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| SBUX > SEC Filings for SBUX > Form 10-Q on 6-May-2009 | All Recent SEC Filings |
6-May-2009
Quarterly Report
Financial Highlights for the second quarter and year to date periods of fiscal
2009:
• Consolidated operating income was $41 million for the second quarter of
fiscal 2009 compared to $178 million in the prior year period, and operating
margin was 1.8% compared with 7.1% in the prior year period. Approximately
650 basis points of the decrease in operating margin was a result of
restructuring charges, the large majority of which related to US store
closures.
• EPS for the second quarter of fiscal 2009 was $0.03, compared to EPS of $0.15 earned in the prior year. Restructuring charges impacted EPS by approximately $0.13 per share in the second quarter of fiscal 2009.
• Cash flow from operations was $715 million for the 26 weeks ended March 29, 2009, compared with $765 million for the same period in fiscal 2008, while capital expenditures declined to $237 million for the 26 weeks ended March 29, 2009 versus $505 million for the previous year period. Available operating cash flows during the first half of fiscal 2009 were primarily used to reduce short-term borrowings to $226 million, down from $713 million at the beginning of the fiscal year.
• Also in the second quarter, the Company delivered approximately $120 million in cost reductions, exceeding the targeted $100 million for the second quarter, and resulting in year-to-date cost reductions of approximately $195 million. The cost reduction initiatives are focused on store closures, headcount reductions, in-store efficiencies and supply chain improvements.
Fiscal 2009 - Full Year Outlook
• Stores. Starbucks now expects to add approximately 20 net new stores to its
global store base for the full fiscal year 2009. This revised target
includes a net reduction of approximately 425 Company-operated stores in the
US and the net addition of approximately 60 Company-operated stores
internationally. The Company now expects to open approximately 65 net new
licensed stores in the US and approximately 320 net new licensed stores
internationally.
• Capital expenditures and cash flows. For fiscal 2009 capital expenditures are expected to be approximately $600 million. The Company estimates that fiscal year 2009 cash from operations will exceed $1 billion, with resulting free cash flow* in excess of $500 million. Starbucks defines free cash flow as cash from operations less capital expenditures.
• Cost reductions. The Company is on track to achieve its goal of reducing costs by approximately $500 million in fiscal 2009. As noted above, approximately $195 million of cost reductions have been achieved in the first half of fiscal 2009. Starbucks expects to deliver cost reductions of approximately $150 million in the third quarter, and approximately $175 million in the fourth quarter of fiscal 2009, for a total of over $500 million for the full year.
* Free cash flow is a non-GAAP financial measure and may not be comparable to similar measures used by other companies. Free cash flow is used in addition to and in conjunction with results presented in accordance with GAAP and free cash flow should not be relied upon to the exclusion of GAAP financial measures. The disclosure of free cash flow is intended to supplement investors' understanding of the Company's operating performance.
Results of Operations for the 13 Weeks and 26 Weeks Ended March 29, 2009 and
March 30, 2008 (in millions)
Consolidated results of operations
Revenues:
13 Weeks Ended 26 Weeks Ended
Mar 29, Mar 30, % Mar 29, Mar 30, %
2009 2008 Change 2009 2008 Change
Net revenues:
Company-operated retail $ 1,961.8 $ 2,142.9 (8.5 %) $ 4,138.0 $ 4,494.4 (7.9 %)
Specialty:
Licensing 282.8 274.4 3.1 617.1 579.2 6.5
Foodservice and other 88.7 108.7 (18.4 ) 193.4 220.0 (12.1 )
Total specialty 371.5 383.1 (3.0 ) 810.5 799.2 1.4
Total net revenues $ 2,333.3 $ 2,526.0 (7.6 %) $ 4,948.5 $ 5,293.6 (6.5 %)
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Net revenues for the 13 weeks and 26 weeks ended March 29, 2009 decreased
compared to the corresponding periods of fiscal 2008, driven by decreases in
Company-operated retail operations.
