Starbucks Revenues Increase 11%; Earnings Per Share Surge 22% to a Q3 Record $0.67

2014-07-28
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  • Starbucks Global comparable store sales increased 6%, marking the 18th consecutive quarter of global comp growth of 5% or greater

    Starbucks Corporation (NASDAQ:SBUX) reported financial results for its 13-week fiscal third quarter and 39-week fiscal year to date ended June 29, 2014.

    Q3 Fiscal 2014 Highlights:

    • Consolidated net revenue growth accelerated to 11%; net revenues totaled a Q3 record $4.2 billion
    • Global comparable store sales increased 6%, marking the 18th consecutive quarter of global comp growth of 5% or greater
      • Americas comp sales increased 6%; U.S. comp sales increased 7%
      • EMEA comp sales increased 3%
      • China/Asia Pacific comp sales increased 7%
    • Consolidated operating income increased 25%, to a Q3 record $769 million
    • Consolidated operating margin expanded 200 bps, to a Q3 record 18.5%, primarily driven by sales leverage
    • Channel Development revenues increased 13%; operating margin expanded 800 bps to 37.1%
    • Earnings per share increased 22% to a Q3 record $0.67 per share
    • The Company opened 344 net new stores globally, ending the quarter with 20,863 stores across 64 countries

    Updated Fiscal 2014 Targets

    Following the strong performance year-to-date, the company is updating the following fiscal 2014 targets:

    • Consolidated operating margin improvement now targeted at 200 bps over FY13, when excluding the Kraft litigation charge in fiscal 2013
      • Channel Development now targeting approximately 600 bps improvement over FY13
    • Earnings per share now expected to be in the range of $2.70 to $2.72; or $2.65 to $2.67 when excluding an estimated net benefit of $0.05 for certain FY14 non-GAAP adjustments. Please refer to the GAAP to non-GAAP reconciliation at the end of this release:
      • Q4 EPS now in the range of $0.76 to $0.78; or $0.73 to $0.75 when excluding a $0.03 estimated net benefit as described in the above referenced reconciliation
    • Net new stores now expected to be approximately 1,550
      • Americas: increased from 600 to 650

    Fiscal 2015 Targets

    The company introduces initial fiscal 2015 targets as follows:

    • Revenue growth of 10% or greater
    • Global comparable store sales growth in the mid single digits
    • An additional 1,600 net new stores globally
    • Earnings per share growth of 15%-20% over FY14 calculated based on Non-GAAP earnings per share

    “Starbucks Q3 represents another quarter of outstanding operating performance in which each of our segments contributed to record results,” said Howard Schultz, chairman, president and ceo of Starbucks Coffee Company. “The increasing power of the Starbucks brand, the success of our best-in-class mobile, social and digital technologies and our greatest asset - over 300,000 partners who deliver the Starbucks Experience to over 70 million customers around the world each week - position us to continue growing our business around the world and into the future.”

    “Starbucks record Q3 results demonstrate both the power of our innovation and the opportunities for growth, globally and in the U.S., that lie ahead. Importantly, record revenues and operating margin reflect an acceleration of top-line growth and meaningful contributions from all operating regions and our Channel Development segment,” said Scott Maw, Starbucks cfo. “Our Q3 results give us confidence in our ability to deliver on our full year fiscal 2014 targets and support the strong 2015 revenue and profit growth targets we introduced today, despite continued challenging economic and consumer headwinds in many of the global markets in which we operate.”

    Third Quarter Fiscal 2014 Summary

     
    Quarter Ended Jun 29, 2014
    Comparable Store Sales(1) Sales Growth     Change in Transactions     Change in Ticket
    Consolidated 6%     2%     4%
    Americas 6% 2% 4%
    EMEA 3% 2% 2%
    CAP 7%     6%     1%
    (1) Includes only Starbucks company-operated stores open 13 months or longer.
           
    Operating Results Quarter Ended  
    ($ in millions, except per share amounts)   Jun 29, 2014   Jun 30, 2013   Change
    Net New Stores 344   341 3
    Revenues(1) $4,153.7 $3,735.3 11%
    Operating Income $768.5 $615.2 25%
    Operating Margin(1) 18.5% 16.5% 200 bps
    EPS   $0.67   $0.55   22%

    (1) Prior period results have been corrected to reflect an immaterial reclassification of certain fees related to our foodservice operations; for full revised FY12 and FY13 results, refer to http://investor.starbucks.com.

