Starbucks Results

Starbucks Reports Record Q2 Fiscal 2018 Results

Q2 Comp Store Sales Up 2% Globally and in the U.S., Up 4% in China - Consolidated Net Revenues Up 14% to a Record $6.0 Billion

Starbucks

Starbucks Corporation (NASDAQ: SBUX) reported financial results for its 13-week fiscal second quarter ended April 1, 2018. GAAP results in fiscal 2018 and fiscal 2017 include items which are excluded from non-GAAP results. Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release for more information.

Q2 Fiscal 2018 Highlights

  • Global comparable store sales increased 2%, driven by a 3% increase in average ticket
    • Americas and U.S. comp store sales increased 2%
    • CAP comp store sales increased 3%
      • China comp store sales increased 4%
  • Consolidated net revenues of $6.0 billion, up 14% over the prior year including:
    • 3% net benefit from consolidation of the recently acquired East China business and other streamline-driven activities, including Teavana mall store closures, the Tazo divestiture, and the conversion of certain international retail operations from company-owned to licensed models
    • 2% benefit from foreign currency translation
  • GAAP operating margin, inclusive of restructuring and impairment charges, declined to 12.8%, down 490 basis points compared to the prior year
    • Non-GAAP operating margin of 16.2% declined 170 basis points compared to the prior year
  • GAAP Earnings Per Share of $0.47, up 4% over the prior year
    • Non-GAAP EPS of $0.53, up 18% over the prior year
  • The Starbucks RewardsTM loyalty program added 1.6 million active members in the U.S., up 12% over the prior year
  • Starbucks RewardsTM member spend increased to 39% of U.S. company-operated sales; Mobile Order and Pay represented 12% of U.S. company-operated transactions
  • The company opened 468 net new Starbucks stores in Q2 and now operates 28,209 stores across 76 markets. During the quarter, the company also closed 298 Teavana® stores
  • The company returned $2.0 billion to shareholders in the quarter through a combination of dividends and share repurchases

“Starbucks Q2 of fiscal 2018 represented another quarter of record financial results, highlighted by accelerating momentum across our Americas business - particularly in the U.S., continued strong performance in China and our strongest comp growth in Japan in five quarters,” said Kevin Johnson, president and ceo. “At the same time we made measurable progress against each of the strategic initiatives that position Starbucks to continue delivering best-in-class operating and financial results long into the future.”

“We have a clear set of actions underway to improve profitability through a combination of comp and beverage growth and savings across COGS, waste and labor as we move through the back half of the year,” said Scott Maw, cfo. “We are continuing to invest in our business - strategically and with a ‘long game’ mentality - while at the same time taking decisive near-term action to maximize our brand portfolio and ensure that we continue to deliver outsized returns to our shareholders in the quarters and years ahead.”

Second Quarter Fiscal 2018 Summary

   

Quarter Ended Apr 1, 2018
Comparable Store Sales(1)   Sales Growth   Change in Transactions   Change in Ticket
Consolidated

2%   (1)%   3%
Americas

2%

0%

3%
CAP

3%

0%

3%
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 April 1, 2018.
 

 

 

     
Operating Results

Quarter Ended

Change
($ in millions, except per share amounts)   Apr 1, 2018   Apr 2, 2017  
Net New Stores (1)

170   427

(257)
Revenues

$6,031.8

$5,294.0

14%
Operating Income

$772.5

$935.4

(17)%
Operating Margin

12.8%

17.7%

(490) bps
EPS   $0.47   $0.45   4%

(1) Q2 2018 net new stores include the closure of 298 Teavana-branded stores.

 

Consolidated net revenues grew 14% over Q2 FY17 to $6.0 billion in Q2 FY18, primarily driven by incremental revenues from the impact of our ownership change in East China, incremental revenues from 2,103 net new Starbucks store openings over the past 12 months, and 2% growth in global comparable store sales.

Consolidated operating income declined 17% to $772.5 million in Q2 FY18, down from $935.4 million in Q2 FY17. Consolidated operating margin declined 490 basis points to 12.8%, primarily due to restructuring and impairments, food-related mix shift primarily in the Americas segment, higher investments in our store partners (employees), and the impact of our ownership change in East China.

Q2 Americas Segment Results

           

Quarter Ended   Change
($ in millions)   Apr 1, 2018   Apr 2, 2017  
Net New Stores

187   200

(13)
Revenues

$4,003.5

$3,720.4

8%
Operating Income

$801.3

$826.1

(3)%
Operating Margin   20.0%   22.2%   (220) bps

 

Net revenues for the Americas segment grew 8% over Q2 FY17 to $4.0 billion in Q2 FY18, primarily driven by incremental revenues from 966 net new store openings over the past 12 months and a 2% growth in comparable store sales.

