Laxman Narasimhan: Sara, can I just add one thing here? We’ve gone through a look, MSA by MSA, and what is interesting is, is you start looking at where the population has shifted, and you look at how the US is so different from what it was even five years ago. I think what you see is white space for us. And particularly as you look at purpose-defined stores and our plans to build in the US, we have a lot more headroom in the US. With that, let me call on Belinda to talk a little bit on China, both around how our business has been reset, but also the kind of growth options we see. Belinda, go ahead.
Belinda Wong: Okay, thank you. So despite the shorts-term headwinds, the long-term opportunity in China is clear. I think everyone will agree to that. So I talked extensively at the investor forum about the huge greenfield opportunities to both increase penetration in existing cities and entering new county cities. So as of end Q1, we are only in 857 cities out of nearly 3,000 in China. The opportunities are abundant. And new stores continue to deliver best-in-class store profitability and returns. And when you look at new county city stores that we have entered recently and in the past couple years, it consistently outperformed top-tier cities, new stores, and profitability too. So as Laxman has pointed to, we will accelerate our entry into new county cities.
So we are on track to reach 9,000 stores, so many opportunities out there. We will — we have a very sophisticated system visualized and to help our team to identify the right areas to open to optimize the cannibalization impact and where we should be going. So with our experience, our team, our operating muscle, and track record, I have full confidence in our store expansion plan and we’re on target to achieving 13% store growth in FY ‘24.
Laxman Narasimhan: I’ve been to China three times in the last nine months. And one of the things that’s fundamentally impressed me with the business is really how we’ve used COVID and the time that the business has actually taken to reset the business. If you look at the end-to-end costs from a supply chain perspective, with the digitization of what is happening end-to-end in China, it is frankly incredibly strong. I’d love to have some of that back in the US. If I look at the ability to deliver the value that we have end-to-end in China, coupled with the premium experience with the wonderful stores we design at a very low investment cost because that has also been fine-tuned. What you realize is that as we expand, the kind of economics we’re seeing are very strong.
And so I think that is foundational to what Belinda talked about. Big headroom in terms of cities to go to. But also what I compliment the team on is the work that has gone in to build a business end to end, that is extremely strong. This doesn’t happen overnight. This happens because of 25 years of history and the muscle and the capability that the business has built in China. The team is ready, obviously, as the market [turns] (ph) and we see things come back, you’re going to see the kind of economics get even better.
Operator: Your next question comes from Andrew Charles, TD Cowen.
Andrew Charles: Great, thank you. Rachel, how did you arrive at the new low single-digit China same-store sales guidance from the 4% to 6% previously? Perhaps you can help us understand the typical quarter-to-quarter changes in seasonal AWS that you typically see in China and how that factors into the new 2024 guidance? Thanks.
Rachel Ruggeri: Sure, thank you, Andrew. When we looked at the guidance for China, it’s largely based around, I wouldn’t say the seasonality is maybe as distinct as what we see in the US business with Q2 being so much lower than any of our other quarters and strengthening as we go through Q3, Q4, particularly because we’re lapping quite a bit of compares from the prior year. If you recall last year in Q3, we were lapping the COVID impacts from the prior year. So we have a pretty big lap when you look at that comp and that compare in Q3. So it’s more around the progression we expect in the business, less about the compare or about seasonality, and more about the progression in the business. And what we’re looking to is Chinese New Year as an example is a good indicator of what we expect to see around the consumer environment, and that’s factored into our assumptions.
So a lot of it depends on mainly the recovery, the time it’s going to take as Belinda and team work on the action plans, which are in some ways, I’d say adapted to what we’re saying. We’ve already led in the premium market, but we’re adapting some of our strategies as it relates to the awareness of the customer and how we go after the customer through the innovation and new channels of social media. So we expect that that’s going to take some time and that’s reflected in the guidance range. But I would think about it that way, is more about the recovery and the progression from where we are with the plans today, which we’re expecting we’ll see a rebound and closer to a stabilization in the back half of the year.
Laxman Narasimhan: I think it’s fair to say that the Chinese consumer is very cautious.
Belinda Wong: Yeah.
Laxman Narasimhan: And so the recovery is going to be choppy. But as Rachel has said, we think we factored that in the guidance that we see. The long-term opportunity in China is tremendous.
Operator: Your next question comes from Sharon Zackfia with William Blair.
Sharon Zackfia: Hi, good afternoon. On the customer that lapsed in the first quarter, was there any particular demographic that you saw more of an impact with? Excuse me. And then on the conversation around the new beverage platforms, I think you said three upcoming new beverage platforms. Can you talk about the potential trade-offs there with speed as you talk about untapped demand?
Laxman Narasimhan: So I think what I heard you say was, were there any demographic, specific demographics that it impacted? And the second question was, on the three beverage platforms, is there something that is a trade-off between speed? Is that correct? I couldn’t hear you properly, actually. Maybe you could repeat that question.
Sharon Zackfia: I think my sound is breaking up. When I think about you introducing new beverage platforms and introducing complexity potentially into the system, I naturally worry about throughputs. And you talk about untapped demand and the opportunity to tap into that as part of the buffer into the back half of the year and I’m just thinking about that. With the new beverage platforms and hoping you can talk about if there is a trade-off with speed or if the new beverage platforms have been designed to help facilitate throughput. Brady, do you want to take it off?
