Starbucks: Posts strong Q3/2009 results

Seattle / WA. (sc) Starbucks Corporation last week reported financial results for its third quarter ended June 28, 2009. Fiscal third quarter 2009 highlights include:

• EPS of 0,20 USD compared to (0,01 USD) in Q3/2008
• Non-GAAP EPS of 0,24 USD compared to 0,16 USD in Q3/2008, a 50 percent year-over-year increase
• Operating margin of 8,5 percent versus negative 0,8 percent in Q3/2008; Non-GAAP operating margin of 10,6 percent versus 6,9 percent in Q3/2008
• U.S. operating margin of 11,2 percent versus negative 1,4 percent in Q3/2008; Non-GAAP U.S. operating margin of 13,4 percent versus 8,8 percent in Q3/2008
• Net revenues of 2,4 billion USD, compared to 2,6 billion USD in Q3/2008
• Cost savings of approximately 175 million USD, exceeding Q3 target of 150 million USD
• Comparable store sales decline of five percent, a sequential improvement from a decline of eight percent in Q209

«The transformation of Starbucks business – including the success of our consumer-facing initiatives and the permanent changes to our cost structure – is delivering improvements in comparable store sales trends and is beginning to be reflected in our financial performance», said Howard Schultz, chairman, president and CEO. «The entire Starbucks organization is committed to continually improving our customer experience as the roadmap to renewed growth and increasing profitability. At the same time, we will continue to innovate and differentiate, two perennial hallmarks of the Starbucks brand», added Schultz.

«Excellent execution throughout our organization contributed significantly to our performance this quarter», commented Troy Alstead, executive vice president and CFO. «Our store partners have embraced the cost disciplines and efficiency initiatives that are enabling us to expand our operating margin. In doing this, they have also delivered increased service speed, measurably improved customer service, customer satisfaction, and an overall enhanced Starbucks Experience».

Consolidated company revenues for Q3/2009 were 2,4 billion USD, compared to 2,6 billion USD in Q3/2008. The sales decline resulted primarily from a five percent decline in comparable store sales.

Restructuring charges, nearly all due to previously announced store closures, impacted operating income and operating margin in Q3/2009 by 51,6 million USD and 210 basis points, respectively. As a result, Q3/2009 operating income totaled 204,0 million USD, representing an operating margin of 8,5 percent, compared to an operating loss of 21,6 million USD, and an operating margin of negative 0,8 percent in Q3/2008. On a non-GAAP basis (excluding restructuring charges), Q3/2009 operating income totaled 255,6 million USD, representing an operating margin of 10,6 percent, compared to non-GAAP operating income of 177,6 million USD and a non-GAAP operating margin of 6,9 percent in Q3/2008. Non-GAAP results in Q3/2008 exclude 199,2 million USD of restructuring charges specifically related to asset impairments for 600 underperforming company-operated stores in the U.S., and transformation-related costs.

Net earnings in Q3/2009 totaled 151,5 million USD, compared to a net loss of 6,7 million USD in Q3/2008, and diluted EPS for Q3/2009 was 0,20 USD, compared to (0,01 USD) in Q3/2008. Non-GAAP net earnings totaled 179,9 million USD, and non-GAAP EPS was 0,24 USD for Q3/2009, compared to non-GAAP net earnings of 115,8 million USD and non-GAAP EPS of 0,16 USD in Q3/2008. Non-GAAP results for Q3/2008 exclude approximately 0,17 USD per share in restructuring charges and transformation-related costs.

Cost Reduction Initiatives

Starbucks continues to make good progress on its fiscal 2009 target to reduce its cost structure by 500 million USD. In Q3/2009, the company delivered approximately 175 million USD in cost savings, exceeding the company´s Q3 target of 150 million USD, resulting in year-to-date cost savings of approximately 370 million USD. Starbucks now expects to deliver cost savings of approximately 180 million USD in Q409, for a full year total of approximately 550 million USD in cost savings in fiscal 2009, exceeding its initial target.

Restructuring Charges

Restructuring charges of 51,6 million USD for the quarter were nearly all due to lease exit and other costs associated with the closure of U.S. and International company-operated stores. Starbucks actions to rationalize its global store portfolio have included the announcements (in July 2008 and January 2009) of plans to close approximately 800 company-operated stores in the U.S., restructure the company´s business in Australia, and close approximately 100 additional International company-operated stores. Since those announcements, 676 U.S. stores, 61 stores in Australia and 28 other International stores have been closed. The remaining U.S. store closures are expected to occur by September 27, 2009, Starbucks fiscal year end, while the remaining International store closures are expected to be completed by mid-year fiscal 2010. Related lease exit costs are expected to be recognized concurrently with the actual closures.

Details: «Starbucks: Posts Strong Third Quarter Fiscal 2009 Results – Performance Reflects Higher Margins, Improving Store Traffic and Increased Operating Leverage» (complete press release).