Starbucks Results

Starbucks Reports Record Q1 Fiscal 2018 Results

Net Revenues Up 6% to a Record $6 Billion; Global and U.S. Comp Store Sales Up 2% - China Net Revenues Up 30%; China Comps Up 6%

Starbucks

Starbucks Corporation (NASDAQ:SBUX) last week reported financial results for its 13-week fiscal first quarter ended December 31, 2017. GAAP results in fiscal 2018 and fiscal 2017 include items which are excluded from non-GAAP results. 

Q1 Fiscal 2018 Highlights

  • Global comparable store sales increased 2%, driven by a 2% increase in average ticket
    • Americas and U.S. comp store sales increased 2%, driven by a 2% increase in average ticket
    • CAP comp store sales increased 1%, driven by a 1% increase in transactions
      • China comp store sales increased 6%, driven by a 6% increase in transactions
  • Consolidated net revenues of $6.1 billion grew 6% versus the prior year
  • GAAP operating margin of 18.4% declined 140 basis points compared to the prior year; non-GAAP operating margin of 19.2% declined 80 basis points
  • GAAP Earnings Per Share of $1.57 included $0.79 of net gain related to the acquisition of East China and a $0.13 net benefit from other items which are excluded from non-GAAP results
    • Non-GAAP EPS grew 25% to $0.65 per share and included a $0.07 benefit from changes in the U.S. tax law
  • Active membership in Starbucks Rewards in the U.S. grew 11% versus the prior year to 14.2 million, with member spend representing 37% of U.S. company-operated sales, and Mobile Order and Pay representing 11% of U.S. company-operated transactions
  • Starbucks Card reached 42% of U.S. and Canada company-operated transactions
  • The company opened 700 net new stores globally, bringing total store count to 28,039 across 76 markets
  • The company returned a record $2 billion to shareholders in the quarter through a combination of dividends and share repurchases

“Starbucks reported another quarter of record financial results in Q1 of fiscal 2018, with consolidated revenues up 6% over last year - up 7% excluding 1% for the impact of streamlining activities in the quarter. China grew revenues 30% in Q1, with the strategic acquisition of East China positioning us to accelerate our growth in the key China market,” said Kevin Johnson, president and ceo. “Today, Starbucks has two powerful, independent but complementary engines driving our global growth, the U.S. and China. Our work to streamline the company is sharpening our focus on our core operating priorities.”

“Starbucks delivered solid revenue and profit growth and our first ever $6 billion revenue quarter in Q1,” said Scott Maw, cfo. “We are laser-focused on accelerating growth in China and driving improvement across the U.S. business as we move into and through the back half of the year, and remain committed to delivering on the long-term targets we announced last quarter.”

 

First Quarter Fiscal 2018 Summary

   
Quarter Ended Dec 31, 2017
Comparable Store Sales(1)   Sales Growth   Change in Transactions   Change in Ticket
Consolidated 2%   0%   2%
Americas 2% 0% 2%
CAP 1% 1% 0%
EMEA(2)   (1)%   (4)%   3%
(1) Includes only Starbucks company-operated stores open 13 months or longer. Comparable store sales exclude the effect of fluctuations in foreign currency exchange rates.
(2) Company-operated stores represent 16% of the EMEA segment store portfolio as of December 31, 2017.
 

Consolidated net revenues grew 6% over Q1 FY17 to $6.1 billion in Q1 FY18, primarily driven by incremental revenues from the opening of 2,305 net new stores over the past 12 months and a 2% growth in global comparable store sales.

Consolidated operating income declined 1% to $1,116.1 million in Q1 FY18, down from $1,132.6 million in Q1 FY17. Consolidated operating margin declined 140 basis points to 18.4%, primarily due to food-related mix shift in the Americas, as well as restructuring costs related to the company's ongoing efforts to streamline business operations.

 

Q1 Americas Segment Results

     
 
Quarter Ended       Change
($ in millions)       Dec 31, 2017       Jan 1, 2017      
Net New Stores 278       251 27
Revenues $4,265.8 $3,991.4 7%
Operating Income $979.4 $958.5 2%
Operating Margin       23.0%       24.0%       (100) bps
 

Net revenues for the Americas segment grew 7% over Q1 FY17 to $4.3 billion in Q1 FY18, primarily driven by incremental revenues from 979 net new store openings over the past 12 months and a 2% growth in comparable store sales.

