10-QPeriod: Q3 FY2011

STARBUCKS CORP Quarterly Report for Q3 Ended Apr 3, 2011

Filed May 6, 2011For Securities:SBUX

Summary

Starbucks Corporation reported strong performance for the fiscal second quarter ended April 3, 2011, demonstrating resilience amidst economic challenges. Total net revenues increased by 9.9% to $2.8 billion, driven by a robust 7% increase in comparable store sales across the US and a 4% increase internationally. This growth translated into improved profitability, with consolidated operating margin rising to 13.5% and diluted EPS increasing by 21% to $0.34 per share. The company highlighted significant progress in its strategic initiatives, including the successful transition of its packaged coffee and tea business to an in-house direct model, and a strategic partnership with Green Mountain Coffee Roasters for K-Cup portion packs. The international segment continued its strong performance, with operating margins reaching double digits for the fourth consecutive quarter, signaling effective execution of global growth strategies.

Financial Highlights

53 data points
Beta

Revenue

$2.79B

58.0% Gross Margin

Net Income

$261.60M

9.4% Net Margin

EPS (Diluted)

$0.17

Total Assets

$7.03B

Cash & Equivalents

$1.65B

Free Cash Flow

-$114.30M

Financial Statements
Beta
Revenue$2.79B
Cost of Revenue$1.17B
Gross Profit$1.61B
Operating Expenses$2.45B
Operating Income$376.10M
Interest Expense$7.10M
Net Income$261.60M
EPS (Basic)$0.17
EPS (Diluted)$0.17
Shares Outstanding (Basic)1.50B
Shares Outstanding (Diluted)1.54B

Key Highlights

  • 1Consolidated net revenues increased 9.9% to $2.8 billion for the second quarter.
  • 2Comparable store sales grew by 7% globally, indicating strong customer demand.
  • 3Diluted earnings per share (EPS) rose 21% to $0.34, showcasing improved profitability.
  • 4Operating margin expanded to 13.5% overall, with significant improvements in the US (18.5%) and International (11.8%) segments.
  • 5The company successfully transitioned its domestic packaged coffee and tea business to an in-house direct model.
  • 6International segment operating margin reached 11.8%, marking the fourth consecutive quarter of double-digit margins.
  • 7Starbucks returned $146 million to shareholders through dividends and share repurchases during the quarter.

Frequently Asked Questions

The primary driver of Starbucks' revenue growth was a strong increase in comparable store sales, which grew by 7% globally. This was supported by both an increase in traffic and a rise in average ticket price, indicating healthy customer engagement and spending.

The transition of the packaged coffee and tea business to an in-house direct model, away from the previous distribution arrangement with Kraft, was largely successful. This move allowed Starbucks greater control over its CPG segment and contributed to revenue growth in that area, although it did lead to a decline in CPG operating margin for the quarter due to higher commodity costs and marketing expenses.

For the full fiscal year 2011, Starbucks expects high single-digit revenue growth, driven by mid single-digit comparable store sales growth. The company plans to open approximately 500 net new stores globally and anticipates continued improvement in consolidated operating margins, offset in part by higher commodity costs which they are mitigating through fixed-price purchase commitments for coffee.

Starbucks is currently involved in a commercial dispute and arbitration with Kraft Foods over the termination of their distribution arrangement. While Starbucks believes it has valid claims, there is a possibility of material adverse outcomes in the arbitration. The company is unable to estimate the range of possible outcomes at this time but is managing the situation to regain full control of its packaged coffee business.