STARBUCKS CORPORATION CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements herein are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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," "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 expected effects of our initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, the anticipated timing and effects of recovery of our business, the conversion of several 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, expenses, dividends, share repurchases, commodity costs and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, investments, borrowing capacity and use of proceeds, repatriation of cash to theU.S. , the likelihood of the issuance of additional debt and the applicable interest rate, the impact of the COVID-19 outbreak on our financial results, credits available to us under the CARES Act and other government credits, 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: further spread of COVID-19 and related disruptions to 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 potential for a resurgence of COVID-19 infections in a given geographic region after it has hit its "peak"; 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, including the successful expansion of ourGlobal Coffee Alliance with Nestlé; 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; changes in the availability and cost of labor; the impact of competition; inherent risks of operating a global business; the prices and availability of coffee, dairy and other raw materials; the effect of legal proceedings; 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, contained in the 10-K. Introduction and OverviewStarbucks is the premier coffee roaster and retailer of specialty coffee with operations in 83 markets around the world. As ofMarch 28, 2021 ,Starbucks had over 32,900 company-operated and licensed stores, an increase of 3% from the prior year. Additionally, we sell a variety of consumer-packaged goods, or CPG, primarily through theGlobal Coffee Alliance established with Nestlé and other partnerships and joint ventures. Our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales and margin management. Comparable store sales represent company-operated stores open for 13 months or longer, and exclude the impact of foreign currency translation. Stores that are temporarily closed or operating at reduced hours due to the COVID-19 outbreak remain in comparable store sales while stores identified for permanent closure have been removed. During the quarter endedMarch 28, 2021 , our global comparable store sales grew 15%, a reflection of our recovery from the significant adverse impacts from the pandemic in the prior year period. We have three reportable operating segments:Americas , International and Channel Development. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other. 30 -------------------------------------------------------------------------------- Table of Contents Our fiscal year ends on the Sunday closest toSeptember 30 . Our 2021 fiscal year includes 53 weeks, with the 53rd week falling in the fourth fiscal quarter, while fiscal year 2020 included 52 weeks. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted. COVID-19 UpdateStarbucks results for the second quarter of fiscal 2021 reflect continued momentum in the recovery of our business from the effects of the COVID-19 pandemic. The sequential improvements in our quarterly results demonstrate the overall strength and resilience of our brand. Consolidated net revenues increased 11% to$6.7 billion in the second quarter of fiscal 2021 compared to$6.0 billion in the second quarter of fiscal 2020, driven primarily by lapping lost sales resulting from the COVID-19 outbreak in the prior year and strength in theU.S. business in the current year. For both theAmericas segment and theU.S. , comparable store sales increased 9% for the second quarter of fiscal 2021 compared to a decline of 3% in the second quarter of fiscal 2020. The U.S. market also had a 6% increase in two-year comparable store sales(1), demonstrating our sales in theU.S. had fully recovered from the adverse impacts from the pandemic. We continued to incur incremental costs attributable to COVID-19, including catastrophe pay programs for company-operated store partners (employees). These were partially offset by qualified tax credits provided by the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") and theCanada Emergency Wage Subsidy ("CEWS"). In fiscal year 2020, we announced a plan to optimize ourAmericas store portfolio, primarily in dense, metropolitan markets, by blending store formats to better cater to changing customer tastes and preferences. During the second quarter of fiscal 2021, we closed approximately 300 stores in theU.S. andCanada , and expect to close an additional 200 stores primarily over the next 9 to 12 months to complete our restructuring efforts. Costs incurred related to the restructuring efforts are recorded as restructuring and impairments on our consolidated statement of earnings and will continue to be recorded as stores are identified for closure and are eventually closed. For the International segment, comparable store sales increased 35% for the second quarter of fiscal 2021 compared to a decline of 31% in the second quarter of fiscal 2020. Comparable store sales for ourChina market increased 91%, inclusive of value-added tax ("VAT") favorability of approximately 9% which was reinstated for the second quarter of fiscal 2021. Key markets in the International segment continued to experience pandemic-related restrictions that significantly impacted customer mobility during the quarter. Although nearly all company-operated stores in these markets remained open, the modified operating protocols had an adverse impact to comparable store sales and results. Most of our International licensed stores were also open with modified operations at the end of the second quarter of fiscal 2021. Net revenues for our Channel Development segment declined$150 million , or 29%, when compared with the second quarter of fiscal 2020. This was largely due to the transition of certain single-serve product activities to Nestlé beginning in the fourth quarter of fiscal 2020 and lappingGlobal Coffee Alliance transition-related activities. Our Channel Development segment continues to grow category share as customers adjust to their at-home routines. As we lap the adverse impacts of the pandemic in fiscal 2020, we expect the momentum in our business recovery to continue for the remainder of the fiscal year. Absent significant and prolonged COVID-19 relapses or global economic disruptions, and based on the current trend of our retail business recovery and our focused efforts to expand contactless customer experiences, enhance digital capabilities and drive beverage innovation, we are confident in the strength of our brand and the durability of our long-term growth model. (1)Two-year comparable store sales metric is calculated as ((1 + % change in comparable store sales in FY20) * (1 + % change in comparable store sales in FY21)) - 1. Two-year comparable store sales for theU.S. of 6% = ((1 + (-3%)) * (1 + 9%)) - 1. Comparable Store SalesStarbucks comparable store sales for the second quarter of fiscal 2021: Quarter EndedMar 28, 2021
Two Quarters Ended
Change in Change in Change in Change in Change in Change in
Comparable Store Sales Transactions Ticket Comparable Store Sales Transactions Ticket
Consolidated 15% (4)% 19% 4% (12)% 18%
Americas 9% (10)% 22% 1% (16)% 21%
International 35% 26% 7% 13% 4% 8%
The above comparable store sales for the quarter ended March 28, 2021 reflect
continued recovery from the pandemic, which had a significant adverse impact to
our results during the same quarter in the prior year.
