10-QPeriod: Q3 FY2014

STARBUCKS CORP Quarterly Report for Q3 Ended Jun 29, 2014

Filed July 29, 2014For Securities:SBUX

Summary

Starbucks Corporation reported strong financial results for the third quarter and the first three quarters of fiscal year 2014, demonstrating significant growth across key metrics. Total net revenues increased by 11.2% to $4.2 billion for the quarter and 10.7% to $12.3 billion for the three quarters, driven by a combination of comparable store sales growth of 6% globally and the addition of 1,654 net new stores over the preceding twelve months. Profitability also saw substantial improvement, with operating income rising 25% to $769 million for the quarter. Operating margin expanded by 200 basis points to 18.5%, attributed to strong sales leverage and favorable commodity costs, particularly for coffee. Diluted earnings per share (EPS) increased by 22% to $0.67 for the quarter, reflecting the company's ability to drive top-line growth and manage expenses effectively. The company also provided positive outlooks for both fiscal year 2014 and 2015, anticipating continued revenue growth and EPS expansion, underscoring a healthy trajectory.

Financial Highlights

57 data points
Beta

Revenue

$4.15B

58.8% Gross Margin

Net Income

$512.60M

12.3% Net Margin

EPS (Diluted)

$0.34

Total Assets

$10.39B

Cash & Equivalents

$1.02B

Free Cash Flow

$542.50M

Financial Statements
Beta
Revenue$4.15B
Cost of Revenue$1.71B
Gross Profit$2.44B
Operating Expenses$3.46B
Operating Income$768.50M
Interest Expense$16.40M
Net Income$512.60M
EPS (Basic)$0.34
EPS (Diluted)$0.34
Shares Outstanding (Basic)1.50B
Shares Outstanding (Diluted)1.52B

Key Highlights

  • 1Consolidated net revenues increased 11.2% to $4.15 billion for the third quarter of fiscal 2014, and 10.7% to $12.27 billion for the first three quarters.
  • 2Global comparable store sales grew by 6% for both the third quarter and the first three quarters of fiscal 2014.
  • 3Operating income increased by 25% to $768.5 million for the third quarter, with operating margin expanding 200 basis points to 18.5%.
  • 4Diluted earnings per share (EPS) grew by 22% to $0.67 for the third quarter compared to the prior year.
  • 5The company completed the payment of $2.76 billion related to the Kraft arbitration matter in the first quarter of fiscal 2014.
  • 6Starbucks continues its global expansion, adding 1,654 net new stores over the last 12 months.
  • 7The Americas segment showed strong revenue growth of 10%, driven by comparable store sales and expanded food offerings.

Frequently Asked Questions

The primary driver of revenue growth was a combination of a 6% increase in global comparable store sales and the addition of 1,654 net new stores opened over the preceding twelve months. Company-operated stores contributed significantly, bolstered by increased traffic and higher average ticket prices.

In the first quarter of fiscal 2014, Starbucks paid $2.76 billion to fully extinguish the litigation charge related to the Kraft arbitration. While this resulted in a significant cash outflow and negatively impacted operating cash flow for the first three quarters of fiscal 2014, the company had accrued the liability in the previous fiscal year. A small portion of the accrued amount was released as a litigation credit due to early payment.

For fiscal year 2014, Starbucks expects continued revenue growth driven by mid-single digit comparable store sales growth and net new store openings, primarily in China/Asia Pacific and the Americas. They anticipate a significant improvement in consolidated operating margin and strong EPS growth. For fiscal year 2015, the company projects similar comparable store sales growth and approximately 1,600 net new store openings, with continued EPS growth expected.

The company is experiencing favorable commodity costs, mainly coffee, which contributed to improved cost of sales as a percentage of net revenues. Starbucks utilizes hedging strategies, including futures contracts and collars for green coffee, to mitigate price volatility. These efforts helped improve margins in the quarter.