    Consolidated net revenues were $4.2 billion in Q3 FY14, an increase of 11% over Q3 FY13, driven primarily by 6% growth in global comparable store sales and incremental revenues from 1,654 net new store openings over the past 12 months.

    Consolidated operating income increased 25% to $768.5 million, compared to $615.2 million for the same period a year ago. Operating margin expanded 200 basis points to 18.5%, primarily driven by sales leverage and lower commodity costs.

    Q3 Americas Segment Results

                   
     
                         
    Quarter Ended
    ($ in millions) Jun 29, 2014         Jun 30, 2013         Change
    Net New Stores 149 158 (9)
    Revenues $3,057.7 $2,776.5 10%
    Operating Income $728.5 $619.3 18%
    Operating Margin 23.8%         22.3%         150 bps
     

    Net revenues for the Americas segment were $3.1 billion in Q3 FY14, an increase of 10% over Q3 FY13. The increase was driven by 6% growth in comparable store sales and incremental revenues from 759 net new store openings over the past 12 months.

    Operating income of $728.5 million in Q3 FY14 increased 18% from $619.3 million for the same period a year ago. Operating margin expanded 150 basis points to 23.8%, primarily due to sales leverage.

    Q3 EMEA Segment Results

                   
     
                         
    Quarter Ended
    ($ in millions) Jun 29, 2014         Jun 30, 2013         Change
    Net New Stores 37 43 (6)
    Revenues $323.5 $287.2 13%
    Operating Income $29.2 $9.3 214%
    Operating Margin 9.0%         3.2%         580 bps
     

    Net revenues for the EMEA segment were $323.5 million in Q3 FY14, an increase of 13% over Q3 FY13. The growth was primarily due to favorable foreign currency exchange and a 3% increase in comparable store sales. Incremental revenues from 161 net new store openings over the past 12 months also contributed.

    Operating income increased 214% to $29.2 million in Q3 FY14, from $9.3 million in the prior year quarter. Operating margin expanded 580 basis points to 9.0%, primarily driven by sales leverage and continued cost management.

    Q3 China/Asia Pacific Segment Results

                   
     
                         
    Quarter Ended
    ($ in millions) Jun 29, 2014         Jun 30, 2013         Change
    Net New Stores 160 119 41
    Revenues $287.6 $233.7 23%
    Operating Income $100.8 $84.7 19%
    Operating Margin 35.0%         36.2%         (120) bps
     

    Net revenues for the China/Asia Pacific segment were $287.6 million in Q3 FY14, an increase of 23% over Q3 FY13. The increase was primarily driven by incremental revenues from 740 net new store openings over the past 12 months. A 7% increase in comparable store sales, driven by strong traffic, also contributed to the net revenue growth.

    Operating income of $100.8 million in Q3 FY14 increased 19% compared to the same period a year ago. Operating margin declined 120 basis points to 35.0%, driven by the portfolio shift to more company-operated stores and unfavorable foreign currency exchange, partially offset by sales leverage.

    Q3 Channel Development Segment Results

         
     
             
    Quarter Ended
    ($ in millions)   Jun 29, 2014   Jun 30, 2013   Change
    Revenues(1) $375.3 $331.0 13%
    Operating Income $139.3 $96.3 45%
    Operating Margin(1)   37.1%   29.1%   800 bps

    (1) Prior period results have been corrected to reflect an immaterial reclassification of certain fees related to our foodservice operations; for full revised FY12 and FY13 results, refer to http://investor.starbucks.com.

    Net revenues for the Channel Development segment were $375.3 million in Q3 FY14, an increase of 13% over Q3 FY13, primarily driven by increased sales of premium single serve products and higher sales volumes of packaged coffee in the U.S.

    Operating income grew 45% to $139.3 million in Q3 FY14 compared to $96.3 million for the same period a year ago. Operating margin increased 800 basis points to 37.1% in Q3 FY14, primarily due to lower coffee costs and improved inventory management compared to the prior year.

