Starbucks Reports Record Q2 Results and Reaffirms FY14 Growth Targets

Starbucks Corporation (NASDAQ:SBUX) today reported financial results for its 13-week fiscal second quarter and 26-week fiscal year to date ended March 30, 2014.

Q2 Fiscal 2014 Highlights:

• Global comparable store sales increased 6%
  • Americas and U.S. comp growth of 6%
  • EMEA comp growth of 6%, representing the highest growth in EMEA in 14 quarters
  • China/Asia Pacific comp growth of 7%, driven by strong traffic
• Consolidated net revenues increased 9% to a Q2 record $3.9 billion
• Channel Development revenues grew 10%
• Consolidated operating income increased 18%, or $100 million, to a Q2 record $644 million
• All reportable segments contributed to an operating margin increase of 130 basis points to a Q2 record 16.6%
• Earnings per share grew to $0.56, up 17% excluding a $0.03 non-routine gain in the prior year Q2 related to the sale of the company's equity in its Mexico joint venture
• The company opened 335 net new stores globally, including the 20,000^th Starbucks store. Total company store count across all brands grew to 20,519.

“Starbucks record operating performance in Q2 demonstrates that our focus on building a different kind of company - performance driven, through the lens of humanity - continues to drive profits and shareholder value,” said Howard Schultz, chairman, president and ceo of Starbucks Coffee Company. “The innovation we are bringing to market through reinvention of our Teavana business and partnership with Oprah Winfrey, our reimagination of the Starbucks Experience through next-generation payment and loyalty programs and our continued investments in the over 200,000 Starbucks partners who wear the green apron every day continues to build equity in the Starbucks brand and strengthen our connection to customers in every market in which we operate.”

“Starbucks strong second quarter performance demonstrates the success of our ongoing efforts to drive industry-leading growth,” said Scott Maw, Starbucks cfo. “While global comparable store sales growth of 6% was impressive, and squarely in line with our targets, even more significant is the fact that we delivered strong, and balanced, revenue and profit growth across all of our reportable segments. The strong momentum we have created in the first half of the year, combined with our robust pipeline of innovation, give us confidence in our ability to meet our fiscal 2014 growth targets.”

Consolidated net revenues were $3.9 billion in Q2 FY14, an increase of 9% over Q2 FY13, driven primarily by 6% growth in global comparable store sales and incremental revenues from 1,651 net new store openings over the past 12 months.

Consolidated operating income increased 18% to $644.1 million, compared to $544.1 million for the same period a year ago. Operating margin expanded 130 basis points to 16.6%, primarily driven by lower commodity costs and sales leverage.

Net revenues for the Americas segment were $2.8 billion in Q2 FY14, an increase of 8% over Q2 FY13. The increase was driven by 6% growth in comparable store sales and incremental revenues from 768 net new store openings over the past 12 months.

Operating income of $605.6 million in Q2 FY14 increased 10% from $549.7 million for the same period a year ago. Operating margin expanded 50 basis points to 21.6% primarily due to lower commodity costs.

Net revenues for the EMEA segment were $309.9 million in Q2 FY14, an increase of 13% over Q2 FY13. The growth was primarily due to favorable foreign currency exchange and a 6% increase in comparable store sales. Incremental revenues from 167 net new store openings over the past 12 months also contributed.

Operating income increased 240% to $17.7 million in Q2 FY14, from $5.2 million in the prior year quarter. Operating margin expanded 380 basis points to 5.7% primarily driven by sales leverage and continued cost management.

Net revenues for the China/Asia Pacific segment were $265.3 million in Q2 FY14, an increase of 24% over Q2 FY13. The increase was driven primarily by incremental revenues from 699 net new store openings over the past 12 months. A 7% increase in comparable store sales, driven by strong traffic, also contributed to the net revenue growth.

Operating income of $87.0 million in Q2 FY14 increased 27% compared to the same period a year ago. Operating margin increased 80 basis points to 32.8% driven primarily by sales leverage.

Net revenues for the Channel Development segment were $370.4 million in Q2 FY14, an increase of 10% over Q2 FY13, primarily driven by increased sales of premium single serve products.

Operating income grew 35% to $127.3 million in Q2 FY14 compared to $94.1 million for the same period a year ago. Operating margin increased 660 basis points to 34.4% in Q2 FY14 primarily due to lower coffee costs, with sales leverage also contributing.

