Starbucks: Reports Record Q1 Fiscal 2013 Results

Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal first quarter ended December 30, 2012. Fiscal First Quarter 2013 Highlights:

  • Total net revenues increased eleven percent to a record 3,8 billion USD
  • Global comparable store sales grew six percent, driven by a four percent increase in traffic and a two percent increase in average ticket
    • Americas comparable store sales grew seven percent, China/Asia Pacific comparable store sales grew eleven percent
  • Consolidated operating margin expanded 40 basis points to 16,6 percent
  • EPS increased 14 percent to a record 0,57 USD per share, compared to 0,50 USD per share in Q1/2012
  • Opened 212 net new stores globally, including the first three stores in India
  • Sold more than 150’000 Verismo machines since launch, marking a strong debut of this emerging platform
  • Added 1,4 million USD new My Starbucks Rewards members in the U.S., up 86 percent over the 778’000 new members added in the U.S. in Q1/2012
  • Acquired Teavana Holdings Inc. on December 31, making Teavana a wholly-owned subsidiary of Starbucks and positioning Starbucks to become the global leader in tea

«Starbucks strong performance in Q1/2013 demonstrates the strength, and unique resilience, of our increasingly global business, and the power and growing relevance of the Starbucks brand to consumers and communities all around the world», said Howard Schultz, chairman, president and chief executive officer, Starbucks Coffee Company. «Solid growth in our U.S. retail business, further expansion of our Channel Development initiatives and continued successful execution against our expansion plans throughout China and Asia Pacific all contributed to the record results we announced. Starbucks has never been better positioned to achieve the goals we have set for ourselves around the world and I have never been more optimistic about our future».

«Record earnings in the first quarter continued our strong momentum, reflecting the underlying strength in our core business», commented Troy Alstead, chief financial officer. «We delivered excellent holiday results with six percent global comps, marking the 12th consecutive quarter of comps in excess of five percent. Our first quarter results demonstrate both efficiency, with record US productivity, and innovation, with the successful launch of Verismo, our newest growth platform».

Added Alstead, «Despite significant and unexpected cost pressures in the quarter, we achieved our earnings growth target and delivered record EPS. Starbucks strong Q1/2013 performance reaffirms our confidence in the aggressive FY-2013 growth targets we announced in early November. The quality and diversity of growth drivers in the business, combined with our continued focus on operational excellence, gives us confidence in sustainable, strong profitable growth».

First Quarter Fiscal 2013 Summary

Consolidated net revenues reached a record 3,8 billion USD in Q1/2013, an increase of eleven percent over Q1/2012. The increase was primarily due to a six percent increase in global comparable store sales, and incremental revenues from 401 net new company-operated store openings over the past twelve months. The six percent increase in comparable store sales was comprised of a four percent increase in the number of transactions and a two percent increase in average ticket. Also contributing to consolidated net revenue growth was 13 percent revenue growth in Channel Development and 14 percent revenue growth in licensed stores.

Consolidated operating income increased 13 percent to a record 630,6 million USD, compared to 556,0 million USD for the same period a year ago. Operating margin expanded 40 basis points to 16,6 percent this quarter, compared to 16,2 percent in the same period last year. The margin increase was primarily due to increased sales leverage.

Segment Reporting Update

At the beginning of the first quarter of FY-2013, the company decentralized certain leadership functions in the areas of retail marketing and category management, global store development and partner resources, to support and align with the respective operating segment presidents. In conjunction with these moves, certain general and administrative and depreciation and amortization expenses associated with these functions, which were previously reported as unallocated corporate expenses within «Other», are now reported within the respective operating segments to align with the regions that they support. In order to conform prior period classifications with the new alignment, the historical consolidated financial statements have been recast as reflected in the segment results below. This change did not impact historical consolidated results.

Q1 Americas Segment Results

Net revenues for the Americas segment were 2,8 billion USD in Q1/2013, an increase of ten percent over Q1/2012. The increase was primarily due to a seven percent increase in comparable store sales, comprised of a four percent increase in the number of transactions and a two percent increase in average ticket. Also contributing to the net revenue increase was incremental revenues from 253 net new company-operated store openings over the past twelve months and eleven percent revenue growth in licensed stores.

Operating income increased to 590,3 million USD in Q1/2013, growth of eight percent compared to 548,9 million USD for the same period a year ago. Operating margin decreased 50 basis points to 20,8 percent in Q1/2013. The margin contraction was driven by expenses related to the company´s October global leadership conference, litigation charges and the impact from Superstorm Sandy. These expenses negatively impacted Q1/2013 operating income and operating margin by 53 million USD and 190 basis points, respectively, compared to the same period in the prior year. Partially offsetting those expenses was increased sales leverage.

Q1 EMEA Segment Results

Net revenues for the EMEA segment were 306,1 million USD in Q1/2013, an increase of one percent over Q1/2012. The increase was driven by 41 percent revenue growth in licensed stores which was nearly offset by a decline in company-operated revenue as a result of recent store portfolio optimization activities including the sale of the Ireland store portfolio and UK airport locations to licensed partners as well as the closure of under-performing stores in the UK.

