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, the expected sale of our ownership share in and our future relationship withStarbucks Coffee Korea Co., Ltd. , 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, 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, 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 filed with theSEC onNovember 12, 2020 . Introduction and OverviewStarbucks is the premier coffee roaster and retailer of specialty coffee with operations in 83 markets around the world. As ofJune 27, 2021 ,Starbucks had over 33,200 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. These key operating metrics are important indicators for the growth of our business and the effectiveness of our marketing and operational strategies. Comparable store sales represent 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 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. During the quarter endedJune 27 , 31 -------------------------------------------------------------------------------- Table of Content s 2021, our global comparable store sales grew 73%, demonstrating powerful momentum beyond 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. 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 third quarter of fiscal 2021 demonstrated powerful momentum beyond recovery from the COVID-19 pandemic. The sequential improvements in our quarterly results demonstrate the overall strength and resilience of our brand. Consolidated net revenues increased 78% to$7.5 billion in the third quarter of fiscal 2021 compared to$4.2 billion in the third quarter of fiscal 2020, primarily due to lapping lost sales resulting from the COVID-19 pandemic in the prior year and strength in theU.S. business in the current year. For theAmericas segment, comparable store sales increased 84% for the third quarter of fiscal 2021 compared to a decline of 41% in the third quarter of fiscal 2020. Comparable store sales for our U.S. market increased 83% for the third quarter of fiscal 2021 compared to a decline of 40% in the third quarter of fiscal 2020. The U.S. market also had a 10% increase in two-year comparable store sales(1). We continued to incur 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 third quarter of fiscal 2021, we closed approximately 50 stores in theU.S. andCanada , and expect to close approximately 180 additional stores primarily over the next 6 to 12 months to complete our restructuring efforts. Costs incurred related to the restructuring efforts are recorded as restructuring and impairments on our consolidated statements of earnings and will continue to be recorded as stores are identified for closure and are eventually closed. We expect the majority of stores to be identified for closure and expect to recognize the remaining restructuring and impairment costs in 2021. For the International segment, comparable store sales increased 41% for the third quarter of fiscal 2021 compared to a decline of 37% in the third quarter of fiscal 2020. Comparable store sales for ourChina market increased 19%, inclusive of a 6% adverse impact from lapping the prior-year value-added tax ("VAT") benefit. 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 operating results. Net revenues for our Channel Development segment declined$33 million , or 7%, when compared with the third 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. This was partially offset by higher product sales to and royalty revenue from theGlobal Coffee Alliance and growth in our ready-to-drink business. Our Channel Development segment continues to grow category share despite a decline in the overall at-home coffee category as consumer mobility improved. Absent significant and prolonged COVID-19 relapses or global economic disruptions, and based on the current trend of our retail business operations 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 10% = ((1 + (-40%)) * (1 + 83%)) - 1. 32 -------------------------------------------------------------------------------- Table of Content s Comparable Store SalesStarbucks comparable store sales for the third quarter of fiscal 2021: Quarter EndedJun 27, 2021
Three 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 73% 75% (1)% 21% 7% 13%
Americas 84% 82% 1% 21% 4% 16%
International 41% 55% (9)% 21% 18% 3%
The above comparable store sales for the quarter ended June 27, 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.
Results of Operations (in millions)
Revenues
Quarter Ended Three Quarters Ended
Jun 27, Jun 28, $ % Jun 27, Jun 28, $ %
2021 2020 Change Change 2021 2020 Change Change
Company-operated stores $ 6,363.1 $ 3,444.4 $ 2,918.7 84.7 % $ 17,742.8 $ 13,991.0 $ 3,751.8 26.8 %
Licensed stores 680.2 300.5 379.7 126.4 1,889.0 1,782.4 106.6 6.0
Other 453.2 477.2 (24.0) (5.0) 1,282.1 1,541.5 (259.4) (16.8)
Total net revenues $ 7,496.5 $ 4,222.1 $ 3,274.4 77.6 % $ 20,913.9 $ 17,314.9 $ 3,599.0 20.8 %
For the quarter ended June 27, 2021 compared with the quarter ended June 28,
2020
Total net revenues for the third quarter of fiscal 2021 increased $3.3 billion ,
primarily due to higher revenues from company-operated stores ($2.9 billion ).
