10-KPeriod: FY2019

STARBUCKS CORP Annual Report, Year Ended Sep 29, 2019

Filed November 15, 2019For Securities:SBUX

Summary

Starbucks Corporation's (SBUX) 2019 10-K filing reveals a company focused on global expansion and strategic streamlining, with significant revenue growth driven by company-operated stores in the Americas. While overall net revenues increased by 7% to $26.5 billion, operating margin saw a slight decrease to 15.4% due to increased investments in partners (employees) and strategic initiatives like wage and benefit growth. The company's financial performance in fiscal year 2019 was impacted by significant divestitures and the licensing of its CPG and Foodservice businesses to Nestlé, which led to a decrease in 'Other' revenues. Despite these changes, Starbucks demonstrated a strong commitment to returning value to shareholders, with substantial share repurchases and dividend payments totaling $12.0 billion. The company continues to invest in digital capabilities and convenience-focused store formats to drive future growth and customer engagement.

Financial Statements
Beta
Revenue$26.51B
Cost of Revenue$8.53B
Gross Profit$17.98B
Operating Expenses$22.73B
Operating Income$4.08B
Interest Expense$331.00M
Net Income$3.60B
EPS (Basic)$2.95
EPS (Diluted)$2.92
Shares Outstanding (Basic)1.22B
Shares Outstanding (Diluted)1.23B

Key Highlights

  • 1Total net revenues increased by 7% to $26.5 billion, driven primarily by company-operated stores (+9.4%) and licensed stores (+8.4%).
  • 2Operating income increased to $4.1 billion, but operating margin slightly decreased to 15.4% from 15.7% due to increased employee investments and strategic spending.
  • 3Earnings per share (EPS) decreased to $2.92 from $3.24, largely due to the lapping of prior year gains from the East China joint venture acquisition and Tazo brand sale.
  • 4Starbucks returned $12.0 billion to shareholders in fiscal 2019 through share repurchases and dividends, up from $8.9 billion in fiscal 2018.
  • 5Company-operated stores saw a 5% increase in comparable store sales, with a 3% increase in average ticket and a 2% increase in transactions.
  • 6The company's strategy includes disciplined global expansion, focus on digital capabilities, and development of convenient store formats, with a total of 31,256 stores open globally by year-end.
  • 7Divestiture of certain retail operations (Thailand, France, Netherlands) to a licensed model contributed to restructuring efforts and a pre-tax gain of $601.9 million from the Thailand sale.

Frequently Asked Questions

In fiscal year 2019, Starbucks reported a 7% increase in total net revenues to $26.5 billion. Operating income rose to $4.1 billion, but the operating margin experienced a slight decrease to 15.4% from 15.7% in the prior year. This margin compression was primarily attributed to increased investments in employees, including higher wages and benefits, and other strategic initiatives.

Starbucks is focusing on strategic streamlining and disciplined global expansion. This includes converting certain market operations, such as Thailand, France, and the Netherlands, to fully licensed models. The company is also emphasizing growth in high-returning businesses, expanding its store footprint with a focus on convenient formats like Drive Thrus, and investing in digital capabilities to enhance customer engagement.

Starbucks demonstrated a strong commitment to returning capital to shareholders in fiscal year 2019. The company returned a total of $12.0 billion through share repurchases and dividend payments, an increase from $8.9 billion in the prior year. This reflects the company's confidence in its financial health and its strategy to create shareholder value.

Key risks identified include adverse effects of economic conditions on consumer discretionary spending, the importance of maintaining brand value and consumer trust, potential issues with business partners and third-party providers, food and beverage safety incidents, cybersecurity threats, and the inability to successfully implement strategic initiatives. Dependence on key international markets, like China, and fluctuations in commodity prices, especially coffee, are also noted as significant risks.