Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal second quarter ended April 01, 2012. Highlights: Total net revenues increased 15 percent to 3,2 billion USD. Global comparable store sales increased seven percent, driven by a six percent increase in traffic and a one percent increase in average ticket. EPS increased 18 percent to 0,40 USD per share, compared to 0,34 USD per share in Q2/2011. Channel Development revenues increased 57 percent, driven by sales of Starbucks- and Tazo-branded K-Cup® packs and the benefit of recognizing the full revenue from packaged coffee sales under the direct distribution model. Starbucks opened 176 net new stores globally, including its 3’000th store in the China/Asia Pacific segment, its first store in Norway and the first Evolution Fresh™ store in Bellevue, Washington.
«Starbucks record Q2/2012 performance demonstrates the strength of our business, the increasing power and global relevance of our brand and the success of our unique Blueprint for Profitable Growth business strategy», said Howard Schultz, chairman, president and ceo. «In Q2/2012 we expanded our retail presence, recorded our seventh consecutive quarter of over 20 percent sales growth in China, introduced new products into multiple channels and more than offset high legacy commodity costs through increased efficiencies. I could not be more excited or more optimistic about the future of our company as we pursue disciplined, profitable growth all around the world», Schultz added.
«Starbucks delivered strong growth in Q2/2012, again demonstrating the value of our evolving diversified business model. Revenue growth was driven by continued strong global same store sales and an increasing contribution from our Channel Development segment», commented Troy Alstead, CFO. «On the strength of our business and recent trends, we are accelerating new store growth in fiscal 2012 to approximately 1’000 net new stores globally and raising our earnings targets for the year. With coffee cost pressures easing in the second half of the year and momentum building from investments in our growth initiatives, we are well positioned to deliver on our aggressive targets».
Second Quarter Fiscal 2012 Summary
Consolidated net revenues reached a second-quarter record 3,2 billion USD in Q2/2012, an increase of 15 percent over Q2/2011. The increase was primarily due to a seven percent increase in global comparable stores sales and 57 percent revenue growth in Channel Development. The seven percent increase in comparable store sales was comprised of a six percent increase in the number of transactions and a one percent increase in average ticket.
Consolidated operating income increased 14 percent to 430,4 million USD in Q2/2012, compared to 376,1 million USD for the same period a year ago. Operating margin was 13,5 percent in Q2/2012, which was equal to the same period last year. Sales leverage offset the increase in commodity costs, primarily coffee, which negatively impacted Q2/2012 operating income and operating margin by approximately 63,5 million USD and 200 basis points, respectively, compared to the same period in the prior year. A recent court ruling relating to state unclaimed property laws resulted in higher unredeemed gift card income in the interest and other income line in the quarter, compared to the same period a year ago.
Q2 Americas Segment Results
Net revenues for the Americas segment were 2,4 billion USD in Q2/2012, an increase of ten percent over Q2/2011. The increase was primarily due to an eight percent increase in comparable store sales, including a seven percent increase in the number of transactions and a one percent increase in average ticket. Additionally, licensed store revenue growth of approximately 27 percent contributed to the Americas segment results.
Operating income increased to 463,0 million USD in Q2/2012, compared to 419,9 million USD for the same period a year ago. Operating margin increased ten basis points to 19,5 percent in Q2/2012. The margin expansion was due to increased sales leverage offset by the increase in commodity costs, primarily coffee.
Q2 EMEA Segment Results
Net revenues for the EMEA segment were 272,4 million USD in Q2/2012, an increase of 14 percent over Q2/2011. The increase was primarily due to incremental revenues from the consolidation of the Switzerland and Austria markets. Comparable store sales declined by one percent with slight decreases in both transactions and average ticket.
EMEA reported an operating loss of 5,5 million USD in Q2/2012, compared to operating income of 7,7 million USD for the same period a year ago. Operating margin decreased 520 basis points to (2,0 percent) compared to 3,2 percent in the prior-year period. The margin contraction was primarily driven by higher costs related to the transition to a consolidated distribution model in the UK and investments to support new regional strategic initiatives.
Q2 China/Asia Pacific Segment Results
Net revenues for the China/Asia Pacific segment were 174,6 million USD in Q2/2012, an increase of 32 percent over Q2/2011. The increase was due to incremental revenues from 98 net new company-operated store openings over the last twelve months and an 18 percent increase in comparable store sales. The 18 percent increase in comparable store sales was the result of a 14 percent increase in the number of transactions and a four percent increase in average ticket.