The growth of company-operated stores revenues was driven by a 73% increase in
comparable store sales ($2.5 billion ) attributed to a 75% increase in
transactions offset by a 1% decrease in average ticket. Also contributing to the
increase were incremental revenues from 612 net new Starbucks® company-operated
stores, or a 4% increase, over the past 12 months ($268 million ) and favorable
foreign currency translation ($119 million ).
Licensed stores revenue increased $380 million , primarily driven by higher
product and equipment sales to and royalty revenues from our licensees.
Other revenues decreased $24 million , primarily due to the transition of certain
single-serve product activities to Nestlé. This was partially offset by higher
product sales and royalty revenue in the Global Coffee Alliance and growth in
our ready-to-drink business.
For the three quarters ended June 27, 2021 compared with the three quarters
ended June 28, 2020
Total net revenues for the first three quarters of fiscal 2021 increased $3.6
billion , primarily due to higher revenues from company-operated stores ($3.8
billion ). The growth of company-operated stores revenues was driven by a 21%
increase in comparable store sales ($2.9 billion ) attributed to a 13% increase
in average ticket and a 7% increase in transactions. Also contributing to the
increase were incremental revenues from 612 net new Starbucks® company-operated
stores, or a 4% increase, over the past 12 months ($554 million ) and favorable
foreign currency translation ($291 million ).
Licensed stores revenue increased $107 million , primarily driven by higher
product and equipment sales to and royalty revenues from our licensees.
Other revenues decreased $259 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 in the prior year.
These were partially offset by growth in our ready-to-drink business.
33
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Table of Content s
Operating Expenses
Quarter Ended Three Quarters Ended
Jun 27 , Jun 28 , $ Jun 27 , Jun 28 , Jun 27 , Jun 28 , $ Jun 27 , Jun 28,
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
29.4 % 35.1 % $ 6,247.5 $ 5,718.2 $ 529.3 29.9 % 33.0 %
Store operating expenses 2,966.9 2,537.8 429.1 39.6 60.1 8,657.6 8,080.7 576.9 41.4 46.7
Other operating expenses 71.4 133.6 (62.2) 1.0 3.2 250.8 330.3 (79.5) 1.2 1.9
Depreciation and amortization
expenses 354.3 361.0 (6.7) 4.7 8.6 1,087.0 1,068.3 18.7 5.2 6.2
General and administrative expenses 494.9 399.9 95.0 6.6 9.5 1,431.4 1,240.6 190.8 6.8 7.2
Restructuring and impairments 19.8 78.1 (58.3) 0.3 1.8 115.0 83.7 31.3 0.5 0.5
Total operating expenses 6,113.3 4,994.4 1,118.9 81.5 118.3 17,789.3 16,521.8 1,267.5 85.1 95.4
Income from equity investees 105.5 68.4 37.1 1.4 1.6 265.3 210.3 55.0 1.3 1.2
Operating income/(loss) $ 1,488.7 $ (703.9) $ 2,192.6 19.9 % (16.7) % $ 3,389.9 $ 1,003.4 $ 2,386.5 16.2 % 5.8 %
Store operating expenses as a % of 46.6 % 73.7 % 48.8 % 57.8 %
company-operated store revenues
For the quarter endedJune 27, 2021 compared with the quarter endedJune 28, 2020 Product and distribution costs as a percentage of total net revenues decreased 570 basis points for the third quarter of fiscal 2021, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year and pricing in theAmericas . Store operating expenses as a percentage of total net revenues decreased 2,050 basis points for the third quarter of fiscal 2021. Store operating expenses as a percentage of company-operated store revenues decreased 2,710 basis points, primarily due to sales leverage from business recovery and lapping higher COVID-19 related costs in the prior year, mainly catastrophe and service pay for store partners, net of temporary subsidies from theU.S. and certain foreign governments (approximately 840 basis points). These increases were partially offset by additional investments in retail store partners wages and benefits (approximately 100 basis points). Other operating expenses decreased$62 million for the third quarter of fiscal 2021, primarily due to lowerGlobal Coffee Alliance transaction costs, inclusive of lapping certain transition items from the prior year and a change