Starbucks: Reports Record Q4 and FY-2016 Results

Seattle / WA. (sc) Starbucks Corporation reported financial results for its 14-week fiscal fourth quarter and 53-week fiscal year ended October 02, 2016. Fiscal 2016 and fiscal 2015 GAAP results include items which are excluded from non-GAAP results.

Q4 Fiscal 2016 Highlights

  • U.S. comparable store sales increase of 4 percent was comprised of 6 percent increase in average ticket and 1 percent decrease in traffic. After adjusting for the estimated impact of order consolidation related to the new Starbucks Rewards loyalty program, average ticket grew 4 percent and traffic grew 1 percent.
  • Consolidated net revenues grew 16 percent to 5.7 billion USD
  • Consolidated operating income increased 27 percent to 1.2 billion USD
  • Consolidated operating margin expanded 180 basis points to 21.5 percent
  • GAAP EPS increased 26 percent to 0.54 USD per share and included 0.06 USD related to the extra week in Q4 FY16
    • Non-GAAP EPS of 0.56 USD included 0.06 USD related to the extra week in Q4 FY16. Excluding the extra week, non-GAAP EPS of 0.50 USD grew 16 percent over Q4 FY15 non-GAAP EPS
  • The company opened 690 net new stores in the quarter, bringing total stores to 25’085 in 75 countries worldwide
  • Mobile Order and Pay represented 6 percent of U.S. transactions in the quarter, up from 5 percent in the prior quarter

Fiscal Year 2016 Highlights

  • Global comparable store sales increased 5 percent, comprised of a 6 percent increase in the Americas segment and a 3 percent increase in the China/Asia Pacific segment. Comparable store sales in the EMEA segment were flat.
  • Consolidated net revenues grew 11 percent to 21.3 billion USD
  • Consolidated operating income increased 16 percent to 4.2 billion USD
  • Consolidated operating margin expanded 80 basis points to 19.6 percent
  • Company reports record 53- and 52-week, GAAP and non-GAAP revenue, operating income and operating margin
  • GAAP EPS increased 4 percent to 1.90 USD per share and included 0.06 USD related to the extra week in Q4 FY16
    • Non-GAAP EPS of 1.91 USD included 0.06 USD related to the extra week in Q4 FY16. Excluding the extra week, non-GAAP EPS of 1.85 USD grew 17 percent over FY15 non-GAAP EPS
  • The company opened 2’042 net new stores globally in fiscal 2016, including the first Starbucks stores in Cambodia, Kazakhstan, Luxembourg, Andorra, South Africa, Slovakia, and Trinidad and Tobago

«Starbucks record Q4 and fiscal 2016 financial and operating results in the face of ongoing economic, consumer and geopolitical headwinds, and the significant investments we continue to make in our people and our business, once again demonstrate the power, relevance and resilience of the Starbucks business and brand», said Howard Schultz, Starbucks chairman and ceo. «The trust and confidence our customers have in the Starbucks brand – and in our store partners – is propelling our business forward in markets and channels around the world as never before».

«Starbucks Q4 of fiscal 2016 was the most profitable quarter – capping off the most profitable year – in our more than 24 years as a public company», said Scott Maw, cfo. «The strength and health of our business enables us to both fund profitable growth and return significant cash back to shareholders – a record 3.2 billion USD in fiscal 2016 alone».

Fourth Quarter Fiscal 2016 Summary

Comparable Store Sales(1) Sales Growth Change in Transactions Change in Ticket
Consolidated(2) 4% (1)% 5%
Americas 5% (1)% 6%
CAP(2) 1% 0% 2%
EMEA (1)% 0% (1)%

(1) Includes only Starbucks company-operated stores open 13 months or longer. For fiscal 2016, comparable store sales percentages were calculated excluding the 53rd week.
(2) Beginning in December of fiscal 2016, comparable store sales include the results of the 1’009 company-operated stores acquired as part of the acquisition of Starbucks Japan in the first quarter of fiscal 2015.

