10-QPeriod: Q2 FY2009

STARBUCKS CORP Quarterly Report for Q2 Ended Mar 29, 2009

Filed May 6, 2009For Securities:SBUX

Summary

Starbucks Corporation's (SBUX) 10-Q filing for the period ending March 29, 2009, reveals a challenging quarter marked by significant revenue decline and a substantial net loss, largely due to ongoing restructuring efforts and the impact of the global economic recession. Net revenues decreased by 7.6% year-over-year to $2.33 billion for the quarter, with comparable store sales down 8% in the U.S. and 3% internationally. The company reported a net loss of $25 million ($0.03 per diluted share) compared to a net earning of $108.7 million ($0.15 per diluted share) in the prior year period. The primary driver of the financial performance was a significant increase in restructuring charges, totaling $152.1 million for the quarter, related to the closure of underperforming stores in the U.S. and internationally. While these actions are intended to position the company for long-term profitable growth and reduce its cost structure by an expected $500 million in fiscal year 2009, they have substantially impacted short-term profitability. Despite these challenges, the company maintained a strong cash flow from operations, which was primarily used to reduce short-term borrowings.

Financial Highlights

26 data points
Beta

Revenue

$2.33B

55.3% Gross Margin

Net Income

$25.00M

1.1% Net Margin

EPS (Diluted)

$0.01

Cash & Equivalents

$253.20M

Free Cash Flow

-$42.40M

Financial Statements
Beta
Revenue$2.33B
Cost of Revenue$1.04B
Gross Profit$1.29B
Operating Expenses$2.32B
Operating Income$40.90M
Interest Expense$8.90M
Net Income$25.00M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)1.48B
Shares Outstanding (Diluted)1.48B

Key Highlights

  • 1Net revenues declined 7.6% to $2.33 billion for the quarter, impacted by an 8.5% decrease in company-operated retail sales.
  • 2Consolidated comparable store sales decreased by 8% in the U.S. and 3% internationally, reflecting the weak economic environment.
  • 3The company reported a net loss of $25 million ($0.03 per diluted share), a significant drop from a net earning of $108.7 million ($0.15 per diluted share) in the prior year quarter.
  • 4Restructuring charges amounted to $152.1 million, primarily for the closure of approximately 800 underperforming stores in the U.S. and internationally.
  • 5Operating income fell sharply to $40.9 million from $178.2 million year-over-year, with operating margin contracting significantly due to restructuring costs and sales deleverage.
  • 6Cash flow from operations remained robust at $715.4 million for the first half of the fiscal year, allowing for a reduction in short-term borrowings from $713 million to $226 million.
  • 7The company expects to add approximately 20 net new stores globally in fiscal year 2009, with a net reduction in U.S. company-operated stores and a net increase in international company-operated and all licensed stores.

Frequently Asked Questions

The primary reason for the sharp decrease in net earnings is the substantial restructuring charges incurred during the quarter, totaling $152.1 million. These charges are associated with the company's plan to close approximately 800 underperforming stores in the U.S. and internationally, as well as other cost-reduction initiatives aimed at improving long-term profitability.

Comparable store sales saw a decline of 8% in the U.S. and 3% internationally for the quarter. This performance is largely attributed to the ongoing global recession and its impact on consumer discretionary spending. The company also cited store-level execution and the previous pace of store openings as factors influencing performance.

Starbucks maintained a healthy cash flow from operations of $715.4 million for the first half of the fiscal year. This strong cash generation enabled the company to significantly reduce its short-term borrowings to $226 million from $713 million at the beginning of the fiscal year. The company believes its current cash position and revolving credit facility provide sufficient capacity to fund operations and restructuring costs.

For fiscal year 2009, Starbucks anticipates a net addition of approximately 20 stores globally. This includes a net reduction of about 425 company-operated stores in the U.S., offset by a net addition of approximately 60 company-operated stores internationally. The company also expects to open around 65 net new licensed stores in the U.S. and 320 internationally.