. So I think there's a real play in the afternoon that we haven't fully tapped into yet, and that's going to require innovation. It's going to require digital. It's going to require customization. It's going to require attach. And we have the capacity and the ability to do it. It's an area for us that will be a big growth opportunity for us going forward, too.

Do you have a different view of food than some of your predecessors? Because I think that's kind of ebbed and flowed over the years at Starbucks. What do you think about kind of the food opportunity?

I think, first of all, I think it's different. I think the customer has changed. As you think a little bit about the customer going through Mobile Order & Pay or through drive-through, we're seeing attach rates that are quite high. I think in the U.S., it's 2 of 5 that are attaching. But it's not 3 of 5, which, again, would just fundamentally change just the size of that business. I mean, it's already a $6 billion business growing enormously, right? And the opportunity, though, is for us, and particularly as you bring in tools like the warming ovens that are more evolved and what we do with Siren System and how we think about things that we bring in, I think you have the ability to actually create an experience there, too. That's also more elevated. So the innovation, coupled with what we're bringing in, in terms of the physical footprint, coupled with what we have for digital as well as drive-throughs and delivery, that is actually adding to the nature of this business. And it will always be an attach business for us. We're always beverage first.

I was actually somewhat surprised by the stat that I think you gave. 85% of beverage sales are core products, 15% are seasonal/new. Has that always been the case? Do you think that will change over time?

Yes. I think it's a question of how you think about what core is. So what is interesting about this that you take a core espresso and then you have things that you're innovating, particularly with customization -- customization business is really quite large. So think of it as a landscape on which you're painting or a canvas on which you're painting. And I think customization keeps our core at 85%. And obviously, the strength of core is really quite important. And what we do with the others, the other 15%, is we're bringing people in with things that are exciting. And so you will see us continue to do that. But customization -- just today, we've just launched 4 new winter foams, cold foams that you can use for customization. You will see more there in the way that we help people have core but also bring a twist to the core. And then, of course, you have new products and you have LTOs and so on that we bring people in. So it has been so. But if you look at hot coffee, which is, again, part of our core, the fact that we're rolling out the Clover Vertica is going to mean a much higher quality coffee that is delivered on demand. And that's going to make the core hot coffee better as well. It's still an opportunity for us.

Great. Yes, makes sense. Maybe let's talk about digital a bit. I mean, clearly, you have a very impressive digital business, right? I go into my local Starbucks and it's clearly quite highly used, right? What -- and you want to double it. So what's going to drive that? What's key to that? Do you think -- you talked about some of these partnerships. What else?

Look, we're on a track, even if you just look at the current run rates. If we just sustain that, you get very close to that. So we're starting from a great base. Secondly, we're actually really changing the metabolic rate inside the company around digital and digital innovation. We're into literally 30-, 60-, 90-day releases. The team has meetings with me in every 6 weeks. And we look back and say, what do we say, we achieved 30 days, 60 days, 90 days? Where are we at now? What's coming in the pipeline, 30, 60, 90? And so there's a metabolic rate in the way the team is working together, that is actually much faster in terms of the innovation that's coming. Some of the stuff you will see and some of the stuff is actually behind the scenes in terms of making a much better recommendation if you're out of stock on something, as an example. What's going to drive it is, first of all, just -- we have a huge universe that we're already in touch with. I think in the Investor Day, we talked about if we take globally at 75 million members of the Starbucks Rewards, we have some kind of a digital relationship with over 300 million people, so the base exists. Then it's a question of how you ensure that you make offers that makes them attracted to come in. How you ensure that you deliver conveniently, it's the business model and how we evolve it, mobile order pickup as an example. It gets them get into the level of customization that you're bringing in and then potentially what you do with loyalty, particularly with Starbucks Rewards. And I think this is the where this partnership fits in. We've already got a partnership with Delta, and you see what happens. If you look at the week of Thanksgiving and the travel data that existed then, that week, the partnership with Delta obviously meant that there were specific offers to people who are traveling that week as one example. We're going to announce 2 more, one with a hospitality company and the other with another financial institution, that will actually give us further connectivity and base and actually increases value to our loyals in terms of the benefit that we provide them. There are digital businesses that we're incubating even on top of all of this that would actually help us further scale what we do there outside the store. Different profit pools that are available. I won't get into all the details on that, but all this actually tells you that there's a digital opportunity that is actually quite significant. It drives business into the stores, it makes people shop there more frequently, but it also gives us the ability to add more to what they do. That's at the heart of what we're doing. And now in order to do that, we're -- and you heard in the investor forum that we had, we're working on technology and how we rearchitect that. Clearly, the partnerships with some of the leading providers in this space -- we mentioned the partnership with Microsoft and GenAI, the work we're doing with Apple products on how we ensure we bring that into the partner experience, as well as the work we're doing with Apple on -- sorry, with Amazon on payment. All these things put together actually tells you this is a brand that people want to partner with and actually bring to life in a way that we can actually fully capture the digital opportunity as a company.

