10-QPeriod: Q1 FY2013

STARBUCKS CORP Quarterly Report for Q1 Ended Dec 30, 2012

Filed January 29, 2013For Securities:SBUX

Summary

Starbucks Corporation (SBUX) reported strong performance in its first quarter of fiscal year 2013, ending December 30, 2012. Total net revenues grew by 10.6% to $3.8 billion, driven by a 6% increase in global comparable store sales and strategic expansion, particularly in the China and Asia Pacific region. Net earnings attributable to Starbucks increased to $432.2 million, or $0.57 per diluted share, up from $382.1 million, or $0.50 per diluted share, in the prior year's comparable quarter. The company demonstrated effective cost management and sales leverage, which helped offset some incremental expenses like those related to the Global Leadership Conference and Superstorm Sandy. Significant strategic initiatives, including the launch of the Verismo® system and continued growth in Channel Development, are positively impacting revenue streams. Starbucks also continued its commitment to returning capital to shareholders through dividends and share repurchases, while maintaining a solid liquidity position.

Financial Highlights

56 data points
Beta

Revenue

$3.79B

57.3% Gross Margin

Net Income

$432.20M

11.4% Net Margin

EPS (Diluted)

$0.28

Total Assets

$8.49B

Cash & Equivalents

$1.85B

Free Cash Flow

$822.80M

Financial Statements
Beta
Revenue$3.79B
Cost of Revenue$1.62B
Gross Profit$2.17B
Operating Expenses$3.22B
Operating Income$630.60M
Interest Expense$6.60M
Net Income$432.20M
EPS (Basic)$0.29
EPS (Diluted)$0.28
Shares Outstanding (Basic)1.49B
Shares Outstanding (Diluted)1.52B

Key Highlights

  • 1Total net revenues increased by 10.6% to $3.8 billion, compared to $3.4 billion in the prior year quarter.
  • 2Global comparable store sales grew by 6%, with the Americas segment showing a 7% increase and China/Asia Pacific experiencing an 11% rise.
  • 3Net earnings attributable to Starbucks increased to $432.2 million, resulting in diluted EPS of $0.57, up from $0.50 in the prior year.
  • 4Operating income grew to $630.6 million, with an operating margin of 16.6%, an improvement from 16.2% in the previous year.
  • 5The company actively repurchased $392.7 million of its common stock during the quarter, alongside declared cash dividends.
  • 6Cash and cash equivalents increased significantly to $1.85 billion as of December 30, 2012, up from $1.19 billion at the start of the quarter.
  • 7The company is proceeding with its planned capital expenditures of approximately $1.2 billion for fiscal year 2013, focusing on store development and renovations.

Frequently Asked Questions

Revenue growth was primarily driven by a 6% increase in global comparable store sales, alongside incremental revenues from new store openings (401 net new company-operated stores and 633 net new licensed stores over the past 12 months) and strong performance in the Channel Development segment, particularly from Starbucks- and Tazo-branded K-Cup® portion packs.

Starbucks demonstrated improved sales leverage and cost efficiencies, which helped increase operating margin to 16.6%. While there were incremental costs from initiatives like the Global Leadership Conference and the launch of the Verismo® system, as well as litigation charges, these were largely offset by productivity gains and lower commodity costs, particularly for coffee.

For fiscal year 2013, Starbucks expects moderate revenue growth driven by mid-single-digit comparable store sales, new store openings, and strong growth in Channel Development. The company anticipates continued robust consolidated operating margin and EPS improvement compared to fiscal 2012, with increased capital expenditures for store development and renovations.

The arbitration with Kraft Foods is ongoing, with Starbucks expecting a decision in the first half of fiscal 2013. While Starbucks believes it has valid claims of material breach by Kraft, Kraft has claimed significant damages. Starbucks believes Kraft's damage estimates are highly inflated, and no loss contingency has been recorded as an unfavorable outcome is not considered probable, though reasonably possible. The company stated it has adequate liquidity to address an unfavorable outcome.