in estimate relating to a transaction cost accrual. Depreciation and amortization expenses as a percentage of total net revenues decreased 390 basis points, primarily due to sales leverage. General and administrative expenses increased$95 million , primarily due to higher performance-based compensation recognizing the better than expected business recovery ($64 million ) and incremental strategic investments in technology ($21 million ). Restructuring and impairment expenses decreased$58 million , primarily due to lower asset impairment related to store portfolio optimization ($34 million ) and lapping the intangible asset impairment from the prior year ($22 million ). Income from equity investees increased$37 million , primarily due to higher income from ourSouth Korea joint venture attributable to net new store growth and lapping lower royalty income due to the severe impact of the COVID-19 pandemic in the prior year ($18 million ). Higher income from ourNorth American Coffee Partnership joint venture also contributed ($13 million ). 34 -------------------------------------------------------------------------------- Table of Content s The combination of these changes resulted in an overall increase in operating margin of 3,660 basis points for the third quarter of fiscal 2021. For the three quarters endedJune 27, 2021 compared with the three quarters endedJune 28, 2020 Product and distribution costs as a percentage of total net revenues decreased 310 basis points for the first three quarters of fiscal 2021, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year and pricing in theAmericas . Store operating expenses as a percentage of total net revenues decreased 530 basis points for the first three quarters of fiscal 2021. Store operating expenses as a percentage of company-operated store revenues decreased 900 basis points, primarily due to sales leverage from business recovery and lapping higher COVID-19 related costs in the prior year, mainly catastrophe and service pay for store partners, net of temporary subsidies from theU.S. and certain foreign governments (approximately 280 basis points). These increases were partially offset by additional investments in retail store partners wages and benefits (approximately 200 basis points). Other operating expenses decreased$80 million for the first three quarters of fiscal 2021, primarily due to lowerGlobal Coffee Alliance transaction costs, inclusive of lapping certain transition items from the prior year and a change in estimate relating to a transaction cost accrual. Depreciation and amortization expenses as a percentage of total net revenues decreased 100 basis points, primarily due to sales leverage. General and administrative expenses increased$191 million , primarily due to higher performance-based compensation recognizing the better than expected business recovery ($108 million ) and incremental strategic investments in technology ($74 million ). Restructuring and impairment expenses increased$31 million , primarily due to accelerated amortization of right-of-use lease assets associated with the closure of certain company-operated stores ($39 million ) and higher asset impairment ($16 million ), related to store portfolio optimization, partially offset by lapping the intangible asset impairment from the prior year ($22 million ). Income from equity investees increased$55 million , primarily due to higher income from ourNorth American Coffee Partnership joint venture ($33 million ) as well as net new store growth in ourSouth Korea joint venture and lapping lower royalty income due to the severe impact of the COVID-19 pandemic in the prior year ($10 million ). The combination of these changes resulted in an overall increase in operating margin of 1,040 basis points for the first three quarters of fiscal 2021. 