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| SBUX > SEC Filings for SBUX > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-2009
Quarterly Report
control, such as the previous rapid pace of store openings and store level
execution, have also impacted the Company's recent performance.
Financial Highlights for the Third Quarter and Year to Date Periods of Fiscal
2009
• Consolidated operating income was $204 million for the third quarter of
fiscal 2009 compared to a loss of $22 million in the prior year period, and
operating margin was 8.5% compared with (0.8)% in the prior year period.
Approximately 440 basis points of the increase in operating margin was the
result of lower restructuring charges in the third quarter of fiscal 2009
compared to the prior year. The successful execution of the cost reduction
initiatives and related operational efficiency efforts contributed
significantly to the margin improvement.
• EPS for the third quarter of fiscal 2009 was $0.20, compared to EPS of $(0.01) reported in the prior year period. Restructuring charges impacted EPS by approximately $0.04 per share in the third quarter of fiscal 2009 and restructuring and other transformation costs impacted EPS by approximately $0.17 in the third quarter of fiscal 2008.
• Cash flow from operations was $1.0 billion for the 39 weeks ended June 28, 2009, comparable to the $1.1 billion produced for the same period in fiscal 2008, while capital expenditures declined to $344 million for the 39 weeks ended June 28, 2009 versus $734 million for the previous year period. Available operating cash flows during the three quarters of fiscal 2009 were primarily used to reduce short-term borrowings to a zero balance at the end of the third quarter, down from $713 million at the beginning of the fiscal year.
• The Company delivered approximately $175 million in reductions to its cost structure in the third quarter of fiscal 2009, producing year-to-date cost reductions of approximately $370 million. The cost reduction initiatives are focused on store closures, headcount reductions, in-store efficiencies and supply chain improvements.
Fiscal 2009 - Remainder of Year Outlook
• Stores. Starbucks now expects a net reduction of approximately 30 stores to
its global store base for the full fiscal year 2009. This revised target
includes a net reduction of approximately 465 Company-operated stores in the
US and the net addition of approximately 70 Company-operated stores
internationally. The Company now expects to open approximately 55 net new
licensed stores in the US and approximately 310 net new licensed stores
internationally.
• Capital expenditures and cash flows. For fiscal 2009, capital expenditures are expected to be approximately $550 million. The Company estimates that fiscal year 2009 cash flow from operations will exceed $1 billion, with resulting free cash flow* in excess of $500 million. Starbucks defines free cash flow as cash flow from operations less capital expenditures.
• Cost reductions. The Company is on track to achieve its goal of reducing its cost structure by approximately $550 million. As noted above, approximately $370 million of cost reductions have been achieved in the first three quarters of fiscal 2009. Starbucks expects to deliver cost reductions of approximately $180 million in the fourth quarter of fiscal 2009.
* 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 39 Weeks Ended June 28, 2009 and
June 29, 2008 (in millions)
Consolidated results of operations
Revenues:
13 Weeks Ended 39 Weeks Ended
Jun 28, Jun 29, % Jun 28, Jun 29, %
2009 2008 Change 2009 2008 Change
Net revenues:
Company-operated retail $ 2,013.8 $ 2,180.2 (7.6 %) $ 6,151.8 $ 6,674.6 (7.8 %)
Specialty:
Licensing 301.0 281.3 7.0 918.1 860.5 6.7
Foodservice and other 89.1 112.5 (20.8 ) 282.5 332.5 (15.0 )
Total specialty 390.1 393.8 (0.9 ) 1,200.6 1,193.0 0.6
Total net revenues $ 2,403.9 $ 2,574.0 (6.6 %) $ 7,352.4 $ 7,867.6 (6.5 %)
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Net revenues for the 13 weeks and 39 weeks ended June 28, 2009 decreased
compared to the corresponding periods of fiscal 2008, driven by decreases in
Company-operated retail operations.
Starbucks derived approximately 84% of total net revenues from its
Company-operated retail stores during the 13 weeks and 39 weeks ended June 28,
2009. The US segment contributed approximately 80% of total retail revenues. The
decrease in consolidated net revenues was driven by a decrease in consolidated
comparable store sales in both the 13 weeks and 39 weeks ended June 28, 2009. US
comparable store sales declined 6% and 8% during the 13 weeks and 39 weeks ended
June 28, 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 39 weeks ended June 28, 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 the 2% and 3% decline, respectively, in
comparable store sales during the 13 weeks and 39 weeks ended June 28, 2009,
driven largely by the weakening economic environment in the UK and Canada.
The Company derived the remaining approximately 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 third quarter of fiscal 2009 was driven by lower foodservice
revenues primarily related to the softness in the hospitality industry.