And I think some of that also plays into just personalization. So how do some of those partnerships and what you're doing today kind of help with personalization specifically?

First of all, the business is set up for customization, which is actually at the heart of personalization in a physical sense. And that's going to get even more amplified as we think a little bit about what is going on with regard to -- with GenAI coming in and how we sort of make all that work. We are still in a journey of how we learn more and more about individual customers. I mean, there's still work to be done. And I think what it does for us is -- we're clearly ahead. We built Deep Brew, which is our platform, artificial intelligence and machine learning platform, which we built for 5 years, quite forward, by the way, to think about when it was done. And not only do you see this tech change, the architectural change that's coming, the work for us now is to how we then take that across all the data that we have, our partners as well as our customers. And how do we put together pictures that actually give us even more on what's going on with individual customers? So that's the personalization journey we'll go into, which actually helps you come up with products that you could customize for yourself and make it easier to make. Offers that actually will make you even more loyal and you realize more value from Starbucks Rewards, that's the journey we're on.

Okay. Makes sense. Maybe let's talk a little bit about just store operations and efficiency. What do you think has actually been most impactful so far in the past year? And then what do you think will be most important in '24?

I think if you look at the work in Reinvention, which make complete sense to me when I came. Actually, when I joined, we went through the entire program and the efforts all made sense to me. And I think you see that in the results from last year just around the progress we've made with just Reinvention. We've invested something like $9 billion over the last few years with a combination of things that we put into stores as well as a partner experience. Almost 1/3 of that is into the partners themselves, which is about 20% of the profit that we generate has actually gone into that, which has been a very good set of investments that we have made. And I think what you've seen there is, we have been able to put in the stores some equipment that has been very helpful. Portable Cold Foam blenders, as an example, help us with the customization of some of the foams. And we did it just before the summer holiday. So it actually played itself all the way through. What's coming though is -- what has been being built is if you look at waste, we attacked waste quite systematically. There's $90 million of waste savings that we delivered just last year. There's more to come with that. But that was very powerful and good. But really, the big thing was what we did with staffing and scheduling. It was very clear to me working in the stores that we could do better there, how we match demand with supply, how we get more personalized in terms of what the partners want. We're not fully there yet. But if you just look at what we've been able to do, if I go back to 2020 to where we are now, right, essentially, the take-home compensation has gone up for the partners by 50%. And we think by 2025, it's going to, in effect, from 2020, be double. Hours are a very big part of this. And the way we work it is actually quite important. There's a lot more stability, operational stability, in the stores. You see tenure year go up. it's almost up by a year, which is a lot for us. And so staffing and scheduling has been a big area of work. We're not fully there yet and there's more to come. And what we are doing is -- I mean the level of math, the level of technology that's going into it, I mean we have a large number of shifts around our network. And you got people who want to work for 20 hours, someone wants to work for 30. So we actually -- it's a very complex set of teams working really hard on how we unpack all that. So there's more to come. Looking ahead, actually, we should look above the store. Of the $3 billion productivity program that we touched on, 70% of it is outside the store. I ran the supply chain for 6 months, along with running stores. Rachel gives me no credit for that. I just want to point out. But by the way -- but I was actually running the supply chain. And by the way, attach rates went up. And in-stock went up, just so you know. In any event -- and we obviously got great talent in there. But why did I do that? Part of it was to really elevate that in the company. If I think about innovation and what we can do, lots of great ideas on what we do with tech and innovation, product has to be available. And so -- but we can buy better. We can flow better. We can store better and there's really work going in there. And what is interesting in all that is we've actually put in place a muscle in the company on productivity. That is, in fact, the engine of what's going to keep driving this going forward. And it's at the base of what we call progressive margin expansion over time. So today, there's a language inside the company around where we had an idea, who's managing the pipeline, how do we go. There's a review every 30 days on it to say how are we making progress versus not. And frankly, I feel very good about the traction of the programs we're getting.

It sounds like a store with all the new equipment that you've talked about -- are you running that with fewer labor hours? Are you able to quantify that at all?

I don't think the focus is to run it with fewer labor hours. The focus is to optimize the labor hours to meet greater demand. So it's a throughput question. I mean there's no question that I know and we know this, that if I look at bulk rates, so what we have, what we call couch ball, people sitting at home, in a drive-thru coming into the store or looking the line and saying, you know what, I'm not going to do this. We clearly have that. And we're working to make it better.

