STARBUCKS CORPORATION CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained herein are "forward-looking" statements within the meaning of applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as "aim," "anticipate," "believe," "continue," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "outlook," "plan," "potential," "predict," "project," "seek," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements include statements relating to trends in or expectations relating to the effects of our existing and any future initiatives, strategies, investments and plans, including our reinvention plan, as well as trends in or expectations regarding our financial results and long-term growth model and drivers; our operations in theU.S. andChina ; our environmental, social and governance efforts; our partners; economic and consumer trends, including the impact of inflationary pressures; impact of foreign currency translation; strategic pricing actions; the conversion of certain market operations to fully licensed models; our plans for streamlining our operations, including store openings, closures and changes in store formats and models; expanding our licensing to Nestlé of our consumer packaged goods and Foodservice businesses and its effects on our Channel Development segment results; tax rates; business opportunities and expansion; strategic acquisitions; our dividends programs; commodity costs and our mitigation strategies; our liquidity, cash flow from operations, investments, borrowing capacity and use of proceeds; continuing compliance with our covenants under our credit facilities and commercial paper program; repatriation of cash to theU.S. ; the likelihood of the issuance of additional debt and the applicable interest rate; the continuing impact of the COVID-19 pandemic on our financial results and future availability of governmental subsidies for COVID-19 or other public health events; our ceo transition; our share repurchase program; our use of cash and cash requirements; the expected effects of new accounting pronouncements and the estimated impact of changes inU.S. tax law, including on tax rates, investments funded by these changes and potential outcomes; and effects of legal proceedings. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to: the continuing impact of COVID-19 on our business; regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; the resurgence of COVID-19 infections and the circulation of novel variants of COVID-19; fluctuations inU.S. and international economies and currencies; our ability to preserve, grow and leverage our brands; the ability of our business partners and third-party providers to fulfill their responsibilities and commitments; potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling; potential negative effects of material breaches of our information technology systems to the extent we experience a material breach; material failures of our information technology systems; costs associated with, and the successful execution of, the Company's initiatives and plans; new initiatives and plans or revisions to existing initiatives or plans; our ability to obtain financing on acceptable terms; the acceptance of the Company's products by our customers, evolving consumer preferences and tastes and changes in consumer spending behavior; partner investments, changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts; failure to attract or retain key executive or employee talent or successfully transition executives; significant increased logistics costs; inflationary pressures; the impact of competition; inherent risks of operating a global business including any potential negative effects stemming from the Russian invasion ofUkraine ; the prices and availability of coffee, dairy and other raw materials; the effect of legal proceedings; and the effects of changes in tax laws and related guidance and regulations that may be implemented and other risks detailed in our filings with theSEC , including in Part I Item IA "Risk Factors" in the 10-K. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), contained in the 10-K filed with theSEC onNovember 19, 2021 .
Introduction and Overview
Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 83 markets. As ofJuly 3, 2022 ,Starbucks had more than 34,900 company-operated and licensed stores, an increase of 5% from the prior year. Additionally, we sell a variety of consumer-packaged goods, primarily through theGlobal Coffee Alliance established with Nestlé and other partnerships and joint ventures. During the quarter endedJuly 3, 2022 , our global comparable store sales grew 3%, primarily driven by 9% growth in the U.S. market, partially offset by COVID-19 pandemic related restrictions inChina , leading to a 44% decrease inChina comparable store sales. 30
--------------------------------------------------------------------------------
Table of Contents
