10-QPeriod: Q2 FY2014

STARBUCKS CORP Quarterly Report for Q2 Ended Mar 30, 2014

Filed April 29, 2014For Securities:SBUX

Summary

Starbucks Corporation's second-quarter fiscal year 2014 report shows robust top-line growth, with total net revenues increasing by 9% to $3.9 billion, driven by a solid 6% global comparable store sales growth. This performance was supported by an 18% increase in operating income to $644 million, leading to an expanded operating margin of 16.6%. The company demonstrated strong execution across its segments, with notable revenue and operating margin improvements in the Americas, EMEA, and Channel Development segments. Key financial highlights include a 10% year-over-year increase in diluted earnings per share to $0.56. The company also reported a significant improvement in its cash flow from operations for the first two quarters, despite a substantial $2.8 billion payment for the Kraft arbitration in the first quarter. Starbucks continues to return capital to shareholders through dividends and share repurchases, while strategically investing in new store openings, particularly in the China/Asia Pacific region, positioning itself for continued growth.

Financial Highlights

57 data points
Beta

Revenue

$3.87B

57.9% Gross Margin

Net Income

$427.00M

11.0% Net Margin

EPS (Diluted)

$0.28

Total Assets

$10.10B

Cash & Equivalents

$1.19B

Free Cash Flow

$170.90M

Financial Statements
Beta
Revenue$3.87B
Cost of Revenue$1.63B
Gross Profit$2.24B
Operating Expenses$3.29B
Operating Income$644.10M
Interest Expense$16.70M
Net Income$427.00M
EPS (Basic)$0.28
EPS (Diluted)$0.28
Shares Outstanding (Basic)1.51B
Shares Outstanding (Diluted)1.53B

Key Highlights

  • 1Consolidated total net revenues increased 9% to $3.9 billion for the quarter, driven by 6% global comparable store sales growth.
  • 2Operating income increased 18% to $644 million, with operating margin expanding by 130 basis points to 16.6%.
  • 3Diluted earnings per share grew 10% to $0.56 compared to the prior year quarter.
  • 4The EMEA segment reported its highest comparable store sales growth in fourteen quarters (6%), with operating margin increasing by 380 basis points.
  • 5Channel Development segment revenues grew 10%, with operating margin increasing by 660 basis points to 34.4%, driven by strong performance in premium single-serve products.
  • 6The company made a significant debt issuance of $750 million to fund a portion of the Kraft arbitration payment and general corporate purposes.
  • 7Starbucks repurchased approximately 3.5 million shares of common stock for $73.47 per share during the quarter.

Frequently Asked Questions

The primary driver of revenue growth was a 6% increase in global comparable store sales, contributing to a 9% overall increase in total net revenues to $3.9 billion. This was further supported by net new store openings across various segments.

Starbucks improved its operating margins across all reportable segments. This was achieved through various factors including lower commodity costs (especially coffee), sales leverage from increased revenues, strategic cost management, and efficient G&A spending. The Channel Development segment saw a particularly significant margin expansion.

The company paid the full arbitration award of $2.8 billion to Kraft in the first quarter of fiscal year 2014. This payment significantly impacted cash flow from operations, resulting in a net use of cash for the first two quarters. However, the company also recognized a litigation credit due to early payment, reducing the estimated prejudgment interest.

Starbucks plans to continue returning cash to shareholders through dividends and share repurchases. For growth, the company is focused on new store openings, particularly in China/Asia Pacific, expanding product offerings (like the La Boulange food platform), and strengthening its Channel Development business. The company also anticipates continued operating margin improvement and strong EPS growth for the full fiscal year 2014.