Operating income of $979.4 million in Q1 FY18 grew 2% versus $958.5 million in Q1 FY17. Operating margin of 23.0% declined 100 basis points primarily due to food-related mix shift, partially offset by sales leverage.

 

Q1 China/Asia Pacific Segment Results

     
 
Quarter Ended       Change
($ in millions)       Dec 31, 2017       Jan 1, 2017      
Net New Stores 300       303 (3)
Revenues $843.7 $770.8 9%
Operating Income $196.8 $163.4 20%
Operating Margin       23.3%       21.2%       210 bps
 

Net revenues for the China/Asia Pacific segment grew 9% over Q1 FY17 to $843.7 million in Q1 FY18, primarily driven by incremental revenues from 1,033 net new store openings over the past 12 months and a 1% increase in comparable store sales. The increase was partially offset by the absence of revenue related to the sale of our Singapore retail operations to a licensed partner in Q4 FY17 as part of the company's ongoing efforts to streamline business operations and retail geographies.

Q1 FY18 operating income of $196.8 million grew 20% over Q1 FY17 operating income of $163.4 million. Operating margin expanded 210 basis points to 23.3%, primarily due to sales leverage and favorable foreign currency translation.

 

Q1 EMEA Segment Results

     
 
Quarter Ended       Change
($ in millions)       Dec 31, 2017       Jan 1, 2017      
Net New Stores 123       95 28
Revenues $283.9 $262.4 8%
Operating Income $39.1 $44.1 (11)%
Operating Margin       13.8%       16.8%       (300) bps
 

Net revenues for the EMEA segment grew 8% over Q1 FY17 to $283.9 million in Q1 FY18, primarily driven by favorable foreign currency translation and incremental revenues from the opening of 365 net new licensed stores over the past 12 months.

Operating income of $39.1 million in Q1 FY18 declined 11% versus operating income of $44.1 million in Q1 FY17. Operating margin declined 300 basis points to 13.8% primarily driven by sales deleverage in company-operated stores.

 

Q1 Channel Development Segment Results

     
 
Quarter Ended       Change
($ in millions)       Dec 31, 2017       Jan 1, 2017      
Revenues $560.3       $553.7 1%
Operating Income $243.3 $242.9 —%
Operating Margin       43.4%       43.9%       (50) bps
 

Net revenues for the Channel Development segment of $560.3 million in Q1 FY18 increased 1% versus the prior year quarter primarily driven by our foodservice, international and packaged coffee channels. This increase was partially offset by competitive pricing on single-serve items and the absence of revenue from the sale of our Tazo tea brand late in Q1 FY18.

Operating income of $243.3 million in Q1 FY18 was flat compared to Q1 FY17. Operating margin declined 50 basis points to 43.4% primarily driven by deleverage on cost of sales and lower income from our North American Coffee Partnership joint venture, partially offset by lower marketing expense.

 

Q1 All Other Segments Results

     

 

 
Quarter Ended       Change
($ in millions)       Dec 31, 2017       Jan 1, 2017      
Net New Stores (1)       (1)
Revenues $120.0 $154.6 (22)%
Operating Income/(Loss)       $(30.0)       $9.6       nm
 

All Other Segments primarily includes Teavana-branded stores, Seattle’s Best Coffee®, and Starbucks Reserve™and Roastery businesses. The operating loss in Q1 FY18 was primarily due to restructuring costs related to our strategy to close Teavana retail stores and focus on Teavana tea within Starbucks stores.

Fiscal 2018 Targets

The company reiterates the following full year FY18 targets, with the exception of earnings per share which has been modified for the expected net impact of changes in the U.S. tax law and related reinvestments. Year-over-year growth is based on prior year non-GAAP results. Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release.

