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Starbucks Reports Q3 Fiscal 2022 Results

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Consolidated Net Revenues Up 9% to a quarterly record $8.2 Billion

Q3 Comparable Store Sales Up 3% Globally; Up 9% in the U.S. and Up Double Digits Internationally, ex-China

Q3 GAAP EPS $0.79; Non-GAAP EPS of $0.84, Driven by U.S. Performance and Global Demand Outside of China

Active Starbucks® Rewards Membership Up 13% in the U.S. in Q3 to 27.4 Million Members

SEATTLE, August 02, 2022--(BUSINESS WIRE)--Starbucks Corporation (NASDAQ: SBUX) today reported financial results for its 13-week fiscal third quarter ended July 3, 2022. GAAP results in fiscal 2022 and fiscal 2021 include items that 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.

Q3 Fiscal 2022 Highlights

  • Global comparable store sales increased 3%, driven by a 6% increase in average ticket, partially offset by a 3% decline in comparable transactions

    • North America comparable store sales increased 9%, driven by an 8% increase in average ticket and a 1% increase in comparable transactions; U.S. comparable store sales increased 9%, primarily driven by an 8% increase in average ticket

    • International comparable store sales decreased 18%, driven by a 15% decline in comparable transactions and a 4% decline in average ticket; China comparable store sales decreased 44%, driven by a 43% decline in comparable transactions and a 1% decline in average ticket

  • The company opened 318 net new stores in Q3, ending the period with 34,948 stores globally: 51% company-operated and 49% licensed

    • At the end of Q3, stores in the U.S. and China comprised 61% of the company’s global portfolio, with 15,650 stores in the U.S and 5,761 stores in China

  • Consolidated net revenues up 9% to a quarterly record $8.2 billion, including a 2% adverse impact from foreign currency translation

  • GAAP operating margin of 15.9% decreased 400 basis points from 19.9% in the prior year, primarily driven by inflationary pressures, investments in labor including enhanced store partner wages as well as sales deleverage related to COVID-19 restrictions in China, partially offset by pricing in North America and leverage across markets outside of China

    • Non-GAAP operating margin of 16.9% decreased from 20.4% in the prior year

  • GAAP earnings per share of $0.79, down from $0.97 in the prior year

    • Non-GAAP earnings per share of $0.84, down from $0.99 in the prior year

  • Starbucks® Rewards loyalty program 90-day active members in the U.S. increased to 27.4 million, up 13% year-over-year

"We have clear line-of-sight on what we need to do to reinvent the company, elevate our partner and customer experiences and drive accelerated, profitable growth all around the world," said Howard Schultz, interim chief executive officer. "The Q3 results we announced today demonstrate the early progress we have made in just four short months," Schultz added.

"We delivered record-breaking revenue performance during the quarter from continued strength in customer demand globally, balanced with our ability to execute investments despite macroeconomic and operational headwinds. Our commitment to deliver shareholder value has not wavered, and we are making the right decisions and investments today for the future of Starbucks," commented Rachel Ruggeri, chief financial officer.

Q3 North America Segment Results (1)

Quarter Ended

Change (%)

($ in millions)

Jul 3, 2022

Jun 27, 2021

Change in Comparable Store Sales (2)

9%

84%

Change in Transactions

1%

82%

Change in Ticket

8%

1%

Store Count

17,050

16,752

2%

Revenues

$6,058.4

$5,370.7

13%

Operating Income

$1,330.1

$1,304.3

2%

Operating Margin

22.0%

24.3%

(230) bps

(1)

North America store count, revenues, operating income and operating margin for the quarter ended June 27, 2021, have been restated to conform with current period presentation.

(2)

Includes only Starbucks® company-operated stores open 13 months or longer. Comparable store sales exclude the effects of fluctuations in foreign currency exchange rates and Siren Retail stores. Stores that are temporarily closed or operating at reduced hours due to the COVID-19 pandemic remain in comparable store sales while stores identified for permanent closure have been removed.

Net revenues for the North America segment grew 13% over Q3 FY21 to $6.1 billion in Q3 FY22, primarily driven by a 9% increase in company-operated comparable store sales, driven by an 8% increase in average ticket and a 1% increase in transactions, net new store growth of 2% over the past 12 months and strength in our licensed store sales.

