01—Abstract
Summary
Summary of the 10-K filed November 16, 2018. Cited figures are marked; the original filing is the authoritative source.
Starbucks Corporation's 2018 10-K filing highlights a year of significant strategic transformations aimed at accelerating growth and streamlining operations.
The company reported a 10% increase in total net revenues to $24.7 billiona, driven by new store openings and a 2% growth in comparable store sales. However, operating income saw a decline, primarily due to increased costs related to digital platforms, technology, and a shift in product mix towards food and beverages. A major development during the year was the licensing of the company's consumer packaged goods and foodservice businesses to Nestlé, forming the Global Coffee Alliance, which provided a substantial upfront payment.
The company also completed the acquisition of its East China joint venture, solidifying its wholly-owned presence in a key growth market, and divested its Tazo brand. These strategic moves, while impacting short-term operating margins, are designed to focus resources on high-return businesses and enhance long-term shareholder value. Starbucks continued its strong commitment to returning capital to shareholders, significantly increasing share repurchases and dividends.
02—Key points
Key Highlights
- Total net revenues increased 10% to $24.7 billion, with global comparable store sales growing by 2%.
- Operating income decreased to $3.9 billion, and operating margin compressed to 15.7% due to increased costs and mix shifts.
- Significant strategic actions included licensing consumer packaged goods and foodservice businesses to Nestlé and acquiring full ownership of the East China joint venture.
- The company returned $8.9 billion to shareholders in fiscal 2018 through share repurchases and dividends, a substantial increase from the prior year.
- Restructuring and impairment charges increased to $224 million, primarily related to store closures and goodwill impairment.
- Starbucks expanded its debt financing, issuing several tranches of Senior Notes to support corporate purposes, including share repurchases.
- The company saw a substantial increase in cash flow from operations to $11.9 billion, largely due to the upfront payment from Nestlé.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Starbucks Corp kept $0.18.
- Revenue$24.72B100.0%
- Cost of revenue−$7.93B32.1%
- Gross profit$16.79B67.9%
- Operating costs−$12.91B52.2%
- Operating income$3.88B15.7%
- Interest, other & tax$635.0M2.6%
- Net income$4.52B18.3%
Where FY2018 revenue went
$24.72B- Operating costs: $12.91B, 52% of revenue
- Cost of revenue: $7.93B, 32% of revenue
- Operating income: $3.88B, 16% of revenue
Kept 16% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed November 16, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $24.72B$22.39B | +10.4% |
| Cost of Revenue | $7.93B$7.07B | +12.2% |
| Gross Profit | $16.79B$15.32B | +9.6% |
| Operating Expenses | $21.14B$18.64B | +13.4% |
| Operating Income | $3.88B$4.13B | −6.1% |
| Interest Expense | $170.30M$92.50M | +84.1% |
| Net Income | $4.52B$2.88B | +56.6% |
| EPS (Basic) | $3.27$1.99 | +64.3% |
| EPS (Diluted) | $3.24$1.97 | +64.5% |
| Shares Outstanding (Basic) | 1.38B1.45B | −4.6% |
| Shares Outstanding (Diluted) | 1.39B1.46B | −4.6% |
05—Questions
Frequently Asked Questions
What were the main strategic initiatives undertaken by Starbucks in fiscal year 2018?
Starbucks undertook several key strategic initiatives in fiscal year 2018, including the licensing of its consumer packaged goods and foodservice businesses to Nestlé to form the Global Coffee Alliance, the full acquisition of its East China joint venture, the sale of the Tazo brand, and the closure of Teavana retail stores and certain company-operated stores in the U.S. and Canada. These actions were aimed at streamlining operations and focusing on core growth areas.
How did the Nestlé deal impact Starbucks' financial performance?
The licensing agreement with Nestlé, which formed the Global Coffee Alliance, resulted in an upfront payment of approximately $7 billion. This significantly boosted Starbucks' cash flow from operations to $11.9 billion for fiscal year 2018. However, the transition of this business to a licensed model also impacted revenue recognition and operating margins within the Channel Development segment.
What factors led to the decrease in operating income and margin in fiscal year 2018?
The decrease in operating income and margin was primarily attributed to higher salaries and benefits related to digital platforms and technology infrastructure, food and beverage-related mix shifts (especially in the Americas segment), increased restructuring and impairment costs, and the impact of consolidating the East China business. These factors collectively compressed the operating margin to 15.7% from 18.5% in the prior year.
How did Starbucks return capital to shareholders in fiscal year 2018?
Starbucks significantly increased its capital return to shareholders in fiscal year 2018. The company repurchased $7.2 billion of common stock and paid $1.7 billion in cash dividends, totaling $8.9 billion returned to shareholders, a substantial increase from $3.5 billion in fiscal year 2017. This reflects a continued focus on enhancing shareholder returns.
06—Continue