We have three reportable operating segments: 1)North America , which is inclusive of theU.S. andCanada , 2) International, which is inclusive ofChina ,Japan ,Asia Pacific ,Europe ,Middle East ,Africa ,Latin America and theCaribbean ; and 3) Channel Development. Non-reportable operating segments such as Evolution Fresh and unallocated corporate expenses are reported within Corporate and Other. We believe our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales growth and operating margin management, underpinned by disciplined capital allocation. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies. Throughout this MD&A, we commonly discuss the following key operating metrics: •New store openings and store count •Comparable store sales growth •Operating margin Comparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for 13 months or longer and exclude the impact of foreign currency translation. We analyze comparable store sales growth on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements. Stores that are temporarily closed or operating at reduced hours due to the COVID-19 pandemic remain in comparable store sales while stores identified for permanent closure have been removed. Our fiscal year ends on the Sunday closest toSeptember 30 . Our fiscal 2022 year includes 52 weeks while our fiscal 2021 year included 53 weeks, with the 53rd week falling in the fourth quarter of fiscal 2021. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted.Starbucks results for the third quarter of fiscal 2022 demonstrate the overall strength and resilience of our brand, despite continued COVID-19 pandemic related disruptions in ourChina market and global inflation. Consolidated net revenues increased 9% to$8.2 billion in the third quarter of fiscal 2022 compared to$7.5 billion in the third quarter of fiscal 2021, primarily driven by strength in ourU.S. business and growth in our International segment excludingChina , partially offset by COVID-19 pandemic related disruptions inChina restricting customer mobility. Consolidated operating margin decreased 400 basis points from the prior year to 15.9%, primarily driven by inflationary pressures, investments and growth in retail store partner wages as well as sales deleverage related to COVID-19 pandemic related impacts in ourChina market. These decreases were partially offset by strategic pricing inNorth America and sales leverage across markets outside ofChina . For both theNorth America segment and our U.S. market, comparable store sales increased 9% for the third quarter of fiscal 2022 compared to an increase of 84% and 83% for theNorth America segment and the U.S. market, respectively, in the third quarter of fiscal 2021. Average ticket for both theNorth America segment and the U.S. market grew 8%, primarily driven by strategic pricing and increased demand for food items in our U.S. market. The segment also experienced higher costs, primarily related to increased supply chain costs due to inflationary pressures, enhancements in retail store partner wages and increased spend on new partner training and support costs. For the International segment, comparable store sales declined 18% for the third quarter of fiscal 2022, driven by comparable store sales decline of 44% in ourChina market. OurChina market experienced unprecedented COVID-19 pandemic related restrictions in multiple cities that severely impacted customer mobility. Outside ofChina , strong growth in our major International markets continued in the third quarter driven by product innovation and increasing digital capabilities, partially offsetting the unfavorability in ourChina market. Net revenues for our Channel Development segment increased$66 million , or 16%, when compared with the third quarter of fiscal 2021. This was due to higher product sales to and royalty revenue from theGlobal Coffee Alliance and growth in our ready-to-drink business. Despite continued COVID-19 induced business interruptions, especially in ourChina market, we have seen the strength and resilience of our brand as well as strong customer demand across our portfolio. However, given the prolonged COVID-19 pandemic related lockdowns inChina that limited customer mobility during the third quarter and slowed recovery of the market, as well as increasing COVID-19 cases globally, we expect continued impacts on our business. Additionally, our business expects the weights from inflationary pressures to continue as well as increased spend due to labor market conditions and incremental investments in our partners, technology and digital capabilities. While we anticipate these will have an adverse impact on our operating margin for the remainder of the fiscal year, we are confident that our strategies, including our reinvention plan in the U.S. market will elevate both the partner and customer experience, accelerating growth over the long-term. 31
--------------------------------------------------------------------------------
Table of Contents
Results of Operations (in millions)
Revenues
Quarter Ended Three Quarters Ended
Jul 3, Jun 27, $ % Jul 3, Jun 27, $ %
2022 2021 Change Change 2022 2021 Change Change
Company-operated stores $ 6,675.5 $ 6,363.1 $ 312.4 4.9 % $ 19,674.7 $ 17,742.8 $ 1,931.9 10.9 %
Licensed stores 956.8 680.2 276.6 40.7 2,657.0 1,889.0 768.0 40.7
Other 517.8 453.2 64.6 14.3 1,504.4 1,282.1 222.3 17.3
Total net revenues $ 8,150.1 $ 7,496.5 $ 653.6 8.7 % $ 23,836.1 $ 20,913.9 $ 2,922.2 14.0 %
For the quarter ended
Total net revenues for the third quarter of fiscal 2022 increased$654 million , primarily due to higher revenues from company-operated stores ($312 million ). The growth of company-operated stores revenue was driven by incremental revenues from 894 net new Starbucks® company-operated stores, or a 5% increase, over the past 12 months ($258 million ). Also contributing to the higher revenue was a 3% increase in comparable store sales ($183 million ), attributable to a 6% increase in average ticket offset by a 3% decrease in comparable transactions. Partially offsetting these increases was unfavorable foreign currency translation ($136 million ). Licensed stores revenue increased$277 million contributing to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($237 million ) and the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($64 million ). Partially offsetting these increases was unfavorable foreign currency translation ($27 million ). Other revenues increased$65 million , primarily due to higher product sales and royalty revenue in theGlobal Coffee Alliance and growth in our ready-to-drink business.