35 -------------------------------------------------------------------------------- Table of Content s Other Income and Expenses Quarter Ended Three Quarters EndedJun 27 ,Jun 28 , $Jun 27 ,Jun 28 ,Jun 27 ,Jun 28 , $Jun 27 ,Jun 28, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % of Total As a % of Total Net Revenues Net Revenues Operating income/(loss)$ 1,488.7 $ (703.9) $ 2,192.6 19.9 % (16.7) %$ 3,389.9 $ 1,003.4 $ 2,386.5 16.2 % 5.8 % Interest income and other, net 36.0 12.7 23.3 0.5 0.3 68.6 30.7 37.9 0.3 0.2 Interest expense (113.4) (120.8) 7.4 (1.5) (2.9) (349.2) (312.1) (37.1) (1.7) (1.8) Earnings/(loss) before income taxes 1,411.3 (812.0) 2,223.3 18.8 (19.2) 3,109.3 722.0 2,387.3 14.9 4.2 Income tax expense/(benefit) 257.1 (133.9) 391.0 3.4 (3.2) 673.6 190.0 483.6 3.2 1.1 Net earnings/(loss) including noncontrolling interests 1,154.2 (678.1) 1,832.3 15.4 (16.1) 2,435.7 532.0 1,903.7 11.6 3.1 Net earnings/(loss) attributable to noncontrolling interests 0.8 0.3 0.5 - - 0.8 (3.7) 4.5 - - Net earnings/(loss) attributable toStarbucks $ 1,153.4 $ (678.4) $ 1,831.8 15.4 % (16.1) %$ 2,434.9 $ 535.7 $ 1,899.2 11.6 % 3.1 % Effective tax rate including noncontrolling interests 18.2 % 16.5 % 21.7 % 26.3 % For the quarter endedJune 27, 2021 compared with the quarter endedJune 28, 2020 Interest income and other, net increased$23 million , primarily due to additional gains from certain investments. Interest expense decreased$7 million , primarily due to lower debt balances attributed to repayments of short-term and current portion of long-term debt balances. The effective tax rate for the quarter endedJune 27, 2021 was 18.2% compared to 16.5% for the same quarter in fiscal 2020. The increase was primarily due to the foreign rate differential on our mix of earnings by tax jurisdictions, as well as a change in the absolute pre-tax operating results when compared to the same period of the prior year. This was partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year (approximately 840 basis points), a current year remeasurement of deferred tax assets due to an enacted corporate rate change (approximately 510 basis points) and lapping the release of income tax reserves related to the expiration of statute of limitations in the prior year (approximately 330 basis points). For the three quarters endedJune 27, 2021 compared with the three quarters endedJune 28, 2020 Interest income and other, net increased$38 million , primarily due to additional gains from certain investments and net favorable fair value adjustments from non-designated derivatives used to manage our risk of commodity price fluctuations. Interest expense increased$37 million , primarily due to additional interest incurred on long-term debt issued inMarch 2020 andMay 2020 . The effective tax rate for the first three quarters endedJune 27, 2021 was 21.7% compared to 26.3% for the same period in fiscal 2020. The decrease was primarily due to lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year (approximately 1,400 basis points) and a current year remeasurement of deferred tax assets due to an enacted corporate rate change (approximately 230 basis points). This was partially offset by the foreign rate differential on our mix of earnings by tax jurisdiction and lapping the release of income tax reserves related to the expiration of statute of limitations in the prior year. 36
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Table of Content s
Segment Information Results of operations by segment (in millions):Americas Quarter Ended Three Quarters EndedJun 27 ,Jun 28 , $Jun 27 ,Jun 28 ,Jun 27 ,Jun 28 , $Jun 27 ,Jun 28, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % ofAmericas As a % ofAmericas Total Net Revenues Total Net Revenues Net revenues: Company-operated stores$ 4,929.8 $ 2,568.9 $ 2,360.9 91.3 % 91.6 %$ 13,483.1 $ 10,903.5 $ 2,579.6 91.3 % 89.8 % Licensed stores 468.5 235.5 233.0 8.7 8.4 1,278.8 1,237.0 41.8 8.7 10.2 Other 2.0 1.1 0.9 - - 6.2 5.8 0.4 - - Total net revenues 5,400.3 2,805.5 2,594.8 100.0 100.0 14,768.1 12,146.3 2,621.8 100.0 100.0 Product and distribution costs 1,416.2 805.6 610.6 26.2 28.7 3,920.0 3,442.2 477.8 26.5 28.3 Store operating expenses 2,346.8 2,054.4 292.4 43.5 73.2 6,788.7 6,427.3 361.4 46.0 52.9 Other operating expenses 39.7 40.7 (1.0) 0.7 1.5 124.4 125.1 (0.7) 0.8 1.0 Depreciation and amortization expenses 188.9 191.3 (2.4) 3.5 6.8 563.9 571.9 (8.0) 3.8
4.7
General and administrative expenses 73.2 62.2 11.0 1.4 2.2 221.7 202.8 18.9 1.5
