How did commodity cost increases affect Starbucks' profitability?

Commodity cost increases, particularly for coffee, presented a significant headwind, negatively impacting EPS by approximately $0.07 per share in the third quarter. This represented about 280 basis points of operating margin pressure. However, the company managed to mitigate these impacts through increased sales leverage, operational efficiencies, and strategic pricing.

What is the outlook for store growth in fiscal year 2012?

Starbucks plans to open approximately 800 net new stores globally in fiscal year 2012, with about 200 in the U.S. and 600 internationally. China is expected to be a significant contributor to international growth, accounting for approximately one-quarter of these new international stores.

What is the status of the legal dispute with Kraft Foods regarding the distribution agreement?

Starbucks terminated its distribution arrangement with Kraft due to alleged material breaches by Kraft. The dispute is currently in binding arbitration, with a trial expected in mid-2012. While Starbucks believes it has valid claims, the outcome of the arbitration is uncertain and could potentially have material adverse effects.

How is Starbucks managing its cash and returning value to shareholders?

Starbucks had $2.0 billion in cash and short-term investments as of July 3, 2011. The company is actively using its cash to fund operations, pay debt, and return capital to shareholders through cash dividends and significant share repurchases, demonstrating a commitment to shareholder returns.

SBUX 10-Q Filed Aug 5, 2011

Summary

Starbucks Corporation (SBUX) reported strong financial performance for the third quarter of fiscal year 2011, driven by robust global comparable store sales growth of 8%. This growth led to increased sales leverage, higher operating margins, and a significant rise in net earnings. The company successfully navigated headwinds from rising commodity costs, particularly coffee, which impacted earnings per share, by focusing on operational efficiencies, innovative product offerings like the Petites platform, and strategic pricing initiatives. Key segments demonstrated strength, with the U.S. business achieving record revenues and operating margins, while the international segment, particularly China, showed accelerating growth. The transition to a direct distribution model for the Consumer Packaged Goods (CPG) segment also proved successful, contributing to revenue growth. The company continues to invest in growth opportunities and returned substantial capital to shareholders through dividends and share repurchases, signaling confidence in its ongoing business momentum and future prospects.

Key Highlights

1Consolidated net revenues increased 12% to $2.9 billion in the third quarter of fiscal 2011 compared to the prior year.
2Consolidated comparable store sales grew by 8% in the third quarter, with the U.S. and International segments both showing positive growth.
3Diluted earnings per share (EPS) increased 33% to $0.36 in the third quarter, demonstrating improved profitability.
4Operating margin improved significantly, reaching 13.7% for the consolidated company, with notable expansion in both the U.S. (18.8%) and International (12.2%) segments.
5The company returned $359 million to shareholders through dividends and share repurchases in the third quarter.
6Starbucks is strategically acquiring full control of its China operations and sees it as a key market for future growth.
7The transition to a direct distribution model for the CPG segment has been successful, driving revenue growth for packaged coffee and tea.

STARBUCKS CORP Quarterly Report for Q3 Ended Jul 3, 2011

Summary

Key Highlights

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