Operating income increased to $1,330.1 million in Q3 FY22, up from $1,304.3 million in Q3 FY21. Operating margin of 22.0% contracted from 24.3% in the prior year, primarily driven by higher commodity and supply chain costs due to inflationary pressures, investments in labor including enhanced store partner wages as well as increased spend on partner training support costs. This contraction was partially offset by pricing.

Q3 International Segment Results (1)

Quarter Ended

Change (%)

($ in millions)

Jul 3, 2022

Jun 27, 2021

Change in Comparable Store Sales (2)

(18)%

41%

Change in Transactions

(15)%

55%

Change in Ticket

(4)%

(9)%

Store Count

17,898

16,543

8%

Revenues

$1,584.7

$1,688.0

(6)%

Operating Income

$135.3

$327.3

(59)%

Operating Margin

8.5%

19.4%

(1,090) bps

(1)

International store count, revenues, operating income and operating margin for the quarter ended June 27, 2021, have been restated to conform with current period presentation.

(2)

Includes only Starbucks® company-operated stores open 13 months or longer. Comparable store sales exclude the effects of fluctuations in foreign currency exchange rates and Siren Retail stores. Stores that are temporarily closed or operating at reduced hours due to the COVID-19 pandemic remain in comparable store sales while stores identified for permanent closure have been removed.

Net revenues for the International segment declined 6% over Q3 FY21 to $1.6 billion in Q3 FY22, driven by an 18% decline in comparable store sales, primarily attributable to COVID-19 related restrictions in China, as well as a 9% adverse impact from foreign currency translation. These decreases were partially offset by growth in our licensed store revenue including higher product sales, royalty revenues and the conversion of the Korea market from a joint venture to a fully licensed market in Q4 FY21, as well as 1,355 net new store openings, or 8% store growth, over the past 12 months.

Operating income decreased to $135.3 million in Q3 FY22 compared to $327.3 million in Q3 FY21. Operating margin of 8.5% contracted from 19.4% in the prior year, primarily driven by sales deleverage related to COVID-19 restrictions in China, higher commodity and supply chain costs due to inflationary pressures, lower government subsidies and investments in store partner wages, partially offset by sales leverage across markets outside of China.

Q3 Channel Development Segment Results

Quarter Ended

Change (%)

($ in millions)

Jul 3, 2022

Jun 27, 2021

Revenues

$479.7

$414.0

16%

Operating Income

$191.7

$216.0

(11)%

Operating Margin

40.0%

52.2%

(1,220) bps

Net revenues for the Channel Development segment grew 16% over Q3 FY21 to $479.7 million in Q3 FY22, driven by growth in the Global Coffee Alliance and ready-to-drink business.

Operating income decreased to $191.7 million in Q3 FY22 compared to $216.0 million in Q3 FY21. Operating margin of 40.0% contracted from 52.2% in the prior year, primarily due to lapping Global Coffee Alliance transition related activities and a decline in our North American Coffee Partnership joint venture income, largely due to inflationary pressures as well as business mix shift.

Fiscal 2022 Financial Targets

The company's guidance remains suspended for the balance of this fiscal year. Its Q3 FY22 earnings conference call will start today at 2:00 p.m. Pacific Time. These items can be accessed on the company's Investor Relations website during and after the call. The company uses its website as a tool to disclose important information about the company and comply with its disclosure obligations under Regulation Fair Disclosure.

Company Updates

  1. Since its announcement in May, the company has worked with its licensed operator to exit its business and brand in Russia and to support the nearly 2,000 green apron partners in Russia, including pay for six months and assistance for partners to transition to new opportunities outside of Starbucks.

  2. In May, the company announced entry into a definitive agreement for Bolthouse Farms to acquire the brand and business of Evolution Fresh. The acquisition closed on August 1, 2022. Participating U.S. Starbucks stores continue to sell Evolution Fresh products.