Refer to our Quarterly Store Data , also included in Item 2 of Part I of this
10-Q, for additional information on our company operated and licensed store
portfolio.
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Results of Operations (in millions)
Revenues
Quarter Ended Two Quarters Ended
Mar 28, Mar 29, $ % Mar 28, Mar 29, $ %
2021 2020 Change Change 2021 2020 Change Change
Company-operated stores $ 5,653.1 $ 4,766.0 $ 887.1 18.6 % $ 11,379.6 $ 10,546.6 $ 833.0 7.9 %
Licensed stores 595.0 689.8 (94.8) (13.7) 1,208.8 1,481.9 (273.1) (18.4)
Other 419.9 539.9 (120.0) (22.2) 829.1 1,064.3 (235.2) (22.1)
Total net revenues $ 6,668.0 $ 5,995.7 $ 672.3 11.2 % $ 13,417.5 $ 13,092.8 $ 324.7 2.5 %
For the quarter ended March 28, 2021 compared with the quarter ended March 29,
2020
Total net revenues for the second quarter of fiscal 2021 increased $672 million ,
primarily due to higher revenues from company-operated stores ($887 million ).
The growth of company-operated stores revenues was driven by a 15% increase in
comparable store sales ($670 million ) attributed to a 19% increase in average
ticket, partially offset by a 4% decrease in transactions. Also contributing to
the increase were incremental revenues from 469 net new Starbucks®
company-operated stores, or a 3% increase, over the past 12 months ($124
million ) and favorable foreign currency translation ($94 million ).
Licensed stores revenue decreased $95 million , primarily driven by lower product
and equipment sales to and royalty revenues from our licensees.
Other revenues decreased $120 million , primarily due to the transition of
certain single-serve product activities to Nestlé and the lapping of product
sales to Nestlé as part of the Foodservice order fulfillment transition. These
were partially offset by growth in at-home coffee and our ready-to-drink
businesses.
For the two quarters ended March 28, 2021 compared with the two quarters ended
March 29, 2020
Total net revenues for the first two quarters of fiscal 2021 increased $325
million , primarily due to higher revenues from company-operated stores ($833
million ). The growth of company-operated stores revenues was driven by a 4%
increase in comparable store sales ($392 million ) attributed to an 18% increase
in average ticket, partially offset by a 12% decrease in transactions. Also
contributing to the increase were incremental revenues from 469 net new
Starbucks® company-operated stores, or a 3% increase, over the past 12 months
($286 million ) and favorable foreign currency translation ($171 million ).
Licensed stores revenue decreased $273 million , primarily driven by lower
product and equipment sales to and royalty revenues from our licensees.
Other revenues decreased $235 million , primarily due to the transition of
certain single-serve product activities to Nestlé and the lapping of higher
transition activities related to the Global Coffee Alliance . Also contributing
were lower Global Coffee Alliance revenues, mainly driven by the Foodservice
business, which experienced softening due to COVID-19. These were partially
offset by growth in at-home coffee and our ready-to-drink businesses.
