Starbucks: Reports Record Q2 Fiscal 2013 Results

Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal second quarter and 26-week fiscal year to date ended March 31, 2013. Fiscal Second Quarter 2013 Highlights:

• Total net revenues increased eleven percent to 3,6 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, marking the 13th consecutive quarter of global comp growth greater than five percent
• Operating margin expanded 180 basis points to a Q2 record 15,3 percent
• Consolidated operating income grew 26 percent to 544 million USD
• Record Q2 EPS of 0,51 USD per share included a 0,03 USD non-routine gain on the sale of the company´s equity in the joint venture that operates Starbucks stores in Mexico; excluding this gain, EPS grew 20 percent
• Dollars loaded on Starbucks Cards through both new card activations and reloads increased 32 percent over Q2 FY12
• Starbucks added 590 net new stores globally, including 337 Teavana stores
• The company has raised its full year earnings per share target range to 2,12 USD to 2,18 USD from the previous target range of 2,06 USD to 2,15 USD

«Starbucks record operating performance in Q2 continues to demonstrate the underlying strength and resilience of our expanding global business and the increasing relevance of the Starbucks brand to consumers all around the world», said Howard Schultz, chairman, president and chief executive officer. «Innovation and an enhanced customer experience drove strong comp sales and revenue growth, while a laser focus on improving efficiency and controlling costs enabled us to deliver record margins and earnings. Starbucks has never been better positioned to achieve the aspirational goal we have set of becoming one of the world´s most respected, admired and enduring brands».

«Record second quarter results once again illustrate the power of the Starbucks business and brand», commented Troy Alstead, chief financial officer. «Continued strength in our US operations, despite ongoing uncertainty in the macro environment, has fuelled our performance and allows us to pursue long term strategic initiatives across our segments. Given our performance in the first half of the year and the considerable momentum in the business as we enter the second-half, we are raising our full year earnings growth target».

Second Quarter Fiscal 2013 Summary

Consolidated net revenues reached a Q2 record 3,6 billion USD in Q2 FY13, an increase of eleven percent over Q2 FY12. The increase was due to a six percent increase in global comparable store sales and incremental revenues from the opening of 1’448 net new stores over the past twelve months, including the addition of 337 Teavana stores. Consolidated operating income increased 26 percent to a Q2 record 544,1 million USD, compared to 430,4 million USD for the same period a year ago. Operating margin expanded 180 basis points to 15,3 percent this quarter, compared to 13,5 percent in Q2 FY12. The margin increase was primarily driven by sales leverage and lower coffee costs.

Q2 Americas Segment Results

Net revenues for the Americas segment were 2,6 billion USD in Q2 FY13, an increase of ten percent over Q2 FY12. The increase was primarily due to a six percent increase in comparable store sales, comprised of a five 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 522 net new store openings over the past twelve months. Operating income increased to 549,7 million USD in Q2 FY13, representing growth of 22 percent compared to 449,5 million USD for the same period a year ago. Operating margin expanded 220 basis points to 21,1 percent in Q2 FY13 driven by sales leverage and lower coffee costs.

Q2 EMEA Segment Results

Net revenues for the EMEA segment were 273,2 million USD in Q2 FY13, flat to Q2 FY12. Revenue growth of 48 percent in licensed stores, driven by the opening of 117 net new stores in the last twelve months, was offset by a decline in company-operated revenue primarily driven by prior store portfolio optimization activities. Operating income of 5,2 million USD in Q2 FY13 grew 12,2 million USD from an operating loss of 7,0 million USD in Q2 FY12. Operating margin increased 450 basis points to 1,9 percent. Margin expansion was primarily driven by a continued focus on cost management and a shift in our store portfolio to more licensed stores. Also contributing to the margin expansion was a reduction to the estimated asset retirement obligations of our store leases in the region.

Q2 China/Asia Pacific Segment Results

Net revenues for the China/Asia Pacific segment were 213,6 million USD in Q2 FY13, an increase of 22 percent over Q2 FY12. The increase was primarily due to incremental revenues from 516 net new store openings over the past twelve months and an eight percent increase in comparable store sales. Operating income of 68,3 million USD in Q2 FY13 was flat to the prior-year quarter. Operating margin decreased 710 basis points to 32,0 percent this quarter compared to 39,1 percent in Q2 FY12. 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. Also contributing to the margin contraction was the absence this year of non-routine income included in income from equity investees in the prior year.

Q2 Channel Development Segment Results

Channel Development net revenues were 343,5 million USD in Q2 FY13, an increase of seven percent over Q2 FY12, primarily driven by sales of Starbucks- and Tazo-branded K-Cup® packs. Operating income grew 18 percent to 94,1 million USD in Q2 FY13 compared to 79,5 million USD for the same period a year ago. Operating margin increased 270 basis points to 27,4 percent in Q2 FY13 compared to 24,7 percent in the prior-year period. The margin expansion was primarily due to lower coffee costs.

Q2 All Other Segments Results

Net revenues for All Other Segments were 121,5 million USD in Q2 FY13, an increase of 131 percent over Q2 FY12, primarily driven by the addition of Teavana retail store sales in the current quarter. Operating loss was 4,1 million USD in Q2 FY13 compared to a loss of 6,7 million USD for the same period a year ago. The 2,6 million USD improvement was primarily driven by the acquisition of Teavana in Q2 FY13.

Fiscal 2013 Targets

Starbucks reaffirms the following fiscal 2013 targets:

• Revenue growth of approximately ten percent – 13 percent
• Mid single digit global comparable store sales growth
• Full-year consolidated operating margin improvement of approximately 100 basis points over FY12 results
• Capital expenditures of approximately 1,2 billion USD for the full year

Starbucks has updated the following fiscal 2013 targets:

• The company plans to open approximately 1’650 net new stores globally, reiterating the previous target of 1’300 Starbucks stores and including 350 Teavana stores acquired and to be opened in the year
• Starbucks has raised its full year earnings per share target to a range of 2,12 USD to 2,18 USD consisting of 0,50 USD to 0,53 USD in Q3 and 0,54 USD to 0,57 USD in Q4

Company Updates

• Starbucks was recognized by Fortune magazine as the fifth «Most Admired Company» in the world and Ethisphere Magazine named Starbucks one of the World´s Most Ethical Companies for the seventh year in a row.
• The company opened its first store in Vietnam on January 31, an iconic flagship location in Ho Chi Minh City.
• Starbucks® coffee K-cup® packs were recognized as the most successful CPG beverage product of 2012 by Information Resources Inc. (IRI), a leading market research company.
• As part of the ongoing evaluation of appropriate ownership structures in international markets, Starbucks sold its 18 percent equity in Mexico to long time trusted business partner, Alsea, S.A.B. de C.V.
• Starbucks announced the expansion of its loyalty and rewards program with an industry-first innovation that will enable customers to earn rewards for grocery channel purchases that can be redeemed in Starbucks retail stores.
• The company expanded its comprehensive ethical sourcing program with a new research and development center in Costa Rica; the 240-hectare farm will be converted into a global agronomy center and is part of Starbucks commitment to ethically sourcing 100 percent of its coffee by 2015.
• Starbucks announced the appointment of two new members to its senior leadership team; Sharon Rothstein was named global chief marketing officer and Matthew Ryan will serve as global chief strategy officer.
• The Board of Directors declared a cash dividend of 0,21 USD per share, payable on May 24, 2013, to shareholders of record as of May 9, 2013.
• The company repurchased approximately three million shares of common stock in Q2 FY13; approximately 26 million shares remain available for purchase under previous authorizations.