Quarter Ended Change
Operating Results October 02, 2016 September 27, 2015
(USD in millions, except per share amounts) (14 Weeks Ended) (13 Weeks Ended)
Net New Stores 690 524 166
Revenues USD5’711.2 USD4’914.8 16%
Operating Income USD1’227.5 USD969.4 27%
Operating Margin 21.5% 19.7% 180 bps
EPS USD0.54 USD0.43 26%

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Consolidated net revenues were 5.7 billion USD in Q4 FY16, an increase of 16 percent over Q4 FY15. The increase was primarily driven by the impact of the 53rd week in Q4 FY16, incremental revenues from the opening of 2’042 net new stores over the past 12 months, and a 4 percent increase in global comparable store sales.

Consolidated operating income grew 27 percent to 1’227.5 million USD in Q4 FY16, up from 969.4 million USD in Q4 FY15. Consolidated operating margin expanded 180 basis points to 21.5 percent primarily due to sales leverage, the impact of the 53rd week in Q4 FY16, and lower commodity costs, primarily coffee. These increases were partially offset by higher salaries and benefits and investments in our partners (employees) and digital platforms.

Q4 Americas Segment Results

Quarter Ended Change
October 02, 2016 September 27, 2015
(USD in millions) (14 Weeks Ended) (13 Weeks Ended)
Net New Stores 307 233 74
Revenues USD 3’968.1 USD 3’383.8 17%
Operating Income USD 1’096.9 USD 840.6 30%
Operating Margin 27.6% 24.8% 280 bps

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Net revenues for the Americas segment were 4.0 billion USD in Q4 FY16, an increase of 17 percent over Q4 FY15. The increase was driven by the impact of the 53rd week in Q4 FY16, a 5 percent increase in comparable store sales, and incremental revenues from 804 net new store openings over the past 12 months.

Operating income of 1’096.9 million USD in Q4 FY16 grew 30 percent versus 840.6 million USD in Q4 FY15. Operating margin of 27.6 percent expanded 280 basis points primarily due to sales leverage and the impact of the 53rd week in Q4 FY16. Partially offsetting this expansion were increased investments in our store partners (employees).

Q4 China/Asia Pacific Segment Results

Quarter Ended Change
October 02, 2016 September 27, 2015
(USD in millions) (14 Weeks Ended) (13 Weeks Ended)
Net New Stores 316 223 93
Revenues USD 839.2 USD 652.2 29%
Operating Income USD 192.4 USD 129.8 48%
Operating Margin 22.9% 19.9% 300 bps

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Net revenues for the China/Asia Pacific segment grew 29 percent over Q4 FY15 to 839.2 million USD in Q4 FY16. The increase was primarily driven by incremental revenues from 981 net new store openings over the past 12 months, the impact of the 53rd week in Q4 FY16, and favorable foreign currency translation.

Operating income grew 48 percent over Q4 FY15 to 192.4 million USD in Q4 FY16. Operating margin expanded 300 basis points to 22.9 percent primarily driven by changes to business tax structures in certain markets, sales leverage, higher income from our joint venture operations, and the impact of the 53rd week in Q4 FY16. Partially offsetting this expansion was the impact of foreign currency translation.

Q4 EMEA Segment Results

Quarter Ended Change
October 02, 2016 September 27, 2015
(USD in millions) (14 Weeks Ended) (13 Weeks Ended)
Net New Stores 77 71 6
Revenues USD 270.2 USD 308.3 (12)%
Operating Income USD 45.8 USD 53.1 (14)%
Operating Margin 17.0% 17.2% (20) bps

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Net revenues for the EMEA segment were 270.2 million USD in Q4 FY16, a 12 percent decrease versus Q4 FY15. The decrease was primarily driven by the shift to more licensed stores in the region, which includes the absence of revenue related to the sale of our Germany retail operations in Q3 FY16 and the conversion of certain stores to licensed. Partially offsetting the decrease were incremental revenues from the opening of 294 net new licensed stores over the past 12 months.

Operating income decreased 14 percent to 45.8 million USD in Q4 FY16, down from 53.1 million USD in Q4 FY15. Operating margin declined 20 basis points to 17.0 percent, primarily due to unfavorable foreign currency exchange and sales deleverage in certain company-operated stores. The margin decline was partially offset by sales leverage driven by the shift in the portfolio towards more licensed stores and the impact of the 53rd week in Q4 FY16.