Operating income declined 3% to $801.3 million in Q2 FY18, down from $826.1 million in Q2 FY17. Operating margin of 20.0% declined 220 basis points, primarily due to higher investments in our store partners (employees) and food-related mix shift.

Q2 China/Asia Pacific Segment Results

           

Quarter Ended   Change
($ in millions)   Apr 1, 2018   Apr 2, 2017  
Net New Stores

216   187

29
Revenues

$1,186.4

$768.9

54%
Operating Income

$204.6

$175.9

16%
Operating Margin   17.2%   22.9%   (570) bps

Net revenues for the China/Asia Pacific segment grew 54% over Q2 FY17 to $1,186.4 million in Q2 FY18, primarily driven by incremental revenues from the impact of our ownership change in East China, incremental revenues from 759 net new store openings over the past 12 months, favorable foreign currency translation, and a 3% increase in comparable store sales. The increase was partially offset by the absence of company-operated store revenue related to the sale of our Singapore retail operations to a licensed partner in Q4 FY17.

Q2 FY18 operating income of $204.6 million grew 16% over Q2 FY17 operating income of $175.9 million. Operating margin declined 570 basis points to 17.2%, primarily due to the impact of our ownership change in East China.

Q2 EMEA Segment Results

           

Quarter Ended   Change
($ in millions)   Apr 1, 2018   Apr 2, 2017  
Net New Stores

64   46

18
Revenues

$266.1

$231.7

15%
Operating Income/(Loss)

($4.3)

$27.7

(116)%
Operating Margin   (1.6)%   12.0%   (1,360) bps

Net revenues for the EMEA segment grew 15% over Q2 FY17 to $266.1 million in Q2 FY18, primarily driven by favorable foreign currency translation and incremental revenues from the opening of 385 net new licensed stores over the past 12 months. Partially offsetting the increase was a decrease in comparable store sales.

Operating loss of $4.3 million in Q2 FY18 declined 116% versus operating income of $27.7 million in Q2 FY17. Operating margin declined 1,360 basis points to (1.6)%, primarily driven by a partial impairment of goodwill related to our Switzerland retail business and sales deleverage on company-operated stores.

Q2 Channel Development Segment Results

           

Quarter Ended   Change
($ in millions)   Apr 1, 2018   Apr 2, 2017  
Revenues

$500.2   $461.3

8%
Operating Income

$215.3

$193.6

11%
Operating Margin   43.0%   42.0%   100 bps

Net revenues for the Channel Development segment of $500.2 million in Q2 FY18 increased 8% versus the prior year quarter primarily driven by higher sales of premium single-serve products and lapping a prior year revenue deduction adjustment, partially offset by the absence of revenue from the sale of our Tazo brand in the first quarter of fiscal 2018.

Operating income of $215.3 million in Q2 FY18 grew 11% compared to Q2 FY17. Operating margin expanded 100 basis points to 43.0%, primarily driven by lapping a revenue deduction adjustment, partially offset by lower income from our North American Coffee Partnership joint venture.

Q2 All Other Segments Results

           

Quarter Ended   Change
($ in millions)   Apr 1, 2018   Apr 2, 2017  
Net New Stores

(297)   (6)

(291)
Revenues

$75.6

$111.7

(32)%
Operating Loss   $(114.8)   $(25.5)   350%

All Other Segments primarily includes Seattle’s Best Coffee®, Starbucks ReserveTM Coffee and Roastery businesses, and Teavana-branded stores. The operating loss in Q2 FY18 was primarily due to restructuring costs related to our strategy to close Teavana retail stores and focus on TeavanaTM tea within Starbucks stores.

Year to Date Financial Results

           

Two Quarters Ended April 1, 2018
Comparable Store Sales(1)   Sales Growth   Change in Transactions   Change in Ticket
Consolidated

2%   0%   2%
Americas

2%

0%

2%
CAP

2%

0%

2%
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 April 1, 2018.
 

           
Operating Results

Two Quarters Ended   Change
($ in millions, except per share amounts)   Apr 1, 2018   Apr 2, 2017  
Net New Stores (1)

870   1,076

(206)
Revenues

$12,105.5

$11,027.0

10%
Operating Income

$1,888.6

$2,068.3

(9)%
Operating Margin

15.6%

18.8%

(320) bps
EPS   $2.05   $0.96   114%
(1) Fiscal 2018 net new stores include the net closure of 300 Teavana-branded stores.
 

