Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal first quarter ended January 01, 2017. Fiscal 2017 and fiscal 2016 GAAP results include items which are excluded from non-GAAP results.
Q1 Fiscal 2017 Highlights
- Global comparable store sales increased 3 percent comprised of a 3 percent increase in the Americas, a 5 percent increase in CAP, and a 1 percent decrease in EMEA
- U.S. comparable store sales increased 3 percent comprised of a 5 percent increase in average ticket and a 2 percent decrease in transactions. Adjusting for the estimated impact of order consolidation related to the new Starbucks Rewards(TM) loyalty program, average ticket grew 3 percent with transactions flat to prior year.
- Record consolidated net revenues of 5.7 billion USD grew 7 percent over prior year
- Record Q1 consolidated operating income increased 7 percent to 1.1 billion USD
- Record Q1 consolidated operating margin expanded 10 basis points to 19.8 percent
- GAAP EPS of 0.51 USD increased 11 percent over Q1 FY16
- Non-GAAP EPS of 0.52 USD increased 13 percent over Q1 FY16 non-GAAP results
- Record 2.1 billion USD loaded on Starbucks Cards in the U.S. and Canada in Q1, up 15 percent year-over-year; Starbucks Card transactions reached 40 percent of U.S. company-operated transactions
- Active membership in Starbucks Rewards grew 16 percent year-over-year to 12.9 million members in the U.S.
- Mobile Order and Pay represented 7 percent of U.S. company-operated transactions in the quarter, up from 3 percent in the prior year; Mobile Payment reached 27 percent of U.S. company-operated transactions
- The company opened 649 net new stores in the quarter, bringing total stores to 25’734 in 75 countries worldwide
«Starbucks is engaging more deeply – and more frequently – and expanding its base of loyal customers faster and more consistently today than ever before», said Howard Schultz, chairman and ceo. «The trust and confidence our customers have in the Starbucks brand is fueling our flywheel and propelling our business forward in markets and channels all around the world».
«We are pleased with the record Q1 financial and operating results we announced today, particularly given that the results were delivered in the face of a challenging environment for restaurant retailers overall», said Scott Maw, cfo. «As always, credit for our success belongs to the more than 300’000 Starbucks partners around the world who proudly wear the green apron and who deliver an elevated Starbucks Experience to our customers now over 90 million times, each week».
First Quarter Fiscal 2017 Summary
Comparable Store Sales(1)
| Sales Growth | Change in Transactions | Change in Ticket | ||||
| Consolidated | 3 percent | (1) percent | 4 percent | |||
| Americas | 3 percent | (2) percent | 5 percent | |||
| CAP | 5 percent | 2 percent | 3 percent | |||
| EMEA | (1) percent | (2) percent | 1 percent |
(1) Includes only Starbucks company-operated stores open 13 months or longer. Comparable store sales exclude the effect of fluctuations in foreign currency exchange rates.
Operating Results
| (USD in millions, except per share amounts) | Q1/2017 | Q1/2016 | Change | |||
| Net New Stores | 649 | 528 | 121 | |||
| Revenues | USD 5’732.9 | USD 5’373.5 | 7 percent | |||
| Operating Income | USD 1’132.6 | USD 1’058.0 | 7 percent | |||
| Operating Margin | 19.8 percent | 19.7 percent | 10 bps | |||
| EPS | USD 0.51 | USD 0.46 | 11 percent |
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Consolidated net revenues were 5.7 billion USD in Q1 FY17, an increase of 7 percent over Q1 FY16. The increase was primarily driven by incremental revenues from the opening of 2’163 net new stores over the past 12 months and 3 percent growth in global comparable store sales.
Consolidated operating income grew 7 percent to 1’132.6 million USD in Q1 FY17, up from 1’058.0 million USD in Q1 FY16. Consolidated operating margin expanded 10 basis points to 19.8 percent primarily due to sales leverage and lower commodity costs, mainly coffee. The increase was partially offset by higher investments in our store partners (employees), primarily in the Americas segment.
Q1 Americas Segment Results
| (USD in millions) | Q1/2017 | Q1/2016 | Change | |||
| Net New Stores | 251 | 171 | 80 | |||
| Revenues | USD 3’991.4 | USD 3’726.2 | 7 percent | |||
| Operating Income | USD 958.5 | USD 934.6 | 3 percent | |||
| Operating Margin | 24.0 percent | 25.1 percent | (110) bps |
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Net revenues for the Americas segment were 4.0 billion USD in Q1 FY17, an increase of 7 percent over Q1 FY16. The increase was driven by incremental revenues from 884 net new store openings over the past 12 months and 3 percent growth in comparable store sales.
Operating income of 958.5 million USD in Q1 FY17 grew 3 percent versus 934.6 million USD in Q1 FY16. Operating margin of 24.0 percent declined 110 basis points primarily due to higher investments in our store partners (employees), partially offset by sales leverage.
Q1 China/Asia Pacific Segment Results
| (USD in millions) | Q1/2017 | Q1/2016 | Change | |||
| Net New Stores | 303 | 281 | 22 | |||
| Revenues | USD 770.8 | USD 653.6 | 18 percent | |||
| Operating Income | USD 163.4 | USD 127.1 | 29 percent | |||
| Operating Margin | 21.2 percent | 19.4 percent | 180 bps |
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Net revenues for the China/Asia Pacific segment grew 18 percent over Q1 FY16 to 770.8 million USD in Q1 FY17. The increase was primarily driven by incremental revenues from 1’003 net new store openings over the past 12 months, 5 percent growth in comparable store sales, and favorable foreign currency translation.