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Operating Expenses
Quarter Ended Two Quarters Ended
Mar 28 , Mar 29 , $ Mar 28 , Mar 29 , Mar 28 , Mar 29 , $ Mar 28 , Mar 29,
2021 2020 Change 2021 2020 2021 2020 Change 2021 2020
As a % of Total As a % of Total
Net Revenues Net Revenues
Product and distribution costs
29.9 % 33.3 % $ 4,041.5 $ 4,234.2 $ (192.7) 30.1 % 32.3 %
Store operating expenses 2,823.3 2,721.4 101.9 42.3 45.4 5,690.7 5,542.9 147.8 42.4 42.3
Other operating expenses 87.7 95.0 (7.3) 1.3 1.6 179.5 196.7 (17.2) 1.3 1.5
Depreciation and amortization
expenses 366.7 356.3 10.4 5.5 5.9 732.6 707.4 25.2 5.5 5.4
General and administrative expenses 464.4 406.5 57.9 7.0 6.8 936.5 840.7 95.8 7.0 6.4
Restructuring and impairments 23.0 (0.7) 23.7 0.3 - 95.2 5.6 89.6 0.7 -
Total operating expenses 5,757.5 5,576.2 181.3 86.3 93.0 11,676.0 11,527.5 148.5 87.0 88.0
Income from equity investees 77.1 67.9 9.2 1.2 1.1 159.7 141.9 17.8 1.2 1.1
Operating income $ 987.6 $ 487.4 $ 500.2 14.8 % 8.1 % $ 1,901.2 $ 1,707.2 $ 194.0 14.2 % 13.0 %
Store operating expenses as a % of 49.9 % 57.1 % 50.0 % 52.6 %
company-operated store revenues
For the quarter endedMarch 28, 2021 compared with the quarter endedMarch 29, 2020 Product and distribution costs as a percentage of total net revenues decreased 340 basis points for the second quarter of fiscal 2021, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year. Also contributing were the lapping of inventory write-offs and product waste in the prior year (approximately 90 basis points). Store operating expenses as a percentage of total net revenues decreased 310 basis points for the second quarter of fiscal 2021. Store operating expenses as a percentage of company-operated store revenues decreased 720 basis points, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year and higher benefits in the current year provided by temporary subsidies from theU.S. and certain foreign governments (approximately 130 basis points). These were partially offset by additional investments and growth in retail store partners wages and benefits (approximately 300 basis points). Other operating expenses decreased$7 million for the second quarter of fiscal 2021, due to lapping prior year incremental costs to develop and grow theGlobal Coffee Alliance . Depreciation and amortization expenses as a percentage of total net revenues decreased 40 basis points, primarily due to sales leverage. General and administrative expenses increased$58 million , primarily due to incremental strategic investments in technology ($25 million ) and higher performance-based compensation, recognizing the better than expected business recovery ($25 million ). Restructuring and impairment expenses increased$24 million , primarily due to accelerated amortization of right-of-use lease assets associated with the closure of certain company-operated stores ($14 million ) and higher asset impairment ($8 million ) related to store portfolio optimization. Income from equity investees increased$9 million , primarily due to higher income from ourNorth American Coffee Partnership joint venture. The combination of these changes resulted in an overall increase in operating margin of 670 basis points for the second quarter of fiscal 2021. 33 -------------------------------------------------------------------------------- Table of Contents For the two quarters endedMarch 28, 2021 compared with the two quarters endedMarch 29, 2020 Product and distribution costs as a percentage of total net revenues decreased 220 basis points for the first two quarters of fiscal 2021, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year. Also contributing were the lapping of inventory write-offs and product waste in the prior year (approximately 30 basis points). Store operating expenses as a percentage of total net revenues increased 10 basis points for the first two quarters of fiscal 2021. Store operating expenses as a percentage of company-operated store revenues decreased 260 basis points, primarily due to labor efficiencies (approximately 170 basis points), benefits provided by temporary subsidies from theU.S. and certain foreign governments (approximately 80 basis points) and sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year. These were partially offset by additional investments and growth in retail store partners wages and benefits (approximately 230 basis points). Other operating expenses decreased$17 million for the first two quarters of fiscal 2021, due to lapping prior year incremental costs to develop and grow theGlobal Coffee Alliance . General and administrative expenses increased$96 million , primarily due to incremental strategic investments in technology ($53 million ) and higher performance-based compensation, recognizing the better than expected business recovery ($43 million ). Restructuring and impairment expenses increased$90 million , primarily due to higher asset impairment ($50 million ) and accelerated amortization