Starbucks derived 84% of total net revenues from its Company-operated retail
stores during the 13 weeks and 26 weeks ended March 29, 2009. The US segment
contributed approximately 77% of total net revenues. The decrease in
consolidated net revenues was driven by a decrease in consolidated comparable
store sales in both the 13 weeks and 26 weeks ended March 29, 2009. US
comparable store sales declined 8% and 9% during the 13 weeks and 26 weeks ended
March 29, 2009, respectively, due both to a decrease in the volume of
transactions and in the average value per transaction. International total net
revenues also contracted for the 13 weeks and 26 weeks ended March 29, 2009
compared to the same periods last year, primarily due to the stronger US dollar
relative to the British pound and Canadian dollar. Also contributing to the
decrease in International revenues was a 3% decline in comparable store sales,
driven largely by the weakening economic environment in UK and Canada.
The Company derived the remaining 16% of total net revenues from licensing and
foodservice channels outside the Company-operated retail stores, collectively
known as specialty operations. Licensing revenues are derived from retail store
licensing arrangements as well as grocery, warehouse club and certain other
branded-product operations. The decline in foodservice and other revenues in the
second quarter of fiscal 2009 was primarily due to the impact of the current
economic environment on the Company's sales in the office coffee and lodging
channels.
Expenses:
13 Weeks Ended 26 Weeks Ended
Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30,
2009 2008 2009 2008 2009 2008 2009 2008
% of Total % of Total
Net Revenues Net Revenues
Cost of sales
including
occupancy costs $ 1,043.5 $ 1,106.7 44.7 % 43.8 % $ 2,240.3 $ 2,292.7 45.3 % 43.3 %
Store operating
expenses 819.6 927.1 35.1 36.7 1,756.2 1,854.4 35.5 35.0
Other operating
expenses 64.0 82.8 2.7 3.3 136.6 168.5 2.8 3.2
Depreciation and
amortization
expenses 134.1 138.1 5.7 5.5 268.4 271.3 5.4 5.1
General and
administrative
expenses 104.3 117.6 4.5 4.7 209.5 243.5 4.2 4.6
Restructuring
charges 152.1 - 6.5 - 227.6 - 4.6 -
Total operating
expenses 2,317.6 2,372.3 99.3 93.9 4,838.6 4,830.4 97.8 91.2
Income from equity
investees 25.2 24.5 1.1 1.0 48.7 48.1 1.0 0.9
Operating income $ 40.9 $ 178.2 1.8 % 7.1 % $ 158.6 $ 511.3 3.2 % 9.7 %
Supplemental
ratios as a % of
related revenues:
Store operating
expenses 41.8 % 43.3 % 42.4 % 41.3 %
Other operating
expenses 17.2 % 21.6 % 16.9 % 21.1 %
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Cost of sales including occupancy costs as a percentage of total revenues
increased primarily due to higher coffee and beverage costs as a result of a mix
shift to lower margin products. Coffee commodity costs increased but were more
than offset by lower dairy costs. Occupancy costs also increased as a percentage
of total revenues due to sales deleverage on lower retail revenues.
Store operating expenses as a percentage of Company-operated retail revenues
decreased for the 13 weeks ended March 29, 2009 due primarily to reduced
headcount in the regional overhead support organization as a result of the
Company's restructuring efforts, controlled discretionary spending, and higher
impairment charges recorded in the prior year. For the 26 weeks ended March 29,
2009, store operating expenses as a percentage of Company-operated retail
revenues increased primarily due to sales deleverage resulting in higher payroll
expenditures as a percentage of revenues in both US and International segments.
Restructuring charges include lease exit and other costs associated with the
plan announced in July 2008 to close approximately 600 Company-operated US
stores and the plan announced in January 2009 to close approximately 300
additional Company-operated stores in both US and International markets. Of
these, a total of 510 stores have been closed as of the end of the second
quarter of fiscal 2009. The majority of the remaining store closures are
expected to occur by the end of fiscal 2009, and the related lease exit costs
are expected to be recognized during that time frame. See Note 2 for further
discussion.