  3. In June, the company expanded U.S. healthcare benefits to ensure partners (employees) have access to quality healthcare. The benefit will reimburse partners enrolled in a Starbucks healthcare plan for eligible travel expenses to access an abortion or gender-affirming procedures when those services are not available within 100 miles of a partner's home.

  4. In June, the company announced the creation of the Heritage Market, connecting three of the company's most iconic and visited stores and partners who lead them. Partners at these stores will be uniquely trained in the company’s heritage and hometown to offer regular tours and immersions for customers. Together, the three stores in Starbucks hometown of Seattle represent the company’s historic past, present and reimagined future.

  5. In June, the company announced that indoor dining services had resumed at most Starbucks locations across Shanghai, marking another milestone in the company’s COVID journey.

  6. In July, the company reaffirmed its commitment to create a safe, welcoming and kind third place environment through select additional measures, including robust safety trainings, clarifying procedures, modifying operations and closing stores where needed. This important work will directly shape the company's policies, programs and benefits to ensure partners feel supported and empowered.

  7. In July, the company shared a set of principles and a new partnership for the reinvention of the next chapter of the company. The reinvention plan will include five strategic shifts: reunite the company to bring its mission to life, renew the well-being of retail partners by improving their experience, reimagine the store experience for greater connection, reconnect with customers by delivering memorable and personalized moments and redesign partnership by creating new ways to thrive together.

  8. The Board of Directors declared a cash dividend of $0.49 per share, payable on August 26, 2022, to shareholders of record as of August 12, 2022.

Conference Call

Starbucks will hold a conference call today at 2:00 p.m. Pacific Time, which will be hosted by Howard Schultz, interim ceo, and other members of Starbucks executive leadership team. The call will be webcast and can be accessed at http://investor.starbucks.com. A replay of the webcast will be available until end of day Friday, September 2, 2022.

About Starbucks

Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with more than 34,000 stores worldwide, 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. To share in the experience, please visit us in our stores or online at stories.starbucks.com or www.starbucks.com.

Forward-Looking Statements

Certain statements contained herein and in our investor conference call related to these results are "forward-looking" statements within the meaning of applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as "aim," "anticipate," "believe," "continue," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "outlook," "plan," "potential," "predict," "project," "seek," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements include statements relating to trends in or expectations relating to the effects of our existing and any future initiatives, strategies, investments and plans, including our reinvention plan, as well as trends in or expectations regarding our financial results and long-term growth model and drivers; our operations in the U.S. and China; our environmental, social and governance efforts; our partners; economic and consumer trends, including the impact of inflationary pressures; impact of foreign currency translation; pricing actions; the conversion of certain market operations to fully licensed models; our plans for streamlining our operations, including store openings, closures and changes in store formats and models; expanding our licensing to Nestlé of our consumer packaged goods and Foodservice businesses and its effects on our Channel Development segment results; tax rates; business opportunities and expansion; strategic acquisitions; our dividends programs; commodity costs and our mitigation strategies; our liquidity, cash flow from operations, investments, borrowing capacity and use of proceeds; continuing compliance with our covenants under our credit facilities and commercial paper program; repatriation of cash to the U.S.; the likelihood of the issuance of additional debt and the applicable interest rate; the continuing impact of the COVID-19 pandemic on our financial results and future availability of governmental subsidies for COVID-19 or other public health events; our ceo transition; our share repurchase program; our use of cash and cash requirements; the expected effects of new accounting pronouncements and the estimated impact of changes in U.S. tax law, including on tax rates, investments funded by these changes and potential outcomes; and effects of legal proceedings. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to: the continuing impact of COVID-19 on our business; regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; the resurgence of COVID-19 infections and the circulation of novel variants of COVID-19; fluctuations in U.S. and international economies and currencies; our ability to preserve, grow and leverage our brands; the ability of our business partners and third-party providers to fulfill their responsibilities and commitments; potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling; potential negative effects of material breaches of our information technology systems to the extent we experience a material breach; material failures of our information technology systems; costs associated with, and the successful execution of, the company’s initiatives and plans; new initiatives and plans or revisions to existing initiatives or plans; our ability to obtain financing on acceptable terms; the acceptance of the company’s products by our customers, evolving consumer preferences and tastes and changes in consumer spending behavior; partner investments, changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts; failure to attract or retain key executive or employee talent or successfully transition executives; significant increased logistics costs; inflationary pressures; the impact of competition; inherent risks of operating a global business including any potential negative effects stemming from the Russian invasion of Ukraine; the prices and availability of coffee, dairy and other raw materials; the effect of legal proceedings; and the effects of changes in tax laws and related guidance and regulations that may be implemented and other risks detailed in our filings with the Securities and Exchange Commission, including in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the company’s most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings.

