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 endedMarch 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. 31 -------------------------------------------------------------------------------- Table of Contents 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 endedMarch 28, 2021 compared with the quarter endedMarch 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 endedMarch 28, 2021 compared with the two quarters endedMarch 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 theGlobal Coffee Alliance . Also contributing were lowerGlobal 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. 32 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Quarter Ended Two Quarters EndedMar 28 ,Mar 29 , $Mar 28 ,Mar 29 ,Mar 28 ,Mar 29 , $Mar 28 ,Mar 29, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % of Total As a % of Total Net Revenues Net Revenues
Product and distribution costs
29.9 % 33.3 %$ 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 --------------------------------------------------------------------------------
Table of Contents International Quarter Ended Two Quarters EndedMar 28 ,Mar 29 , $Mar 28 ,Mar 29 ,Mar 28 ,Mar 29 , $Mar 28 ,Mar 29, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % of International As a % of International Total Net Revenues Total Net Revenues Net revenues: Company-operated stores$ 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 endedMarch 28, 2021 compared with the quarter endedMarch 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 endedMarch 28, 2021 compared with the two quarters endedMarch 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 38 -------------------------------------------------------------------------------- Table of Contents ($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 EndedMar 28 ,Mar 29 , $Mar 28 ,Mar 29 ,Mar 28 ,Mar 29 , $Mar 28 ,Mar 29, 2021 2020 Change 2021 2020 2021 2020 Change 2021 2020 As a % of Channel Development As a % of Channel Development Total Net Revenues Total Net Revenues Net revenues$ 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 endedMarch 28, 2021 compared with the quarter endedMarch 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 theGlobal Coffee Alliance (approximately 480 basis points) and lappingGlobal Coffee Alliance transition-related activities (approximately 210 basis points). Strong performance from ourNorth American Coffee Partnership joint venture also contributed. For the two quarters endedMarch 28, 2021 compared with the two quarters endedMarch 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 theGlobal Coffee Alliance ($73 million ). Also contributing were lowerGlobal 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. 39 -------------------------------------------------------------------------------- Table of Contents 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 theGlobal Coffee Alliance (approximately 650 basis points) and lappingGlobal Coffee Alliance transition-related activities (approximately 100 basis points). Strong performance from ourNorth 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 endedMarch 28, 2021 compared with the quarter endedMarch 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 endedMarch 28, 2021 compared with the two quarters endedMarch 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. 40 -------------------------------------------------------------------------------- Table of Contents Quarterly Store Data Our store data for the periods presented is as follows: Net stores
opened/(closed) and transferred during the period
Quarter Ended Two Quarters Ended Stores open as of Mar 28, Mar 29, Mar 28, Mar 29, Mar 28, Mar 29, 2021 2020 2021 2020 2021 2020Americas 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 7,642Total International 193 187 517 590 14,823 13,779Total 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 ofMarch 28, 2021 and$4.8 billion as ofSeptember 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 ofMarch 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 onOctober 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, forU.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 andStandard & 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 ofMarch 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 onSeptember 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, forU.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 andStandard & 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 ofMarch 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 41 -------------------------------------------------------------------------------- Table of Contents 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 ofMarch 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 inJapan Additionally, we hold Japanese yen-denominated credit facilities for the use of ourJapan subsidiary. These are available for working capital needs and capital expenditures within our Japanese market. •A ¥5 billion, or$45.8 million , facility is currently set to mature onDecember 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 onMarch 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 ofMarch 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 ofMarch 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 andU.S. state income taxes, which could be material. We do not anticipate the need for repatriated funds to theU.S. to satisfy domestic liquidity needs. 42 -------------------------------------------------------------------------------- Table of Contents 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 onMay 28, 2021 to shareholders of record as of the close of business onMay 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. OnApril 8, 2020 , we announced a temporary suspension of our share repurchase program. Repurchases pursuant to this program were last made inmid-March 2020 . As ofMarch 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 ofSeptember 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. 43
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