For the three quarters ended
Total net revenues for the first three quarters of fiscal 2022 increased$2.9 billion , primarily due to higher revenues from company-operated stores ($1.9 billion ). The growth of company-operated stores revenue was driven by a 8% increase in comparable store sales ($1.3 billion ) attributed to a 4% increase in average ticket and 3% increase in comparable transactions. Also contributing to the increase were incremental revenues from 894 net new Starbucks® company-operated stores, or a 5% increase, over the past 12 months ($761 million ). Partially offsetting these increases was unfavorable foreign currency translation ($175 million ). Licensed stores revenue increased$768 million , primarily driven by higher product and equipment sales to and royalty revenues from our licensees ($671 million ) and the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($143 million ). Partially offsetting these increases was unfavorable foreign currency translation ($46 million ). Other revenues increased$222 million , primarily due to higher product sales and royalty revenue in theGlobal Coffee Alliance and growth in our ready-to-drink business. 32
--------------------------------------------------------------------------------
Table of Contents
Operating Expenses
Quarter Ended
Three Quarters Ended
Jul 3 , Jun 27 , $ Jul 3 , Jun 27 , Jul 3 , Jun 27 , $ Jul 3 , Jun 27,
2022 2021 Change 2022 2021 2022 2021 Change 2022 2021
As a % of Total As a % of Total
Net Revenues Net Revenues
Product and distribution costs
32.1 % 29.4 % $ 7,606.4 $ 6,247.5 $ 1,358.9 31.9 % 29.9 %
Store operating expenses 3,302.5 2,966.9 335.6 40.5 39.6 10,017.1 8,657.6 1,359.5 42.0 41.4
Other operating expenses 135.1 71.4 63.7 1.7 1.0 338.4 250.8 87.6 1.4 1.2
Depreciation and amortization
expenses 356.8 354.3 2.5 4.4 4.7 1,090.5 1,087.0 3.5 4.6 5.2
General and administrative
expenses 486.7 494.9 (8.2) 6.0 6.6 1,494.0 1,431.4 62.6 6.3 6.8
Restructuring and impairments 14.0 19.8 (5.8) 0.2 0.3 10.9 115.0 (104.1) - 0.5
Total operating expenses 6,908.7 6,113.3 795.4 84.8 81.5 20,557.3 17,789.3 2,768.0 86.2 85.1
Income from equity investees 54.1 105.5 (51.4) 0.7 1.4 143.5 265.3 (121.8) 0.6 1.3
Operating income $ 1,295.5 $ 1,488.7 $ (193.2) 15.9 % 19.9 % $ 3,422.3 $ 3,389.9 $ 32.4 14.4 % 16.2 %
Store operating expenses as a % of 49.5 % 46.6 % 50.9 % 48.8 %
company-operated stores revenue
For the quarter ended
Product and distribution costs as a percentage of total net revenues increased 270 basis points for the third quarter of fiscal 2022, primarily due to higher supply chain costs driven by inflationary pressures.
Store operating expenses as a percentage of total net revenues increased 90 basis points for the third quarter of fiscal 2022. Store operating expenses as a percentage of company-operated stores revenue increased 290 basis points, primarily due to enhancements in retail store partner wages.
Other operating expenses increased$64 million for the third quarter of fiscal 2022, primarily due to lapping a change in estimate relating to a transaction cost accrual ($23 million ), transaction costs associated with ourRussia market exit ($20 million ) and higher support costs for ourNorth America licensed stores ($4 million ).
Depreciation and amortization expenses as a percentage of total net revenues decreased 30 basis points, primarily due to sales leverage.
General and administrative expenses decreased$8 million , primarily due to lower performance-based compensation ($47 million ) which was partially offset by increased partner wages ($22 million ) and incremental investments in technology ($15 million ). Restructuring and impairment expenses decreased$6 million , primarily due to lower restructuring activities related to ourNorth America store portfolio optimization in the prior year, specifically lower accelerated lease right-of-use asset amortization costs ($11 million ) and lower asset impairment charges ($4 million ), partially offset by lapping prior year beneficial adjustment to severance expense ($9 million ).
Income from equity investees decreased
The combination of these changes resulted in an overall decrease in operating margin of 400 basis points for the third quarter of fiscal 2022.
For the three quarters ended
Product and distribution costs as a percentage of total net revenues increased
200 basis points for the first three quarters of fiscal 2022, primarily due to
higher supply chain costs due to inflationary pressures.
33--------------------------------------------------------------------------------
Table of Contents
Store operating expenses as a percentage of total net revenues increased 60 basis points for the first three quarters of fiscal 2022. Store operating expenses as a percentage of company-operated stores revenue increased 210 basis points, primarily due to enhancements in retail store partner wages and benefits (approximately 280 basis points), increased spend on new partner training and support costs (approximately 80 basis points) and lower temporary government subsidies in the prior year (approximately 80 basis points), partially offset by sales leverage. Other operating expenses increased$88 million for the first three quarters of fiscal 2022, primarily due to lapping a change in estimate relating to a transaction cost accrual ($23 million ), transaction costs associated with ourRussia market exit ($20 million ), higher support costs for our growingNorth America and International licensed stores ($18 million ) and strategic investments in technology and other initiatives ($7 million ).
Depreciation and amortization expenses as a percentage of total net revenues decreased 60 basis points, primarily due to sales leverage.
General and administrative expenses increased$63 million , primarily due to incremental investments in technology ($67 million ), increased partner wages ($59 million ) and increased support costs to address labor market conditions ($23 million ). These increases were partially offset by lower performance-based compensation ($88 million ). Restructuring and impairment expenses decreased$104 million , primarily due to lower restructuring activities related to ourNorth America store portfolio optimization in the prior year, specifically lower accelerated lease right-of-use asset amortization costs ($63 million ) and lower asset impairment charges ($51 million ). These decreases were partially offset by lower severance related charges for certain company-operated prior year store closures ($9 million ). Income from equity investees decreased$122 million , primarily due to the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($99 million ) and lower income from ourNorth American Coffee Partnership joint venture ($28 million ).