Fiscal 2018 Targets

The company reiterates the following full year FY18 targets but notes that all guidance items exclude the yet to be determined impact of its previously announced plan to close more than 8,000 company-owned stores in the U.S. on May 29, 2018 to conduct racial-bias training for all partners (employees) in the U.S.

  • Continue to expect approximately 2,300 net new Starbucks 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 when excluding approximately 2 points of net favorability from the East China acquisition and other streamline-driven activities
  • Continue to 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

Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release.

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 http://investor.starbucks.com.

Company Updates

  • Starbucks announced it will close more than 8,000 company-owned stores and its corporate offices in the U.S. on May 29 to conduct racial-bias training for all partners (employees) in the U.S. The training will be provided to nearly 175,000 partners (employees) across the country and will become part of the onboarding process for new partners. Once complete, the company will make the education materials available to other companies, including its licensees.
  • The company hosted its 26th Annual Meeting of Shareholders on March 21 in Seattle. The company announced that Starbucks had reached 100 percent pay equity for partners of all genders and races performing similar work across the U.S.
  • In partnership with Closed Loop Partners and its Center for the Circular Economy, Starbucks committed $10 million in March to establish a groundbreaking consortium launching the NextGen Cup Challenge. Through the NextGen Cup Challenge, the consortium will award accelerator grants to promote the development of more sustainable cup solutions and invite industry participation and partnership on the way to identifying a global solution.
  • The company announced that it had entered into an agreement with SouthRock Capital Ltda – a leading multi-brand restaurant operator in Brazil – to fully license Starbucks retail operations in Brazil. The agreement provides SouthRock the rights to develop and operate Starbucks stores across the country. With the transition of ownership in Brazil, Starbucks retail operations across all markets in Latin America and the Caribbean became wholly licensed.
  • In March Starbucks opened the doors to its 46,000-square foot Hacienda Alsacia Visitor Center, located on the grounds of its Costa Rican coffee farm.
  • The company opened its Starbucks ReserveTM Coffee SODO store in Seattle on February 27, inviting visitors to take a journey of discovery with small-lot Starbucks ReserveTM coffees and PrinciTM food. This location is the first of the company’s new Starbucks Reserve store concept, introducing a marketplace-style environment to showcase its premium Starbucks Reserve brand.
  • In February, Starbucks and Chase announced the availability of the Starbucks RewardsTM Visa® Card, a co-brand credit card integrated directly into the Starbucks RewardsTM loyalty program. The new credit card is an expansion of the ongoing relationship between the two companies. Chase Merchant Services is the payment processing partner for Starbucks stores in the U.S. and Canada, and Chase Pay is accepted at participating Starbucks stores in the U.S., as well as through the Starbucks mobile app.
  • For the 12th consecutive year, Starbucks was named one of the World’s Most Ethical Companies by the Ethisphere Institute in February. Separately, Starbucks was named the fifth most admired company in the world by Fortune magazine in January. This is the 16th year in a row that Starbucks has appeared on Fortune’s global list.
  • The company closed an underwritten public offering of $1 billion of 3.100% senior notes due 2023 and $600 million of 3.500% senior notes due 2028. The company plans to use the net proceeds for general corporate purposes, including the repurchase of Starbucks common stock under the company’s ongoing share repurchase program, business expansion, payment of cash dividends on Starbucks common stock, or the financing of possible acquisitions.
  • The company repurchased 27.4 million shares of common stock in Q2 FY18; the company's Board of Directors has authorized an additional 100 million shares for repurchase under its ongoing share repurchase program. With the additional 100 million shares, the company now has approximately 124 million shares available for purchase under current authorizations.
  • The Board of Directors declared a cash dividend of $0.30 per share, payable on May 25, 2018, to shareholders of record as of May 10, 2018.

About Starbucks

Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup.

STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited, in millions, except per share data)

 

Quarter Ended   Quarter Ended

Apr 1,

2018

  Apr 2,

2017

 

%

Change

Apr 1,

2018

  Apr 2,

2017

 

 

As a % of total net revenues
Net revenues:

 

Company-operated stores

$ 4,828.0

$ 4,195.4

15.1 %

80.0 %

79.2 %
Licensed stores

625.6

546.7

14.4

10.4

10.3

CPG, foodservice and other (1)

578.2  

551.9  

4.8

9.6  

10.4  
Total net revenues

6,031.8

5,294.0

13.9

100.0

100.0

Cost of sales including occupancy costs (2)

2,516.0

2,141.2

17.5

41.7

40.4

Store operating expenses

1,789.6

1,586.4

12.8

29.7

30.0

Other operating expenses (3)

134.3

134.7

(0.3 )

2.2

2.5

Depreciation and amortization expenses

331.6

253.6

30.8

5.5

4.8

General and administrative expenses

405.8

326.8

24.2

6.7

6.2

Restructuring and impairments (4)

