Starbucks: Reports Record Q2 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 30, 2014. Highlights include the following values or key points:

  • Global comparable store sales increased six percent
    • Americas and U.S. comp growth of six percent
    • EMEA comp growth of six percent, representing the highest growth in EMEA in 14 quarters
    • China/Asia Pacific comp growth of seven percent, driven by strong traffic
  • Consolidated net revenues increased nine percent to a Q2 record 3,9 billion USD
  • Channel Development revenues grew ten percent
  • Consolidated operating income increased 18 percent or 100 million USD, to a Q2 record 644 million USD
  • All reportable segments contributed to an operating margin increase of 130 basis points to a Q2 record 16,6 percent
  • Earnings per share grew to 0,56 USD, up 17 percent excluding a 0,03 USD non-routine gain in the prior year Q2 related to the sale of the company´s equity in its Mexico joint venture
  • The company opened 335 net new stores globally, including the 20’000th Starbucks store. Total company store count across all brands grew to 20’519.

«Starbucks record operating performance in Q2 demonstrates that our focus on building a different kind of company – performance driven, through the lens of humanity – continues to drive profits and shareholder value», said Howard Schultz, chairman, president and CEO of Starbucks Coffee Company. «The innovation we are bringing to market through reinvention of our Teavana business and partnership with Oprah Winfrey, our re-imagination of the Starbucks Experience through next-generation payment and loyalty programs and our continued investments in the over 200’000 Starbucks partners who wear the green apron every day continues to build equity in the Starbucks brand and strengthen our connection to customers in every market in which we operate».

«Starbucks strong second quarter performance demonstrates the success of our ongoing efforts to drive industry-leading growth», said Scott Maw, Starbucks CFO. «While global comparable store sales growth of six percent was impressive and squarely in line with our targets, even more significant is the fact that we delivered strong and balanced, revenue and profit growth across all of our reportable segments. The strong momentum we have created in the first half of the year, combined with our robust pipeline of innovation, give us confidence in our ability to meet our fiscal 2014 growth targets».

Second Quarter Fiscal 2014 Summary

Consolidated net revenues were 3,9 billion USD in Q2/2014, an increase of nine percent over Q2/2013, driven primarily by six percent growth in global comparable store sales and incremental revenues from 1’651 net new store openings over the past twelve months.

Consolidated operating income increased 18 percent to 644,1 million USD, compared to 544,1 million USD for the same period a year ago. Operating margin expanded 130 basis points to 16,6 percent, primarily driven by lower commodity costs and sales leverage.

Q2 Americas Segment Results

Net revenues for the Americas segment were 2,8 billion USD in Q2/2014, an increase of eight percent over Q2/2013. The increase was driven by six percent growth in comparable store sales and incremental revenues from 768 net new store openings over the past twelve months.

Operating income of 605,6 million USD in Q2/2014 increased ten percent from 549,7 million USD for the same period a year ago. Operating margin expanded 50 basis points to 21,6 percent primarily due to lower commodity costs.

Q2 EMEA Segment Results

Net revenues for the EMEA segment were 309,9 million USD in Q2/2014, an increase of 13 percent over Q2/2013. The growth was primarily due to favourable foreign currency exchange and a six percent increase in comparable store sales. Incremental revenues from 167 net new store openings over the past twelve months also contributed.

Operating income increased 240 percent to 17,7 million USD in Q2/2014, from 5,2 million USD in the prior year quarter. Operating margin expanded 380 basis points to 5,7 percent primarily driven by sales leverage and continued cost management.

Q2 China/Asia Pacific Segment Results

Net revenues for the China/Asia Pacific segment were 265,3 million USD in Q2/2014, an increase of 24 percent over Q2/2013. The increase was driven primarily by incremental revenues from 699 net new store openings over the past twelve months. A seven percent increase in comparable store sales, driven by strong traffic, also contributed to the net revenue growth.

Operating income of 87,0 million USD in Q2/2014 increased 27 percent compared to the same period a year ago. Operating margin increased 80 basis points to 32,8 percent driven primarily by sales leverage.

Q2 Channel Development Segment Results

Net revenues for the Channel Development segment were 370,4 million USD in Q2/2014, an increase of ten percent over Q2/2013, primarily driven by increased sales of premium single serve products.

Operating income grew 35 percent to 127,3 million USD in Q2/2014 compared to 94,1 million USD for the same period a year ago. Operating margin increased 660 basis points to 34,4 percent in Q2/2014 primarily due to lower coffee costs, with sales leverage also contributing.

Q2 All Other Segments Results

Net revenues for All Other Segments were 119,4 million USD in Q2/2014, a decrease of one percent compared to Q2/2013, resulting from lower Seattle´s Best Coffee revenues mostly offset by growth in emerging businesses, including Teavana and Evolution Fresh.

Q2/2014 operating loss increased to 7,8 million USD compared to a loss of 4,1 million USD for the same period a year ago driven by investments to support growth in our emerging businesses.

Fiscal 2014 Targets

The company reaffirms and updates the following fiscal 2014 targets:

  • Revenue growth of ten percent or greater
  • Global comparable store sales growth in the mid single digits
  • Consolidated operating margin improvement now targeted at 175 to 200 basis points over FY 2013:
    • Americas: moderate improvement over FY 2013
    • EMEA: operating margin improving toward the high single digits
    • CAP: operating margin percentage moving toward the low 30´s
    • Channel Development: now targeting approximately 500 basis point improvement over FY 2013
  • Consolidated tax rate of approximately 34 percent
  • Earnings per share now expected to be in the range of 2,62 USD to 2,68 USD:
    • Q3 EPS in the range of 0,64 USD to 0,66 USD
    • Q4 EPS in the range of 0,71 USD to 0,75 USD
  • Approximately 1’500 net new stores:
    • Americas: approximately 600
    • EMEA: approximately 150
    • CAP: approximately 750
  • Capital expenditures of approximately 1,2 billion USD

Company Updates

  • In January, Starbucks implemented a new senior leadership structure to bolster its Financial and Operating organization globally. CEO Howard Schultz expanded his focus on innovation and next generation retailing and payments initiatives; CFO Troy Alstead was promoted to chief operating officer; SVP of Corporate Finance Scott Maw was promoted to executive vice president and CFO; Craig Russell was promoted to executive vice president, Global Coffee.
  • Starbucks held its 2014 Annual Meeting of Shareholders in March, where Oprah Winfrey and Starbucks announced a unique collaboration to co-create «Teavana Oprah Chai Tea». Beginning April 29, Teavana Oprah Chai will be sold in participating Starbucks and Teavana stores across the U.S. and Canada, with Starbucks making a donation for each product sold to the Oprah Winfrey Leadership Academy Foundation to benefit educational opportunities for youth.
  • In March, Starbucks introduced an enhanced mobile app which includes digital tipping, digital receipts and a streamlined user experience.
  • The company opened its first store in Brunei and now operates in 64 countries worldwide. It also opened its first store in Downtown Disney, offering a unique experience to millions of guests at Disneyland Resort.
  • The company repurchased 3,5 million shares of common stock in Q2/2014; approximately 22 million shares remain available for purchase under previous authorizations.
  • The Board of Directors declared a cash dividend of 0,26 USD per share, payable on May 23, 2014 to shareholders of record as of May 08, 2014.
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