What was the primary driver of the significant revenue growth in the third quarter?

The primary driver of the significant revenue growth was the full consolidation of the East China joint venture, which began contributing 100% of its revenues and expenses in the current fiscal year, in addition to incremental revenues from new store openings and favorable foreign currency translation.

Why did the operating margin decline despite revenue growth?

The operating margin declined due to increased investments in store partners (employees), a shift in product mix towards food items which may have lower margins, costs associated with anti-bias training conducted in the U.S., and the impact of consolidating the East China business which has a different margin profile than equity method accounting.

How is Starbucks returning value to shareholders?

Starbucks is actively returning value to shareholders through substantial share repurchases, with $4.1 billion spent in the first three quarters of fiscal 2018, and through cash dividend payments, totaling $1.3 billion in the same period. The company also announced an increase to its share repurchase program authorization.

What is the significance of the global coffee alliance with Nestlé?

The global coffee alliance with Nestlé S.A. aims to expand Starbucks' consumer packaged goods and foodservice businesses by licensing the rights to market, sell, and distribute Starbucks products through Nestlé's channels. This is expected to primarily impact the Channel Development segment and could have a small dilutive EPS impact in the short term.

SBUX 10-Q Filed Jul 31, 2018

Summary

Starbucks Corporation's third quarter fiscal year 2018 report shows a strong revenue increase of 11.5% year-over-year, reaching $6.3 billion. This growth was significantly boosted by the full consolidation of the East China joint venture, new store openings, and favorable foreign currency translation. While overall revenue is up, the operating margin experienced a decline of 190 basis points due to increased investments in employees, product mix shifts towards food, and costs associated with anti-bias training. The company also announced a global coffee alliance with Nestlé S.A. to expand its consumer packaged goods and foodservice businesses. Shareholders were returned value through substantial share repurchases and dividend payments. The company's financial outlook for the full fiscal year 2018 projects continued revenue growth, with a moderate decline in operating margin when excluding certain one-time items. The Tax Cuts and Jobs Act continues to influence the effective tax rate, providing some benefits while also necessitating a one-time transition tax on foreign earnings.

Key Highlights

1Total net revenues increased by 11.5% to $6.3 billion in the third quarter of fiscal 2018.
2The consolidation of the East China joint venture significantly impacted revenue and segment performance.
3Operating margin declined by 190 basis points to 16.5% due to increased investments in partners, product mix shifts, and anti-bias training costs.
4Shareholders received significant returns through $4.1 billion in share repurchases and $1.3 billion in cash dividends declared for the nine months ended July 1, 2018.
5Global comparable store sales growth was 1% for the quarter, below the targeted long-term range.
6The company entered into a global coffee alliance with Nestlé S.A. to expand its consumer packaged goods and foodservice businesses.
7The effective tax rate for the quarter was positively impacted by the Tax Cuts and Jobs Act and the East China acquisition gain.

STARBUCKS CORP Quarterly Report for Q3 Ended Jul 1, 2018

Summary

Key Highlights

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