134.7  

 

nm

2.2  

 
Total operating expenses

5,312.0

4,442.7

19.6

88.1

83.9

Income from equity investees

52.7  

84.1  

(37.3 )

0.9  

1.6  
Operating income

772.5

935.4

(17.4 )

12.8

17.7

Gain resulting from acquisition of joint venture (5)

47.6

nm

0.8

Gain/(loss) resulting from divestiture of certain operations (6)

(4.9 )

9.6

nm

(0.1 )

0.2

Interest income and other, net

35.5

58.3

(39.1 )

0.6

1.1

Interest expense

(35.1 )

(22.9 )

53.3

(0.6 )

(0.4 )
Earnings before income taxes

815.6

980.4

(16.8 )

13.5

18.5

Income tax expense

155.8  

327.6  

(52.4 )

2.6  

6.2  
Net earnings including noncontrolling interests

659.8

652.8

1.1

10.9

12.3

Net loss attributable to noncontrolling interests

(0.3 )

 

nm

 

 
Net earnings attributable to Starbucks

$ 660.1  

$ 652.8  

1.1

10.9 %

12.3 %
Net earnings per common share - diluted

$ 0.47  

$ 0.45  

4.4 %

Weighted avg. shares outstanding - diluted

1,406.6

1,464.8

Cash dividends declared per share

$ 0.30

$ 0.25

Supplemental Ratios:

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

37.1 %

37.8 %
Other operating expenses as a % of non-company-operated store revenues

11.2 %

12.3 %
Effective tax rate including noncontrolling interests

19.1 %

33.4 %
(1)  

CPG revenues in Q2 FY17 included an unfavorable revenue deduction adjustment pertaining to prior periods of $20.6 million.

(2)

Reduced inventory write-offs of $2.3 million related to our restructuring efforts was recorded in cost of sales including occupancy costs.

(3)

Includes $2.8 million of business process optimization costs, primarily consulting fees.

(4)

Represents $106.2 million associated with our restructuring efforts, primarily lease termination costs and $28.5 million of Switzerland goodwill impairment.

(5)

Represents a gain adjustment related to finalizing the acquisition of our East China joint venture.

(6)

Primarily includes the loss on the sale of our Brazil retail operations of $8.5 million and a gain adjustment related to finalizing the sale of our Taiwan joint venture of $3.6 million.

(7)

Included in interest income and other, net is the gain on the sale of our investment in Square, Inc. warrants of $40.5 million in Q2 FY17.

 

  Two Quarters Ended   Two Quarters Ended

Apr 1,

2018

  Apr 2,

2017

 

%

Change

Apr 1,

2018

  Apr 2,

2017

 

 

As a % of total

net revenues

Net revenues:

 

Company-operated stores

$ 9,569.8

$ 8,664.7

10.4 %

79.1 %

78.6 %
Licensed stores

1,308.0

1,149.1

13.8

10.8

10.4

CPG, foodservice and other (1)

1,227.7  

1,213.2  

1.2

10.1  

11.0  
Total net revenues

12,105.5

11,027.0

9.8

100.0

100.0

Cost of sales including occupancy costs (2)

5,018.9

4,436.2

13.1

41.5

40.2

Store operating expenses

3,526.5

3,224.6

9.4

29.1

29.2

Other operating expenses (3)

276.0

280.1

(1.5 )

2.3

2.5

Depreciation and amortization expenses

590.4

503.3

17.3

4.9

4.6

General and administrative expenses

784.9

683.1

14.9

6.5

6.2

Restructuring and impairments (4)

162.3  

 

nm

1.3  

 
Total operating expenses

10,359.0

9,127.3

13.5

85.6

82.8

Income from equity investees

142.1  

168.6  

(15.7 )

1.2  

1.5  

Operating income

1,888.6

2,068.3

(8.7 )

15.6

18.8

Gain resulting from acquisition of joint venture (5)

1,373.9

nm

11.3

Gain/(loss) resulting from divestiture of certain operations (6)

496.3

9.6

nm

4.1

0.1

Interest income and other, net (7)

123.7

82.4

50.1

1.0

0.7

Interest expense

(61.0 )

(46.7 )

30.6

(0.5 )

(0.4 )
Earnings before income taxes

3,821.5

2,113.6

80.8

31.6

19.2

Income tax expense

911.6  

709.0  

28.6

7.5  

6.4  
Net earnings including noncontrolling interests

2,909.9

1,404.6

107.2

24.0

12.7

Net loss attributable to noncontrolling interests

(0.4 )

(0.3 )

33.3

 