Operating income of 22,3 million USD in Q1/2013 grew 18 percent compared to 18,9 million USD for the same period a year ago. Operating margin increased 110 basis points to 7,3 percent compared to 6,2 percent in the prior-year period. Margin expansion was primarily driven by a continued focus on cost management and leverage from strong licensed store revenue growth.

Q1 China/Asia Pacific Segment Results

Net revenues for the China/Asia Pacific segment were 214,1 million USD in Q1/2013, an increase of 28 percent over Q1/2012. The increase was primarily due to incremental revenues from 166 net new company-operated store openings over the past twelve months and an eleven percent increase in comparable store sales. Additionally, licensed store revenue growth of 14 percent contributed to the revenue growth for the region.

Operating income increased 26 percent to 72,1 million USD in Q1/2013, compared to 57,3 million USD for the same period a year ago. Operating margin decreased 60 basis points to 33,7 percent in Q1/2013 compared to 34,3 percent in the prior-year period. The margin contraction was primarily due to investment spending to support continued growth in China and a shift in the composition of our store portfolio from licensed to company-operated stores. The margin contraction was partially offset by lower performance-based compensation compared to the same period in the prior year when the region significantly outperformed its operating plan.

Q1 Channel Development Segment Results

Channel Development net revenues were 379,8 million USD in Q1/2013, an increase of 13 percent over Q1/2012, primarily driven by sales of Starbucks- and Tazo-branded K-Cup packs. Also contributing to the revenue growth were incremental sales related to the launch of the Verismo system.

Channel Development operating income grew 24 percent to 96,8 million USD in Q1/2013 compared to 77,9 million USD for the same period a year ago. Operating margin increased 230 basis points to 25,5 percent in Q1/2013 compared to 23,2 percent in the prior-year period. The margin expansion was mainly due to lower coffee-related costs, partially offset by Verismo launch costs.

Fiscal 2013 Targets

Starbucks reaffirms its fiscal 2013 targets as follows:

  • The opening of approximately 1’300 net new stores globally, representing 22 percent growth over fiscal 2012.
    • Approximately 600 net new stores in the Americas, with the majority of those in the U.S. Of the approximately 600 stores, approximately half of the additions will be licensed stores.
    • Approximately 600 net new stores in China/Asia Pacific, with licensed stores comprising approximately half of the new additions. Of the approximately 600 stores, slightly more than half will be in China.
    • Approximately 100 net new stores in EMEA (Europe, Middle East, Russia and Africa), with licensed stores comprising more than two thirds of the new stores.
  • Revenue growth of approximately ten percent – 13 percent, driven by mid-single-digit comparable store sales growth, approximately 1’300 net new store openings, and continued strong growth in the Channel Development business.
  • Full-year consolidated operating margin improvement of approximately 100 basis points over FY-2012 results.
    • Slight operating margin improvement in the Americas and EMEA segments.
    • Some operating margin contraction in China/Asia Pacific, driven by the shift in equity mix towards company-operated stores as well as costs associated with accelerated store growth in China.
    • 100 to 150 basis points of operating margin improvement in Channel Development.
  • Earnings per share of 2,06 USD to 2,15 USD, representing growth in the range of 15 percent to 20 percent.
  • Capital expenditures of approximately 1,2 billion USD for the full year, reflecting the increase in new store growth and an increase in production capacity to support recently-announced initiatives.

Company Updates

  • The company opened its 100th store in Beijing, continuing its aggressive, profitable growth strategy in China.
  • Starbucks expanded its long-term relationship with Maxim´s Group to now operate Starbucks stores in Vietnam, with the first store scheduled to open in Ho Chi Minh City in early February 2013.
  • In partnership with Tata Global Beverages Limited, Starbucks opened its first three stores in Mumbai, India, in Q1/2013. The first store in Delhi is scheduled to open next month.
  • The company opened its 6th, and first Asia-based, Farmer Support Center in Yunnan Province, China, allowing the company to work directly with farmers to help reduce the environmental impact of the region´s coffee-growing activities and improve the livelihood of farmers and their families.
  • Approximately 7’000 company-operated Starbucks locations began accepting Square´s mobile payment application, Square Wallet, giving customers another way to enjoy a quick, seamless payment.
  • For the 15th year, Starbucks was named one of Fortune magazine´s «100 Best Companies to Work For».
  • Starbucks acquired Teavana Holdings Inc., making Teavana a wholly-owned subsidiary of Starbucks and the newest addition to Starbucks emerging brands portfolio, which also includes Evolution Fresh, Seattle´s Best Coffee and Tazo.
  • As part of its strategy to reinvent and elevate tea, the company opened its first Tazo tea store in Seattle´s University Village shopping center, to serve as a learning laboratory for beverage innovation.
  • The Board of Directors declared a cash dividend of 0,21 USD per share, payable on February 22, 2013, to shareholders of record as of February 07, 2013.
  • The company repurchased eight million USD shares of common stock in Q1/2013; approximately 29 million USD shares remain available for purchase under previous authorizations.
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