Add
SBUX to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SBUX > SEC Filings for SBUX > Form 10-Q on 4-Feb-2009 | All Recent SEC Filings |
4-Feb-2009
Quarterly Report
Starbucks business is highly sensitive to increases and decreases in customer
traffic. Increased customer visits create sales leverage, meaning that fixed
expenses, such as occupancy costs, are spread across a greater revenue base,
thereby improving operating margins. But the reverse is also true - sales
de-leveraging creates downward pressure on margins. The softness in
Company-operated retail revenues during the first fiscal quarter of 2009
impacted nearly all consolidated and segment operating expense line items when
viewed as a percentage of sales.
In the first quarter of fiscal 2009, Starbucks continued to execute the
restructuring efforts that it began in fiscal 2008, to position the Company for
long-term profitable growth given the ongoing challenging economic environment.
Most significantly, Starbucks continued to close stores in the group of
approximately 600 underperforming US Company-operated stores identified for
closure in July 2008. Given the continued weakening global consumer environment,
Starbucks is striving for more efficient operations and a lower cost structure
while preserving the fundamental strengths and values of the brand. The
Company's solid balance sheet, strong cash flow generation, and healthy
liquidity provide it the financial flexibility to make difficult decisions
management believes are in the best long-term interest of the business.
As a result of the worsening economy and decreased customer traffic, as well as
the costs associated with the store closures, the Company's first quarter 2009
results were negatively impacted in the following ways:
• Consolidated operating income was $117.7 million for the first quarter in
fiscal 2009 compared to $333.1 million in the prior year, and operating
margin was 4.5% compared with 12.0% in the prior year. Approximately
290 basis points of the decrease in operating margin was a result of
restructuring charges, the large majority of which related to the US store
closures. Softness in revenues along with higher cost of sales including
occupancy costs and store operating expenses were also significant drivers
in the margin decline.
• EPS for the first quarter in fiscal 2009 was $0.09, compared to EPS of $0.28 earned in the prior year. Restructuring charges impacted EPS by approximately $0.06 per share in the first quarter.
• For the first quarter of fiscal 2009, cash flow from operations was $694 million, compared with $808 million in the same period in fiscal 2008, while capital expenditures for the first quarter of fiscal 2009 declined to $173 million versus $264 million for the previous year period. Available operating cash flows were primarily used to reduce short-term debt during the quarter to $290 million, down from $713 million at the beginning of the quarter.
Recent Developments and the View Ahead
Because of the ongoing difficult operating environment, the Company announced on
January 28, 2009 plans to close additional underperforming Company-operated
stores and rationalize the non-retail support organization, and initiate
additional cost reduction actions to those announced in December 2008. Of the
approximately 300 additional Company-operated stores targeted for closure,
approximately 200 are in the US with the remainder in international markets.
These stores are in addition to the approximately 600 US and 61 Australian
market store closures announced in July 2008. The majority of the new store
closures are expected to occur during the remainder of fiscal 2009.
To align the Company's non-retail support organization with the current
operating environment, Starbucks plans a global workforce reduction that will
result in approximately 700 non-store partners (employees) being separated from
the Company in the US and internationally. The aggregate pre-tax charges
associated with the additional store closures and related store and non-retail
support organization headcount reductions are estimated to be up to
approximately $230 million, and the majority of the expense is currently
expected to be recognized over the balance of fiscal 2009.
Also, Starbucks has further reduced its new store openings target for fiscal
2009 and capital expenditures for fiscal 2009 are now expected to be
approximately $600 million, a 14 percent reduction from the Company's previous
estimate of $700 million and
approximately 40% lower than fiscal 2008 capital expenditures of $985 million.
The Company currently estimates that the store base will grow by approximately
100 new stores in fiscal 2009, on a beginning base of 16,680 total
Company-operated and licensed stores.
These cost reduction initiatives, combined with $400 million in targeted cost
savings announced in early December, increase Starbucks fiscal 2009 cost
reduction target to $500 million. This target consists of anticipated savings
resulting from store closures, reduction of support staff and infrastructure,
supply chain efficiencies, store operations improvements and various other
initiatives across the business.
Results of Operations for the 13 Weeks Ended December 28, 2008 and December 30,
2007
Consolidated results of operations (in millions):
Dec 28, Dec 30, Dec 28, Dec 30, 13 Weeks Ended 2008 2007 % Change 2008 2007 % of Total Net Revenues
|
|