of right-of-use lease assets associated with the closure of certain company-operated stores ($40 million ), related to store portfolio optimization. Income from equity investees increased$18 million , primarily due to higher income from ourNorth American Coffee Partnership joint venture, partially offset by temporary store closures and reduced operating hours in ourSouth Korea andIndia joint ventures. The combination of these changes resulted in an overall increase in operating margin of 120 basis points for the first two quarters of fiscal 2021. Other Income and Expenses Quarter Ended Two Quarters EndedMar 28 ,Mar 29 , $Mar 28 ,Mar 29 ,Mar 28 ,Mar 29 , $Mar 28 ,Mar 29, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % of Total As a % of Total Net Revenues Net Revenues Operating income$ 987.6 $ 487.4 $ 500.2 14.8 % 8.1 %$ 1,901.2 $ 1,707.2 $ 194.0 14.2 % 13.0 % Interest income and other, net 17.3 2.0 15.3 0.3 - 32.7 18.0 14.7 0.2 0.1 Interest expense (115.0) (99.2) (15.8) (1.7) (1.7) (235.8) (191.1) (44.7) (1.8) (1.5) Earnings before income taxes 889.9 390.2 499.7 13.3 6.5 1,698.1 1,534.1 164.0 12.7 11.7 Income tax expense 230.5 65.4 165.1 3.5 1.1 416.5 324.0 92.5 3.1 2.5 Net earnings including noncontrolling interests 659.4 324.8 334.6 9.9 5.4 1,281.6 1,210.1 71.5 9.6 9.2 Net loss attributable to noncontrolling interests - (3.6) 3.6 - (0.1) - (4.0) 4.0 - - Net earnings attributable toStarbucks $ 659.4 $ 328.4 $ 331.0 9.9 % 5.5 %$ 1,281.6 $ 1,214.1 $ 67.5 9.6 % 9.3 % Effective tax rate including noncontrolling interests 25.9 % 16.8 % 24.5 % 21.1 % For the quarter endedMarch 28, 2021 compared with the quarter endedMarch 29, 2020 Interest income and other, net increased$15 million , primarily due to additional gains from certain investments and net favorable fair value adjustments from derivatives used to manage our risk of commodity risk price fluctuations. 34 -------------------------------------------------------------------------------- Table of Contents Interest expense increased$16 million , primarily due to additional interest incurred on long-term debt issued inMarch 2020 andMay 2020 . The effective tax rate for the quarter endedMarch 28, 2021 was 25.9% compared to 16.8% for the same quarter in fiscal 2020. The increase was primarily due to higher earnings, including the foreign rate differential on our jurisdictional mix of earnings, partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year. For the two quarters endedMarch 28, 2021 compared with the two quarters endedMarch 29, 2020 Interest income and other, net increased$15 million , primarily due to additional gains from certain investments and net favorable fair value adjustments from derivatives used to manage our risk of commodity risk price fluctuations. Interest expense increased$45 million , primarily due to additional interest incurred on long-term debt issued inMarch 2020 andMay 2020 . The effective tax rate for the first two quarters endedMarch 28, 2021 was 24.5% compared to 21.1% for the same period in fiscal 2020. The increase was primarily due to higher earnings, including the foreign rate differential on our jurisdictional mix of earnings, partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year. 35
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Segment Information Results of operations by segment (in millions):Americas Quarter Ended Two Quarters EndedMar 28 ,Mar 29 , $Mar 28 ,Mar 29 ,Mar 28 ,Mar 29 , $Mar 28 ,Mar 29, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % ofAmericas As a % ofAmericas Total Net Revenues Total Net Revenues Net revenues: Company-operated stores$ 4,268.4 $ 3,863.6 $ 404.8 91.5 % 89.2 %$ 8,553.2 $ 8,334.6 $ 218.6 91.3 % 89.2 % Licensed stores 394.2 464.2 (70.0) 8.5 10.7 810.3 1,001.5 (191.2) 8.6 10.7 Other 2.0 2.2 (0.2) - 0.1 4.4 4.8 (0.4) - 0.1 Total net revenues 4,664.6 4,330.0 334.6 100.0 100.0 9,367.9 9,340.9 27.0 100.0 100.0 Product and distribution costs 1,227.6 1,248.2 (20.6) 26.3 28.8 2,503.8 2,636.6 (132.8) 26.7 28.2 Store operating expenses 2,203.1 2,158.6 44.5 47.2 49.9 4,442.1 4,373.0 69.1 47.4 46.8 Other operating expenses 41.9 41.8 0.1 0.9 1.0 84.7 84.3 0.4 0.9 0.9 Depreciation and amortization expenses 186.0 191.5 (5.5) 4.0 4.4 374.9 380.7 (5.8) 4.0 4.1 General and administrative expenses 77.7 68.2 9.5 1.7 1.6 148.5 140.6 7.9 1.6 1.5 Restructuring and impairments 23.0 0.5 22.5 0.5 - 95.2 5.7 89.5 1.0 0.1 Total operating expenses 3,759.3 3,708.8 50.5 80.6 85.7 7,649.2 7,620.9 28.3 81.7 81.6 Operating income$ 905.3 $ 621.2 $ 284.1 19.4 % 14.3 %$ 1,718.7 $ 1,720.0 $ (1.3) 18.3 % 18.4 % Store operating expenses as a % of company-operated 51.6 % 55.9 % 51.9 % 52.5 % store revenues For the quarter endedMarch 28, 2021 compared with the quarter endedMarch 29, 2020 RevenuesAmericas total net revenues for the second quarter of fiscal 2021 increased$335 million , or 8%, primarily due to a 9% increase in comparable store sales ($349 million ) driven by a 22% increase in average ticket, partially offset by a 10% decrease in transactions and the opening of new company-operated stores ($45 million ). These increases were partially offset by lower product and equipment sales to and royalty revenues from our licensees ($70 million ), primarily due to the impact of the COVID-19 pandemic. 