    Q3 All Other Segments Results

         
     
             
    Quarter Ended
    ($ in millions)   Jun 29, 2014   Jun 30, 2013   Change
    Net New Stores (2) 21 (23)
    Revenues(1) $109.6 $106.9 3%
    Operating Loss   ($18.9)   ($9.4)   101%

    (1) Prior period results have been corrected to reflect an immaterial reclassification of certain fees related to our foodservice operations; for full revised FY12 and FY13 results, refer to http://investor.starbucks.com.

    Net revenues for All Other Segments were $109.6 million in Q3 FY14, an increase of 3% compared to Q3 FY13, primarily driven by increased sales in our emerging businesses.

    Q3 FY14 operating loss increased to $18.9 million compared to a loss of $9.4 million for the same period a year ago, driven by investments to support growth in our emerging businesses.

    Year to Date Financial Results

           
     
                 
    Three Quarters Ended Jun 29, 2014
    Comparable Store Sales(1) Sales Growth     Change in Transactions     Change in Ticket
    Consolidated 6% 3% 3%
    Americas 6% 3% 3%
    EMEA 5% 3% 1%
    CAP 7%     6%     1%
    (1) Includes only Starbucks company-operated stores open 13 months or longer.
               
    Operating Results Three Quarters Ended  
    ($ in millions, except per share amounts)   Jun 29, 2014   Jun 30, 2013   Change
    Net New Stores(1) 1,096   1,143 (47)
    Revenues(2) $12,267.1 $11,078.1 11%
    Operating Income $2,226.3 $1,789.9 24%
    Operating Margin(2) 18.1% 16.2% 190 bps
    EPS   $1.94   $1.63   19%

    (1) Net new stores for the three quarters ended June 30, 2013 includes 337 Teavana stores acquired in the second quarter of fiscal 2013.

    (2) Prior period results have been corrected to reflect an immaterial reclassification of certain fees related to our foodservice operations; for full revised FY12 and FY13 results, refer to http://investor.starbucks.com.

    Company Updates

    • In June, Starbucks introduced new FizzioTM handcrafted sodas and Teavana® Shaken Iced Teas in the U.S. to further extend its Refreshment offerings. The FizzioTM soda machine is a breakthrough in carbonation technology with the ability to deliver an unmatched soda experience. FizzioTM sodas are available in over one third of U.S. company-operated retail stores.
    • Starbucks opened its first company-operated Starbucks® store at Walt Disney World Resort. It also recently opened its first store in Bogota, Colombia and its first store in Hanoi, Vietnam. The company expanded the Teavana® Teabar concept to Los Angeles and opened the second Teabar in New York; now operating five Teavana® Fine Teas + Teabars in the U.S.
    • Starbucks and Duracell Powermat announced that they have begun a national rollout of Powermat wireless charging, beginning with stores in the San Francisco Bay Area, with expansion to additional major markets in 2015.
    • Starbucks, in partnership with Arizona State University, launched the Starbucks College Achievement Plan, empowering thousands of U.S. partners (employees) to complete a bachelor's degree with Starbucks offering full tuition reimbursement for their junior and senior years for eligible partners.
    • Starbucks hosted its third Partner Family Forum in China, gathering more than 1,200 Starbucks South China partners together in Guangzhou. This was followed by the first-ever Partner Family Forums held in the U.S.
    • The Company's unsecured debt rating was upgraded to A3 with a stable outlook by Moody's Investors Service. The upgrade affects the company’s nearly $2.1 billion senior unsecured bonds. Moody’s also affirmed the company’s short-term commercial paper rating at P-2. Starbucks had held a Baa1 rating with a stable outlook since November 25, 2013.
    • The Company repurchased 4.2 million shares of common stock in Q3 FY14; approximately 18 million shares remain available for purchase under current authorizations.
    • The Board of Directors declared a cash dividend of $0.26 per share, payable on August 22, 2014 to shareholders of record as of August 7, 2014.