Q1 FY17 operating income of 163.4 million USD grew 29 percent over Q1 FY16 operating income of 127.1 million USD. Operating margin expanded 180 basis points to 21.2 percent primarily due to changes in certain business tax structures in China and higher income from our joint venture operations, partially offset by the impact of foreign currency translation.
Q1 EMEA Segment Results
| (USD in millions) | Q1/2017 | Q1/2016 | Change | |||
| Net New Stores | 95 | 79 | 16 | |||
| Revenues | USD 262.4 | USD 313.0 | (16) percent | |||
| Operating Income | USD 44.1 | USD 48.1 | (8) percent | |||
| Operating Margin | 16.8 percent | 15.4 percent | 140 bps |
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Net revenues for the EMEA segment were 262.4 million USD in Q1 FY17, a 16 percent decrease versus Q1 FY16. The decrease was primarily driven by the shift to more licensed stores in the region, including the absence of revenue related to the sale of our Germany retail operations in Q3 FY16, as well as unfavorable foreign currency translation. Partially offsetting the decrease were incremental revenues from the opening of 489 net new licensed stores over the past 12 months.
Operating income decreased 8 percent to 44.1 million USD in Q1 FY17, down from 48.1 million USD in Q1 FY16. Operating margin expanded 140 basis points to 16.8 percent primarily due to sales leverage driven by the shift in the portfolio towards more licensed stores. Partially offsetting the margin expansion was unfavorable foreign currency exchange and sales deleverage in certain company-operated stores.
Q1 Channel Development Segment Results
| (USD in millions) | Q1/2017 | Q1/2016 | Change | |||
| Revenues | USD 553.7 | USD512.1 | 8 percent | |||
| Operating Income | USD 242.9 | USD 193.3 | 26 percent | |||
| Operating Margin | 43.9 percent | 37.7 percent | 620 bps |
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Net revenues for the Channel Development segment grew 8 percent over Q1 FY16 to 553.7 million USD in Q1 FY17, primarily driven by increased sales of premium single-serve and packaged coffee products. Increased international and foodservice sales also contributed.
Operating income of 242.9 million USD in Q1 FY17 increased 26 percent compared to Q1 FY16. Operating margin expanded 620 basis points to 43.9 percent, primarily driven by lower coffee costs, higher income from the North American Coffee Partnership, and leverage on cost of sales and other operating expenses.
Q1 All Other Segments Results
| (USD in millions) | Q1/2017 | Q1/2016 | Change | |||
| Net New Stores | – | (3) | 3 | |||
| Revenues | USD 154.6 | USD 168.6 | (8) percent | |||
| Operating Income | USD 9.6 | USD 5.9 | 63 percent |
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Fiscal 2017 Targets
The company reiterates the following full year FY17 targets, except where noted. Year over year growth is based on prior year 52-week non-GAAP results. Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release.
- Continue to expect approximately 2’100 net new stores globally
- Continue to expect mid-single digit comparable store sales growth globally
- Consolidated revenue growth now expected to be in the range of 8 percent to 10 percent
- Continue to expect GAAP EPS in the range of 2.09 USD to 2.11 USD and non-GAAP EPS in the range of 2.12 USD to 2.14 USD
The company will continue its practice of providing detail regarding its business outlook during its regularly scheduled quarterly earnings conference calls, including select quarterly and segment information. The company’s earnings press release will contain select full year consolidated targets only, as outlined above.
Company Updates
- In December, Starbucks announced that Kevin Johnson, president and chief operating officer and a 7-year member of the Starbucks Board of Directors, will expand his responsibilities and assume the role of president and chief executive officer, effective April 3, 2017. Simultaneously, Howard Schultz, chairman and ceo, will become executive chairman and will continue to serve as chairman of Starbucks Board of Directors.
- The company announced the nominations of Rosalind Brewer, President and Chief Executive Officer of Sam’s Club; Jørgen Vig Knudstorp, Executive Chairman of the LEGO Brand Group; and Satya Nadella, Chief Executive Officer of Microsoft Corporation, for election to the Starbucks Board of Directors at the 2017 Annual Meeting of Shareholders. Additionally, Starbucks board member James G. Shennan, Jr. will retire following 27 years of service effective immediately prior to the Annual Meeting pursuant to the Company’s Corporate Governance Principles and Practices’ mandatory retirement age requirements.
- The company hosted its biennial Investor Day in NYC on December 7, 2016 where company leaders shared a number of initiatives in support of its 5-year strategic plan. Highlights included:
- The addition of approximately 12’000 net new stores globally by fiscal 2021, bringing total stores to an estimated 37’000
- Roasteries and Starbucks Reserve stores to elevate the Starbucks brand and customer experience
- Digital innovation to further accelerate momentum of the company’s digital flywheel and mobile ecosystem, including an innovative conversation ordering system, called My Starbucks Barista, powered by ground-breaking Artificial Intelligence for the Starbucks mobile app, and a new social gifting and mobile payment platform in China through WeChat.
- The China/Asia Pacific segment now has three markets with over 1’000 total stores, with Starbucks China surpassing 2’500 stores in the quarter, the South Korea market celebrating its 1’000th store opening, and Starbucks Japan reaching 1’245 stores.
- The company repurchased 7.6 million shares of common stock in Q1 FY17; 110 million shares remain available for purchase under current authorizations.
- The Board of Directors declared a cash dividend of 0.25 USD per share, payable on February 24, 2017 to shareholders of record as February 09, 2017.
