10-QPeriod: Q1 FY2010

STARBUCKS CORP Quarterly Report for Q1 Ended Dec 27, 2009

Filed February 2, 2010For Securities:SBUX

Summary

Starbucks Corporation's (SBUX) first quarter fiscal year 2010 filing reveals a significant turnaround, showcasing a return to profitable growth after a challenging period. The company reported a substantial increase in net earnings attributable to Starbucks, rising to $241.5 million from $64.3 million in the prior year's comparable quarter, alongside a dramatic improvement in diluted earnings per share from $0.09 to $0.32. This rebound was driven by strong performance in company-operated retail stores, where revenues grew by 5.4%, and effective cost-saving and operational efficiency initiatives implemented throughout fiscal year 2009. Key drivers of this improved financial health include a 4% increase in comparable store sales in both the US and international markets, coupled with a 13.0% operating margin, up from 4.5% in the previous year. The company has successfully managed its expenses, with cost of sales, occupancy, and store operating expenses decreasing as a percentage of revenue. Furthermore, Starbucks ended the quarter with a robust cash position of $1.3 billion and no short-term debt, underscoring its enhanced financial flexibility and operational discipline.

Financial Highlights

54 data points
Beta

Revenue

$2.72B

57.9% Gross Margin

Net Income

$241.50M

8.9% Net Margin

EPS (Diluted)

$0.16

Total Assets

$6.10B

Cash & Equivalents

$1.31B

Free Cash Flow

$669.00M

Financial Statements
Beta
Revenue$2.72B
Cost of Revenue$1.15B
Gross Profit$1.58B
Operating Expenses$2.40B
Operating Income$352.60M
Interest Expense$8.20M
Net Income$241.50M
EPS (Basic)$0.16
EPS (Diluted)$0.16
Shares Outstanding (Basic)1.49B
Shares Outstanding (Diluted)1.53B

Key Highlights

  • 1Net earnings attributable to Starbucks surged to $241.5 million in Q1 FY10, a significant increase from $64.3 million in Q1 FY09.
  • 2Diluted Earnings Per Share (EPS) improved dramatically to $0.32 from $0.09 year-over-year, reflecting enhanced profitability.
  • 3Total net revenues increased by 4.1% to $2,722.7 million, primarily driven by a 5.4% rise in company-operated retail revenues.
  • 4Operating margin expanded to 13.0% from 4.5% in the prior year, attributed to operational efficiencies, cost reductions, and improved comparable store sales.
  • 5Company-operated retail stores accounted for 84% of total net revenues, with US operations contributing approximately 78% of retail revenue.
  • 6Starbucks ended the quarter with strong liquidity, reporting $1,306.3 million in cash and cash equivalents and zero short-term debt.
  • 7Restructuring charges significantly decreased to $18.3 million from $75.5 million year-over-year, aiding the bottom-line improvement.

Frequently Asked Questions

The substantial improvement in net earnings and EPS is primarily attributed to the successful implementation of operational efficiencies and cost reduction initiatives throughout fiscal year 2009. These efforts, combined with solid comparable store sales growth (4% in both US and International segments) and a significant reduction in restructuring charges, led to a sharp increase in operating income and profitability.

Total net revenues increased by 4.1% to $2,722.7 million. The primary driver was the company-operated retail segment, which saw a 5.4% increase in revenue. This growth was fueled by a 4% rise in comparable store sales and the positive impact of foreign currency translation. Specialty revenues experienced a slight decline due to lower licensing and foodservice revenues.

Starbucks demonstrated strong financial health and liquidity. The company reported $1,306.3 million in cash and cash equivalents, a substantial increase from the prior period. Importantly, Starbucks had no short-term debt outstanding, indicating a healthy balance sheet and the financial flexibility to fund its operations and strategic initiatives.

For fiscal year 2010, Starbucks is targeting mid-single digit revenue growth, driven by modest comparable store sales growth, a 53rd fiscal week, and approximately 300 net new stores globally (mostly licensed). Key strategies include increasing spending on growth platforms like VIA™ Ready Brew, investing in store refreshes and new design concepts, and applying operational rigor to international markets to capture growth opportunities. Management also expects significant improvement in the consolidated operating margin.