1.7
Restructuring and impairments 19.8 56.2 (36.4) 0.4 2.0 115.0 61.9 53.1 0.8
0.5
Total operating expenses 4,084.6 3,210.4 874.2 75.6 114.4 11,733.7 10,831.2 902.5 79.5
89.2
Operating income/(loss)$ 1,315.7 $ (404.9) $ 1,720.6 24.4 % (14.4) %$ 3,034.4 $ 1,315.1 $ 1,719.3 20.5 % 10.8 % Store operating expenses as a % of company-operated 47.6 % 80.0 % 50.3 % 58.9 % store revenues For the quarter endedJune 27, 2021 compared with the quarter endedJune 28, 2020 RevenuesAmericas total net revenues for the third quarter of fiscal 2021 increased$2.6 billion , or 92%, primarily due to an 84% increase in comparable store sales ($2.1 billion ) driven by an 82% increase in transactions and a 1% increase in average ticket, and the opening of new company-operated stores ($172 million ). Also contributing to these increases were higher product and equipment sales to and royalty revenues from our licensees ($231 million ), primarily due to lapping the severe impact of the COVID-19 pandemic in the prior year, and favorable foreign currency translation ($39 million ). Operating MarginAmericas operating income for the third quarter of fiscal 2021 was$1.3 billion , compared to a loss of$405 million in the third quarter of fiscal 2020. Operating margin increased 3,880 basis points to 24.4%, primarily due to sales leverage from business recovery and lapping higher COVID-19 related costs in the prior year, mainly catastrophe and service pay for store partners, net of temporary subsidies provided by the CARES Act and CEWS (approximately 930 basis points). Also contributing to the margin improvements were lower restructuring expenses (approximately 160 basis points), pricing (approximately 150 basis points) and benefits from the closure of lower-performing stores (approximately 80 basis points). These increases were partially offset by additional investments in retail store partners wages and benefits (approximately 110 basis points) and increased supply chain costs attributed to inflation (approximately 70 basis points). For the three quarters endedJune 27, 2021 compared with the three quarters endedJune 28, 2020 RevenuesAmericas total net revenues for the first three quarters of fiscal 2021 increased$2.6 billion , or 22% primarily due to a 21% increase in comparable store sales ($2.2 billion ) driven by a 16% increase in average ticket and a 4% increase in transactions, and the opening of new company-operated stores ($278 million ). Also contributing to these increases were favorable foreign 37 -------------------------------------------------------------------------------- Table of Content s currency translation ($56 million ) and higher product and equipment sales to and royalty revenues from our licensees ($41 million ), primarily due to lapping the severe impact of the COVID-19 pandemic in the prior year. Operating MarginAmericas operating income for the first three quarters of fiscal 2021increased 131% to$3.0 billion , compared to$1.3 billion for the same period in fiscal 2020. Operating margin increased 970 basis points to 20.5%, primarily due to sales leverage from business recovery, lower COVID-19 related costs, mostly catastrophe and service pay for store partners, net of temporary subsidies provided by the CARES Act and CEWS (approximately 260 basis points), pricing (approximately 130 basis points) and benefits from the closure of lower-performing stores (approximately 60 basis points). These increases were partially offset by additional investments in retail store partners wages and benefits (approximately 220 basis points) and higher restructuring expenses relating to ourAmericas portfolio optimization (approximately 30 basis points). International Quarter Ended Three Quarters EndedJun 27 ,Jun 28 , $Jun 27 ,Jun 28 ,Jun 27 ,Jun 28 , $Jun 27 ,Jun 28, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % of International As a % of International Total Net Revenues Total Net Revenues Net revenues: Company-operated stores$ 1,433.3 $ 875.5 $ 557.8 86.4 % 92.2 %$ 4,259.7 $ 3,087.5 $ 1,172.2 86.5 % 84.5 % Licensed stores 211.7 65.0 146.7 12.8 6.8 610.2 545.4 64.8 12.4 14.9 Other 13.4 9.1 4.3 0.8 1.0 53.8 22.4 31.4 