Operating income and net earnings:
Operating margin compression was primarily due to the restructuring charges
recognized during the 13 and 26 weeks ended March 29, 2009, and to higher cost
of sales including occupancy costs as described above.
13 Weeks Ended 26 Weeks Ended
Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30,
2009 2008 2009 2008 2009 2008 2009 2008
% of Total % of Total
Net Revenues Net Revenues
Operating income $ 40.9 $ 178.2 1.8 % 7.1 % $ 158.6 $ 511.3 3.2 % 9.7 %
Interest income
and other, net 2.9 0.2 0.1 0.0 (3.5 ) 10.9 (0.1 ) 0.2
Interest expense (8.9 ) (11.2 ) (0.4 ) (0.4 ) (21.9 ) (28.3 ) (0.4 ) (0.5 )
Earnings before
income taxes 34.9 167.2 1.5 6.6 133.2 493.9 2.7 9.3
Income taxes 9.9 58.5 0.4 2.3 43.9 177.1 0.9 3.3
Net earnings $ 25.0 $ 108.7 1.1 % 4.3 % $ 89.3 $ 316.8 1.8 % 6.0 %
Effective tax
rate 28.4 % 35.0 % 33.0 % 35.9 %
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Interest expense decreased due to a lower average balance of short term
borrowings and lower average short term borrowing rates, in fiscal 2009 compared
to fiscal 2008.
The effective tax rate for the 13 weeks and 26 weeks ended March 29, 2009
decreased primarily due to the higher proportion of income earned in foreign
jurisdictions which have lower tax rates, as well as the proportionately larger
effect of the domestic manufacturing deduction for manufacturing activities in
the US, due to the lower level of pretax earnings in fiscal 2009 compared to the
prior year.
Operating Segments
Segment information is prepared on the same basis that the Company's management
reviews financial information for operational decision-making purposes. The
following tables summarize the Company's results of operations by segment:
United States
13 Weeks Ended 26 Weeks Ended
Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30,
2009 2008 2009 2008 2009 2008 2009 2008
% of US % of US
Net Revenues Net Revenues
Total net
revenues $ 1,804.8 $ 1,936.3 $ 3,810.0 $ 4,062.5
Total operating
expenses 1,714.2 1,741.7 95.0 % 89.9 % 3,585.9 3,557.4 94.1 87.6 %
Operating income 90.6 193.9 5.0 % 10.0 % 224.6 504.8 5.9 % 12.4 %
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Total net revenues decreased 7% and 6%, respectively, for the 13 weeks and
26 weeks ended March 29, 2009 due to lower retail revenues and specialty
revenues. Company-operated retail revenues decreased primarily due to an 8%
decline in comparable store sales for the 13 weeks ended March 29, 2009 and a 9%
decline for the 26-week period. The Company-operated retail business continued
to experience deteriorating trends in transactions and ticket value, largely
driven by the US economic downturn.
Operating margin contracted for the 13 weeks and 26 weeks ended March 29, 2009
primarily due to restructuring charges of $106.8 million and $161.2 million,
respectively. The operating margin was also impacted by higher cost of sales
including occupancy costs resulting primarily from reduced sales leverage on
fixed occupancy costs, and higher beverage costs related to new product
innovations. Store operating expenses as a percentage of Company-operated retail
revenues improved in the second fiscal quarter of 2009 primarily due to reduced
headcount in the regional overhead support organization as a result of the
Company's restructuring efforts.
International
13 Weeks Ended 26 Weeks Ended
Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30,
2009 2008 2009 2008 2009 2008 2009 2008
% of International % of International
Net Revenues Net Revenues
Total net
revenues $ 433.7 $ 493.4 $ 929.4 $ 1,034.2
Total operating
expenses 438.8 490.8 101.2 % 99.5 % 933.5 989.6 100.4 % 95.7 %
Income from
equity investees 11.1 15.2 2.6 % 3.1 23.0 27.3 2.5 2.6
Operating income $ 6.0 $ 17.8 1.4 % 3.6 % $ 18.9 $ 71.9 2.0 % 7.0 %
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Total net revenues decreased 12% and 10%, respectively, for the 13 weeks and 26 weeks ended March 29, 2009 due to lower retail revenues. Company-operated retail revenue decreased due to the strengthening of the US dollar against the British pound and the Canadian dollar, and a 3% decline in comparable store sales, driven largely by the weakening economic environment in UK and Canada. Operating margin contracted for the 13 weeks and 26 weeks ended March 29, 2009 primarily due to restructuring charges of $14.9 million and $16.9 million, respectively. The operating margin was also impacted by higher cost of sales including occupancy costs resulting primarily from higher coffee and beverage costs as a result of a mix shift to lower margin products. For the 26 weeks ended March 29, 2009, higher distribution costs also contributed to the contraction.