 
Net earnings attributable to Starbucks

$ 2,910.3  

$ 1,404.9  

107.2

24.0 %

12.7 %

 
Net earnings per common share - diluted

$ 2.05  

$ 0.96  

113.5 %

Weighted avg. shares outstanding - diluted

1,420.5

1,467.7

 
Cash dividends declared per share

$ 0.60

$ 0.50

 
Supplemental Ratios:

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

36.9 %

37.2 %
Other operating expenses as a % of non-company-operated store revenues

10.9 %

11.9 %
Effective tax rate including noncontrolling interests

23.9 %

33.5 %
(1)   CPG revenues in Q2 FY17 included an unfavorable revenue deduction adjustment pertaining to prior periods of $13.2 million.
(2)

As a result of our restructuring efforts, $2.1 million was recorded in cost of sales including occupancy costs related to inventory write-offs.
(3)

Includes $2.8 million of business process optimization costs, primarily consulting fees.
(4)

Primarily includes restructuring expenses of $131.3 million associated with our Teavana-branded stores, $2.5 million related to our Starbucks North American retail businesses and $28.5 million of Switzerland goodwill impairment.
(5)

Represents the gain resulting from the acquisition of our East China joint venture.
(6)

Primarily includes the gains on the sales of our Tazo brand and Taiwan joint venture for $347.9 million and $156.6 million, respectively.
(7)

Included in interest income and other, net is the gain on the sale of our investment in Square, Inc. warrants of $40.5 million in Q2 FY17.

 

Segment Results (in millions)

 

 

 

 

 

Americas

         

     

Apr 1,

2018

  Apr 2,

2017

 

%

Change

Apr 1,

2018

  Apr 2,

2017

Quarter Ended

As a % of Americas

total net revenues

Net revenues:

Company-operated stores

$ 3,564.8

$ 3,334.9

6.9 %

89.0 %

89.6 %
Licensed stores

429.3

376.7

14.0

10.7

10.1

Foodservice and other

9.4  

8.8  

6.8

0.2  

0.2  
Total net revenues

4,003.5

3,720.4

7.6

100.0

100.0

Cost of sales including occupancy costs

1,534.4

1,354.9

13.2

38.3

36.4

Store operating expenses

1,411.8

1,299.1

8.7

35.3

34.9

Other operating expenses

34.7

31.5

10.2

0.9

0.8

Depreciation and amortization expenses

160.4

155.4

3.2

4.0

4.2

General and administrative expenses

60.0

53.4

12.4

1.5

1.4

Restructuring expenses (1)

0.9  

 

nm

 

 
Total operating expenses

3,202.2  

2,894.3  

10.6

80.0  

77.8  
Operating income

$ 801.3  

$ 826.1  

(3.0 )%

20.0 %

22.2 %
Supplemental Ratios:

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

39.6 %

39.0 %
Other operating expenses as a % of non-company-operated store revenues

7.9 %

8.2 %

 

Two Quarters Ended

Net revenues:

Company-operated stores

$ 7,351.8

$ 6,895.9

6.6 %

88.9 %

89.4 %
Licensed stores

896.0

798.0

12.3

10.8

10.3

Foodservice and other

21.5  

17.9  

20.1

0.3  

0.2  
Total net revenues

8,269.3

7,711.8

7.2

100.0

100.0

Cost of sales including occupancy costs

3,138.2

2,795.2

12.3

38.0

36.2

Store operating expenses

2,845.3

2,655.5

7.1

34.4

34.4

Other operating expenses

72.2

63.4

13.9

0.9

0.8

Depreciation and amortization expenses

318.4

307.8

3.4

3.9

4.0

General and administrative expenses

112.1

105.3

6.5

1.4

1.4

Restructuring expenses (1)

2.5  

 

nm

 

 
Total operating expenses

6,488.7  

5,927.2  

9.5

78.5  

76.9  
Operating income

$ 1,780.6  

$ 1,784.6  

(0.2 )%

21.5 %

23.1 %
Supplemental Ratios:

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

38.7 %

38.5 %
Other operating expenses as a % of non-company-operated store revenues

7.9 %

7.8 %
(1)   Represents restructuring expenses of $0.9 million and $2.5 million for the quarter and two quarters ended April 1, 2018, respectively, related to our Starbucks North American retail business.

