Starbucks: Reports Record Third Quarter Results

Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal third quarter ended July 01, 2012.

Fiscal Third Quarter 2012 Highlights:

  • Total net revenues increased 13 percent to 3,3 billion USD
  • U.S. comparable store sales increased seven percent; Global comparable store sales increased six percent
  • Channel Development revenues increased 45 percent to 316 million USD
  • Operating income increased 22 percent to 492 million USD; operating margin expanded 120 basis points to 14,9 percent
  • EPS increased 19 percent to 0,43 USD per share, compared to 0,36 USD per share in Q3 FY11
  • Starbucks opened 231 net new stores globally, including its 600th store in mainland China and its first stores in Finland and Costa Rica.

Q4 Fiscal 2012 Targets:

The company has updated its Q4 FY12 revenue and EPS targets as follows:

  • Revenue growth of ten percent – twelve percent
  • Earnings per share of 0,44 USD to 0,45 USD, representing growth of 19 percent – 22 percent compared to Q4 FY11 non-GAAP EPS

Fiscal 2013 Targets:

  • The company has introduced its initial FY13 revenue and EPS targets as follows:
  • Revenue growth of ten percent – 13 percent
  • 1’200 net new stores, driven by acceleration in the U.S. and China
  • Earnings per share of 2,04 USD to 2,14 USD, representing growth of 15 percent – 20 percent

«Starbucks record Q3 results demonstrate the continued strength of our global business and brand, the success of multiple, highly innovative consumer packaged goods initiatives and continued acceleration of our China and Asia-Pacific operations», said Howard Schultz, chairman, president and ceo. «Despite coming in short of our expectations I am pleased with the increasing operating leverage we are seeing, the fact that this was our 11th consecutive quarter of record results and the fact that we achieved the results in the face of high legacy commodity costs and challenging economic and consumer headwinds in key markets. I am confident that we are operating with the discipline, flexibility and customer centricity necessary to enable us to continue driving EPS growth in excess of revenue growth over the long run», Schultz added.

«While still representing earnings growth of approximately 20 percent over last year´s fourth quarter, we have lowered our expectations for Q4 FY12 earnings per share to 0,44 USD to 0,45 USD to reflect the difficult economic environment all global retailers are confronting today», commented Troy Alstead, cfo. «Nonetheless, we remain confident in the underlying strength of our business, in the strategies we have in place for driving sustained, profitable growth and in our ability to again drive earnings growth in the range of 15 percent – 20 percent in fiscal 2013».

Third Quarter Fiscal 2012 Summary

Consolidated net revenues reached a third-quarter record 3,3 billion USD in Q3 FY12, an increase of 13 percent over Q3 FY11. The increase was primarily due to a six percent increase in global comparable stores sales and 45 percent revenue growth in Channel Development. The six percent increase in comparable store sales was comprised of a five percent increase in the number of transactions and a two percent increase in average ticket.

Consolidated operating income increased 22 percent to 491,6 million USD in Q3 FY12, compared to 402,2 million USD for the same period a year ago. Operating margin was 14,9 percent in Q3 FY12, compared to 13,7 percent in the same period last year. Sales leverage more than offset the increase in commodity costs, primarily coffee, which negatively impacted Q3 FY12 operating income and operating margin by approximately 38 million USD and 110 basis points, respectively, compared to the same period in the prior year.

Q3 Americas Segment Results

Net revenues for the Americas segment were 2,5 billion USD in Q3 FY12, an increase of nine percent over Q3 FY11. The increase was primarily due to a seven percent increase in comparable store sales, including a five percent increase in the number of transactions and a two percent increase in average ticket. Additionally, licensed store revenue growth of approximately 24 percent contributed to the Americas segment results.

Operating income increased to 512,1 million USD in Q3 FY12, compared to 450,9 million USD for the same period a year ago. Operating margin increased 90 basis points to 20,7 percent in Q3 FY12. The margin expansion was due to increased sales leverage, partially offset by the increase in commodity costs, primarily coffee.

Q3 EMEA Segment Results

Net revenues for the EMEA segment were 282,0 million USD in Q3 FY12, an increase of nine percent over Q3 FY11. The increase was primarily due to incremental revenues from the consolidation of the Switzerland and Austria markets, partially offset by unfavourable foreign currency exchange.

EMEA operating income was 2,6 million USD in Q3 FY12, compared to operating income of 4,9 million USD for the same period a year ago. Operating margin decreased 100 basis points to 0,9 percent compared to 1,9 percent in the prior-year period. The margin contraction was primarily driven by higher costs related to the transition to a consolidated food and dairy distribution model in the UK.