     

         
    STARBUCKS CORPORATION
    CONSOLIDATED STATEMENTS OF EARNINGS

    (unaudited, in millions, except per share data)

     
    Quarter Ended Quarter Ended
    Jun 29,

    2014

      Jun 30,

    2013

       

    %

    Change

    Jun 29,

    2014

      Jun 30,

    2013

     
        As a % of total

    net revenues (1)

    Net revenues:  
    Company-operated stores $ 3,290.5 $ 2,986.3 10.2 % 79.2 % 79.9 %
    Licensed stores 408.1 342.0 19.3 9.8 9.2
    CPG, foodservice and other(1) 455.1   407.0   11.8 11.0   10.9  
    Total net revenues 4,153.7 3,735.3 11.2 100.0 100.0
    Cost of sales including occupancy costs 1,711.5 1,597.6 7.1 41.2 42.8
    Store operating expenses 1,176.5 1,084.1 8.5 28.3 29.0
    Other operating expenses(1) 120.6 98.9 21.9 2.9 2.6
    Depreciation and amortization expenses 180.1 153.3 17.5 4.3 4.1
    General and administrative expenses 269.4   249.6   7.9 6.5   6.7  
    Total operating expenses 3,458.1 3,183.5 8.6 83.3 85.2
    Income from equity investees 72.9   63.4   15.0 1.8   1.7  
    Operating income 768.5 615.2 24.9 18.5 16.5
    Interest income and other, net 19.4 3.5 454.3 0.5 0.1
    Interest expense (16.4 ) (6.3 ) 160.3 (0.4 ) (0.2 )
    Earnings before income taxes 771.5 612.4 26.0 18.6 16.4
    Income taxes 259.0   194.6   33.1 6.2   5.2  
    Net earnings including noncontrolling interests 512.5 417.8 22.7 12.3 11.2
    Net earnings attributable to noncontrolling interests (0.1 )   nm    
    Net earnings attributable to Starbucks $ 512.6   $ 417.8   22.7 % 12.3

    %

    11.2 %
     
    Net earnings per common share - diluted $ 0.67   $ 0.55   21.8 %
    Weighted avg. shares outstanding - diluted 761.0 761.9
     
    Cash dividends declared per share $ 0.26 $ 0.21
     
    Supplemental Ratios:
    Store operating expenses as a percentage of company-operated store revenues 35.8 % 36.3 %
    Effective tax rate including noncontrolling interests 33.6 % 31.8 %

    (1) Prior period results have been corrected to reflect an immaterial reclassification of certain fees related to our foodservice operations; for full revised FY12 and FY13 results, refer to .

     
         
    Three Quarters Ended Three Quarters Ended
    Jun 29,

    2014

      Jun 30,

    2013

       

    %

    Change

    Jun 29,

    2014

      Jun 30,

    2013

     
        As a % of total

    net revenues (1)

    Net revenues:  
    Company-operated stores $ 9,702.3 $ 8,783.7 10.5 % 79.1 % 79.3 %
    Licensed stores 1,166.1 1,014.2 15.0 9.5 9.2
    CPG, foodservice and other(1) 1,398.7   1,280.2   9.3 11.4   11.6  
    Total net revenues 12,267.1 11,078.1 10.7 100.0 100.0
    Cost of sales including occupancy costs 5,135.7 4,748.6 8.2 41.9 42.9
    Store operating expenses 3,486.1 3,212.2 8.5 28.4 29.0
    Other operating expenses(1) 346.3 330.8 4.7 2.8 3.0
    Depreciation and amortization expenses 524.2 455.3 15.1 4.3 4.1
    General and administrative expenses 752.6 711.7 5.7 6.1 6.4
    Litigation charge/(credit) (20.2 )   nm (0.2 )  
    Total operating expenses 10,224.7 9,458.6 8.1 83.4 85.4
    Income from equity investees 183.9   170.4   7.9 1.5   1.5  
    Operating income 2,226.3 1,789.9 24.4 18.1 16.2
    Interest income and other, net 57.0 51.4 10.9 0.5 0.5
    Interest expense (47.7 ) (19.0 ) 151.1 (0.4 ) (0.2 )
    Earnings before income taxes 2,235.6 1,822.3 22.7 18.2 16.4
    Income taxes 755.4   581.4   29.9 6.2   5.2  
    Net earnings including noncontrolling interests 1,480.2 1,240.9 19.3 12.1 11.2
    Net earnings attributable to noncontrolling interests (0.1 ) 0.6   nm    
    Net earnings attributable to Starbucks $ 1,480.3   $ 1,240.3   19.4

    %

    12.1 % 11.2 %
     
    Net earnings per common share - diluted $ 1.94   $ 1.63   19.0 %
    Weighted avg. shares outstanding - diluted 763.9 761.5
     
    Cash dividends declared per share $ 0.78 $ 0.63
     
    Supplemental Ratios:
    Store operating expenses as a percentage of company-operated store revenues 35.9 % 36.6 %
    Effective tax rate including noncontrolling interests 33.8 % 31.9 %

    (1) Prior period results have been corrected to reflect an immaterial reclassification of certain fees related to our foodservice operations; for full revised FY12 and FY13 results, refer to .

