10-QPeriod: Q2 FY2011

STARBUCKS CORP Quarterly Report for Q2 Ended Jan 2, 2011

Filed February 4, 2011For Securities:SBUX

Summary

Starbucks Corporation (SBUX) reported strong performance for the first quarter of fiscal year 2011, ending January 2, 2011. Total net revenues increased by 8.4% to $3.0 billion, driven by a robust 7% growth in comparable store sales globally. This growth was fueled by a 5% increase in traffic and a 2% increase in average ticket, indicating a healthy customer response to the company's offerings and operational refinements. The company saw significant improvements in profitability, with consolidated operating margin expanding to 17.0%, a substantial increase from 13.0% in the prior year. This margin expansion was driven by improved sales leverage, lower operating expenses as a percentage of revenue, and the absence of restructuring charges incurred in the previous year. Diluted Earnings Per Share (EPS) also saw a notable increase, rising 41% to $0.45 from $0.32 in the comparable period, reflecting the improved operational efficiency and revenue growth.

Financial Highlights

53 data points
Beta

Revenue

$2.95B

59.6% Gross Margin

Net Income

$346.60M

11.7% Net Margin

EPS (Diluted)

$0.23

Total Assets

$6.93B

Cash & Equivalents

$1.79B

Free Cash Flow

$544.70M

Financial Statements
Beta
Revenue$2.95B
Cost of Revenue$1.19B
Gross Profit$1.76B
Operating Expenses$2.48B
Operating Income$501.90M
Interest Expense$7.90M
Net Income$346.60M
EPS (Basic)$0.23
EPS (Diluted)$0.23
Shares Outstanding (Basic)1.49B
Shares Outstanding (Diluted)1.53B

Key Highlights

  • 1Total net revenues grew 8.4% to $3.0 billion for the 13 weeks ended January 2, 2011.
  • 2Global comparable store sales increased by 7%, with the U.S. up 8% and International up 5%.
  • 3Consolidated operating margin improved significantly to 17.0% from 13.0% in the prior year.
  • 4Diluted Earnings Per Share (EPS) rose 41% to $0.45 from $0.32 in the prior year period.
  • 5Cash flow from operations was $674 million, a slight decrease from $769 million in the prior year, primarily due to increased inventory levels.
  • 6Starbucks is navigating a significant legal dispute with Kraft Foods Global regarding the termination of their licensing agreement, with arbitration pending and Kraft seeking injunctive relief.
  • 7The company expects to open approximately 500 net new stores globally in fiscal 2011, with a focus on international expansion.

Frequently Asked Questions

Starbucks' revenue growth was primarily driven by a 7% increase in comparable store sales globally, which resulted from a 5% increase in customer traffic and a 2% increase in average ticket price. Company-operated retail stores accounted for 83% of total net revenues.

While higher coffee costs were a significant factor pressuring results, Starbucks implemented mitigation strategies. For the remainder of fiscal 2011, the company had locked in all coffee costs through fixed-price purchase commitments. Additionally, increased sales leverage and supply chain efficiencies helped to offset some of the impact of rising commodity prices.

Starbucks notified Kraft Foods Global of its intent to terminate licensing relationships due to alleged material breaches. Kraft initiated arbitration and sought injunctive relief to prevent the termination. A federal court denied Kraft's request for an injunction, but Kraft has appealed. Starbucks believes it has valid grounds for termination, but acknowledges the possibility of material adverse outcomes from the arbitration.

Starbucks plans to open approximately 500 net new stores globally in fiscal year 2011. The majority of these new stores (approximately 400) are expected to be in international markets, with about 100 in the U.S.