  • Continue to expect approximately 2,300 net new stores globally
  • Continue to expect 3-5% comparable store sales growth globally, expect to be near the low end of the range for the year
  • Continue to expect consolidated revenue growth in the high single digits consistent with long term guidance; when including approximately 2% of net favorability related to the acquisition of East China and other streamlining activities, we expect consolidated revenue growth of approximately 9-11% in FY18
  • Now expect GAAP EPS in the range of $3.32 to $3.36 and non-GAAP EPS in the range of $2.48 to $2.53, consistent with guidance issued last quarter but updated to include the expected net impact of the new U.S. tax law's federal statutory tax rate and related reinvestments

The company will provide select quarterly and segment information regarding its business outlook during its regularly scheduled quarterly earnings conference calls; this information will also be available following the call on the company's website at .

Company Updates

  • On December 31, Starbucks completed the previously announced acquisition of the remaining 50% share of its East China business from long-term joint venture partners, Uni-President ("UPEC") and President Chain Store Corporation ("PCSC"). As a result of this acquisition, Starbucks has assumed 100% ownership of over 1,400 Starbucks stores in Shanghai and in the Jiangsu and Zhejiang Provinces, bringing the total number of company-owned stores in China to over 3,100 at the time of closing. Also on December 31, UPEC and PCSC acquired Starbucks 50% interest in President Starbucks Coffee Taiwan Limited and assumed 100% ownership of Starbucks operations in Taiwan.
  • The company completed its previously announced sale of the Tazo Tea brand to Unilever on December 11. Starbucks will instead drive a single tea brand strategy and focus with its super premium tea brand, Teavana, by continuing to invest in the growth, innovation and development of the Teavana brand of teas in its Starbucks stores and in channels outside its stores.
  • Last week, the company was named 5th in Fortune’s World’s Most Admired Companies survey, and placed in the top spot for the food services industry.
  • The company opened its Starbucks Reserve™ Roastery in Shanghai, China, on December 5, now the largest Starbucks store in the world. The Roastery features onsite baking by Italian food purveyor Rocco Princi for the first time ever in China and features onsite roasting and brewing of Starbucks Reserve coffees. Starbucks also brought Princi Bakery to the U.S. inside its Seattle Roastery in November 2017.
  • Together with its local business partner, Baristas del Caribe, LLC, Starbucks opened its first store in Puerto Rico since Hurricane Maria struck the island in September 2017. The two companies and their namesake nonprofit foundations have also collectively contributed more than $1.3 million toward emergency relief and long-term rebuilding efforts across the region.
  • In November 2017, the company opened its first store in Jamaica and entered its 76th market globally, marking a historic milestone for the global coffee company’s Caribbean operations and its storied history of sourcing high-quality coffee from the region going back more than four decades.
  • The company repurchased 28.5 million shares of common stock in Q1 FY18; approximately 52 million shares remain available for purchase under current authorizations.
  • The Board of Directors declared a cash dividend of $0.30 per share, payable on February 23, 2018, to shareholders of record as of February 8, 2018.
 

STARBUCKS CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited, in millions, except per share data)

 
  Quarter Ended   Quarter Ended

Dec 31,

2017

 

Jan 1,

2017

 

%

Change

Dec 31,

2017

 

Jan 1,

2017

    As a % of total

net revenues

Net revenues:  
Company-operated stores $ 4,741.8 $ 4,469.3 6.1 % 78.1 % 78.0 %
Licensed stores 682.4 602.4 13.3 11.2 10.5
CPG, foodservice and other 649.5   661.2   (1.8 ) 10.7   11.5  
Total net revenues 6,073.7 5,732.9 5.9 100.0 100.0
Cost of sales including occupancy costs(1) 2,502.9 2,295.0 9.1 41.2 40.0
Store operating expenses 1,737.0 1,638.2 6.0 28.6 28.6
Other operating expenses 141.6 145.4 (2.6 ) 2.3 2.5
Depreciation and amortization expenses 258.8 249.7 3.6 4.3 4.4
General and administrative expenses 379.1 356.4 6.4 6.2 6.2
Restructuring expenses(2) 27.6     nm 0.5    
Total operating expenses 5,047.0 4,684.7 7.7 83.1 81.7
Income from equity investees 89.4   84.4   5.9 1.5   1.5  
Operating income 1,116.1 1,132.6 (1.5 ) 18.4 19.8
Gain resulting from acquisition of joint venture(3) 1,326.3 nm 21.8
Gains resulting from divestiture of certain operations (4) 501.2 nm 8.3
Interest income and other, net 88.2 24.1 266.0 1.5 0.4
Interest expense (25.9 ) (23.8 ) 8.8 (0.4 ) (0.4 )
Earnings before income taxes 3,005.9 1,132.9 165.3 49.5 19.8
Income tax expense 755.8   381.4   98.2 12.4   6.7  
Net earnings including noncontrolling interests 2,250.1 751.5 199.4 37.0 13.1
Net earnings/(loss) attributable to noncontrolling interests (0.1 ) (0.3 ) (66.7 )    
Net earnings attributable to Starbucks $ 2,250.2   $ 751.8   199.3 37.0 % 13.1 %
 