The combination of these changes resulted in an overall decrease in operating margin of 190 basis points for the first three quarters of fiscal 2022.
Other Income and Expenses
Quarter Ended Three Quarters Ended
Jul 3 , Jun 27 , $ Jul 3 , Jun 27 , Jul 3 , Jun 27 , $ Jul 3 , Jun 27,
2022 2021 Change 2022 2021 2022 2021 Change 2022 2021
As a % of Total As a % of Total
Net Revenues Net Revenues
Operating income $ 1,295.5 $ 1,488.7 $ (193.2) 15.9 % 19.9 % $ 3,422.3 $ 3,389.9 $ 32.4 14.4 % 16.2 %
Interest income and other,
net 19.8 36.0 (16.2) 0.2 0.5 66.0 68.6 (2.6) 0.3 0.3
Interest expense (123.1) (113.4) (9.7) (1.5) (1.5) (357.6) (349.2) (8.4) (1.5) (1.7)
Earnings before income taxes 1,192.2 1,411.3 (219.1) 14.6 18.8 3,130.7 3,109.3 21.4 13.1 14.9
Income tax expense 278.5 257.1 21.4 3.4 3.4 725.9 673.6 52.3 3.0 3.2
Net earnings including
noncontrolling interests 913.7 1,154.2 (240.5) 11.2 15.4 2,404.8 2,435.7 (30.9) 10.1 11.6
Net earnings attributable to
noncontrolling interests 0.8 0.8 - - - 1.5 0.8 0.7 - -
Net earnings attributable to
Starbucks $ 912.9 $ 1,153.4 $ (240.5) 11.2 % 15.4 % $ 2,403.3 $ 2,434.9 $ (31.6) 10.1 % 11.6 %
Effective tax rate including
noncontrolling interests 23.4 % 18.2 % 23.2 % 21.7 %
For the quarter ended
Interest income and other, net decreased
34--------------------------------------------------------------------------------
Table of Contents
Interest expense increased
The effective tax rate for the quarter ended
For the three quarters ended
Interest income and other, net decreased
Interest expense increased
The effective tax rate for the first three quarters endedJuly 3, 2022 was 23.2% compared to 21.7% for the same period in fiscal 2021. The increase was primarily due to lapping a prior year remeasurement of deferred tax assets due to an enacted foreign corporate rate change (approximately 230 basis points).
Segment Information
Results of operations by segment (in millions):
North America (1) Quarter Ended Three Quarters EndedJul 3 ,Jun 27 , $Jul 3 ,Jun 27 ,Jul 3 ,Jun 27 , $Jul 3 ,Jun 27, 2022 2021 Change 2022 2021 2022 2021 Change 2022 2021 As a % ofNorth America As a % ofNorth America Total Net Revenues Total Net Revenues Net revenues: Company-operated stores$ 5,513.2 $ 4,929.8 $ 583.4 91.0 % 91.8 %$ 15,663.6 $ 13,483.1 $ 2,180.5 90.9 % 91.8 % Licensed stores 544.2 439.0 105.2 9.0 8.2 1,567.1 1,195.6 371.5 9.1 8.1 Other 1.0 1.9 (0.9) - - 5.7 6.2 (0.5) - - Total net revenues 6,058.4 5,370.7 687.7 100.0 100.0 17,236.4 14,684.9 2,551.5 100.0 100.0 Product and distribution costs 1,713.2 1,399.9 313.3 28.3 26.1 4,906.5 3,873.4 1,033.1 28.5 26.4 Store operating expenses 2,670.0 2,346.8 323.2 44.1 43.7 7,997.8 6,788.8 1,209.0 46.4 46.2 Other operating expenses 55.4 38.0 17.4 0.9 0.7 150.7 118.7 32.0 0.9 0.8 Depreciation and amortization expenses 201.2 188.9 12.3 3.3 3.5 603.2 563.9 39.3 3.5 3.8 General and administrative expenses 76.5 73.0 3.5 1.3 1.4 224.5 221.6 2.9 1.3 1.5 Restructuring and impairments 12.0 19.8 (7.8) 0.2 0.4 8.9 115.0 (106.1) 0.1 0.8 Total operating expenses 4,728.3 4,066.4 661.9 78.0 75.7 13,891.6 11,681.4 2,210.2 80.6 79.5 Operating income$ 1,330.1 $ 1,304.3 $ 25.8 22.0 % 24.3 %$ 3,344.8 $ 3,003.5 $ 341.3 19.4 % 20.5 % Store operating expenses as a % of 48.4 % 47.6 % 51.1 % 50.4 %
company-operated stores revenue
(1)
35--------------------------------------------------------------------------------
Table of Contents
For the quarter ended
Revenues
North America total net revenues for the third quarter of fiscal 2022 increased$688 million , or 13%, primarily due to a 9% increase in comparable store sales ($421 million ) driven by a 8% increase in average ticket and a 1% increase in transactions. Also contributing to these increases were the performance of net new company-operated store openings over the past 12 months ($168 million ) and higher product and equipment sales to and royalty revenues from our licensees ($103 million ). Operating MarginNorth America operating income for the third quarter of fiscal 2022 increased 2% to$1,330 million , compared to$1,304 million in the third quarter of fiscal 2021. Operating margin decreased 230 basis points to 22.0%, primarily due to inflationary pressures on commodities and our supply chain (approximately 400 basis points), investments in labor including enhancements in retail store partner wages (approximately 220 basis points) as well as increased spend on new partner training and support costs (approximately 80 basis points). These were partially offset by strategic pricing (approximately 450 basis points) and sales leverage.
