10-QPeriod: Q3 FY2013

STARBUCKS CORP Quarterly Report for Q3 Ended Jun 30, 2013

Filed July 30, 2013For Securities:SBUX

Summary

Starbucks Corporation (SBUX) reported strong financial results for the third quarter and the first three quarters of fiscal year 2013, ending June 30, 2013. The company demonstrated robust revenue growth, increasing total net revenues by 13% to $3.7 billion for the quarter and 11.7% to $11.1 billion for the nine-month period. This growth was broad-based, with contributions from company-operated stores, licensed stores, and the CPG/foodservice segment. Global comparable store sales increased by 8% in the quarter, driven by a 7% rise in transactions, indicating healthy customer traffic and demand for Starbucks products. Profitability also saw significant improvements. Operating income rose by 25% year-over-year for the quarter to $615 million, with operating margin expanding by 150 basis points to 16.4%. Diluted earnings per share (EPS) grew by 28% to $0.55 for the quarter. The company's strategic investments, including the acquisition of Teavana and continued store expansion, appear to be paying off, positioning Starbucks for continued growth. The Americas segment showed particular strength, while the China/Asia Pacific region continued its rapid expansion. The company also highlighted its ongoing commitment to returning capital to shareholders through dividends and share repurchases.

Financial Highlights

57 data points
Beta

Revenue

$3.74B

57.2% Gross Margin

Net Income

$417.80M

11.2% Net Margin

EPS (Diluted)

$0.28

Total Assets

$9.06B

Cash & Equivalents

$1.43B

Free Cash Flow

$368.00M

Financial Statements
Beta
Revenue$3.74B
Cost of Revenue$1.60B
Gross Profit$2.14B
Operating Expenses$3.18B
Operating Income$615.20M
Interest Expense$6.30M
Net Income$417.80M
EPS (Basic)$0.28
EPS (Diluted)$0.28
Shares Outstanding (Basic)1.50B
Shares Outstanding (Diluted)1.52B

Key Highlights

  • 1Total net revenues increased 13% to $3.7 billion for the third quarter, and 11.7% to $11.1 billion for the nine months ended June 30, 2013.
  • 2Global comparable store sales grew 8% for the quarter, with a 7% increase in transactions, indicating strong customer engagement.
  • 3Operating income increased 25% to $615 million for the quarter, and operating margin expanded by 150 basis points to 16.4%.
  • 4Diluted EPS grew 28% to $0.55 for the third quarter, reflecting improved profitability.
  • 5The company completed the acquisition of Teavana Holdings, Inc. in December 2012 for $615.8 million, aiming to expand its tea offerings and global footprint.
  • 6Significant share repurchases were made, with $544.1 million used in the first three quarters of fiscal 2013, alongside a quarterly cash dividend of $0.21 per share.
  • 7The China/Asia Pacific segment showed strong revenue growth of 29% for the quarter, signaling the region's increasing importance.

Frequently Asked Questions

Revenue growth was primarily driven by increased revenues from company-operated stores, which contributed $371 million to the third quarter's total net revenue increase. This was largely due to a combination of an 8% increase in comparable store sales (driven by a 7% rise in transactions) and the opening of 802 net new company-operated stores over the past 12 months.

The acquisition of Teavana, completed in December 2012, contributed to the revenue growth in the 'All Other Segments' category. For the third quarter, this segment saw its net revenues increase by 106.7% to $107.9 million, with approximately $51 million attributed to Teavana's incremental revenues.

For fiscal year 2013, Starbucks expects revenue growth driven by mid-single-digit comparable store sales growth, new store openings, and continued growth in the Channel Development business. They also anticipate continued robust consolidated operating margin and EPS improvement. For fiscal year 2014, they project similar drivers for revenue growth and expect a 150-200 basis point improvement in consolidated operating margin and strong EPS growth.

Starbucks manages coffee price risk through various strategies, including forward-starting interest rate swap agreements for anticipated debt issuance, and hedging through futures contracts for a portion of anticipated cash flows under price-to-be-fixed green coffee contracts. For the three quarters ended June 30, 2013, net derivative losses of $30.0 million, net of taxes, were included in accumulated other comprehensive income related to coffee hedges. The company also benefits from lower coffee costs, which contributed to improved margins in several segments.