 

China/Asia Pacific (CAP)

                   

Apr 1,

2018

  Apr 2,

2017

 

%

Change

Apr 1,

2018

  Apr 2,

2017

Quarter Ended

 

 

As a % of CAP

total net revenues

Net revenues:

 

Company-operated stores

$ 1,098.6

$ 687.8

59.7 %

92.6 %

89.5 %
Licensed stores

84.3

78.4

7.5

7.1

10.2

Foodservice and other

3.5  

2.7  

29.6

0.3  

0.4  
Total net revenues

1,186.4

768.9

54.3

100.0

100.0

Cost of sales including occupancy costs

510.6

333.5

53.1

43.0

43.4

Store operating expenses

306.5

202.5

51.4

25.8

26.3

Other operating expenses

18.6

17.6

5.7

1.6

2.3

Depreciation and amortization expenses

121.6

49.3

146.7

10.2

6.4

General and administrative expenses

41.2  

34.2  

20.5

3.5  

4.4  
Total operating expenses

998.5

637.1

56.7

84.2

82.9

Income from equity investees

16.7  

44.1  

(62.1 )

1.4  

5.7  
Operating income

$ 204.6  

$ 175.9  

16.3 %

17.2 %

22.9 %
Supplemental Ratios:

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

27.9 %

29.4 %
Other operating expenses as a % of non-company-operated store revenues

21.2 %

21.7 %

 

Two Quarters Ended

Net revenues:

Company-operated stores

$ 1,841.1

$ 1,379.2

33.5 %

90.7 %

89.6 %
Licensed stores

182.6

156.4

16.8

9.0

10.2

Foodservice and other

6.3  

4.0  

57.5

0.3  

0.3  
Total net revenues

2,030.0

1,539.6

31.9

100.0

100.0

Cost of sales including occupancy costs

882.3

670.8

31.5

43.5

43.6

Store operating expenses

525.1

406.8

29.1

25.9

26.4

Other operating expenses

39.8

36.7

8.4

2.0

2.4

Depreciation and amortization expenses

175.3

98.0

78.9

8.6

6.4

General and administrative expenses

73.6  

74.8  

(1.6 )

3.6  

4.9  
Total operating expenses

1,696.1

1,287.1

31.8

83.6

83.6

Income from equity investees

67.5  

86.6  

(22.1 )

3.3  

5.6  
Operating income

$ 401.4  

$ 339.1  

18.4 %

19.8 %

22.0 %
Supplemental Ratios:

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

28.5 %

29.5 %
Other operating expenses as a % of non-company-operated store revenues

21.1 %

22.9 %

 

EMEA

                   

Apr 1,

2018

  Apr 2,

2017

 

%

Change

Apr 1,

2018

  Apr 2,

2017

Quarter Ended

 

 

As a % of EMEA

total net revenues

Net revenues:

 

Company-operated stores

$ 138.7

$ 127.5

8.8 %

52.1 %

55.0 %
Licensed stores

112.0

90.9

23.2

42.1

39.2

Foodservice

15.4  

13.3  

15.8

5.8  

5.7  
Total net revenues

266.1

231.7

14.8

100.0

100.0

Cost of sales including occupancy costs

145.1

122.6

18.4

54.5

52.9

Store operating expenses

57.7

50.3

14.7

21.7

21.7

Other operating expenses (1)

20.0

14.1

41.8

7.5

6.1

Depreciation and amortization expenses

8.1

7.6

6.6

3.0

3.3

General and administrative expenses

11.0

9.4

17.0

4.1

4.1

Restructuring and impairments (2)

28.5  

 

nm

10.7  

 
Total operating expenses

270.4  

204.0  

32.5

101.6  

88.0  

Operating income/(loss)

$ (4.3 )

$ 27.7  

(115.5 )%

(1.6 )%

12.0 %
Supplemental Ratios:

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

41.6 %

39.5 %
Other operating expenses as a % of non-company-operated store revenues

15.7 %

13.5 %

 

Two Quarters Ended

Net revenues:

Company-operated stores

$ 290.2

$ 273.4

6.1 %

52.8 %

55.4 %
Licensed stores

228.2

193.0

18.2

41.5

39.1

Foodservice

31.5  

27.5  

14.5

5.7  

5.6  
Total net revenues

549.9

493.9

11.3

100.0

100.0

Cost of sales including occupancy costs

297.2

258.7

14.9

54.0

52.4

Store operating expenses

112.4

97.1

15.8

20.4

19.7

Other operating expenses (1)

36.3

30.2

20.2

6.6

6.1

Depreciation and amortization expenses

15.8

15.2

3.9

2.9

3.1

General and administrative expenses

25.0

21.1

18.5

4.5

4.3

Restructuring and impairments (2)

28.5  

 

nm

5.2  

 
Total operating expenses

515.2  

422.3  

22.0

93.7  

85.5  
Operating income

$ 34.7  

$ 71.6  

(51.5 )%

6.3 %

14.5 %
Supplemental Ratios:

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

38.7 %

35.5 %
Other operating expenses as a % of non-company-operated store revenues

14.0 %

13.7 %
(1)  

Includes $2.8 million of business process optimization costs, primarily consulting fees.

