10-QPeriod: Q2 FY2020

STARBUCKS CORP Quarterly Report for Q2 Ended Mar 29, 2020

Filed April 28, 2020For Securities:SBUX

Summary

Starbucks Corporation's (SBUX) Q2 2020 results, filed on April 27, 2020, were significantly impacted by the onset of the COVID-19 pandemic, which began to affect financial performance late in the quarter. Total net revenues decreased by 4.9% to $5.996 billion compared to the prior year's quarter, largely due to a 10% decline in comparable store sales globally, driven by temporary store closures, reduced operating hours, and modified store models, including a shift to primarily drive-thru and delivery channels. Despite the revenue challenges, the company highlighted proactive measures taken to support partners (employees), including extended pay and benefits, and efforts to adapt operations, such as enhanced contactless experiences. The company also reported on its liquidity position and access to credit facilities, emphasizing its ability to manage through the unprecedented disruption. While the immediate outlook for the upcoming quarters is expected to be significantly impacted, Starbucks is closely monitoring the situation and adapting its strategies to navigate the evolving landscape.

Financial Statements
Beta
Revenue$6.00B
Cost of Revenue$2.00B
Gross Profit$4.00B
Operating Expenses$5.58B
Operating Income$487.40M
Interest Expense$99.20M
Net Income$328.40M
EPS (Basic)$0.28
EPS (Diluted)$0.28
Shares Outstanding (Basic)1.17B
Shares Outstanding (Diluted)1.18B

Key Highlights

  • 1Q2 2020 total net revenues declined 4.9% year-over-year to $5.996 billion, primarily due to the impact of COVID-19.
  • 2Global comparable store sales decreased by 10% in the quarter, with a more pronounced 31% decline in the International segment due to the pandemic's impact, particularly in China.
  • 3The company implemented various measures to support employees and adapt operations, including extended pay for U.S. and Canada partners and promoting contactless ordering.
  • 4Operating income decreased significantly to $487.4 million from $857.7 million in the prior year quarter, reflecting lower revenues and increased costs related to partner support and operational adjustments.
  • 5Despite revenue pressures, the Channel Development segment showed moderate growth and margin expansion, benefiting from at-home coffee offerings.
  • 6Starbucks announced a temporary suspension of its share repurchase program in mid-March 2020 due to the pandemic, while maintaining its quarterly cash dividend.
  • 7The company secured significant debt financing in March 2020, issuing Senior Notes totaling $1.75 billion to bolster liquidity and for general corporate purposes.

Frequently Asked Questions

COVID-19 significantly impacted Starbucks' Q2 2020 results, leading to a 4.9% decrease in total net revenues to $5.996 billion. This was primarily driven by a 10% decline in global comparable store sales, temporary store closures, reduced operating hours, and shifts to to-go and delivery models. Operating income saw a substantial decrease to $487.4 million from $857.7 million in the prior year quarter.

Starbucks prioritized partner well-being by extending pay and benefits for U.S. and Canada company-operated retail store partners through early May 2020, regardless of whether they were working. They also implemented enhanced safety protocols, promoted contactless ordering and delivery, and leveraged technology to adapt the customer experience.

While revenues were impacted, Starbucks maintained access to significant liquidity. As of March 29, 2020, the company had $2.8 billion in cash and investments. They also issued $1.75 billion in Senior Notes in March 2020 to strengthen their financial position. The company temporarily suspended its share repurchase program but continued its quarterly cash dividend.

Starbucks anticipates that the negative financial impacts experienced in Q2 2020 will be significantly greater in the fiscal third and fourth quarters, extending the period of disruption. The company is closely monitoring the evolving situation, adapting its strategies, and expects continued uncertainty regarding store operations, customer behavior, and global economic conditions.