Q3 China/Asia Pacific Segment Results

Net revenues for the China/Asia Pacific segment were 181,8 million USD in Q3 FY12, an increase of 31 percent over Q3 FY11. The increase was due to incremental revenues from 116 net new company-operated store openings over the last twelve months, higher licensed stores revenue and a twelve percent increase in comparable store sales. The twelve percent increase in comparable store sales was the result of an eight percent increase in the number of transactions and a four percent increase in average ticket.

Operating income increased 37 percent to 61,4 million USD in Q3 FY12, compared to 44,9 million USD for the same period a year ago. Operating margin increased 140 basis points to 33,8 percent in Q3 FY12 compared to 32,4 percent in the prior-year period. The margin expansion was primarily driven by increased sales leverage, partially offset by investment spending to support continued growth in China.

Q3 Channel Development Segment Results

Channel Development net revenues were 316,4 million USD in Q3 FY12, an increase of 45 percent over Q3 FY11. The increase was primarily due to sales of Starbucks- and Tazo-branded K-Cup portion packs and growth in packaged coffee sales. The fiscal third quarter marks the first full year-over-year comparison period under the direct distribution model.

Channel Development operating income was 86,5 million USD in Q3 FY12 compared to 69,3 million USD for the same period a year ago. Operating margin was 27,3 percent in Q3 FY12 compared to 31,7 percent in the prior-year period. The margin contraction was mainly due to higher commodity costs, primarily coffee, which negatively impacted Q3 FY12 operating income and operating margin by approximately 16 million USD and 500 basis points, respectively, compared to the same period in the prior year.

Fiscal 2012 Targets

Starbucks has updated its Q4 FY12 revenue growth target to a range of ten percent – twelve percent and Q4 EPS to a range of 0,44 USD to 0,45 USD.

Fiscal 2013 Targets

Starbucks has announced its fiscal 2013 targets as follows:

  • Starbucks plans to accelerate growth by opening approximately 1’200 net new stores globally, representing 20 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 500 net new stores in China/Asia Pacific, with licensed stores comprising approximately two-thirds of the new additions. Of the approximately 500 stores, more than half will be in China.
    • Approximately 100 net new stores in EMEA (Europe, Middle East, Russia and Africa), with licensed stores comprising approximately two-thirds of the new stores.
  • The company is targeting approximately ten percent – 13 percent revenue growth, driven by mid-single-digit comparable store sales growth, approximately 1’200 net new store openings and continued strong growth in the Channel Development business.
  • Starbucks expects full-year consolidated operating margin improvement of 50 to 100 basis points over FY12 results.
  • The company expects earnings per share of 2,04 USD to 2,14 USD, representing growth in the range of 15 percent – 20 percent and consistent with its long-term outlook.
  • Capital expenditures are expected to be approximately one billion USD for the full year, with the eleven percent increase over FY12 spending attributable to both new store growth and an increase in production capacity to support recently-announced initiatives.
  • The company expects a full-year tax rate of approximately 33 percent.

Company Updates

  • Starbucks acquired San Francisco-based Bay Bread, LLC and its La Boulange bakery brand, as well as hired renowned French baker Pascal Rigo, to elevate core food offerings and build a premium, artisanal bakery brand.
  • Evolution Fresh™ juices became available at select Starbucks locations in the Seattle area and over 600 Starbucks stores in southern California.
  • The company introduced hand-crafted Starbucks Refreshers™ beverages in select stores in 16 markets around the world, as well as Starbucks VIA Refreshers™ beverages in the U.S.
  • Starbucks K-Cup packs became available in Starbucks retail stores nationwide.
  • The company introduced its evening day-part program in select stores in the Chicago, IL metro area, marking the first extension outside of the Pacific Northwest. The company plans to extend this program to select stores in Southern California and Atlanta by the end of the year.
  • Seattle´s Best Coffee and Coinstar, Inc., announced an exclusive agreement to roll out Coinstar´s new Rubi™ coffee kiosks in the grocery, drug and mass merchant retail channels featuring Seattle´s Best Coffee beverages.
  • The company continued its growth plans in Latin America with two major openings – its first store in Costa Rica and its first Farmer Support Center in South America located in Colombia.
  • Starbucks and SSP, a dedicated provider of food and beverage brands in travel locations worldwide, opened the first Starbucks store in Finland at Helsinki Airport.
  • The company broke ground on its first company-owned soluble product manufacturing facility in Augusta, GA.
  • Starbucks appointed former Defense Secretary Robert Gates to its Board of Directors.
  • The Board of Directors declared a cash dividend of 0,17 USD per share, payable on August 24, 2012, to shareholders of record as of August 8, 2012.
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