36 -------------------------------------------------------------------------------- Table of Contents Operating MarginAmericas operating income for the second quarter of fiscal 2021 increased 46% to$905 million , compared to$621 million in the second quarter of fiscal 2020. Operating margin increased 510 basis points to 19.4%, primarily due to the lapping of COVID-19 related costs, mostly catastrophe and service pay for store partners (approximately 140 basis points) and inventory write-offs (approximately 110 basis points), sales leverage from business recovery, and pricing (approximately 120 basis points). Temporary subsidies provided by the CARES Act and CEWS (approximately 70 basis points) and benefits from closure of lower-performing stores (approximately 70 basis points) also contributed. These increases were partially offset by additional growth and investments in retail store partners wages and benefits (approximately 320 basis points) and higher restructuring expenses relating to ourAmericas portfolio optimization (approximately 50 basis points). For the two quarters endedMarch 28, 2021 compared with the two quarters endedMarch 29, 2020 RevenuesAmericas total net revenues for the first two quarters of fiscal 2021 increased$27 million , primarily due to a 1% increase in comparable store sales ($107 million ) driven by a 21% increase in average ticket, partially offset by a 16% decrease in transactions and the opening of new company-operated stores ($106 million ). These increases were partially offset by lower product and equipment sales to and royalty revenues from our licensees ($190 million ), primarily due to the impact of the COVID-19 pandemic. Operating MarginAmericas operating income for the first two quarters of fiscal 2021 was relatively flat at$1.7 billion , compared to the second quarter of fiscal 2020. Operating margin decreased 10 basis points to 18.3%, primarily due to additional growth and investments in retail store partners wages and benefits (approximately 250 basis points). Higher restructuring expenses relating to ourAmericas portfolio optimization (approximately 90 basis points) also contributed to the decrease. Partially offsetting these decreases were improved labor efficiencies (approximately 170 basis points), pricing (approximately 120 basis points) and temporary benefits provided by the CARES Act and CEWS (approximately 60 basis points). 37 --------------------------------------------------------------------------------
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International
Quarter Ended Two Quarters Ended
Mar 28 , Mar 29 , $ Mar 28 , Mar 29 , Mar 28 , Mar 29 , $ Mar 28 , Mar 29,
2021 2020 Change 2021 2020 2021 2020 Change 2021 2020
As a % of International As a % of International
Total Net Revenues Total Net Revenues
Net revenues:
Company-operated stores $ 1,384.7 $ 902.4 $ 482.3 86.0 % 79.5 % $ 2,826.4 $ 2,212.0 $ 614.4 86.6 % 81.8 %
Licensed stores 200.8 225.6 (24.8) 12.5 19.9 398.5 480.4 (81.9) 12.2 17.8
Other 25.4 6.6 18.8 1.6 0.6 40.4 13.3 27.1 1.2 0.5
Total net revenues 1,610.9 1,134.6 476.3 100.0 100.0 3,265.3 2,705.7 559.6 100.0 100.0
Product and distribution costs 513.5 387.7 125.8 31.9 34.2 1,033.9 876.2 157.7 31.7 32.4
Store operating expenses 620.2 562.8 57.4 38.5 49.6 1,248.6 1,169.9 78.7 38.2 43.2
Other operating expenses 29.3 31.8 (2.5) 1.8 2.8 63.6 67.7 (4.1) 1.9 2.5
Depreciation and amortization expenses 143.4 130.0 13.4 8.9 11.5 283.4 256.7 26.7 8.7 9.5
General and administrative expenses 79.8 63.7 16.1 5.0 5.6 162.5 130.9 31.6 5.0 4.8
Restructuring and impairments - (1.2) 1.2 - (0.1) - (0.4) 0.4 - -
Total operating expenses 1,386.2 1,174.8 211.4 86.1 103.5 2,792.0 2,501.0 291.0 85.5 92.4
Income from equity investees 26.8 24.8 2.0 1.7 2.2 53.0 55.8 (2.8) 1.6 2.1
Operating income/(loss) $ 251.5 $ (15.4) $ 266.9 15.6 % (1.4) % $ 526.3 $ 260.5 $ 265.8 16.1 % 9.6 %
Store operating expenses as a % of company-operated 44.8 % 62.4 % 44.2 % 52.9 %
store revenues
For the quarter ended March 28, 2021 compared with the quarter ended March 29,
2020
Revenues
International total net revenues for the second quarter of fiscal 2021 increased
$476 million , or 42%, primarily due to a 35% increase in comparable store sales
($322 million ), driven by a 26% increase in transactions and a 7% increase in
average ticket. Also contributing were favorable foreign currency translation
($86 million ) and 699 net new Starbucks® company-operated stores, or an 11%
increase, over the past 12 months ($79 million ). These were partially offset by
lower product and equipment sales to and royalty revenues from our licensees
($32 million ), primarily due to the impact of the COVID-19 pandemic.