1.1 0.6 Total net revenues 1,658.4 949.6 708.8 100.0 100.0 4,923.7 3,655.3 1,268.4 100.0 100.0 Product and distribution costs 501.7 337.7 164.0 30.3 35.6 1,535.6 1,213.9 321.7 31.2 33.2 Store operating expenses 620.1 483.4 136.7 37.4 50.9 1,868.9 1,653.4 215.5 38.0 45.2 Other operating expenses 38.3 37.5 0.8 2.3 3.9 101.8 105.1 (3.3) 2.1 2.9 Depreciation and amortization expenses 129.7 128.5 1.2 7.8 13.5 413.1 385.2 27.9 8.4 10.5 General and administrative expenses 92.3 66.1 26.2 5.6 7.0 254.7 196.9 57.8 5.2 5.4 Restructuring and impairments - (0.2) 0.2 - - - (0.6) 0.6 - - Total operating expenses 1,382.1 1,053.0 329.1 83.3 110.9 4,174.1 3,553.9 620.2 84.8 97.2 Income from equity investees 42.0 17.4 24.6 2.5 1.8 95.0 73.1 21.9 1.9 2.0 Operating income/(loss)$ 318.3 $ (86.0) $ 404.3 19.2 % (9.1) %$ 844.6 $ 174.5 $ 670.1 17.2 % 4.8 % Store operating expenses as a % of company-operated 43.3 % 55.2 % 43.9 % 53.6 % store revenues For the quarter endedJune 27, 2021 compared with the quarter endedJune 28, 2020 Revenues International total net revenues for the third quarter of fiscal 2021 increased$709 million , or 75%. Company-operated store revenues increased$558 million , primarily due to a 41% increase in comparable store sales ($373 million ), driven by a 55% increase in transactions, partially offset by a 9% decrease in average ticket. Additionally there were 761 net new stores, a 12% increase, over the past 12 months ($96 million ). Also contributing to the increase in net revenues were higher product and equipment sales to and royalty revenues from our licensees ($135 million ) and favorable foreign currency translation ($94 million ). 38 -------------------------------------------------------------------------------- Table of Content s Operating Margin International operating income for the third quarter of fiscal 2021 was$318 million , compared to a loss of$86 million in the third quarter of fiscal 2020. Operating margin increased 2,830 basis points to 19.2%, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year as well labor efficiencies (approximately 310 basis points). Also contributing to this increase was lower catastrophe pay (approximately 290 basis points), lapping temporary royalty relief provided to licensees in the prior year (approximately 230 basis points) and higher temporary government subsidies (approximately 200 basis points). For the three quarters endedJune 27, 2021 compared with the three quarters endedJune 28, 2020 Revenues International total net revenues for the first three quarters of fiscal 2021 increased$1.3 billion , or 35%, primarily due to a 21% increase in comparable store sales ($658 million ), driven by an 18% increase in transactions and a 3% increase in average ticket. Also contributing to this increase were 761 net new Starbucks® company-operated stores, or a 12% increase, over the past 12 months ($276 million ). Additionally, there were favorable foreign currency translation ($258 million ) and higher product and equipment sales to and royalty revenues from our licensees ($42 million ), primarily due to lapping the severe impact of the COVID-19 pandemic in the prior year. Operating Margin International operating income for the first three quarters of fiscal 2021 increased 384% to$845 million , compared to$175 million for the same period in fiscal 2020. Operating margin increased 1,240 basis points to 17.2%, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year, as well as higher temporary government subsidies (approximately 140 basis points) and labor efficiencies (approximately 140 basis points). Also contributing to this increase was lapping temporary royalty relief provided to licensees in the prior year (approximately 80 basis points). Channel Development Quarter Ended Three Quarters EndedJun 27 ,Jun 28 , $Jun 27 ,Jun 28 ,Jun 27 ,Jun 28 , $Jun 27 ,Jun 28, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % of Channel Development As a % of Channel Development Total Net Revenues Total Net Revenues Net revenues$ 414.0 $ 447.3 $ (33.3) $ 1,155.3 $ 1,461.0 $ (305.7) Product and distribution costs 268.3 319.9 (51.6) 64.8 % 71.5 % 733.8 1,010.3 (276.5) 63.5 % 69.2 % Other operating expenses (9.9) 51.4 (61.3) (2.4) 11.5 14.2 89.7 (75.5) 1.2 6.1 Depreciation and amortization expenses 0.2 0.3 (0.1) - 0.1 0.9 0.9 - 0.1 0.1 General and administrative expenses 2.9 2.5 0.4 0.7 0.6 7.4 8.0 (0.6) 0.6 0.5 Total operating expenses 261.5 374.1 (112.6) 63.2 83.6 756.3 1,108.9 (352.6) 65.5 75.9 Income from equity investees 63.5 51.0 12.5 15.3 11.4 170.3 137.2 33.1 14.7 9.4 Operating income$ 216.0 $ 124.2 $ 91.8 52.2 % 27.8 %$ 569.3 $ 489.3 $ 80.0 49.3 % 33.5 % For the quarter endedJune 27, 2021 compared with the quarter endedJune 28, 2020 Revenues Channel Development total net revenues for the third quarter of fiscal 2021 decreased$33 million , or 7%, primarily due to the transition of certain single-serve product activities to Nestlé ($74 million ). This was partially offset by higher product sales and royalty revenue in theGlobal Coffee Alliance ($30 million ) and growth in our ready-to-drink business. We expect the impacts from the transition to be substantially completed by the end of fiscal 2021. 39 -------------------------------------------------------------------------------- Table of Content s Operating Margin Channel Development operating income for the third quarter of fiscal 2021 increased 74% to$216 million , compared to$124 million in the third quarter of fiscal 2020. Operating margin increased 2,440 basis points to 52.2%, primarily due to lowerGlobal Coffee Alliance transaction costs, inclusive of lapping certain transition items from prior year (approximately 780 basis points) and a change in estimate relating to a transaction cost accrual (approximately 550 basis points), as well as the transfer of certain single-serve products to Nestlé as part of theGlobal Coffee Alliance (approximately 700 basis points). Strong performance from ourNorth American Coffee Partnership joint venture also contributed. For the three quarters endedJune 27, 2021 compared with the three quarters endedJune 28, 2020 Revenues Channel Development total net revenues for the first three quarters of fiscal 2021 decreased$306 million , or 21%, primarily due to the transition of certain single-serve product activities to Nestlé ($270 million ) and the lapping of higher transition activities related to theGlobal Coffee Alliance in the prior year ($80 million ). These were partially offset by growth in our ready-to-drink business. Operating Margin Channel Development operating income for the first three quarters of fiscal 2021 increased 16% to$569 million , compared to$489 million for the same period in fiscal 2020. Operating margin increased 1,580 basis points to 49.3%, primarily due to the transfer of certain single-serve products to Nestlé as part of theGlobal Coffee Alliance (approximately 660 basis points), lowerGlobal Coffee Alliance transaction costs, inclusive of lapping certain transition items from the prior year (approximately 320 basis points), a change in estimate relating to a transaction cost accrual (approximately 200 basis points) and lappingGlobal Coffee Alliance transition-related activities (approximately 70 basis points). Strong performance from ourNorth American Coffee Partnership joint venture also contributed. Corporate and Other Quarter Ended Three Quarters Ended Jun 27, Jun 28, $ % Jun 27, Jun 28, $ % 2021 2020 Change Change 2021 2020 Change Change Net revenues: Other$ 23.8 $ 19.7 $ 4.1 20.8 %$ 66.8 $ 52.3 $ 14.5 27.7 % Total net revenues 23.8 19.7 4.1 20.8 66.8 52.3 14.5 27.7 Product and distribution costs 19.8 20.8 (1.0) (4.8) 58.1 51.8 6.3 12.2 Other operating expenses 3.3 4.0 (0.7) (17.5) 10.4 10.4 - - Depreciation and amortization expenses 35.5 40.9 (5.4) (13.2) 109.1 110.3 (1.2) (1.1) General and administrative expenses 326.5 269.1 57.4 21.3 947.6 832.9 114.7 13.8 Restructuring and impairments - 22.1 (22.1) nm - 22.4 (22.4) nm Total operating expenses 385.1 356.9 28.2 7.9 1,125.2 1,027.8 97.4 9.5 Operating loss$ (361.3) $ (337.2) $ (24.1) 7.1 %$ (1,058.4) $ (975.5) $ (82.9) 8.5 % 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 endedJune 27, 2021 compared with the quarter endedJune 28, 2020 Corporate and Other operating loss increased to$361 million