Expenses:
13 Weeks Ended 39 Weeks Ended
Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29,
2009 2008 2009 2008 2009 2008 2009 2008
% of Total % of Total
Net Revenues Net Revenues
Cost of sales
including
occupancy costs $ 1,043.4 $ 1,163.1 43.4 % 45.2 % $ 3,283.7 $ 3,455.8 44.7 % 43.9 %
Store operating
expenses 821.4 958.3 34.2 37.2 2,577.6 2,812.7 35.1 35.8
Other operating
expenses 69.2 79.6 2.9 3.1 205.8 248.1 2.8 3.2
Depreciation and
amortization
expenses 133.7 139.8 5.6 5.4 402.1 411.1 5.5 5.2
General and
administrative
expenses 110.3 116.1 4.6 4.5 319.8 359.6 4.3 4.6
Restructuring
charges 51.6 167.7 2.1 6.5 279.2 167.7 3.8 2.1
Total operating
expenses 2,229.6 2,624.6 92.7 102.0 7,068.2 7,455.0 96.1 94.8
Income from equity
investees 29.7 29.0 1.2 1.1 78.4 77.1 1.1 1.0
Operating income
(loss) $ 204.0 ($21.6 ) 8.5 % (0.8 )% $ 362.6 $ 489.7 4.9 % 6.2 %
Supplemental
ratios as a % of
related revenues:
Store operating
expenses 40.8 % 44.0 % 41.9 % 42.1 %
Other operating
expenses 17.7 % 20.2 % 17.1 % 20.8 %
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Cost of sales including occupancy costs as a percentage of total revenues
decreased for the 13 weeks ended June 28, 2009 due to the implementation of
operational improvements designed to lower waste in coffee, dairy and food.
Lower dairy commodity costs in the US segment also contributed to the
improvement. For the 39 weeks ended June 28, 2009, 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, and higher occupancy costs due to lost sales leverage.
Store operating expenses as a percentage of Company-operated retail revenues
decreased for the 13 weeks ended June 28, 2009 due primarily to the effect of
labor efficiency initiatives, and to reduced headcount and spending in the
regional overhead support organization as a result of the Company's
restructuring efforts.
Restructuring charges include lease exit and related costs associated with the
actions to rationalize the global store portfolio and reduce the global cost
structure. The actions to rationalize the store portfolio have included the
announcements (in July 2008 and January 2009) of plans to close a total of
approximately 800 Company-operated stores in the US, restructure its Australia
market, and close approximately 100 additional Company-operated stores
internationally. Since those announcements, 676 US stores, 61 stores in
Australia, and 28 other International stores have been closed. See Note 2 in
this 10-Q for additional discussion.
Operating income and net earnings:
13 Weeks Ended 39 Weeks Ended
Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29,
2009 2008 2009 2008 2009 2008 2009 2008
% of Total % of Total
Net Revenues Net Revenues
Operating income
(loss) $ 204.0 $ (21.6 ) 8.5 % (0.8 )% $ 362.6 $ 489.7 4.9 % 6.2 %
Interest income
and other, net 21.9 0.9 0.9 - 18.4 11.8 0.3 0.1
Interest expense (8.6 ) (12.5 ) (0.4 ) (0.5 ) (30.5 ) (40.8 ) (0.4 ) (0.5 )
Earnings (loss)
before income
taxes 217.3 (33.2 ) 9.0 (1.3 ) 350.5 460.7 4.8 5.9
Income taxes 65.8 (26.5 ) 2.7 (1.0 ) 109.7 150.6 1.5 1.9
Net earnings
(loss) $ 151.5 $ (6.7 ) 6.3 % (0.3 )% $ 240.8 $ 310.1 3.3 % 3.9 %
Effective tax
rate 30.3 % 79.8 % 31.3 % 32.7 %
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Operating margin increased during the 13 weeks ended June 28, 2009 due to
significantly lower restructuring charges recorded in the current period
compared to the prior year period, as well as a significant reduction in store
operating expenses and lower cost of sales including occupancy costs as a
percentage of total sales, as described above. For the 39 weeks ended June 28,
2009, the operating margin declined primarily due to a higher amount of
restructuring charges recognized during the 39 week period ended June 28, 2009
compared to the prior year period, and higher cost of sales including occupancy
costs as described above.
Net interest income and other increased for the 13 weeks ended June 28, 2009 due
primarily to the impact of foreign currency fluctuations on certain balance
sheet amounts. Interest expense decreased for both the 13-week and 39-week
periods 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 relatively low effective tax rate for the 13 weeks ended June 28, 2009 was
primarily due to a tax benefit for retroactive tax credits recognized in the
third quarter. The effective tax rate for the 13 weeks ended June 29, 2008 of
79.8% included the impact of the release of FIN 48 tax reserves as well as an
additional tax benefit recognized for the forecasted lower annual effective tax
rate in fiscal 2008. The impact of these items on the effective rate for the
third quarter of fiscal 2008 was unusually large in proportion to the small
pretax loss of $33.2 million.
Loss on Impairment of Goodwill
Starbucks conducted its annual evaluation of goodwill in the third fiscal
quarter. As a result of the evaluation, $7 million of goodwill impairment was
recognized, related to the US operating segment's Hawaii reporting unit, which
is comprised of retail store operations. The impairment charge is included in
Store operating expenses on the Consolidated Statements of Earnings. Additional
information regarding the goodwill impairment charge is included in Note 1 in
this 10-Q.