     

     

     

     

     

     

       

     

     

       

     

     

     

    Segment Results (in millions)

     

    Americas

                     

    Jun 29,

    2014

     

    Jun 30,

    2013

       

    %

    Change

    Jun 29,

    2014

     

    Jun 30,

    2013

    As a % of Americas

    Quarter Ended

    total net revenues
    Net revenues:
    Company-operated stores $ 2,772.3 $ 2,536.9 9.3 % 90.7 % 91.4 %
    Licensed stores 275.6 228.5 20.6 9.0 8.2
    CPG, foodservice and other 9.8   11.1   (11.7 ) 0.3   0.4  
    Total net revenues 3,057.7 2,776.5 10.1 100.0 100.0
    Cost of sales including occupancy costs 1,130.0 1,051.2 7.5 37.0 37.9
    Store operating expenses 1,002.4 934.8 7.2 32.8 33.7
    Other operating expenses 26.2 23.0 13.9 0.9 0.8
    Depreciation and amortization expenses 119.5 105.2 13.6 3.9 3.8
    General and administrative expenses 51.1   43.0   18.8 1.7   1.5  
    Total operating expenses 2,329.2   2,157.2   8.0 76.2   77.7  
    Operating income $ 728.5   $ 619.3   17.6 % 23.8 % 22.3 %
    Supplemental Ratios:

    Store operating expenses as a percentage of company-operated store revenues

    36.2 % 36.8 %
     

    Three Quarters Ended

    Net revenues:
    Company-operated stores $ 8,120.6 $ 7,499.5 8.3 % 90.8 % 91.2 %
    Licensed stores 787.6 684.4 15.1 8.8 8.3
    CPG, foodservice and other 31.2   37.3   (16.4 ) 0.3   0.5  
    Total net revenues 8,939.4 8,221.2 8.7 100.0 100.0
    Cost of sales including occupancy costs 3,353.8 3,143.6 6.7 37.5 38.2
    Store operating expenses 2,965.9 2,786.6 6.4 33.2 33.9
    Other operating expenses 75.2 74.1 1.5 0.8 0.9
    Depreciation and amortization expenses 346.6 316.2 9.6 3.9 3.8
    General and administrative expenses 131.9   143.9   (8.3 ) 1.5   1.8  
    Total operating expenses 6,873.4 6,464.4 6.3 76.9 78.6
    Income from equity investees   2.4   (100.0 )    
    Operating income $ 2,066.0   $ 1,759.2   17.4 % 23.1 % 21.4 %
    Supplemental Ratios:
    Store operating expenses as a percentage of company-operated store revenues 36.5 % 37.2 %
     

     

     

       

     

         

     

     

       

     

     

     

    EMEA

                           

    Jun 29,

    2014

       

    Jun 30,

    2013

         

    %

    Change

     

    Jun 29,

    2014

     

    Jun 30,

    2013

    As a % of EMEA

    Quarter Ended

    total net revenues
    Net revenues:
    Company-operated stores $ 251.8 $ 228.2 10.3 % 77.8 % 79.5 %
    Licensed stores 60.8 49.6 22.6 18.8 17.3
    CPG, foodservice and other 10.9   9.4   16.0 3.4   3.3  
    Total net revenues 323.5 287.2 12.6 100.0 100.0
    Cost of sales including occupancy costs 161.4 147.5 9.4 49.9 51.4
    Store operating expenses 91.4 85.8 6.5 28.3 29.9
    Other operating expenses 12.5 9.9 26.3 3.9 3.4
    Depreciation and amortization expenses 15.1 13.7 10.2 4.7 4.8
    General and administrative expenses 15.0   21.0   (28.6 ) 4.6   7.3  
    Total operating expenses 295.4 277.9



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