Global Consumer Products Group
13 Weeks Ended 26 Weeks Ended
Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30,
2009 2008 2009 2008 2009 2008 2009 2008
% of CPG % of CPG
Net Revenues Net Revenues
Total specialty
revenues $ 94.8 $ 96.3 $ 209.1 $ 196.9
Total operating
expenses 63.6 63.6 67.1 % 66.0 % 137.5 124.7 65.8 % 63.3 %
Income from
equity investees 14.1 10.0 14.9 10.4 25.2 21.1 12.1 10.7
Operating income $ 45.3 $ 42.7 47.8 % 44.3 % $ 96.8 $ 93.3 46.3 % 47.4 %
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Total specialty revenues decreased 2% for the 13 weeks ended March 29, 2009 due
primarily to increased promotional discounts on sales of packaged coffee from
Kraft, the Company's distribution partner, to the retail trade and lower sales
volume. Total specialty revenues increased 6% for the 26 weeks ended March 29,
2009 primarily due to an increase in packaged coffee sales to Kraft and higher
royalties from the international ready-to-drink business.
Operating margin increased for the 13 weeks ended March 29, 2009 due to lower
income from equity investees in the prior year period as a result of product
write-offs within The North American Coffee Partnership joint venture.
Contraction of operating margin for the 26 weeks ended March 29, 2009 was
primarily due to higher coffee commodity costs and promotional programs with
discounts to the retailers in the current year period.
Unallocated Corporate
13 Weeks Ended 26 Weeks Ended
Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30, Mar 29, Mar 30,
2009 2008 2009 2008 2009 2008 2009 2008
% of Total % of Total
Net Revenues Net Revenues
Operating loss $ 101.0 $ 76.2 4.3 % 3.0 % $ 181.7 $ 158.7 3.7 % 3.0 %
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Total unallocated corporate expenses increased primarily as a result of
restructuring charges incurred for corporate office facilities that were no
longer intended to be occupied by the Company due to the reduction in positions
within the non-store organization.
Financial Condition and Liquidity
The Company's existing cash and liquid investments were $294.5 million and
$322.3 million as of March 29, 2009 and September 28, 2008, respectively.
The Company manages its cash and liquid investments in order to internally fund
operating needs and make scheduled interest and principal payments on its
borrowings.
Included in the cash and liquid investment balances are the following:
• A portfolio of unrestricted trading securities, designed to hedge the
Company's liability under its MDCP. The value of this portfolio was
$33.5 million and $49.5 million as of March 29, 2009 and September 28, 2008,
respectively. The decrease was primarily driven by declines in market values
of the underlying equity funds. See Note 4 for further details.
• Unrestricted cash and liquid securities held within the Company's wholly owned captive insurance company to fund claim payouts. The value of these unrestricted cash and liquid securities was approximately $30.7 million and $35.6 million as of March 29, 2009 and September 28, 2008, respectively.
As of March 29, 2009, the Company had $85.0 million invested in available-for-sale securities, consisting primarily of auction rate securities. As described in more detail in Note 4 in the 10-K, while the ongoing auction failures will limit the liquidity of these investments for some period of time, the Company does not believe the auction failures will materially impact its ability to fund its working capital needs, capital expenditures or other business requirements.
Credit rating agencies currently rate the Company's borrowings as follows:
Description Standard & Poor's Moody's
Short-term debt A-3 P-2
. . .
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