If the vast majority of stores would you say is throughput still a pretty widespread limitation in your view?

I don't think it's all the stores, but I think it's in many stores.

Okay. Okay, makes sense. Just on sort about -- this is maybe a dumb question. Why is the third place model still important, right, given you're mostly an off-premise business today?

Well, just think of it, right? I mean let's look at what's going on today, right? There are people who are looking to find ways to connect. And they do come into our stores, by the way. They do come into our stores. And despite all the misinformation and despite all the overhyping that is going on, people still come in. They want a place where they can have a warm connection, a conversation, frankly, get product and leave. I understand fully your point around saying there are several people who are -- who have moved their behavior into more drive-throughs or online. But the third place actually has quite a relevance, both physically but increasingly also digitally. And I keep using the story of my time at working in the stores in Beverly in the south of Chicago with a woman who was in the drive-thru at 7 in the morning on Monday. And I remember opening the window to deliver the customized hot coffee that she had wanted. And the window rolled down and the woman was half made up and had the makeup there. And she looked at me with a combination of anxiety, but also relief to see what she was getting. And I just said, I hope you had a great weekend. And I hope you have a great day at work. That moment mattered because I was probably the first person she was talking to all weekend. And so I think we cannot really take away from this idea that there is a point of human connection. And that's what this brand is about. That's why the values we have, the mission we have, the purpose of the brand is big in this. But digitally, we're able to do it, too, with what we do with Mobile Order & Pay and others, the messages that you get and so on. We haven't fully tapped that out yet fully. So I think the third place is a broader definition. I know we used to talk about the fact that people go to Starbucks to connect with others. The reality is people rely on Starbucks to connect with themselves as much as then through that, connect with others. And I think that's a broader expansion of what our mission is. And with that, you see the Starbucks at home, and the moment of zen you have at home. It's the moment you have at the drive-through and what you do later on at work with others as well. So I think it's a broader definition of who we are. The classic definition of the third place, as a box where I go to meet someone is frankly not relevant anymore in this context.

Yes. Okay. I do want to talk about the cost and margin side a little bit. You've -- on the margin side, you said historical margins going to be in play over time, right? And I'm not going to put words in your mouth, but if I were to say, 5% same-store sales roughly, maybe 3% to 5% cost inflation over time, do you kind of get there naturally? And you would say, okay, some of the $3 billion cost program that you've talked about adds to that. What other pieces would I think about there?

I think what we talked about is progressive margin expansion, which comes from a combination of sales leverage, which is all the math that you have there. It comes from the productivity programs that we have, which are broad. They are above the store as well as in the store. And also, the further enhancements that would be to think of the area of revenue management that actually help us overall with the progressive margin expansion. So I think we don't set a margin target or a time, but in the long term, I think you can clearly see how we would get back to the levels that you would talk about.

Yes. You sort of mentioned this. Behind the $3 billion program, part of that is waste, part of it's the supply chain. I mean what are the other major initiatives we should be thinking about within that program?

In the productivity program?

Yes, in the $3 billion cost program.

So as you said, 70% is above the store. That actually looks at everything from procurement to supply to the services that we provide and how we optimize all of it. And there's clearly more in the store, including waste, including looking at how we get much better at bringing in the right equipment that helps us, helps our partners do things more efficiently in the store. So it's literally a comprehensive program. Obviously, you get sales and sales leverage above that, including the G&A, which is -- we did make an investment in order to launch the program. And as sales keep growing, you're going to see that number come down over time.

Right. Okay. Do some of your ESG initiatives help there, right? Like I think you're starting to push more reusable cups. I mean does any of that make a difference on the margin side, for example?

We are embedding a lot of the sustainability ideas into how we do this. I mean, almost every single touch point that we have in the productivity program, there is a question around how do you ensure that sustainability is built into what we do. So it will have an impact there. Waste reduction, for example, is a big way for that to happen.

Okay. Okay. I do want to talk about China a little bit. I think we've all gotten the message that the business is very different than 4 years ago. And certainly, there's drastically different number of stores. Today, it is lower volume. It is lower margin. You're still kind of in a recovery phase there. What -- so we know what your store expansion target is. What else do you think is really going to drive China on a same-store basis perhaps over the next several years?