(2)

Represents goodwill impairment of $28.5 million related to our Switzerland retail business.

 

Channel Development

                   

Apr 1,

2018

  Apr 2,

2017

 

%

Change

Apr 1,

2018

  Apr 2,

2017

Quarter Ended

 

 

As a % of

Channel Development

total net revenues

Net revenues:

 

CPG (1)

$ 379.9

$ 346.3

9.7 %

75.9 %

75.1 %
Foodservice

120.3  

115.0  

4.6

24.1  

24.9  
Total net revenues

500.2

461.3

8.4

100.0

100.0

Cost of sales

268.0

254.5

5.3

53.6

55.2

Other operating expenses

49.4

50.5

(2.2 )

9.9

10.9

Depreciation and amortization expenses

0.2

0.6

(66.7 )

0.1

General and administrative expenses

3.3  

2.1  

57.1

0.7  

0.5  
Total operating expenses

320.9

307.7

4.3

64.2

66.7

Income from equity investees

36.0  

40.0  

(10.0 )

7.2  

8.7  
Operating income

$ 215.3  

$ 193.6  

11.2 %

43.0 %

42.0 %

 

Two Quarters Ended

Net revenues:

CPG (1)

$ 815.6

$ 783.3

4.1 %

76.9 %

77.2 %
Foodservice

244.8  

231.6  

5.7

23.1  

22.8  
Total net revenues

1,060.4

1,014.9

4.5

100.0

100.0

Cost of sales

564.3

543.0

3.9

53.2

53.5

Other operating expenses

104.9

110.9

(5.4 )

9.9

10.9

Depreciation and amortization expenses

0.7

1.2

(41.7 )

0.1

0.1

General and administrative expenses

6.7  

5.4  

24.1

0.6  

0.5  
Total operating expenses

676.6

660.5

2.4

63.8

65.1

Income from equity investees

74.6  

82.0  

(9.0 )

7.0  

8.1  
Operating income

$ 458.4  

$ 436.4  

5.0 %

43.2 %

43.0 %
(1)  

CPG revenues included an unfavorable revenue deduction adjustment pertaining to periods prior to the Q2 FY17 and YTD FY17 of $20.6 million and $13.2 million, respectively, as recorded in Q2 FY17.

 

All Other Segments

             

Apr 1,

2018

  Apr 2,

2017

  %

Change

Quarter Ended

     
Net revenues:

Company-operated stores

$ 25.9

$ 45.2

(42.7 )%
Licensed stores

0.7

nm
CPG, foodservice and other

49.7  

65.8  

(24.5 )
Total net revenues

75.6

111.7

(32.3 )
Cost of sales including occupancy costs (1)

57.8

74.1

(22.0 )
Store operating expenses

13.6

34.5

(60.6 )
Other operating expenses

10.7

20.7

(48.3 )
Depreciation and amortization expenses

1.0

3.5

(71.4 )
General and administrative expenses

2.0

4.4

(54.5 )
Restructuring expenses (2)

105.3  

 

nm
Total operating expenses

190.4  

137.2  

38.8

Operating loss

$ (114.8 )

$ (25.5 )

350.2

 

Two Quarters Ended

Net revenues:

Company-operated stores

$ 86.7

$ 116.2

(25.4 )%
Licensed stores

1.2

1.7

(29.4 )
CPG, foodservice and other

108.0  

148.9  

(27.5 )
Total net revenues

195.9

266.8

(26.6 )
Cost of sales including occupancy costs (1)

137.0

164.5

(16.7 )
Store operating expenses

43.7

65.2

(33.0 )
Other operating expenses

22.1

38.2

(42.1 )
Depreciation and amortization expenses

1.7

6.3

(73.0 )
General and administrative expenses

4.7

8.0

(41.3 )
Restructuring expenses (2)

131.3  

 

nm
Total operating expenses

340.5  

282.2  

20.7

Operating loss

$ (144.6 )

$ (15.4 )

839.0 %
(1)   As a result of our restructuring efforts, ($2.3) million and $2.1 million for the quarter and two quarters ended April 1, 2018, respectively, was recorded in cost of sales including occupancy costs related to inventory write-offs.
(2)

Primarily includes restructuring expenses of $105.3 million and $131.3 million for the quarter and two quarters ended April 1, 2018, respectively, 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) Apr 1, 2018   Apr 2, 2017   Change
Revenues $3,656.2   $3,417.0

7%
Comparable Store Sales Growth(1) 2%

3%

Change in Transactions 0%

(2%)