For the three quarters ended
RevenuesNorth America total net revenues for the first three quarters of fiscal 2022 increased$2.6 billion , or 17% primarily due to a 13% increase in comparable store sales ($1.7 billion ) driven by a 7% increase in average ticket and a 6% increase in transactions. Also contributing to these increases were the performance of net new company-operated store openings over the past 12 months ($455 million ) and higher product and equipment sales to and royalty revenues from our licensees ($372 million ), primarily due to business recovery from impact of the COVID-19 pandemic.
Operating Margin
North America operating income for the first three quarters of fiscal 2022 increased 11% to$3.3 billion , compared to$3.0 billion for the same period in fiscal 2021. Operating margin decreased 110 basis points to 19.4%, primarily due to investments in labor including enhancements in retail store partner wages (approximately 250 basis points) as well as increased spend on partner training and support costs (approximately 100 basis points), inflationary pressures on commodities and our supply chain (approximately 340 basis points) and lapping temporary subsidies provided by the CARES Act and CEWS (approximately 70 basis points). These were partially offset by strategic pricing (approximately 350 basis points), lower restructuring activities (approximately 70 basis points) and sales leverage. 36
--------------------------------------------------------------------------------
Table of Contents
International (1)
Quarter Ended Three Quarters Ended
Jul 3 , Jun 27 , $ Jul 3 , Jun 27 , Jul 3 , Jun 27 , $ Jul 3 , Jun 27,
2022 2021 Change 2022 2021 2022 2021 Change 2022 2021
As a % of International As a % of International
Total Net Revenues Total Net Revenues
Net revenues:
Company-operated stores $ 1,162.3 $ 1,433.3 $ (271.0) 73.3 % 84.9 % $ 4,011.1 $ 4,259.7 $ (248.6) 77.7 % 85.1 %
Licensed stores 412.6 241.2 171.4 26.0 14.3 1,089.9 693.4 396.5 21.1 13.8
Other 9.8 13.5 (3.7) 0.6 0.8 62.1 53.8 8.3 1.2 1.1
Total net revenues 1,584.7 1,688.0 (103.3) 100.0 100.0 5,163.1 5,006.9 156.2 100.0 100.0
Product and distribution costs 550.3 518.0 32.3 34.7 30.7 1,746.8 1,582.2 164.6 33.8 31.6
Store operating expenses 632.5 620.1 12.4 39.9 36.7 2,019.3 1,868.8 150.5 39.1 37.3
Other operating expenses 60.2 40.0 20.2 3.8 2.4 138.8 107.5 31.3 2.7 2.1
Depreciation and amortization
expenses 125.0 129.7 (4.7) 7.9 7.7 391.4 413.1 (21.7) 7.6 8.3
General and administrative
expenses 81.8 94.9 (13.1) 5.2 5.6 252.7 262.0 (9.3) 4.9 5.2
Total operating expenses 1,449.8 1,402.7 47.1 91.5 83.1 4,549.0 4,233.6 315.4 88.1 84.6
Income from equity investees 0.4 42.0 (41.6) - 2.5 1.6 95.0 (93.4) - 1.9
Operating income $ 135.3 $ 327.3 $ (192.0) 8.5 % 19.4 % $ 615.7 $ 868.3 $ (252.6) 11.9 % 17.3 %
Store operating expenses as a % of company-operated stores 54.4 % 43.3 % 50.3 % 43.9 %
revenue
(1)International licensed stores revenue, total net revenues, product and
distribution costs, other operating expenses, general and administrative
expenses, total operating expenses and operating income for the quarter and
three quarters ended
For the quarter ended
Revenues
International total net revenues for the third quarter of fiscal 2022 decreased$103 million , or 6%, primarily due to an 18% decline in comparable store sales ($238 million ), driven by a 15% decrease in customer transactions and a 4% decrease in average ticket, primarily attributable to COVID-19 related restrictions inChina as well as unfavorable foreign currency translation ($148 million ). These decreases were partially offset by higher product sales to and royalty revenues from our licensees ($134 million ), 704 net new company operated store openings, or 10% increase, over the past 12 months ($90 million ) as well as the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($64 million ).
