Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal second quarter ended March 29, 2020. GAAP results in fiscal 2020 and fiscal 2019 include items which are excluded from non-GAAP results. «People around the world are united around a common cause as we navigate the Covid-19 situation globally. We are very grateful for the heroic efforts of medical personnel, first responders, government officials and volunteers who are working tirelessly in the service of others. I am exceptionally proud of the thousands of Starbucks partners around the world who are safely serving customers and playing a positive role in every community we serve,» said Kevin Johnson, president and ceo.
«Since the beginning of this global crisis, Starbucks has made decisions that prioritize the well-being of our partners and customers, support health and government officials, and responsibly serve our communities. This principled approach is showing steady business improvement in China where today, substantially all existing Starbucks® stores have reopened with modified operations, new store locations are being added and customer engagement continues to grow with each passing week. We are leveraging our experience in China to inform our actions in other markets, including the U.S., where we are now entering the ‘monitor and adapt’ phase to reopen many more stores with best-in-class safety protocols. We continue to navigate this dynamic situation – which we believe is temporary – and are confident that Starbucks will emerge from this global crisis even stronger than before,» concluded Johnson.
Q2 Fiscal 2020 Highlights
- Global comparable store sales declined 10 percent, driven by a 13 percent decrease in comparable transactions, partially offset by a 4 percent increase in average ticket
- Americas and U.S. comparable store sales declined 3 percent, driven by a 7 percent decrease in comparable transactions, partially offset by a 5 percent increase in average ticket
- International comparable store sales were down 31 percent, driven by a 32 percent decline in comparable transactions, slightly offset by a 1 percent increase in average ticket; China comparable store sales were down 50 percent, with comparable transactions down 53 percent
- The company opened 255 net new stores in Q2, yielding 6 percent year-over-year unit growth, ending the period with 32,050 stores globally, of which 51 percent and 49 percent were company-operated and licensed, respectively
- Stores in the U.S. and China comprised 61 percent of the company’s global portfolio at the end of Q2, with 15,257 and 4,351 stores, respectively
- Consolidated net revenues of USD 6.0 billion declined 5 percent from the prior year due to lost sales related to the Covid-19 outbreak
- Lost sales include the effects of temporary store closures, modified operations, reduced hours and reduced customer traffic
- GAAP operating margin contracted 550 basis points year-over-year to 8.1 percent, primarily due to sales deleverage and additional costs incurred in response to the Covid-19 outbreak, mainly catastrophe wages as well as enhanced pay programs and additional benefits in support of retail store partners, inventory write-offs and store safety items
- Non-GAAP operating margin of 9.2 percent contracted 660 basis points compared to the prior year
- GAAP Earnings Per Share of USD 0.28, down 47 percent from the prior year primarily due to unfavorable impacts related to the Covid-19 outbreak
- Non-GAAP EPS of USD 0.32, down 47 percent from the prior year
- Starbucks® Rewards loyalty program grew to 19.4 million active members in the U.S., up 15 percent year-over-year
Q2 Americas Segment Results
|(USD in millions)||Q2-2020||Q2-2019||Change (%)|
|Comparable Store Sales Growth (1)||(3)%||4%|
|Change in Transactions||(7)%||0%|
|Change in Ticket||5%||4%|
|Revenues||USD 4,330.0||USD 4,314.1||0%|
|Operating Income||USD 621.2||USD 856.4||(27)%|
|Operating Margin||14.3%||19.9%||(560) bps|
Includes only Starbucks® company-operated stores open 13 months or longer. Comparable store sales exclude the effect of fluctuations in foreign currency exchange rates and Siren Retail stores. Comparable store sales include stores that were temporarily closed as a result of the Covid-19 outbreak.
Net revenues for the Americas segment of USD 4.3 billion in Q2 FY20 were flat relative to Q2 FY19, as an increase from 552 net new store openings over the past 12 months, or 3 percent store growth, was offset by a 3 percent decrease in comparable store sales due to lost sales related to the Covid-19 outbreak.
Operating income declined 27 percent to USD 621.2 million in Q2 FY20, down from USD 856.4 million in Q2 FY19. Operating margin of 14.3 percent contracted 560 basis points, primarily due to sales deleverage and additional costs incurred in response to the Covid-19 outbreak, primarily catastrophe wages as well as enhanced pay programs and additional benefits in support of retail store partners, inventory write-offs and store safety items.
Q2 International Segment Results
|(USD in millions)||Q2-2020||Q2-2019||Change (%)|
|Comparable Store Sales Growth (1)||(31)%||2%|
|Change in Transactions||(32)%||0%|
|Change in Ticket||1%||2%|
|Revenues||USD 1,134.6||USD 1,529.4||(26)%|
|Operating Income/(Loss)||(USD 15.4)||USD 201.8||(108)%|
|Operating Margin/(Loss)||(1.4)%||13.2%||(1,460) bps|
(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 and Siren Retail stores. Comparable store sales include stores that were temporarily closed as a result of the Covid-19 outbreak
Net revenues for the International segment of USD 1.1 billion in Q2 FY20 were 26 percent lower relative to Q2 FY19, primarily due to a 31 percent decrease in comparable store sales as a result of lost sales related to the Covid-19 outbreak. Also contributing to the decrease was a 4 percent revenue-dilutive impact of converting certain retail businesses to fully licensed markets. These decreases were partially offset by 1,314 net new store openings, or 11 percent store growth, over the past 12 months.