Change in Ticket 3%   4%    
(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   Two Quarters Ended

Stores open as of

Apr 1,

2018

  Apr 2,

2017

Apr 1,

2018

  Apr 2,

2017

Apr 1,

2018

  Apr 2,

2017

Americas:

Company-operated stores

(29 )

82

83

157

9,496

9,176
Licensed stores

216  

118  

382  

294  

7,528  

6,882
Total Americas

187  

200  

465  

451  

17,024  

16,058
China/Asia Pacific(1):

Company-operated stores

134

67

1,746

171

4,816

2,982
Licensed stores

82  

120  

(1,230 )

319  

3,179  

3,951
Total China/Asia Pacific

216  

187  

516  

490  

7,995  

6,933
EMEA:

Company-operated stores

(7 )

(6 )

(18 )

496

505
Licensed stores

71  

46  

193  

159  

2,665  

2,278
Total EMEA

64  

46  

187  

141  

3,161  

2,783
All Other Segments(2):

Company-operated stores

(285 )

(7 )

(286 )

(9 )

4

349
Licensed stores

(12 )

1  

(12 )

3  

25  

38
Total All Other Segments

(297 )

(6 )

(298 )

(6 )

29  

387

 

 

 

 

 

 
Total Company

170  

427  

870  

1,076  

28,209  

26,161

 

(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 April 1, 2018, All Other Segments included 25 licensed Teavana-branded stores.

 

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.
Sale of Brazil retail operations   Management excludes the net loss related to the sale of our Brazil retail operations and associated transaction costs as these items do not reflect future losses, expenses or tax impacts for reasons discussed above.
Restructuring, impairment and optimization costs   Management excludes restructuring charges and business process optimization costs related to strategic shifts in its Teavana, e-commerce and other business units. Additionally, management excludes expenses related to divesting certain lower margin businesses and assets, such as closure of certain company-operated stores and Switzerland goodwill impairment. Management excludes these items for reasons discussed above. 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

Apr 1,

2018

  Apr 2,

2017

Change
Operating income, as reported (GAAP)

$ 772.5

$ 935.4

(17.4)%
Restructuring, impairment and optimization costs (1)

135.2

CAP transaction and integration-related items (2)

66.9

13.8

Sale of Brazil retail operations transaction costs

1.6

Sale of Tazo brand transaction costs

0.9  

 

Non-GAAP operating income

$ 977.1  

$ 949.2  

2.9%

 
Operating margin, as reported (GAAP)

12.8 %

17.7 %

(490) bps
Restructuring, impairment and optimization costs (1)

2.2

CAP transaction and integration-related items (2)

1.1

0.3

Sale of Brazil retail operations transaction costs

Sale of Tazo brand

 

 

Non-GAAP operating margin

16.2 %

17.9 %

(170) bps

 
Diluted net earnings per share, as reported (GAAP)

$ 0.47

$ 0.45

4.4%
East China acquisition gain

(0.03 )

Sale of Taiwan joint venture operations

Sale of Tazo brand, net of transaction costs

Restructuring, impairment and optimization costs (1)

0.10

CAP transaction and integration-related items (2)

0.05

0.01

Sale of Germany retail operations (3)

(0.01 )

Loss on sale of Brazil retail operations, net of transaction costs

Other tax matters (4)

0.02

Income tax effect on Non-GAAP adjustments (5)

(0.08 )

 

Non-GAAP net earnings per share

$ 0.53  

$ 0.45  

17.8%
(1)   Represents $106.2 million associated with our restructuring efforts, primarily lease termination costs, $28.5 million of Switzerland goodwill impairment and $2.8 million of business process optimization costs, primarily consulting fees. These were partially offset by $2.3 million of reduced inventory write-offs related to these efforts, which 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 East China and Starbucks Japan; and the related post-acquisition integration costs, such as incremental information technology and compensation-related costs.
(3)

Represents a Q2 FY17 adjustment associated with estimated indemnifications related to the sale of our Germany retail operations, which occurred in FY16.
(4)

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.
(5)

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

(0.98 )

Sale of Taiwan joint venture operations

(0.11 )

Sale of Tazo brand

(0.25 )

Restructuring, impairment and optimization costs (1)

0.14

0.11

CAP transaction and integration-related items (2)

0.18

0.04

Sale of Brazil retail operations

0.01

Sale of Singapore retail operations

(0.06 )

Sale of Germany retail operations

(0.01 )

The Starbucks Foundation donation

0.03

Other tax matters (3)

0.13

2018 U.S. stock award (4)

0.03

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, impairment and business optimization costs and inventory write-offs related to these efforts 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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