The Company continues to monitor and evaluate the carrying values of its
goodwill balances. If underlying economic conditions in markets with reporting
units that have goodwill were to deteriorate further, additional goodwill
impairment charges could be incurred in future periods.
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 39 Weeks Ended
Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29,
2009 2008 2009 2008 2009 2008 2009 2008
% of US % of US
Net Revenues Net Revenues
Total net
revenues $ 1,820.2 $ 1,947.7 $ 5,630.2 $ 6,010.2
Total operating
expenses 1,615.6 1,974.9 88.8 % 101.4 % 5,201.5 5,532.3 92.4 % 92.0 %
Operating income
(loss) 204.6 (27.8 ) 11.2 % (1.4 )% 429.2 477.0 7.6 % 7.9 %
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Total net revenues decreased 7% and 6%, respectively, for the 13 weeks and
39 weeks ended June 28, 2009 due primarily to lower retail revenues.
Company-operated retail revenues decreased primarily due to a 6% decline in
comparable store sales for the 13 weeks ended June 28, 2009 and an 8% decline
for the 39-week period, with declines occurring in both the number of
transactions and in average ticket value, due to the ongoing difficult retail
operating environment in the US.
Operating margin increased for the 13 weeks ended June 28, 2009 primarily due to
significantly lower restructuring charges recorded this year compared to the
prior year period, as well as a reduction in store operating expenses as a
percentage of total revenues due primarily to the effect of labor efficiency
initiatives, and to reduced headcount and spending in the regional overhead
support organization as a result of the Company's restructuring efforts. In
addition, cost of sales including occupancy costs as a percentage of total
revenues decreased for the 13 weeks ended June 28, 2009 due to lower dairy
commodity costs and the implementation of operational improvements designed to
minimize waste in coffee, dairy and food.
International
13 Weeks Ended 39 Weeks Ended
Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29,
2009 2008 2009 2008 2009 2008 2009 2008
% of International % of International
Net Revenues Net Revenues
Total net
revenues $ 477.4 $ 535.6 $ 1,406.8 $ 1,569.8
Total operating
expenses 458.5 514.9 96.0 % 96.1 % 1,392.0 1,504.5 98.9 % 95.8 %
Income from
equity investees 15.5 14.8 3.2 2.8 38.5 42.1 2.7 2.7
Operating income $ 34.4 $ 35.5 7.2 % 6.6 % $ 53.3 $ 107.4 3.8 % 6.8 %
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Total net revenues decreased 11% and 10%, respectively, for the 13 weeks and
39 weeks ended June 28, 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 to a lesser extent, comparable store
sales declines of 2% and 3%, respectively, for the 13 weeks and 39 weeks ended
June 28, 2009. The decline in comparable store sales was driven by the weak
economic environment in the UK and Canada, the Company's largest International
company-operated markets.
Operating margin increased for the 13 weeks ended June 28, 2009 driven by
reductions in general and administrative expenses due in part to headcount
reductions. The operating margin contracted for the 39 weeks ended June 28, 2009
primarily due to restructuring charges of $21.4 million recognized in the
current year, and to higher cost of sales including occupancy costs as a
percentage of total revenues resulting primarily from higher coffee and beverage
costs as a result of a mix shift to lower margin products.
Global Consumer Products Group
13 Weeks Ended 39 Weeks Ended
Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29,
2009 2008 2009 2008 2009 2008 2009 2008
% of CPG % of CPG
Net Revenues Net Revenues
Total specialty
revenues $ 106.3 $ 90.7 $ 315.4 $ 287.6
Total operating
expenses 71.3 56.8 67.1 % 62.6 % 208.8 181.5 66.2 % 63.1 %
Income from
equity investees 14.2 14.8 13.4 16.3 39.4 35.9 12.5 12.5
Operating income $ 49.2 $ 48.7 46.3 % 53.7 % $ 146.0 $ 142.0 46.3 % 49.4 %
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Total specialty revenues increased 17% and 10%, respectively, for the 13 weeks
and 39 weeks ended June 28, 2009 due primarily to higher coffee sales to a
grocery distribution partner.
Operating margin decreased for the 13 weeks ended June 28, 2009 due to lower
income from equity investees largely related to the dissolution of the Company's
previous ice cream partnership, increased marketing expenses for ready-to-drink
products in Japan, and higher coffee commodity costs. Contraction of operating
margin for the 39 weeks ended June 28, 2009 was primarily due to higher coffee
commodity costs and promotional programs with discounts to the retailers in the
current year.
Unallocated Corporate
13 Weeks Ended 39 Weeks Ended
Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29, Jun 28, Jun 29,
2009 2008 2009 2008 2009 2008 2009 2008
% of Total % of Total
Net Revenues Net Revenues
Operating loss $ 84.2 $ 78.0 3.5 % 3.0 % $ 265.9 $ 236.7 3.6 % 3.0 %
. . .
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