Operating Margin
International operating income for the second quarter of fiscal 2021 was $252
million , compared to the operating loss of $15 million in the second quarter of
fiscal 2020. Operating margin increased 1,700 basis points to 15.6%, primarily
due to sales leverage driven by lapping the severe impact of the COVID-19
pandemic in the prior year, as well as temporary government subsidies
(approximately 270 basis points).
For the two quarters ended March 28, 2021 compared with the two quarters ended
March 29, 2020
Revenues
International total net revenues for the first two quarters of fiscal 2021
increased $560 million , or 21%, primarily due to a 13% increase in comparable
store sales ($285 million ), driven by an 8% increase in average ticket and a 4%
increase in transactions. Also contributing were 699 net new Starbucks®
company-operated stores, or an 11% increase, over the past 12 months
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($180 million ) and favorable foreign currency translation ($164 million ). These
were partially offset by lower product and equipment sales to and royalty
revenues from our licensees ($93 million ), primarily due to the impact of the
COVID-19 pandemic.
Operating Margin
International operating income for the first two quarters of fiscal 2021 was
$526 million , compared to $261 million for the same period in fiscal 2020.
Operating margin increased 650 basis points to 16.1%, primarily due to sales
leverage driven by lapping the severe impact of the COVID-19 pandemic in the
prior year, as well as temporary government subsidies (approximately 120 basis
points).
Channel Development
Quarter Ended Two Quarters Ended
Mar 28 , Mar 29 , $ Mar 28 , Mar 29 , Mar 28 , Mar 29 , $ Mar 28 , Mar 29,
2021 2020 Change 2021 2020 2021 2020 Change 2021 2020
As a % of Channel Development As a % of Channel Development
Total Net Revenues Total Net Revenues
Net revenues $ 369.9 $ 519.1 $ (149.2) $ 741.2 $ 1,013.7 $ (272.5)
Product and distribution costs 231.9 351.6 (119.7) 62.7 % 67.7 % 465.4 690.4 (225.0) 62.8 % 68.1 %
Other operating expenses 13.1 17.7 (4.6) 3.5 3.4 24.1 38.3 (14.2) 3.3 3.8
Depreciation and amortization
expenses 0.3 0.3 - 0.1 0.1 0.6 0.6 - 0.1 0.1
General and administrative
expenses 2.3 3.0 (0.7) 0.6 0.6 4.5 5.4 (0.9) 0.6 0.5
Total operating expenses 247.6 372.6 (125.0) 66.9 71.8 494.6 734.7 (240.1) 66.7 72.5
Income from equity investees 50.3 43.1 7.2 13.6 8.3 106.7 86.1 20.6 14.4 8.5
Operating income $ 172.6 $ 189.6 $ (17.0) 46.7 % 36.5 % $ 353.3 $ 365.1 $ (11.8) 47.7 % 36.0 %
For the quarter ended March 28, 2021 compared with the quarter ended March 29,
2020
Revenues
Channel Development total net revenues for the second quarter of fiscal 2021
decreased $149 million , or 29%, primarily due to the transition of certain
single-serve product activities to Nestlé ($106 million ), lapping of additional
product sales to Nestlé to transition Foodservice order fulfillment ($39
million ). These were partially offset by growth in our ready-to-drink business.
We expect the impacts from the transition to be substantially completed by the
end of fiscal 2021.
Operating Margin
Channel Development operating income for the second quarter of fiscal 2021
decreased 9% to $173 million , compared to $190 million in the second quarter of
fiscal 2020. Operating margin increased 1,020 basis points to 46.7%, primarily
due to the transfer of certain single-serve products to Nestlé as part of the
Global Coffee Alliance (approximately 480 basis points) and lapping Global
Coffee Alliance transition-related activities (approximately 210 basis points).
Strong performance from our North American Coffee Partnership joint venture also
contributed.
For the two quarters ended March 28, 2021 compared with the two quarters ended
March 29, 2020
Revenues
Channel Development total net revenues for the first two quarters of fiscal 2021
decreased $273 million , or 27%, primarily due to the transition of certain
single-serve product activities to Nestlé ($197 million ) and the lapping of
higher transition activities related to the Global Coffee Alliance ($73
million ). Also contributing were lower Global Coffee Alliance revenues ($27
million ), mainly driven by the Foodservice business, which experienced softening
due to COVID-19. These were partially offset by growth in our ready-to-drink
business.