Net earnings per common share - diluted $ 1.57   $ 0.51   207.8 %
Weighted avg. shares outstanding - diluted 1,434.6 1,470.5
 
Cash dividends declared per share $ 0.30 $ 0.25
 
Supplemental Ratios:
Store operating expenses as a % of company-operated store revenues 36.6 % 36.7 %
Other operating expenses as a % of non-company-operated store revenues 10.6 % 11.5 %
Effective tax rate including noncontrolling interests 25.1 % 33.7 %
 

(1) As a result of our restructuring efforts, $4.4 million was recorded in cost of sales including occupancy costs related to inventory write-offs.

 

(2) Primarily includes restructuring expenses of $25.9 million associated with our Teavana-branded stores and $1.6 million related to our Starbucks North American retail businesses.

 

(3) Represents the gain resulting from the acquisition of our East China joint venture.

 

(4) Primarily includes the gains on the sales of our Tazo brand and our Taiwan joint venture for $347.9 million and $153.0 million, respectively.

 

Segment Results (in millions)

 

Americas

 

       

Dec 31,

2017

 

Jan 1,

2017

 

%

Change

Dec 31,

2017

 

Jan 1,

2017

Quarter Ended

   

As a % of Americas

total net revenues

Net revenues:  
Company-operated stores $ 3,787.0 $ 3,561.0 6.3 % 88.8 % 89.2 %
Licensed stores 466.7 421.3 10.8 10.9 10.6
Foodservice and other 12.1   9.1   33.0 0.3   0.2  
Total net revenues 4,265.8 3,991.4 6.9 100.0 100.0
Cost of sales including occupancy costs 1,603.8 1,440.3 11.4 37.6 36.1
Store operating expenses 1,433.4 1,356.3 5.7 33.6 34.0
Other operating expenses 37.5 31.9 17.6 0.9 0.8
Depreciation and amortization expenses 158.0 152.4 3.7 3.7 3.8
General and administrative expenses 52.1 52.0 0.2 1.2 1.3
Restructuring expenses(1) 1.6     nm    
Total operating expenses 3,286.4   3,032.9   8.4 77.0   76.0  
Operating income $ 979.4   $ 958.5   2.2 % 23.0 % 24.0 %
Supplemental Ratios:
Store operating expenses as a % of company-operated store revenues 37.9 % 38.1 %
Other operating expenses as a % of non-company-operated store revenues 7.8 % 7.4 %
 

(1) Represents restructuring expenses of $1.6 million related to our Starbucks North American retail business.

 
 

China/Asia Pacific (CAP)

       

Dec 31,

2017

 

Jan 1,

2017

 

%

Change

Dec 31,

2017

 

Jan 1,

2017

Quarter Ended

   

