Starbucks: Reports Record Q4 and FY 2014 Results

Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal fourth quarter and 52-week fiscal year ended September 28, 2014. Fiscal 2014 results include the impact of a litigation credit in Q1 and a net benefit from transactions in Q4. Fiscal 2013 results include the impact of the litigation charge associated with the Kraft arbitration in Q4, as well as gains on the sales of Starbucks equity in its Mexico joint venture in Q2 and its Chile and Argentina joint ventures in Q4. Non-GAAP results exclude these items.

Q4 Fiscal 2014 Highlights

  • Consolidated net revenues increased ten percent to a Q4 record 4.2 billion USD
  • Global comparable store sales increased five percent, the 19th consecutive quarter of comp growth of five percent or greater
  • Consolidated operating income reached 854.9 million USD
    • Non-GAAP operating income of 857.3 million USD grew 28 percent over Q4/2013 non-GAAP operating income
  • Consolidated operating margin expanded to 20.4 percent
    • Non-GAAP operating margin of 20.5 percent grew 280 basis points over Q4/2013 non-GAAP operating margin
  • Earnings per share reached 0.77 USD
    • Non-GAAP EPS of 0.74 USD grew 23 percent over Q4/2013 non-GAAP EPS
  • The company opened 503 net new stores in the quarter, ending FY-2014 with 21’366 stores in 65 countries
  • The Board of Directors declared a cash dividend of 0.32 USD per share, an increase of 23 percent

Fiscal Year 2014 Highlights

  • Consolidated net revenues increased eleven percent to a record 16.4 billion USD
  • Global comparable store sales increased six percent
    • Americas comp sales increased six percent
    • EMEA comp sales increased five percent
    • China/Asia Pacific comp sales increased seven percent
  • Consolidated operating income reached 3.1 billion USD
    • Non-GAAP operating income of 3.1 billion USD grew 25 percent over FY-2013 non-GAAP operating income
  • Consolidated operating margin expanded to 18.7 percent
    • Non-GAAP operating margin of 18.6 percent grew 210 basis points over FY-2013 non-GAAP operating margin
  • Earnings per share reached 2.71 USD
    • Non-GAAP EPS of 2.66 USD grew 21 percent over FY-2013 non-GAAP EPS
  • Starbucks opened 1’599 net new stores globally in FY-2014, including 742 in CAP, 698 in the Americas and 171 in EMEA
  • The company returned 1.6 billion USD to shareholders through dividends and share repurchases

«Starbucks performance in fiscal 2014 was extraordinary by any metric or comparison», said Howard Schultz, chairman, president and ceo of Starbucks Coffee Company. «But we cannot be content with the status quo, as consumers continue to demand more and more in terms of convenience and excellence. You will see us continue to invest where it counts most, in mobile commerce, innovation, in the customer experience and the partners who drive it and in the quality of our coffees».

«Starbucks Q4 results capped off a year of exceptional performance across our business and around the world», said Scott Maw, Starbucks cfo. «In Q4, each of our segments delivered strong and balanced revenue and profit growth, consistent with the prior three quarters of fiscal 2014. The increasing global strength of the Starbucks brand, a robust pipeline of innovation, strong global comparable store sales growth and impressive margin expansion in conjunction with a company-wide emphasis on operational excellence and expense management give me great confidence in achieving our 2015 growth targets».

Fourth Quarter Fiscal 2014 Summary

Consolidated net revenues were 4.2 billion USD in Q4/2014, an increase of ten percent over Q4/2013, driven primarily by five percent growth in global comparable store sales and incremental revenues from 1’599 net new store openings over the past twelve months.

Consolidated operating income was 854.9 million USD in Q4/2014, an operating margin of 20.4 percent, compared to an operating loss of 2.1 billion USD in the prior year, which included a 2.8 billion USD litigation charge associated with the Kraft arbitration. Non-GAAP operating margin of 20.5 percent expanded 280 basis points over the prior year non-GAAP operating margin, driven by sales leverage, improved inventory management and lower commodity costs.

Q4 Americas Segment Results

Net revenues for the Americas segment were 3.0 billion USD in Q4/2014, an increase of nine percent over Q4/2013. The increase was driven by five percent growth in comparable store sales and incremental revenues from 698 net new store openings over the past twelve months.

Operating income of 743.0 million USD in Q4/2014 increased 23 percent from 605.9 million USD in Q4/2013. Operating margin expanded 260 basis points to 24.4 percent, primarily due to sales leverage, improved inventory management and lower commodity costs.

Q4 EMEA Segment Results

Net revenues for the EMEA segment were 321.8 million USD in Q4/2014, an increase of ten percent over Q4/2013. The increase was primarily due to favorable foreign currency exchange, a five percent increase in comparable store sales and incremental revenues from 171 net new store openings over the past twelve months.

Operating income increased 42 percent to 38.8 million USD in Q4/2014, up from 27.3 million USD in the prior year quarter. Operating margin expanded 280 basis points to 12.1 percent, primarily driven by sales leverage and continued cost management.