Well, firstly, it is a different business where it was pre-COVID. We went to China in 1999 with the idea of actually working to create this specialty coffee industry in a tea-drinking country, massive tea-drinking country. I heard people talk about how the next China is China. We actually subscribe to that view. And so if you look at where we've gotten after 24 years, we've gotten them to 12 cups per capita. Japan is at 280, which has a big history of coffee drinking over the years; and the U.S. is at 380. So it's still in early days. If you look at where we are, you look at our store count -- and of course, the stores there are different from here in so many ways. 65% of our stores today were not there pre-COVID. So clearly, it's a different network. We have a digital business that we didn't have before. And we have a delivery business that we didn't have before. We have that now. And so it is, in fact, a very different business. Now we have a premium brand. Actually, we have 2 premium brands. We have Starbucks and we have Starbucks Reserve, both brands in China, and both extremely well regarded as sort of premium propositions in China. And we haven't fully penetrated where we could be, which -- we're now in 800 county cities out of 3,000. Shanghai, we have 1,150 stores. I've been to Shanghai. There are many parts of Shanghai we're not in yet. So there's even penetration in Shanghai, let alone Beijing and the other cities lower down in a place that we're in. Now the fact is you've read all the press on China and -- about what's going on with the economy and how it is. And we see it, too. We see clearly that the recovery that we're seeing is perhaps half the rate of what you would expect it to be given what you saw in the fourth quarter last year. So it's recovering and normalizing, but at a rate slower than what you would expect. But the long term is very clear. Once you see China work through its challenges, I think you will see in the long term, it's a business that is very strong. It's a highly competitive market, do not get me wrong. It is more promotional now than it's ever been. You see more discounting in all of it. But at the end of the day, we deliver a premium experience and the market hasn't tiered yet like it is here.

Right. Yes. I mean is it fair to say that in the near term, that's still sort of a choppy market for you?

Yes. It will be choppy, and the recovery will be choppy, but it is normalizing at half the pace than what you would think it would.

Okay. Okay. Understood. International outside of China, I think you've focused more on that. In your time so far, what's -- in your view, what was not appreciated there before? What are some of the markets that you're more excited about?

I think what is underappreciated, first of all, is that actually, it is substantial. I mean, a lot of our business is in the U.S. But I think we've talked about the fact that international and China are kind of in the same level in terms of the contributions over time. It wasn't so before COVID, but it is so now. I think what is underappreciated was the unit economics in many of these markets. They're actually very strong. Now we have a different business model, so it's appreciated in a different way, but the unit economics were underappreciated. I fully recognize that we've got all these things going on in international geopolitics and some of the conflict countries affected at this point in time. But if you look at the long term, the brand is very strong. The unit economics are really strong. The partner and the culture that's been built with our geographic partners who we've had for years is actually very strong. And the headroom we have in terms of what we could get to is extremely strong. And the headroom is large pretty much across the board. Latin America, Continental Europe, where -- it's still early. I mean, I'm surprised to say this, but we still are not really fully where we need to be in Continental Europe. And then you get into, of course, Southeast Asia where there's a big growth play. The coffee culture grows there. India, where the coffee culture is growing, opportunity there, too. And then you look at the Middle East and Africa, notwithstanding the near term, but long term, there's real potential in play there, too. So I think what needs to be appreciated more is the fact that it is, in fact, the third leg of the stool for us in many ways. And we haven't fully tapped into that yet. There's still more play. Digital is a very big part of this.

Yes. It seems like it's still quite early relative to some other markets.

Yes. And the platform we're building, the Starbucks digital solutions, will help us essentially build this global network across all our different businesses globally.

Okay. Sounds good. Before we finish up, I was going to do my lightning round questions we've asked of everyone here. Demand backdrop for the year ahead relative to recent trends accelerate, hold, decelerate?

Last year, we grew at 14% without ForEx. I think the expectations we set in 1.5 months ago were at the lower end of 10% to 12%, if you ignored currency. So that will be slower than last year. And I think it's more back-end loaded in terms of the overall sort of stronger growth in the front end.

Makes sense. And then margins, we kind of know the answer to this, but up, down?

Progressively improve.

Yes. And then capital allocation, prioritization between CapEx, buybacks, dividends, debt paydown, any change in relative importance of those?

We will invest in the business, OpEx, CapEx as the needs are. Second, for a growth company in a growth stock, as you might call it, we've actually had a history over the years of maintaining a 50% dividend payout ratio. We intend to sustain that. And then the question of what do you do with the rest of the money, I think it depends a bit on cost of capital and what's really going on in the world out there as to whether we borrow to buy back stock or whether we pay down debt. And that's a calculation we always go. Just so you know, stock buybacks are a very small portion of the EPS growth expectations that we set. It's like less than 1% or 1% of the 15-plus percent that we set in the long term.

Okay. Great. We'll end it there. And very much appreciate it. Thank you.

Thank you. And you didn't tell me what your drink was.

My favorite drink is -- I like the ice shaken espresso with oat milk.

35 cows, the oat milk is a little higher, but that's okay. I think you can deal with it. Thank you so much.