As a % of CAP

total net revenues

Net revenues:  
Company-operated stores $ 742.5 $ 691.5 7.4 % 88.0 % 89.7 %
Licensed stores 98.4 78.0 26.2 11.7 10.1
Foodservice and other 2.8   1.3   115.4 0.3   0.2  
Total net revenues 843.7 770.8 9.5 100.0 100.0
Cost of sales including occupancy costs 371.7 337.3 10.2 44.1 43.8
Store operating expenses 218.6 204.3 7.0 25.9 26.5
Other operating expenses 21.2 19.1 11.0 2.5 2.5
Depreciation and amortization expenses 53.7 48.6 10.5 6.4 6.3
General and administrative expenses 32.4   40.6   (20.2 ) 3.8   5.3  
Total operating expenses 697.6 649.9 7.3 82.7 84.3
Income from equity investees 50.7   42.5   19.3 6.0   5.5  
Operating income $ 196.8   $ 163.4   20.4 % 23.3 % 21.2 %
Supplemental Ratios:
Store operating expenses as a % of company-operated store revenues 29.4 % 29.5 %
Other operating expenses as a % of non-company-operated store revenues 20.9 % 24.1 %
 
 

EMEA

       

Dec 31,

2017

 

Jan 1,

2017

 

%

Change

Dec 31,

2017

 

Jan 1,

2017

Quarter Ended

   

As a % of EMEA

total net revenues

Net revenues:  
Company-operated stores $ 151.6 $ 145.9 3.9 % 53.4 % 55.6 %
Licensed stores 116.2 102.2 13.7 40.9 38.9
Foodservice 16.1   14.3   12.6 5.7   5.4  
Total net revenues 283.9 262.4 8.2 100.0 100.0
Cost of sales including occupancy costs 152.1 136.1 11.8 53.6 51.9
Store operating expenses 54.7 46.9 16.6 19.3 17.9
Other operating expenses 16.3 16.0 1.9 5.7 6.1
Depreciation and amortization expenses 7.7 7.6 1.3 2.7 2.9
General and administrative expenses 14.0   11.7   19.7 4.9   4.5  
Total operating expenses 244.8   218.3   12.1 86.2   83.2  
Operating income $ 39.1   $ 44.1   (11.3 )% 13.8 % 16.8 %
Supplemental Ratios:
Store operating expenses as a % of company-operated store revenues 36.1 % 32.1 %
Other operating expenses as a % of non-company-operated store revenues 12.3 % 13.7 %
 
 

Channel Development

       

Dec 31,

2017

 

Jan 1,

2017

 

%

Change

Dec 31,

2017

 

Jan 1,

2017

Quarter Ended

   

As a % of

Channel Development

total net revenues

Net revenues:  
CPG $ 435.8 $ 437.1 (0.3 )% 77.8 % 78.9 %
Foodservice 124.5   116.6   6.8 22.2   21.1  
Total net revenues 560.3 553.7 1.2 100.0 100.0
Cost of sales 296.3 288.5 2.7 52.9 52.1
Other operating expenses 55.6 60.4 (7.9 ) 9.9 10.9
Depreciation and amortization expenses 0.5 0.6 (16.7 ) 0.1 0.1
General and administrative expenses 3.3   3.2   3.1 0.6   0.6  
Total operating expenses 355.7 352.7 0.9 63.5 63.7
Income from equity investees 38.7   41.9   (7.6 ) 6.9   7.6  
Operating income $ 243.3   $ 242.9   0.2 % 43.4 % 43.9 %
 
 

All Other Segments

   

Dec 31,

2017

 

Jan 1,

2017

 

%

Change

Quarter Ended

   
Net revenues:
Company-operated stores $ 60.7 $ 70.9 (14.4 )%
Licensed stores 1.1 0.9 22.2
CPG, foodservice and other 58.2   82.8   (29.7 )
Total net revenues 120.0 154.6 (22.4 )
Cost of sales including occupancy costs(1) 79.1 90.4 (12.5 )
Store operating expenses 30.3 30.7 (1.3 )
Other operating expenses 11.2 17.5 (36.0 )
Depreciation and amortization expenses 0.7 2.9 (75.9 )
General and administrative expenses 2.7 3.5 (22.9 )
Restructuring expenses(2) 26.0       nm
Total operating expenses 150.0     145.0   3.4

Operating income/(loss)

$ (30.0 )   $ 9.6   nm
 

(1) As a result of our restructuring efforts, $4.4 million was recorded in cost of sales including occupancy costs related to inventory write-offs.

 

(2) Primarily includes restructuring expenses of $25.9 million associated with our Teavana-branded stores.

 

Supplemental Information

The following supplemental information is provided for historical and comparative purposes.