Operating Margin
International operating income for the third quarter of fiscal 2022 decreased 59% to$135 million , compared to$327 million in the third quarter of fiscal 2021. Operating margin decreased 1,090 basis points to 8.5%, primarily due to sales deleverage related to COVID-19 pandemic related impacts in ourChina market (approximately 910 basis points), higher commodity and supply chain costs due to inflationary pressures (approximately 220 basis points), lower temporary government subsidies (approximately 170 basis points) and investments and growth in retail store partner wages and benefits (approximately 130 basis points). These decreases were partially offset by sales leverage across markets outside ofChina . 37
--------------------------------------------------------------------------------
Table of Contents
For the three quarters ended
Revenues International total net revenues for the first three quarters of fiscal 2022 increased$156 million , or 3%, primarily due to 704 net new Starbucks® company-operated stores, or a 10% increase over the past 12 months ($307 million ). Additionally, there were higher product sales to and royalty revenues from our licensees ($274 million ), primarily due to continuing improvement of our licensees from the COVID-19 pandemic. Also contributing to the increase was the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($143 million ). These increases were partially offset by a 10% decline in comparable store sales ($389 million ), driven by a 6% decrease in customer transactions and a 4% decrease in average ticket, primarily attributable to COVID-19 related restrictions inChina and lapping the prior-year value-added-tax benefit inChina as well as unfavorable foreign currency translation ($218 million ).
Operating Margin
International operating income for the first three quarters of fiscal 2022 decreased 29% to$616 million , compared to$868 million for the same period in fiscal 2021. Operating margin decreased 540 basis points to 11.9%, primarily due to sales deleverage related to COVID-19 pandemic impacts in ourChina market (approximately 450 basis points), investments and growth in retail store partner wages and benefits (approximately 130 basis points), higher commodity and supply chain costs due to inflationary pressures (approximately 110 basis points), strategic initiatives (approximately 100 basis points) and portfolio shift impacts (approximately 90 basis points). These decreases were partially offset by sales leverage across markets outside ofChina . Channel Development Quarter Ended Three Quarters EndedJul 3 ,Jun 27 , $Jul 3 ,Jun 27 ,Jul 3 ,Jun 27 , $Jul 3 ,Jun 27, 2022 2021 Change 2022 2021 2022 2021 Change 2022 2021 As a % of Channel Development As a % of Channel Development Total Net Revenues Total Net Revenues Net revenues$ 479.7 $ 414.0 $ 65.7 $ 1,359.9 $ 1,155.3 $ 204.6 Product and distribution costs 325.8 268.3 57.5 67.9 % 64.8 % 885.2 733.8 151.4 65.1 % 63.5 % Other operating expenses 13.6 (9.9) 23.5 2.8 (2.4) 35.7 14.2 21.5 2.6 1.2 Depreciation and amortization expenses - 0.2 (0.2) - - 0.1 0.9 (0.8) - 0.1 General and administrative expenses 2.3 2.9 (0.6) 0.5 0.7 8.1 7.4 0.7 0.6 0.6 Total operating expenses 341.7 261.5 80.2 71.2 63.2 929.1 756.3 172.8 68.3 65.5 Income from equity investees 53.7 63.5 (9.8) 11.2 15.3 141.9 170.3 (28.4) 10.4 14.7 Operating income$ 191.7 $ 216.0 $ (24.3) 40.0 % 52.2 %$ 572.7 $ 569.3 $ 3.4 42.1 % 49.3 %
For the quarter ended
Revenues
Channel Development total net revenues for the third quarter of fiscal 2022 increased$66 million , or 16%, primarily due to higherGlobal Coffee Alliance product sales and royalty revenue ($54 million ) and growth in our ready-to-drink business ($18 million ). Operating Margin Channel Development operating income for the third quarter of fiscal 2022 decreased 11% to$192 million , compared to$216 million in the third quarter of fiscal 2021. Operating margin decreased 1,220 basis points to 40.0%, primarily due to lapping a change in estimate relating to a transaction cost accrual (approximately 550 basis points), a decline in ourNorth American Coffee Partnership joint venture income due to inflationary pressures and supply chain constraints (approximately 430 basis points) and business mix shift (approximately 230 basis points). 38
--------------------------------------------------------------------------------
Table of Contents
For the three quarters ended
Revenues
Channel Development total net revenues for the first three quarters of fiscal
2022 increased
Operating Margin