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this release. We are under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

Key Metrics

The company's financial results and long-term growth model will continue to be driven by new store openings, comparable store sales growth and operating margin management. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.

STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited, in millions, except per share data)

Quarter Ended

Quarter Ended

Jul 3,
2022

Jun 27,
2021

%
Change

Jul 3,
2022

Jun 27,
2021

As a % of total net revenues

Net revenues:

Company-operated stores

$

6,675.5

$

6,363.1

4.9

%

81.9

%

84.9

%

Licensed stores

956.8

680.2

40.7

11.7

9.1

Other

517.8

453.2

14.3

6.4

6.0

Total net revenues

8,150.1

7,496.5

8.7

100.0

100.0

Product and distribution costs

2,613.6

2,206.0

18.5

32.1

29.4

Store operating expenses

3,302.5

2,966.9

11.3

40.5

39.6

Other operating expenses

135.1

71.4

89.2

1.7

1.0

Depreciation and amortization expenses

356.8

354.3

0.7

4.4

4.7

General and administrative expenses

486.7

494.9

(1.7

)

6.0

6.6

Restructuring and impairments

14.0

19.8

(29.3

)

0.2

0.3

Total operating expenses

6,908.7

6,113.3

13.0

84.8

81.5

Income from equity investees

54.1

105.5

(48.7

)

0.7

1.4

Operating income

1,295.5

1,488.7

(13.0

)

15.9

19.9

Interest income and other, net

19.8

36.0

(45.0

)

0.2

0.5

Interest expense

(123.1

)

(113.4

)

8.6

(1.5

)

(1.5

)

Earnings before income taxes

1,192.2

1,411.3

(15.5

)

14.6

18.8

Income tax expense

278.5

257.1

8.3

3.4

3.4

Net earnings including noncontrolling interests

913.7

1,154.2

(20.8

)

11.2

15.4

Net earnings attributable to noncontrolling interests

0.8

0.8

0.0

0.0

0.0

Net earnings attributable to Starbucks

$

912.9

$

1,153.4

(20.9

)

11.2

%

15.4

%

Net earnings per common share - diluted

$

0.79

$

0.97

(18.6

)%

Weighted avg. shares outstanding - diluted

1,151.0

1,186.2

Cash dividends declared per share

$

0.49

$

0.45

Supplemental Ratios:

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

49.5

%

46.6

%

Effective tax rate including noncontrolling interests

23.4

%

18.2

%

Three Quarters Ended

Three Quarters Ended

Jul 3,
2022

Jun 27,
2021

%
Change

Jul 3,
2022

Jun 27,
2021

As a % of total net revenues

Net revenues:

Company-operated stores

$

19,674.7

$

17,742.8

10.9

%

82.5

%

84.8

%

Licensed stores

2,657.0

1,889.0

40.7

11.1

9.0

Other

1,504.4

1,282.1

17.3

6.3

6.1

Total net revenues

23,836.1

20,913.9

14.0

100.0

100.0

Product and distribution costs

7,606.4

6,247.5

21.8

31.9

29.9

Store operating expenses

10,017.1

8,657.6

15.7

42.0

41.4

Other operating expenses

338.4

250.8

34.9

1.4

1.2

Depreciation and amortization expenses

1,090.5

1,087.0

0.3

4.6

5.2

General and administrative expenses

1,494.0

1,431.4

4.4

6.3

6.8

Restructuring and impairments

10.9

115.0

(90.5

)

0.0

0.5

Total operating expenses

20,557.3

17,789.3

15.6

86.2

85.1

Income from equity investees