The International segment reported an operating loss of USD 15.4 million in Q2 FY20 compared to operating income of USD 201.8 million in Q2 FY19. Operating margin contracted 1,460 basis points to (1.4) percent, primarily due to sales deleverage as partner wages and benefits and occupancy costs continued to be incurred even while stores in most markets within the segment were temporarily closed or operating under modified models and hours.
Q2 Channel Development Segment Results
|(USD in millions)||Q2-2020||Q2-2019||Change (%)|
|Revenues||USD 519.1||USD 446.6||16%|
|Operating Income||USD 189.6||USD 148.9||27%|
|Operating Margin||36.5%||33.3%||320 bps|
Net revenues for the Channel Development segment increased 16 percent in Q2 FY20 to USD 519.1 million from Q2 FY19, primarily driven by strong performance of the Global Coffee Alliance, including additional product sales to Nestlé to transition Foodservice order fulfillment, as well as a benefit related to the transfer of certain single-serve product activities to Nestlé on a go-forward basis. Given Channel Development’s at-home coffee offerings in grocery stores, at mass merchants and online, Covid-19 did not materially disrupt this segment’s overall revenue in Q2 FY20.
Operating income grew 27 percent to USD 189.6 million in Q2 FY20, up from USD 148.9 million in Q2 FY19. Operating margin expanded 320 basis points to 36.5 percent, primarily due to the benefit related to the transfer of certain single-serve product activities to Nestlé on a go-forward basis noted above.
Fiscal 2020 Guidance
To protect the health and well-being of our partners and customers-and in support of efforts to control the spread of the Covid-19 outbreak-currently, we have temporarily closed approximately 50 percent of our company-operated stores in the U.S., as well as more than 75 percent in Canada, Japan and the United Kingdom. In China, where our stores are company-operated, 98 percent are open but operating under modified schedules and enhanced safety-related protocols, including limited cafe seating. We expect China’s sales to substantially recover with comparable store sales roughly flat to prior year levels at the end of fiscal year 2020. Currently, approximately 50 percent of our global licensed store portfolio is also closed, with higher levels of closure in Europe, the Middle East and Africa, and lower levels of closure in Asia Pacific.
While this disruption to Starbucks business is expected to be temporary, given the dynamic nature of the Covid-19 outbreak and how it is affecting our business globally, including our largest market, the U.S., we are currently unable to estimate full company financial impacts with reasonable accuracy. Additionally, given the late-quarter onset of Covid-19 impacts in the U.S.-as well as a materially higher flow-through rate on lost sales in the U.S.-we expect the negative financial impacts of Covid-19 to be significantly greater in Q3 FY20 compared to Q2 FY20, and to extend into Q4 FY20 but at a more moderate level. Therefore, until we have greater visibility into the impact, in the U.S. in particular, and except for the selected metrics noted below, total company guidance for fiscal 2020 will remain suspended as communicated in our April 8 letter to Starbucks stakeholders.
All guidance for the metrics noted below is for fiscal year 2020 and growth metrics are relative to fiscal year 2019. Please note, the guidance provided below is dependent on our current expectations which may be impacted by prevailing, external conditions and local safety guidelines.
- China comparable store sales growth:
- Q3 FY20: -25 percent to -35 percent
- Q4 FY20: -10 percent to flat
- Full year FY20: -15 percent to -25 percent
- At least 500 net new stores in China
- Channel Development GAAP revenue decline of 6 percent to 8 percent with modest operating margin improvement
- Capital expenditures of approximately USD 1.5 billion
Based on our substantial experience in China to date, we continue to believe that the impacts of the Covid-19 outbreak are temporary and that our business will fully recover over time. Consistent with the business updates to Starbucks stakeholders on March 5 and April 8, we will continue to provide transparent updates as we gain visibility to performance trends, as well as the steps we are taking to position the company for full recovery.
- Through the dynamic Covid-19 pandemic, Starbucks has responded swiftly and responsibly, making proactive decisions grounded in transparency and science. These decisions have been communicated transparently to all Starbucks stakeholders and have been aimed at prioritizing the health and well-being of Starbucks partners and customers; playing a constructive role in supporting health and government officials working to mitigate the spread of the virus; and showing up in a positive and responsible way to serve our communities.
- Building on our Starbucks store partners’ commitment to the communities they serve, Starbucks announced on March 25 that any customer who identifies as a front-line responder to the Covid-19 outbreak will receive a tall brewed coffee at no charge- an offer recently extended through May.
- In March, Starbucks announced it will open a state-of-the-art roasting facility in China in 2022 as part of its new Coffee Innovation Park (CIP). The CIP will incorporate a roasting plant, warehouse and distribution center, driving smart and sustainable coffee manufacturing in China. The USD 130 million investment in the CIP is Starbucks largest coffee manufacturing investment outside of the U.S. and the first in Asia, deepening Starbucks commitment to strengthen the specialty coffee industry in China.
- Starbucks remains committed to a multi-decade sustainability aspiration to be resource positive, giving more than it takes from the planet. In early March, Starbucks began its first market tests of a new recyclable and compostable hot cup solution, featuring a BioPBS™ cup liner, in select stores in Seattle, San Francisco, New York, Vancouver and London. This test is part of the NextGen Cup Challenge which seeks to address single-use packaging waste by developing an industry-wide to-go cup solution.
- In March, the company executed a USD 1.75 billion bond issuance, with the use of proceeds earmarked for repayment of outstanding commercial paper, backstopped by a USD 2 billion, 5-year credit facility and USD 1 billion, 364-day credit facility. The company also executed an additional USD 500 million term-loan facility.
- The Board of Directors declared a cash dividend of USD 0.41 per share, payable on May 22, 2020, to shareholders of record as of May 8, 2020.