10-QPeriod: Q3 FY2022

STARBUCKS CORP Quarterly Report for Q3 Ended Jul 3, 2022

Filed August 2, 2022For Securities:SBUX

Summary

Starbucks Corporation reported mixed results for the third quarter of fiscal year 2022. Total net revenues increased by 8.7% year-over-year to $8.15 billion, driven by growth in company-operated stores and licensed stores, primarily in North America. However, profitability was impacted by significant headwinds. Operating income decreased by 13.0% to $1.30 billion, and operating margin contracted by 400 basis points to 15.9%. This margin compression was largely attributed to rising commodity and supply chain costs due to inflation, increased partner wages, and sales deleverage in China resulting from COVID-19 related disruptions. The company experienced a notable decline in comparable store sales in China (-44%), significantly impacting the International segment's performance. Conversely, the North America segment showed resilience with a 9% increase in comparable store sales. Despite these challenges, Starbucks is investing in its 'reinvention plan' focused on improving store efficiency and partner/customer experience, signaling a long-term growth strategy. The company also repurchased $4.0 billion in common stock during the first three quarters, though the repurchase program was temporarily suspended in April 2022.

Key Highlights

  • 1Consolidated net revenues increased 8.7% to $8.15 billion, driven by North America's strong performance and licensed store growth.
  • 2Operating income decreased 13.0% to $1.30 billion, with operating margin contracting by 400 basis points to 15.9% due to inflationary pressures and increased labor costs.
  • 3China comparable store sales declined sharply by 44% due to COVID-19 restrictions, impacting the International segment's overall performance.
  • 4North America segment demonstrated strength with a 9% increase in comparable store sales, supported by strategic pricing and increased demand for food items.
  • 5The company repurchased $4.0 billion of common stock in the first three quarters, though the program was temporarily suspended in April 2022.
  • 6Inventories increased significantly by 33% to $2.13 billion, indicating potential supply chain or demand shifts.
  • 7Cash and cash equivalents decreased by approximately 50% to $3.18 billion compared to the prior fiscal year end, with $2.8 billion held in foreign subsidiaries.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in sales from company-operated stores (+4.9%) and a significant increase in licensed store revenues (+40.7%). This was supported by incremental new store openings and a 3% increase in comparable store sales overall, with a strong 9% comparable store sales increase in North America.

The operating margin decreased by 400 basis points primarily due to increased product and distribution costs (up 32.1% year-over-year) driven by inflationary pressures on supply chains, higher store operating expenses (up 40.5% year-over-year) due to investments in partner wages, and sales deleverage in China due to COVID-19 related disruptions.

The COVID-19 pandemic-related restrictions in China led to a significant 44% decrease in comparable store sales in that market during the third quarter. This negatively impacted the International segment's overall revenue and profitability, contributing to sales deleverage and a decline in operating margin for the segment.

Starbucks is implementing strategic pricing actions, particularly in North America, and is focused on its 'reinvention plan' to increase efficiency. The company is also managing its commodity purchases through hedging strategies for coffee and dairy products.