10-QPeriod: Q2 FY2012

STARBUCKS CORP Quarterly Report for Q2 Ended Jan 1, 2012

Filed January 31, 2012For Securities:SBUX

Summary

Starbucks Corporation reported strong performance for the first quarter of fiscal year 2012, with total net revenues increasing 16% year-over-year to $3.4 billion. This growth was primarily driven by a 9% increase in global comparable store sales, which included a 7% rise in traffic and a 2% increase in average ticket. The company also expanded its global footprint by opening 241 net new stores. Diluted earnings per share (EPS) saw an 11% increase, reaching $0.50, despite facing cost pressures from commodities, which notably impacted operating income and margin. Strategic initiatives, including a new three-region organizational structure and the successful launch of K-Cup® packs and transition to direct distribution for packaged coffee and tea, contributed to revenue growth, particularly in the CPG segment. The company also made a strategic acquisition of Evolution Fresh, Inc., a super-premium juice company, to diversify its portfolio and enter the health and wellness market. Despite challenges such as increased commodity costs negatively affecting margins, Starbucks demonstrated resilience through effective cost management and strategic revenue drivers, positioning itself for continued profitable growth. Investors should note the ongoing legal proceedings with Kraft Foods regarding a distribution agreement, though the company believes it has valid claims.

Financial Highlights

54 data points
Beta

Revenue

$3.44B

56.5% Gross Margin

Net Income

$382.10M

11.1% Net Margin

EPS (Diluted)

$0.25

Total Assets

$7.84B

Cash & Equivalents

$1.57B

Free Cash Flow

$312.80M

Financial Statements
Beta
Revenue$3.44B
Cost of Revenue$1.50B
Gross Profit$1.94B
Operating Expenses$2.92B
Operating Income$556.00M
Interest Expense$8.60M
Net Income$382.10M
EPS (Basic)$0.26
EPS (Diluted)$0.25
Shares Outstanding (Basic)1.50B
Shares Outstanding (Diluted)1.54B

Key Highlights

  • 1Total net revenues increased 16% to $3.4 billion for the first quarter of fiscal 2012.
  • 2Global comparable store sales grew by 9%, with a 7% increase in traffic and a 2% increase in average ticket.
  • 3Net new store openings totaled 241 globally.
  • 4Diluted earnings per share (EPS) increased 11% to $0.50.
  • 5CPG segment revenues grew 72%, driven by K-Cup® packs and the direct distribution model transition.
  • 6Acquisition of Evolution Fresh, Inc. to enter the super-premium juice market.
  • 7Commodity costs, particularly coffee, negatively impacted operating income and margins by approximately $105 million and 300 basis points.

Frequently Asked Questions

Revenue growth was primarily driven by a 9% increase in global comparable store sales, an 11.4% increase in revenues from company-operated stores, a 20.6% increase from licensed stores, and a significant 62.0% increase in CPG, foodservice and other revenues. The growth in CPG was largely due to the launch of Starbucks- and Tazo-branded K-Cup® packs and the transition to a direct distribution model for packaged coffee and tea.

Commodity costs, specifically higher coffee prices, significantly impacted the company's performance. Cost of sales including occupancy costs as a percentage of total net revenues increased by 310 basis points, primarily due to commodity costs (approximately 300 basis points). This negatively impacted operating income and operating margin by approximately $105 million and 300 basis points, respectively.

Starbucks is involved in arbitration with Kraft Foods regarding the termination of a distribution agreement. Kraft alleges breach of contract and seeks compensation. Starbucks believes it has valid claims for material breach by Kraft. The arbitration trial is expected in mid-2012. While Starbucks believes it can avoid compensation, there is a possibility of material adverse outcomes. The company is currently unable to estimate the range of possible outcomes.

For fiscal year 2012, Starbucks expects mid-single-digit comparable store sales growth, net new store openings, and strong growth in the CPG business. Modest consolidated operating margin and EPS improvement are anticipated, despite ongoing expenses for the CPG distribution model and higher commodity costs. Capital expenditures are expected to increase, reflecting investments in store renovations and manufacturing capacity.