Starbucks: Delivers Record Q3 Revenue and EPS

Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal third quarter and 39-week fiscal year to date ended June 28, 2015. Q3 FY15 GAAP results include Starbucks Japan acquisition-related items, which are excluded from the non-GAAP results.

Q3 Fiscal 2015 Highlights:

  • Global comparable store sales increased seven percent, driven by a four percent increase in traffic
    • Americas comp sales increased eight percent, driven by a four percent increase in traffic
    • China/Asia Pacific comp sales increased eleven percent, driven by a ten percent increase in traffic
    • EMEA comp sales increased three percent, driven by a two percent increase in traffic
  • Consolidated net revenues increased 18 percent over Q3 FY14 to a quarterly record 4.9 billion USD
  • Consolidated operating income up 22 percent to 938.6 million USD
    • Non-GAAP operating income up 24 percent to 950.1 million USD
  • Consolidated operating margin expanded 70 basis points to 19.2 percent
    • Non-GAAP operating margin increased 100 basis points to 19.5 percent
  • GAAP earnings increased 21 percent over Q3 FY14 to 0.41 USD per share
    • Non-GAAP earnings increased 24 percent over Q3 FY14 to 0.42 USD per share
  • Starbucks Mobile Order + Pay expanded to over 4’000 U.S. company-operated stores in Q3; full deployment to all U.S. company-operated stores by holiday
  • 431 net new stores opened in the quarter; total store count reaches 22’519
  • Year over year comparable store customer transactions increased nearly 18 million in the U.S. and over 23 million globally

«Starbucks Q3 fiscal 2015 stands as among the strongest and most remarkable quarters in our over 23 years as a public company», said Howard Schultz, chairman and ceo. «The four percent increase in global transactions we reported equates to our having served an additional 23 million customer occasions in Q3 of this year over last year, clearly evidencing a continuation of the strong momentum we have seen across our business and around the world this fiscal year», Schultz added.

«Starbucks very strong year over year financial performance in Q3 demonstrates our commitment to delivering best in class financial and operating results while at the same time investing in our future growth – building new stores, renovating existing stores, deploying new technology – investing in our partners and delivering an elevated Starbucks Experience to our customers», said Scott Maw, Starbucks cfo. «We believe that by getting this balance right, we will be able to continue delivering exceptional growth, profitability and increased returns to our shareholders», Maw added.

Third Quarter Fiscal 2015 Summary

Consolidated net revenues were 4.9 billion USD in Q3 FY15, an increase of 18 percent over Q3 FY14. The increase was primarily driven by incremental revenues from the acquisition of Starbucks Japan, a seven percent increase in global comparable store sales and the opening of 1’592 net new stores over the past twelve months.

Consolidated operating income grew 22 percent to 938.6 million USD in Q3 FY15, up from 768.5 million USD in Q3 FY14. Consolidated operating margin expanded 70 basis points to 19.2 percent primarily driven by sales leverage. This was partially offset by the impact of our ownership change in Starbucks Japan, which drove 90 basis points of margin decline, and by investments in our store partners (employees) in the Americas segment.

Q3 Americas Segment Results

Net revenues for the Americas segment were 3.4 billion USD in Q3 FY15, an increase of twelve percent over Q3 FY14. The increase was driven by eight percent growth in comparable store sales and incremental revenues from 658 net new store openings over the past twelve months.

Operating income of 855.3 million USD in Q3 FY15 increased 17 percent from 728.5 million USD in Q3 FY14. Operating margin expanded 120 basis points to 25.0 percent primarily due to sales leverage and lower commodity costs, primarily dairy, and was partially offset by investments in our store partners (employees).

Q3 EMEA Segment Results

Net revenues for the EMEA segment were 294.7 million USD in Q3 FY15, a nine percent decrease versus Q3 FY14. The decrease was primarily driven by unfavorable foreign currency translation and the shift in the portfolio towards more licensed stores. Partially offsetting the decrease was a three percent increase in comparable store sales.

Operating income increased 23 percent to 36.0 million USD in Q3 FY15, up from 29.2 million USD in Q3 FY14. Operating margin expanded 320 basis points to 12.2 percent, primarily due to sales leverage driven by the ongoing shift in the portfolio towards more licensed stores.

Q3 China/Asia Pacific Segment Results

Net revenues for the China/Asia Pacific segment grew 127 percent to 652.7 million USD in Q3 FY15. The increase was primarily driven by incremental revenues from the acquisition of Starbucks Japan. Also contributing were incremental revenues from 750 net new store openings over the past twelve months and an eleven percent increase in comparable store sales.