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Operating Margin
Channel Development operating income for the first two quarters of fiscal 2021
decreased 3% to $353 million , compared to $365 million for the same period in
fiscal 2020. Operating margin increased 1,170 basis points to 47.7%, primarily
due to the transfer of certain single-serve products to Nestlé as part of the
Global Coffee Alliance (approximately 650 basis points) and lapping Global
Coffee Alliance transition-related activities (approximately 100 basis points).
Strong performance from our North American Coffee Partnership joint venture also
contributed.
Corporate and Other
Quarter Ended Two Quarters Ended
Mar 28, Mar 29, $ % Mar 28, Mar 29, $ %
2021 2020 Change Change 2021 2020 Change Change
Net revenues:
Other $ 22.6 $ 12.0 $ 10.6 88.3 % $ 43.1 $ 32.5 $ 10.6 32.6 %
Total net revenues 22.6 12.0 10.6 88.3 43.1 32.5 10.6 32.6
Product and distribution costs 19.4 10.2 9.2 90.2 38.4 31.0 7.4 23.9
Other operating expenses 3.4 3.7 (0.3) (8.1) 7.1 6.4 0.7 10.9
Depreciation and amortization
expenses 37.0 34.5 2.5 7.2 73.7 69.4 4.3 6.2
General and administrative
expenses 304.6 271.6 33.0 12.2 621.0 563.8 57.2 10.1
Restructuring and impairments - - - nm - 0.3 (0.3) nm
Total operating expenses 364.4 320.0 44.4 13.9 740.2 670.9 69.3 10.3
Operating loss $ (341.8) $ (308.0) $ (33.8) 11.0 % $ (697.1) $ (638.4) $ (58.7) 9.2 %
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.
For the quarter ended March 28, 2021 compared with the quarter ended March 29,
2020
Corporate and Other operating loss increased to $342 million for the second
quarter of fiscal 2021, or 11%, compared to $308 million for the second quarter
of fiscal 2020. This increase was primarily driven by incremental strategic
investments in technology and higher performance-based compensation, recognizing
the better than expected business recovery.
For the two quarters ended March 28, 2021 compared with the two quarters ended
March 29, 2020
Corporate and Other operating loss increased to $697 million for the first two
quarters of fiscal 2021, or 9%, compared to $638 million for the same period in
fiscal 2020. This increase was primarily driven by incremental strategic
investments in technology and higher performance-based compensation, recognizing
the better than expected business recovery.
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Quarterly Store Data
Our store data for the periods presented is as follows:
Net stores opened/(closed) and transferred during the period
Quarter Ended Two Quarters Ended Stores open as of
Mar 28, Mar 29, Mar 28, Mar 29, Mar 28, Mar 29,
2021 2020 2021 2020 2021 2020
Americas
Company-operated stores (209) 31 (289) 77 9,820 10,051
Licensed stores 21 37 55 127 8,300 8,220
Total Americas (188) 68 (234) 204 18,120 18,271
International
Company-operated stores 123 78 308 277 6,836 6,137
Licensed stores 70 109 209 313 7,987 7,642
Total International 193 187 517 590 14,823 13,779
Total Company 5 255 283 794 32,943 32,050
Financial Condition, Liquidity and Capital Resources
Investment Overview
Our cash and investments totaled $4.3 billion as of March 28, 2021 and $4.8
billion as of September 27, 2020 . 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, government treasury securities
(foreign and domestic) and commercial paper. As of March 28, 2021 , approximately
$2.3 billion of cash was held in foreign subsidiaries.
Borrowing Capacity
The 2018 credit facility
Our $2.0 billion unsecured 5-year revolving credit facility ("the 2018 credit
facility"), of which $150 million may be used for issuances of letters of
credit, is currently set to mature on October 25, 2022 . We have the option,
subject to negotiation and agreement with the related banks, to increase the
maximum commitment amount by an additional $500 million . Borrowings under the
credit facility are subject to terms defined within the 2018 credit facility and
will bear interest at a variable rate based on LIBOR, and, for U.S.
dollar-denominated loans under certain circumstances, a Base Rate, in each case
plus an applicable margin. The applicable margin is based on the better of (i)
the Company's long-term credit ratings assigned by Moody's and Standard & Poor's
rating agencies and (ii) the Company's fixed charge coverage ratio, pursuant to
a pricing grid set forth in the five-year credit agreement. The current
applicable margin is 1.100% for Eurocurrency Rate Loans and 0.100% for Base Rate
Loans. The 2018 credit facility is available for general corporate purposes. As
of March 28, 2021 , we had no borrowings under the 2018 credit facility.