Operating income increased to 69,5 million USD in Q2/2012, compared to 43,7 million USD for the same period a year ago. Operating margin was 39,8 percent in Q2/2012 compared to 33,2 percent in the prior-year period. The margin expansion was primarily driven by increased sales leverage and increased income from our joint venture operations, partially offset by higher commodity costs.
Q2 Channel Development Segment Results
Channel Development net revenues were 321,5 million USD in Q2/2012, an increase of 57 percent over Q2/2011. The increase was primarily due to sales of Starbucks- and Tazo-branded K-Cup® portion packs and the benefit of recognizing the full revenue from packaged coffee sales under the direct distribution model. March 2012 marked the one-year anniversary of the packaged coffee transition.
Channel Development operating income was 81,7 million USD in Q2/2012 compared to 67,2 million USD for the same period a year ago. Operating margin was 25,4 percent in Q2/2012 compared to 32,8 percent in the prior-year period. The margin contraction was mainly due to higher commodity costs, primarily coffee, which negatively impacted Q2/2012 operating income and operating margin by approximately 20,0 million USD and 620 basis points, respectively, compared to the same period in the prior year.
Fiscal 2012 Targets
The company is further accelerating its growth through the opening of approximately 1’000 net new stores globally: Accelerating growth to approximately 500 net new stores in the Americas, with licensed stores comprising approximately one-half of the new additions. Also accelerating growth in China/Asia Pacific to approximately 400 net new stores, with licensed stores comprising approximately two-thirds of the new additions. One-half of the China/Asia Pacific new stores are planned for China. Maintaining previous growth target of approximately 100 net new stores in EMEA (Europe, Middle East, Russia and Africa), with licensed stores comprising approximately two-thirds of the new stores.
The company is now targeting revenue growth in the low teens, driven by mid-single-digit comparable store sales growth, 1’000 net new store openings and continued strong growth in the Channel Development business.
Starbucks is maintaining its full-year operating margin improvement target of 50 to 100 basis points over FY-2011 non-GAAP results on a consolidated basis. Operating margin for the Americas business is still expected to improve slightly over FY-2011. EMEA margin is expected to be positive, but now expected to decline from its FY-2011 margin due to the region´s severe macro-economic challenges and the company´s investments in the region. China/Asia Pacific margin is now expected to be approximately 30 percent to 35 percent and Channel Development margin is expected to be approximately 25 percent; lower than FY-2011 largely due to the full year impact of higher coffee costs.
The company continues to expect commodity costs will add approximately 230 million USD of cost pressure to FY-2012, with the majority already reflected in results from the first half of the year.
Given the strong Q2 YTD FY-2012 results, the company has raised its expectation for earnings per share to a range of 1,81 USD to 1,84 USD, representing 19 percent to 21 percent growth over the 1,52 USD EPS in FY-2011, excluding the FY-2011 non-routine gains. EPS growth is expected to be approximately 25 percent to 29 percent in the second half of FY-2012 or 0,45 USD to 0,46 USD earnings per share in Q3 and 0,46 USD to 0,48 USD earnings per share in Q4, reflecting the easing of commodity costs in the second half of the year. Capital expenditures are now expected to be approximately 900 million USD.
Company Updates
On February 24, Standard + Poor´s Ratings Services raised its corporate credit rating on Starbucks to «A-» from «BBB+» reflecting the company´s strong performance and S+P´s expectation for solid growth over the intermediate term. On March 08, Starbucks announced the first at-home premium single cup espresso and brewed coffee machine that meets its commitment to taste and quality, the Verismo™ system by Starbucks. The Verismo™ system by Starbucks crafts both Starbucks-quality espresso beverages, from lattes to americanos and brewed coffee consistently and conveniently one cup at a time. On March 19, Starbucks opened its first Evolution Fresh™ store in Bellevue, Washington to position Evolution Fresh as a leader in the 3,4 billion USD and growing cold-crafted juice category. On March 21, Starbucks and Green Mountain Coffee Roasters announced the expansion of their strategic relationship for the manufacturing, marketing, distribution and sale of Starbucks-branded Vue™ packs for use in the Keurig® Vue™ Brewer. On March 21, Starbucks announced plans for a global entry into the energy category with Starbucks Refreshers™ beverages – making Starbucks the first to bring green coffee extract innovation to customers on a global scale. As part of Starbucks efforts to address the U.S. jobs crisis through the «Create Jobs for USA» program, by the end of Q2 more than 7,5 million USD has been contributed to the fund. This translates into 53 million USD in financing for community businesses and supported the creation or sustainment of more than 2’500 jobs. The Board of Directors declared a cash dividend of 0,17 USD per share, payable on May 25, 2012, to shareholders of record as of May 09, 2012.
