10-KPeriod: FY2018

STARBUCKS CORP Annual Report, Year Ended Sep 30, 2018

Filed November 16, 2018For Securities:SBUX

Summary

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 billion, 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.

Financial Highlights

57 data points
Beta

Revenue

$24.72B

67.9% Gross Margin

Net Income

$4.52B

18.3% Net Margin

EPS (Diluted)

$3.24

Total Assets

$24.16B

Cash & Equivalents

$8.76B

Free Cash Flow

$9.96B

Financial Statements
Beta
Revenue$24.72B
Cost of Revenue$7.93B
Gross Profit$16.79B
Operating Expenses$21.14B
Operating Income$3.88B
Interest Expense$170.30M
Net Income$4.52B
EPS (Basic)$3.27
EPS (Diluted)$3.24
Shares Outstanding (Basic)1.38B
Shares Outstanding (Diluted)1.39B

Key Highlights

  • 1Total net revenues increased 10% to $24.7 billion, with global comparable store sales growing by 2%.
  • 2Operating income decreased to $3.9 billion, and operating margin compressed to 15.7% due to increased costs and mix shifts.
  • 3Significant strategic actions included licensing consumer packaged goods and foodservice businesses to Nestlé and acquiring full ownership of the East China joint venture.
  • 4The company returned $8.9 billion to shareholders in fiscal 2018 through share repurchases and dividends, a substantial increase from the prior year.
  • 5Restructuring and impairment charges increased to $224 million, primarily related to store closures and goodwill impairment.
  • 6Starbucks expanded its debt financing, issuing several tranches of Senior Notes to support corporate purposes, including share repurchases.
  • 7The company saw a substantial increase in cash flow from operations to $11.9 billion, largely due to the upfront payment from Nestlé.

Frequently Asked Questions

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.

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.

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.

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.