 

U.S. Supplemental Data

       
Quarter Ended      
($ in millions)       Dec 31, 2017       Jan 1, 2017       Change
Revenues $3,884.4       $3,654.4 6%
Comparable Store Sales Growth(1) 2% 3%
Change in Transactions 0% (2%)
Change in Ticket       2%       5%        
(1) Includes only Starbucks company-operated stores open 13 months or longer.
 
 

Store Data

 
 

Net stores opened/(closed) and

transferred during the period

       
Quarter Ended Stores open as of

Dec 31,

2017

 

Jan 1,

2017

Dec 31,

2017

 

Jan 1,

2017

Americas:
Company-operated stores 112 75 9,525 9,094
Licensed stores 166   176   7,312   6,764
Total Americas 278   251   16,837   15,858
China/Asia Pacific(1):
Company-operated stores 1,612 104 4,682 2,915
Licensed stores (1,312 ) 199   3,097   3,831
Total China/Asia Pacific 300   303   7,779   6,746
EMEA:
Company-operated stores 1 (18 ) 503 505
Licensed stores 122   113   2,594   2,232
Total EMEA 123   95   3,097   2,737
All Other Segments(2):
Company-operated stores (1 ) (2 ) 289 356
Licensed stores   2   37   37
Total All Other Segments (1 )   326   393
       
Total Company 700   649   28,039   25,734
 

(1) China/Asia Pacific store data includes the transfer of 1,477 licensed stores in East China to company-operated retail stores as a result of the purchase of our East China joint venture in the first quarter of fiscal 2018.

 
(2) As of December 31, 2017, All Other Segments included 323 Teavana-branded stores, of which 286 stores were company-operated.
 

Non-GAAP Disclosure

In addition to the GAAP results provided in this release, the company provides certain non-GAAP financial measures that are not in accordance with, or alternatives for, generally accepted accounting principles in the United States. Our non-GAAP financial measures of non-GAAP operating income, non-GAAP operating margin and non-GAAP EPS exclude the below listed items, as they do not contribute to a meaningful evaluation of the company's future operating performance or comparisons to the company's past operating performance. The GAAP measures most directly comparable to non-GAAP operating income, non-GAAP operating margin and non-GAAP EPS are operating income, operating margin and diluted net earnings per share, respectively.

 
Non-GAAP Exclusion       Rationale
 
East China acquisition-related gain Management excludes the gain on the purchase of our East China joint venture as this incremental gain is specific to the purchase activity and for reasons discussed above.
 
Sale of Taiwan joint venture operations Management excludes the gain related to the sale of our Taiwan joint venture operations as this incremental gain is specific to the sale activity and for reasons discussed above.
 

Sale of Tazo brand

Management excludes the net gain on the sale of our assets associated with our Tazo brand and associated transaction costs as these items do not reflect future gains, losses, costs or tax benefits and for reasons discussed above.
 
Restructuring expenses

Management excludes restructuring charges related to strategic shifts in its Teavana and e-commerce business units as well as related to divesting certain lower margin businesses and assets, such as closure of certain company-operated stores for reasons discussed above. Additionally, these expenses are anticipated to be completed within a finite period of time.

 
CAP transaction and integration-related costs

Management excludes transaction and integration costs and amortization of the acquired intangible assets for reasons discussed above. Additionally, the majority of these costs will be recognized over a finite period of time.

 
Sale of Singapore retail operations Management excludes the net gain related to the sale of our Singapore retail operations as these items do not reflect future gains, losses or tax impacts and for reasons discussed above.
 
Sale of Germany retail operations Management excludes the net gain, associated costs and changes in estimated indemnifications related to the sale of our Germany retail operations as these items do not reflect future gains, losses or tax impacts and for reasons discussed above.
 
The Starbucks Foundation donation Management excludes the company's largest donation to a non-profit organization for reasons discussed above.
 

2018 U.S. stock award

Management excludes the announced incremental 2018 stock-based compensation award for reasons discussed above.

 
Other tax matters

On December 22, 2017, the Tax Cuts and Jobs Act was signed into U.S. law. Management excludes the estimated transition tax on undistributed foreign earnings and the re–measurement of deferred tax assets and liabilities due to the reduction of the U.S. federal corporate income tax rate for reasons discussed above.