Operating income grew 49 percent to 150.0 million USD in Q3 FY15. Operating margin declined 1’200 basis points to 23.0 percent due to the impact of our ownership change in Starbucks Japan, which drove a 1’570 basis point decline. The remaining 370 basis point expansion was primarily driven by sales leverage as well as improved profitability in our company-operated stores in the region.

Q3 Channel Development Segment Results

Net revenues for the Channel Development segment grew eight percent to 403.6 million USD in Q3 FY15, primarily driven by increased sales of premium single-serve products and higher foodservice sales.

Operating income of 143.4 million USD in Q3 FY15 grew three percent compared to Q3 FY14. Operating margin decreased 160 basis points to 35.5 percent, primarily driven by increased marketing spend and increased coffee costs. The decrease was partially offset by leverage on cost of sales and increased income from our North American Coffee Partnership.

Fiscal 2015 Targets

  • Total net new store openings for the fiscal year remain at 1’650:
    • Americas: remain at approximately 600, half licensed
    • EMEA: remain at approximately 200, primarily licensed
    • China/Asia Pacific: remain at approximately 850, two-thirds licensed
  • Continue to expect full year revenue growth of 16 percent to 18 percent
  • Global comparable store sales growth remains in the mid-single digits
  • Full year GAAP operating margin is still expected to be flat to FY14 due to the impact of the acquisition of Starbucks Japan; full year non-GAAP operating margin is still expected to modestly improve over prior year non-GAAP operating margin. Operating margin by segment:
    • Americas: continue to expect modest margin improvement over FY14
    • EMEA: now expecting margin to be at or slightly above the upper end of the ten percent to twelve percent range
    • China/Asia Pacific: now expecting margin to be slightly over 20 percent
    • Channel Development: continue to expect margin improvement of approximately 150 basis points over FY14
  • Continue to expect a consolidated tax rate of approximately 31 percent on a GAAP basis
  • GAAP Earnings per Share:
    • Now expect full year EPS in the range of 1.77 USD to 1.78 USD
    • Now expect Q4 EPS in the range of 0.38 USD to 0.39 USD
  • Non-GAAP Earnings per Share:
    • Now expect full year EPS in the range of 1.57 USD to 1.58 USD
    • Continue to expect Q4 EPS in the range of 0.42 USD to 0.43 USD
  • The Company now expects capital expenditures of approximately 1.3 billion USD

Company Updates

Starbucks and PepsiCo Inc. today announced they have entered into an agreement for the marketing, sales and distribution of a locally-relevant portfolio of Starbucks ready-to-drink (RTD) coffee and energy products in Latin America.

Enhancing the digital experience for My Starbucks Rewards® members, the company has recently made three strategic relationship announcements, starting with Spotify in May, The New York Times on July 21 and Lyft on July 22. Each of the announcements supports a new opportunity for Starbucks loyalty program members to earn stars through purchases made with other companies and then have the ability to redeem those earned stars for food and beverages at participating Starbucks® stores. These relationships, collectively, lend to a broader strategy to build a robust digital ecosystem with businesses that complement our customer experience.

The Company recently announced two new strategic business partnerships; the first is a licensed agreement with Casino Restauration (a subsidiary of Groupe Casino) that will open Starbucks stores within Géant Casino Hypermarkets and Casino Supermarkets across France. The second is a licensed partnership with Taste Holdings to open Starbucks stores across South Africa, starting with Johannesburg which is expected to open in 2016. This will be Starbucks first store in sub-Saharan Africa.

In May, Starbucks opened a store in Japan’s Tottori Prefecture, the last district in Japan without a Starbucks store. The company operates more than 1’000 stores across the country.

Starbucks, along with more than a dozen leading, U.S.-based companies, announced on July 13 the formation of the 100’000 Opportunities Initiative, an employer-led coalition with a collective goal of engaging 100’000 Opportunity Youth – 16 to 24 year olds who face systemic barriers to jobs and education – through apprenticeships, internships, training programs, and both part-time and full-time jobs.

In June, Starbucks raised 850 million USD in proceeds from a public offering of 500 million USD of 2.700 percent Senior Notes due 2022 and 350 million USD of 4.300 percent Senior Notes due 2045. As previously announced, a portion of the proceeds from the offering were used to redeem the Company’s 550 million USD of 6.250 percent Senior Notes due 2017. The redemption was settled July 1, 2015.

The Company repurchased 12.1 million shares of common stock in Q3 FY15; 61 million shares remain available for purchase under current authorizations, comprised of eleven million shares that remained available for repurchase as of June 28, 2015 under an existing authorization and an additional 50 million shares which the Company announced today has been authorized for repurchase by its Board of Directors under its ongoing share repurchase program.

The Board of Directors declared a cash dividend of 0.16 USD per share, payable on August 21, 2015 to shareholders of record as of August 06, 2015 (Imgage Source: Starbucks).

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