Q4 Channel Development Segment Results

Quarter Ended Change
October 02, 2016 September 27, 2015
(USD in millions) (14 Weeks Ended) (13 Weeks Ended)
Revenues USD 518.5 USD 456.7 14%
Operating Income USD 244.3 USD 197.3 24%
Operating Margin 47.1% 43.2% 390 bps

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Net revenues for the Channel Development segment grew 14 percent over Q4 FY15 to 518.5 million USD in Q4 FY16, primarily driven by the impact of the 53rd week in Q4 FY16 and increased sales of premium single-serve products.

Operating income of 244.3 million USD in Q4 FY16 increased 24 percent compared to Q4 FY15. Operating margin increased 390 basis points to 47.1 percent, primarily driven by lower coffee costs and higher income from the North American Coffee Partnership.

Q4 All Other Segments Results

Quarter Ended Change
October 02, 2016 September 27, 2015
(USD in millions) (14 Weeks Ended) (13 Weeks Ended)
Net New Stores (10) (3) (7)
Revenues USD 115.2 USD 113.8 1%
Operating Loss USD (10.1) USD (17.7) (43)%

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Year to Date Financial Results

Year Ended October 02, 2016
Comparable Store Sales(1) Sales Growth Change in Transactions Change in Ticket
Consolidated(2) 5% 1% 4%
Americas 6% 1% 5%
CAP(2) 3% 1% 2%
EMEA 0% 1% 0%

(1) Includes only Starbucks company-operated stores open 13 months or longer. For fiscal 2016, comparable store sales percentages were calculated excluding the 53rd week.
(2) Beginning in December of fiscal 2016, comparable store sales include the results of the 1’009 company-operated stores acquired as part of the acquisition of Starbucks Japan in the first quarter of fiscal 2015.

Year Ended Change
Operating Results October 02, 2016 September 27, 2015
(USD in millions, except per share amounts) (53 Weeks Ended) (52 Weeks Ended)
Net New Stores(1) 2’042 1’677 365
Revenues USD 21’315.9 USD 19’162.7 11%
Operating Income USD 4’171.9 USD 3’601.0 16%
Operating Margin 19.6% 18.8% 80 bps
EPS USD 1.90 USD 1.82 4%

(1) Fiscal 2015 net new stores include the closure of 132 Target Canada licensed stores.

Fiscal 2017 Targets

The company issues the following full year FY17 targets; year over year growth is based on prior year 52-week non-GAAP results.

  • Approximately 2’100 net new stores globally
  • Mid-single digit comparable store sales growth globally
  • Consolidated revenue growth in the double digits
  • GAAP EPS range of 2.09 USD to 2.11 USD, non-GAAP EPS 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

  • Starbucks announced it will open its fourth Starbucks Reserve Roastery and Tasting Room in Japan in 2018. In addition to Seattle, the Tokyo location will join Roasteries in Shanghai in 2017 and New York in 2018, and will be designed in collaboration with world-renowned architect Kengo Kuma.
  • The company entered its 75th country globally in Q4, opening its first store in the country of Trinidad and Tobago in partnership with Prestige Holdings Ltd. The company also opened its 1’000th Starbucks store in Latin America in Q4, in the Colombian city of Medellin.
  • Effective in October, the company promoted Belinda Wong from president to chief executive officer of Starbucks China. Wong has been instrumental in Starbucks unprecedented growth in China – from 400 stores in 2011 to over 2’400 stores today. In this role, Wong will oversee Starbucks plans to open and operate 5’000 stores in China by 2021.
  • In addition to bringing handcrafted flavor to cold coffee, Starbucks recently became the largest retailer to offer Nitro Cold Brew, an innovative new cold coffee beverage infused with nitrogen to create an ultra-creamy texture that has been enthusiastically embraced by Starbucks customers. More than 500 Starbucks stores in coffee-forward markets across the US are now including Starbucks Nitro Cold Brew on menus.
  • In September, Starbucks debuted «Upstanders», an original series sharing real stories of humanity which aims to inspire acts of compassion, citizenship and civility. Multi-platform distribution channels were utilized, including Starbucks Mobile App and Starbucks online and in-store digital network.
  • The company repurchased 7.3 million shares of common stock in Q4 FY16; 118 million shares remain available for purchase under current authorizations.
  • The Board of Directors declared a cash dividend of 0.25 USD per share, a 25 percent increase, payable on December 2, 2016 to shareholders of record as of November 17, 2016.
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