Channel Development operating income for the first three quarters of fiscal 2022 increased 1% to$573 million , compared to$569 million for the same period in fiscal 2021. Operating margin decreased 720 basis points to 42.1%, primarily due to a decline in ourNorth American Coffee Partnership joint venture income due to inflationary pressures and supply chain constraints (approximately 440 basis points), lapping a change in estimate relating to a transaction cost accrual (approximately 200 basis points), and business mix shift (approximately 160 basis points). Corporate and Other (1) Quarter Ended Three Quarters Ended Jul 3, Jun 27, $ % Jul 3, Jun 27, $ % 2022 2021 Change Change 2022 2021 Change Change Net revenues: Other$ 27.3 $ 23.8 $ 3.5 14.7 %$ 76.7 $ 66.8 $ 9.9 14.8 % Total net revenues 27.3 23.8 3.5 14.7 76.7 66.8 9.9 14.8 Product and distribution costs 24.3 19.8 4.5 22.7 67.9 58.1 9.8 16.9 Other operating expenses 5.9 3.3 2.6 78.8 13.2 10.4 2.8 26.9 Depreciation and amortization expenses 30.6 35.5 (4.9) (13.8) 95.8 109.1 (13.3) (12.2) General and administrative expenses 326.1 324.1 2.0 0.6 1,008.7 940.4 68.3 7.3 Restructuring and impairments 2.0 - 2.0 nm 2.0 - 2.0 nm Total operating expenses 388.9 382.7 6.2 1.6 1,187.6 1,118.0 69.6 6.2 Operating loss$ (361.6) $ (358.9) $ (2.7) 0.8 %$ (1,110.9) $ (1,051.2) $ (59.7) 5.7 %
(1)Corporate and other general and administrative expenses, total operating
expenses and operating loss for the quarter and three quarters ended
Corporate and Other primarily consists of our unallocated corporate expenses, as well as Evolution Fresh. Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. InMay 2022 , the company announced entry into a definitive agreement to sell our Evolution Fresh brand and business. The transaction closed onAugust 1st . We do not expect a material impact to our future financial results.
For the quarter ended
Corporate and Other operating loss increased to$362 million for the third quarter of fiscal 2022, or 1%, compared to$359 million for the third quarter of fiscal 2021. This increase was primarily driven by incremental investments in technology ($17 million ), increased partner wages and benefits ($11 million ) and increased support costs to address labor market conditions ($11 million ). These increases were partially offset by lower performance-based compensation ($31 million ).
For the three quarters ended
Corporate and Other operating loss increased to$1,111 million for the first three quarters of fiscal 2022, or 6%, compared to$1,051 million for the same period in fiscal 2021. This increase was primarily driven by incremental investments in technology ($62 million ), increased partner wages and benefits ($32 million ) and increased support costs to address labor market conditions ($23 million ). These increases were partially offset by lower performance-based compensation ($55 million ). 39
--------------------------------------------------------------------------------
Table of Contents
Quarterly Store Data
Our store data for the periods presented is as follows:
Net stores opened/(closed) and transferred during the period
Quarter Ended Three Quarters Ended Stores open as of
Jul 3, Jun 27, Jul 3, Jun 27, Jul 3, Jun 27,
2022 2021 2022 2021 2022 2021
North America
Company-operated stores 96 40 189 (249) 10,050 9,860
Licensed stores 28 11 35 61 7,000 6,892
Total North America (1) 124 51 224 (188) 17,050 16,752
International
Company-operated stores 130 177 445 485 7,717 7,013
Licensed stores 64 124 446 338 10,181 9,530
Total International (1) 194 301 891 823 17,898 16,543
Total Company 318 352 1,115 635 34,948 33,295
(1)North America and International licensed stores as of June 27, 2021 , have
been recast as a result of our fiscal 2021 operating segment reporting structure
realignment.
Financial Condition, Liquidity and Capital Resources
Investment Overview
Our cash and investments totaled$3.5 billion as ofJuly 3, 2022 and$6.9 billion as ofOctober 3, 2021 . We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, make acquisitions and return cash to shareholders through common stock cash dividend payments and share repurchases. Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities and government treasury securities (foreign and domestic). As ofJuly 3, 2022 , approximately$2.8 billion of cash was held in foreign subsidiaries.
Borrowing Capacity
Revolving Credit Facility
Our$3 billion unsecured five-year revolving credit facility (the "2021 credit facility"), of which$150 million may be used for issuances of letters of credit, is currently set to mature onSeptember 16, 2026 . The 2021 credit facility is available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases. We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional$1.0 billion . Borrowings under the 2021 credit facility will bear interest at a variable rate based on LIBOR, and, forU.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the 2021 credit facility), in each case plus an applicable margin. The applicable margin is based on the Company's long-term credit ratings assigned by the Moody's andStandard & Poor's rating agencies. The 2021 credit facility contains alternative interest rate provisions specifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform. The "Base Rate" is the highest of (i) the Federal Funds Rate (as defined in the 2021 credit facility) plus 0.050%, (ii) Bank of America's prime rate and (iii) the Eurocurrency Rate (as defined in the 2021 credit facility) plus 1.000%. The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. As ofJuly 3, 2022 , we were in compliance with all applicable covenants. No amounts were outstanding under our 2021 credit facility as ofJuly 3, 2022 orOctober 3, 2021 .