 

Non-GAAP operating income, non-GAAP operating margin and non-GAAP EPS may have limitations as analytical tools. These measures should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP. Other companies may calculate these non-GAAP financial measures differently than the company does, limiting the usefulness of those measures for comparative purposes.

 

STARBUCKS CORPORATION

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(unaudited)

     
($ in millions) Quarter Ended

Consolidated

Dec 31,

2017

 

Jan 1,

2017

Change
Operating income, as reported (GAAP) $ 1,116.1 $ 1,132.6 (1.5)%
Restructuring expenses (1) 32.0

CAP transaction and integration-related items (2) 18.5 14.0

Sale of Tazo brand transaction costs

0.9  

 
Non-GAAP operating income $ 1,167.5   $ 1,146.6   1.8%
 
Operating margin, as reported (GAAP) 18.4 % 19.8 % (140) bps
Restructuring expenses (1) 0.5
CAP transaction and integration-related items (2) 0.3 0.2

Sale of Tazo brand

   
Non-GAAP operating margin 19.2 % 20.0 % (80) bps
 
Diluted net earnings per share, as reported (GAAP) $ 1.57 $ 0.51 207.8%
East China acquisition gain (0.92 )
Sale of Taiwan joint venture operations (0.11 )

Sale of Tazo brand

(0.24 )
Restructuring expenses (1) 0.02
CAP transaction and integration-related items (2) 0.01 0.01
Other tax matters (3) 0.10

Income tax effect on Non-GAAP adjustments (4) 0.22    
Non-GAAP net earnings per share $ 0.65   $ 0.52   25.0%
 

(1) Represents $27.6 million associated with our restructuring efforts, primarily lease termination costs. Inventory write-offs of $4.4 million related to these efforts were recorded within cost of sales including occupancy costs.

 

(2) Includes transaction costs for the acquisition of our East China joint venture and the divestiture of our Taiwan joint venture; ongoing amortization expense of acquired intangible assets associated with the acquisition of Starbucks Japan; and the related post-acquisition integration costs, such as incremental information technology and compensation-related costs.

 

(3) Represents the estimated impact of the U.S. Tax Cuts and Jobs Act, specifically the transition tax on undistributed foreign earnings and re-measurement of deferred taxes.

 

(4) Income tax effect on non-GAAP adjustments was determined based on the nature of the underlying items and their relevant jurisdictional tax rates.

 
     
Year Ended

Sep 30,

2018

 

Oct 1,

2017

Consolidated

(Projected) (As Reported) Change
Diluted net earnings per share (GAAP) $3.32 - $3.36 $ 1.97

69% - 71%

East China acquisition gain (0.94 )
Sale of Taiwan joint venture operations (0.11 )

Sale of Tazo brand

(0.25 )
Restructuring expenses (1) 0.13 0.11
CAP transaction and integration-related items (2) 0.17 0.04
Sale of Singapore retail operations (0.06 )
Sale of Germany retail operations (0.01 )
The Starbucks Foundation donation 0.03
Other tax matters (3) 0.11

2018 U.S. stock award (4)

0.04

Income tax effect on Non-GAAP adjustments (5) 0.01   (0.04 )
Non-GAAP net earnings per share $2.48 - $2.53   $ 2.06  

20% - 23%

 

(1) Represents restructuring related expenses and related inventory write-offs recorded within cost of sales including occupancy costs.

 

(2) Includes transaction costs for the acquisition of our East China joint venture and the divestiture of our Taiwan joint venture; ongoing amortization expense of acquired intangible assets associated with the acquisition of our East China joint venture and Starbucks Japan; and the related post-acquisition integration costs, such as incremental information technology and compensation-related costs.

 

(3) Represents the estimated impact of the U.S. Tax Cuts and Jobs Act, specifically the transition tax on undistributed foreign earnings and re-measurement of deferred taxes.

 

(4) Represents incremental stock-based compensation award for U.S. partners.

 

(5) Income tax effect on non-GAAP adjustments was determined based on the nature of the underlying items and their relevant jurisdictional tax rates.

 



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