The 364-day credit facility
Our $1.0 billion unsecured 364-day credit facility (the "364-day credit
facility"), of which no amount may be used for issuances of letters of credit,
is currently set to mature on September 22, 2021 . We have the option, subject to
negotiation and agreement with the related banks, to increase the maximum
commitment amount by an additional $500 million . Borrowings under the credit
facility are subject to terms defined within the 364-day credit facility and
will bear interest at a variable rate based on LIBOR, and, for U.S.
dollar-denominated loans under certain circumstances, a Base Rate, in each case
plus an applicable margin. The applicable margin is based on the better of (i)
the Company's long-term credit ratings assigned by Moody's and Standard & Poor's
rating agencies and (ii) the Company's fixed charge coverage ratio, pursuant to
a pricing grid set forth in the 364-day credit agreement. The applicable margin
is 1.150% for Eurocurrency Rate Loans and 0.150% for Base Rate Loans. The
364-day credit facility is available for general purposes. As of March 28, 2021 ,
we had no borrowings under the 364-day credit facility.
Due to the financial impacts from COVID-19, we reached an agreement with our
lenders to amend the fixed charge coverage ratio covenant for our combined $3
billion revolving lines of credit, through the fourth quarter of fiscal 2021.
Given the
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recovery in our cash flows, we are currently in compliance with the covenant
prior to the amendment and expect our continued compliance upon the amendment
expiration at the end of fiscal 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 2018 and 364-day credit
facilities 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 of
March 28, 2021 , we had no borrowings outstanding under our commercial paper
program. As such, our total contractual borrowing capacity for general corporate
purposes as of the end of our second quarter of fiscal 2021 was $6.0 billion
when combining the unused commercial paper program and credit facilities, less
outstanding borrowing.
Credit facilities in Japan
Additionally, we hold Japanese yen-denominated credit facilities for the use of
our Japan subsidiary. These are available for working capital needs and capital
expenditures within our Japanese market.
•A ¥5 billion, or $45.8 million , facility is currently set to mature on
December 30, 2021 . Borrowings under the 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 $91.6 million , facility is currently set to mature on
March 26, 2022 . Borrowings under the 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 March 28, 2021 , we had $18.3 million of borrowings outstanding under these
credit facilities.
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 Senior Notes were issued. As of March 28, 2021 , 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. Further, 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 in support of our "Growth at Scale" agenda.
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 the foreseeable future. Significant new joint
ventures, acquisitions and/or other new business opportunities may require
additional outside funding. 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. To further
strengthen our liquidity in the near term, we currently expect the suspension of
share repurchases to continue into late fiscal 2021.
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 and U.S. state income taxes,
which could be material. We do not anticipate the need for repatriated funds to
the U.S. to satisfy domestic liquidity needs.
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During the second quarter of fiscal 2021, our Board of Directors approved a
quarterly cash dividend to shareholders of $0.45 per share to be paid on May 28,
2021 to shareholders of record as of the close of business on May 13, 2021 . As
of the date of this report, we do not expect to reduce our quarterly dividend as
a result of the COVID-19 pandemic.
On April 8, 2020 , we announced a temporary suspension of our share repurchase
program. Repurchases pursuant to this program were last made in mid-March 2020 .
As of March 28, 2021 , 48.9 million shares remained available for repurchase
under current authorizations. The existing share repurchase program remains
authorized by the Board of Directors, however, we have temporarily suspended our
share repurchase program until we restore certain financial leverage targets,
which we currently expect to occur in late fiscal 2021.
Other than normal operating expenses, cash requirements for the remainder of
fiscal 2021 are expected to consist primarily of capital expenditures for
investments in our new and existing stores and our supply chain and corporate
facilities. Total capital expenditures for fiscal 2021 are expected to be
approximately $1.9 billion .
Cash Flows
Cash provided by operating activities was $2.7 billion for the first two
quarters of fiscal 2021, compared to $0.5 billion for the same period in fiscal
2020. The increase was primarily due to the timing of tax payments and refunds.
Cash used in investing activities for the first two quarters of fiscal 2021
totaled $0.6 billion , compared to cash used in investing activities of $0.7
billion for the same period in fiscal 2020. The change was primarily due to an
increase in purchase of investments, partially offset by higher maturities and
calls of investments and decrease in spend on capital expenditures.
Cash used in financing activities for the first two quarters of fiscal 2021
totaled $2.7 billion compared to cash provided by financing activities of $0.2
billion for the same period in fiscal 2020. The change was primarily due to
increased debt repayments and lower net proceeds from new debt issuances,
partially offset by the temporary suspension of our share repurchase program.
Contractual Obligations
In Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 10-K, we disclosed that we had $35.4 billion in total
contractual obligations as of September 27, 2020 . There have been no material
changes to our total obligations during the period covered by this 10-Q outside
of the normal course of our business.
Off-Balance Sheet Arrangements
There has been no material change in our off-balance sheet arrangements
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the 10-K.
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 outbreak 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, to the consolidated
financial statements included in Item 1 of Part I of this 10-Q, for a detailed
description of recent accounting pronouncements.
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