Q4 China/Asia Pacific Segment Results

Net revenues for the China/Asia Pacific segment grew 21 percent to 309.9 million USD in Q4/2014. The increase was primarily driven by incremental revenues from 742 net new store openings over the past twelve months. A five percent increase in comparable store sales, driven by strong traffic, also contributed.

Operating income grew to 103.8 million USD in Q4/2014, an increase of eight percent compared to Q4/2013. Operating margin declined 400 basis points to 33.5 percent, primarily driven by the lapping of a prior year benefit from reduced asset retirement obligations for store leases in the region as well as the shift in the segment portfolio in the current year towards more company-operated stores.

Fiscal 2015 Targets

The company provides the following fiscal 2015 targets, which are based on actual FY-2014 non-GAAP results as presented in this press release and projected FY15 non-GAAP results where noted. Projected FY15 non-GAAP adjustments relate to the planned acquisition of Starbucks Japan.

  • Revenue growth now expected to be 16 to 18 percent, including over one billion USD in incremental revenue from the planned acquisition of Starbucks Japan
  • Global comparable store sales growth continues to be targeted in the mid-single digits
  • The planned Starbucks Japan acquisition is expected to be mildly dilutive to consolidated operating margin on a GAAP basis versus FY-2014; non-GAAP operating margin is expected to be flat to up slightly over prior year non-GAAP operating margin:
    • Americas: modest improvement over FY-2014
    • EMEA: improving to ten to twelve percent
    • China/Asia Pacific: Operating margin percentage in the high teens, which includes approximately two to three percent unfavorable impact from amortization expense related to acquired intangible assets resulting from the planned acquisition of Starbucks Japan
    • Channel Development: modest improvement over FY-2014
  • Consolidated tax rate of approximately 31 percent, which includes a net tax benefit of approximately four percent from the planned acquisition of Starbucks Japan
  • Earnings per share on a GAAP basis expected to be in the range of 3.42 USD to 3.54 USD; EPS on a non-GAAP basis expected to be in the range of 3.08 USD to 3.13 USD. Additionally, Q1 EPS on a GAAP basis expected to be in the range of 1.20 USD to 1.28 USD; Q1 EPS on a non-GAAP basis expected to be in the range of 0.79 USD to 0.81 USD.
    • Non-GAAP adjustments related to the planned acquisition of Starbucks Japan are comprised of:
      • An anticipated acquisition-related gain of approximately 0.43 USD to 0.49 USD per share in Q1 resulting from a fair value adjustment of Starbucks current 39.5 percent ownership interest in Starbucks Japan
      • Other costs related to the acquisition, such as the ongoing amortization expense of significant acquired intangible assets as well as transaction and integration costs
  • New store openings increase to 1’650 net new:
    • Americas: approximately 650, half licensed
    • EMEA: approximately 150, primarily licensed
    • China/Asia Pacific: increased to approximately 850, two-thirds licensed
  • Capital expenditures of approximately 1.4 billion USD driven primarily by store investments, which include new stores, Mobile Order and Pay and the Evenings program

Company Updates

Starbucks announced in September that it will acquire the remaining 60.5 percent share of Starbucks Coffee Japan that the company does not currently own, further elevating Starbucks growth and innovation in its second largest market in retail store sales.

The company announced plans to open its first, interactive Starbucks ReserveTM Roastery and Tasting Room on December five in Seattle; the new roastery will allow the company to expand its Starbucks Reserve® coffee line to 1’500 locations globally as well as open 100 stores exclusively designed to highlight these rare coffees.

Starbucks celebrated 15 years in Korea and demonstrated its ongoing global commitment to supporting opportunities for young people in the community with the opening of its first community store in the Daehakro neighbourhood of Seoul.

The company plans to complement its café experience by investing in smaller, alternative footprint stores which address the increase in urbanization and decentralization of retail; these locations will offer a concentrated set of beverage and food offerings and integrate Starbucks digital payment platform.

Starbucks also announced it will debut Mobile Order and Pay in stores within the Portland, Oregon area in December, which will enable customers to place orders in advance of their visit and pick them up at their selected Starbucks location. The company will continue to roll out Mobile Order and Pay in the US throughout 2015.

In August, Starbucks completed its nationwide roll-out of La Boulange food to all Starbucks stores in the U.S. Starbucks completed the roll-out ahead of schedule after acquiring La Boulange Bakery in June of 2012.

Starbucks hosted over 2’000 district managers from around the world in Seattle in early October and announced a series of investments the company is making in the partner experience; investments include pay and benefits enhancements and an updated dress code policy.

Recently Starbucks, HBO and CHASE Bank announced that they will host a free concert on the National Mall in Washington, D.C. on November eleven to honor the courage and sacrifice of America´s veterans and their families. Starbucks also reported that more than 1’000 veterans and military spouses were hired by the company in the past year.

The company repurchased 10.5 million shares of common stock in fiscal 2014; approximately 16 million shares remain available for purchase under current authorizations.

The Board of Directors declared a cash dividend of 0.32 USD per share, an increase of 23 percent, payable on November 28, 2014 to shareholders of record as of November 13, 2014.

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