Commercial Paper
Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0 billion , with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under the 2021 credit facility discussed above. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases. As ofJuly 3, 2022 , we had$200 million of borrowings 40
--------------------------------------------------------------------------------
Table of Contents
outstanding under our commercial paper program. As ofOctober 3, 2021 , we had no borrowings outstanding under this program. Our total contractual borrowing capacity for general corporate purposes was$2.8 billion as of the end of our third quarter of fiscal 2022.
Credit facilities in
Additionally, we hold Japanese yen-denominated credit facilities for the use of ourJapan subsidiary. These are available for working capital needs and capital expenditures within our Japanese market. •A ¥5 billion, or$36.8 million , credit facility is currently set to mature onDecember 31, 2022 . Borrowings under such credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%. •A ¥10 billion, or$73.7 million , credit facility is currently set to mature onMarch 27, 2023 . Borrowings under such credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.350%.
As of
See Note 7, Debt, to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.
Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indentures under which the long-term notes were issued. As ofJuly 3, 2022 , we were in compliance with all applicable covenants.
Use of Cash
We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facilities, commercial paper program and the issuance of debt to support and invest in our core businesses, including investing in new ways to serve our customers and supporting our store partners, repaying maturing debts, as well as returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases and investing in new business opportunities related to our core and developing businesses. Furthermore, we may use our available cash resources to make proportionate capital contributions to our investees. We may also seek strategic acquisitions to leverage existing capabilities and further build our business. Acquisitions may include increasing our ownership interests in our investees. Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy. We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with our ability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for at least the next 12 months. We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates; however, additional borrowings would result in increased interest expense in the future. In this regard, we may incur additional debt, within targeted levels, as part of our plans to fund our capital programs, including cash returns to shareholders through future dividends and discretionary share repurchases as well as investing in new business opportunities. If necessary, we may pursue additional sources of financing, including both short-term and long-term borrowings and debt issuances. We regularly review our cash positions and our determination of indefinite reinvestment of foreign earnings. In the event we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes andU.S. state income taxes, which could be material. We do not anticipate the need for repatriated funds to theU.S. to satisfy domestic liquidity needs.
During the third quarter of fiscal 2022, our Board of Directors approved a
quarterly cash dividend to shareholders of
During the first quarter of fiscal 2022, we resumed our share repurchase program which was temporarily suspended inMarch 2020 . During the three quarters endedJuly 3, 2022 , we repurchased 36.3 million shares of common stock for$4.0 billion . OnMarch 15, 2022 , we announced that our Board of Directors authorized the repurchase of up to an additional 40 million shares under our ongoing share repurchase program. OnApril 4, 2022 , we announced a temporary suspension of our share repurchase program to allow us to augment investments in our stores and partners. Repurchases pursuant to this program were last made onApril 1, 2022 . As ofJuly 3, 2022 , 52.6 million shares remained available for repurchase under current authorizations. 41
--------------------------------------------------------------------------------
Table of Contents
Other than normal operating expenses, cash requirements for the remainder of
fiscal 2022 are expected to consist primarily of capital expenditures for
investments in our new and existing stores, our supply chain and corporate
facilities. Total capital expenditures for fiscal 2022 are expected to be
approximately
In the MD&A included in the 10-K, we disclosed that we had
Cash Flows
Cash provided by operating activities was$3.3 billion for the first three quarters of fiscal 2022, compared to$4.5 billion for the same period in fiscal 2021. The change was primarily due to an increase in inventory and net cash used by changes in other operating assets and liabilities. Cash used in investing activities for the first three quarters of fiscal 2022 totaled$1.4 billion , compared to cash used in investing activities of$1.0 billion for the same period in fiscal 2021. The change was primarily due to an increase in spend on capital expenditures. Cash used in financing activities for the first three quarters of fiscal 2022 totaled$5.1 billion compared to cash used in financing activities of$3.2 billion for the same period in fiscal 2021. The increase was primarily due to resuming our share repurchase program, partially offset by net proceeds from issuance of long-term debt.
Commodity Prices, Availability and General Risk Conditions
Commodity price risk represents our primary market risk, generated by our purchases of green coffee and dairy products, among other items. We purchase, roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores. The price and availability of these commodities directly impact our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations. For additional details, see Product Supply in Item 1 of the 10-K, as well as Risk Factors in Item 1A of the 10-K.
Seasonality and Quarterly Results
Our business is subject to moderate seasonal fluctuations, of which our fiscal second quarter typically experiences lower revenues and operating income. However, the COVID-19 pandemic may have an impact on consumer behaviors and customer traffic that result in changes in the seasonal fluctuations of our business. Additionally, as our stored value cards are issued to and loaded by customers during the holiday season, we tend to have higher cash flows from operations during the first quarter of the fiscal year. However, since revenues from our stored value cards are recognized upon redemption and not when cash is loaded, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced. As a result of moderate seasonal fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 , Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements.
© Edgar Online, source