for the third quarter of fiscal 2021, or 7%, compared to$337 million for the third quarter of fiscal 2020. This increase was primarily driven by higher performance-based compensation recognizing the better than expected business recovery ($37 million ) and incremental strategic investments in technology ($19 million ). For the three quarters endedJune 27, 2021 compared with the three quarters endedJune 28, 2020 Corporate and Other operating loss increased to$1,058 million for the first three quarters of fiscal 2021, or 8%, compared to$976 million for the same period in fiscal 2020. This increase was primarily driven by incremental strategic investments in technology ($67 million ) and higher performance-based compensation, recognizing the better than expected business recovery ($57 million ). 40 -------------------------------------------------------------------------------- Table of Content s 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
Jun 27, Jun 28, Jun 27, Jun 28, Jun 27, Jun 28,
2021 2020 2021 2020 2021 2020
Americas
Company-operated stores 40 (34) (249) 43 9,860 10,017
Licensed stores 15 (2) 70 125 8,315 8,218
Total Americas 55 (36) (179) 168 18,175 18,235
International
Company-operated stores 177 117 485 394 7,013 6,254
Licensed stores 120 49 329 362 8,107 7,691
Total International 297 166 814 756 15,120 13,945
Total Company 352 130 635 924 33,295 32,180
Financial Condition, Liquidity and Capital Resources
Investment Overview
Our cash and investments totaled $5.2 billion as of June 27, 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 June 27, 2021 , approximately
$2.5 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 June 27, 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 June 27, 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
June 27, 2021 , we had no borrowings outstanding under our commercial paper
program. As such, as of the end of our third quarter of fiscal 2021, our total
contractual borrowing capacity for general corporate purposes, inclusive of all
available capacity under our credit facilities (consisting of $2.0 billion under
the 2018 credit facility and $1.0 billion under the 364-day credit facility) and
the unused commercial paper program was $3.0 billion .
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 $45.1 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 $90.2 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 June 27, 2021 , we had no 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 June 27, 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 for the remainder of 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 third quarter of fiscal 2021, our Board of Directors approved a
quarterly cash dividend to shareholders of $0.45 per share to be paid on
August 27, 2021 to shareholders of record as of the close of business on
August 12, 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 June 27, 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. We
currently expect the suspension of our share repurchase program to continue for
the remainder of 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 $1.7 billion .
Cash Flows
Cash provided by operating activities was $4.5 billion for the first three
quarters of fiscal 2021, compared to $107.1 million for the same period in
fiscal 2020. The increase was primarily due to higher net earnings and the
timing of tax payments and refunds.
Cash used in investing activities for the first three quarters of fiscal 2021
totaled $1.0 billion , compared to cash used in investing activities of $1.3
billion for the same period in fiscal 2020. The change was primarily due to
higher maturities and calls of investments and a decrease in spend on capital
expenditures, partially offset by an increase in purchases of investments.
Cash used in financing activities for the first three quarters of fiscal 2021
totaled $3.2 billion compared to cash provided by financing activities of $2.5
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 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, 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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