Net revenues for All Other Segments were $119.4 million in Q2 FY14, a decrease of 1% compared to Q2 FY13, resulting from lower Seattle's Best Coffee revenues mostly offset by growth in emerging businesses, including Teavana and Evolution Fresh.

Q2 FY14 operating loss increased to $7.8 million compared to a loss of $4.1 million for the same period a year ago driven by investments to support growth in our emerging businesses.

Fiscal 2014 Targets

The company reaffirms and updates the following fiscal 2014 targets:

• Revenue growth of 10% or greater
• Global comparable store sales growth in the mid single digits
• Consolidated operating margin improvement now targeted at 175 to 200 basis points over FY13:
  • Americas: moderate improvement over FY13
  • EMEA: operating margin improving toward the high single digits
  • CAP: operating margin percentage moving toward the low 30's
  • Channel Development: now targeting approximately 500 basis point improvement over FY13
• Consolidated tax rate of approximately 34%
• Earnings per share now expected to be in the range of $2.62 to $2.68:
  • Q3 EPS in the range of $0.64 to $0.66
  • Q4 EPS in the range of $0.71 to $0.75
• Approximately 1,500 net new stores:
  • Americas: approximately 600
  • EMEA: approximately 150
  • CAP: approximately 750
• Capital expenditures of approximately $1.2 billion

Company Updates

• In January, Starbucks implemented a new senior leadership structure to bolster its Financial and Operating organization globally. Ceo Howard Schultz expanded his focus on innovation and next generation retailing and payments initiatives; cfo Troy Alstead was promoted to chief operating officer; svp of Corporate Finance Scott Maw was promoted to executive vice president and cfo; Craig Russell was promoted to executive vice president, Global Coffee.
• Starbucks held its 2014 Annual Meeting of Shareholders in March, where Oprah Winfrey and Starbucks announced a unique collaboration to co-create Teavana® Oprah Chai Tea. Beginning April 29, Teavana Oprah Chai will be sold in participating Starbucks and Teavana stores across the U.S. and Canada, with Starbucks making a donation for each product sold to the Oprah Winfrey Leadership Academy Foundation to benefit educational opportunities for youth.
• In March, Starbucks introduced an enhanced mobile app which includes digital tipping, digital receipts and a streamlined user experience.
• The company opened its first store in Brunei and now operates in 64 countries worldwide. It also opened its first store in Downtown Disney, offering a unique experience to millions of guests at Disneyland Resort.
• The company repurchased 3.5 million shares of common stock in Q2 FY14; approximately 22 million shares remain available for purchase under previous authorizations.
• The Board of Directors declared a cash dividend of $0.26 per share, payable on May 23, 2014 to shareholders of record as of May 8, 2014.

Conference Call

Starbucks will be holding a conference call today at 2:00 p.m. Pacific Time, which will be hosted by Howard Schultz, chairman, president and ceo, Troy Alstead, coo, and Scott Maw, cfo. The call will be webcast and can be accessed at http://investor.starbucks.com. A replay of the webcast will be available through approximately 9:00 p.m. Pacific Time on Thursday, May 22, 2014.

The company’s consolidated statements of earnings, operating segment results, and other additional information have been provided on the following pages in accordance with current year classifications. This information should be reviewed in conjunction with this press release. Please refer to the company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2013 for additional information.

About Starbucks

Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup. To share in the experience, please visit us in our stores or online at www.starbucks.com.

Forward-Looking Statements

This release contains forward-looking statements relating to certain company initiatives, strategies and plans, as well as trends in or expectations regarding our diversified business model, the strength, health and potential of our business, operations and brand, business momentum, our ability to meet our targets, the benefits to our business from the shift to online shopping, our ability to leverage our assets, including our brand, and our mobile, social and digital technologies, growth and growth opportunities, including in our tea and Channel Development businesses, earnings per share, revenues, operating margins, profits, capital expenditures, tax rates, comparable store sales and store openings and closings. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to a number of significant risks and uncertainties. Actual future results may differ materially depending on a variety of factors including, but not limited to, coffee, dairy and other raw material prices and availability, costs associated with, and the successful execution of, the company's initiatives, strategies and plans, the acceptance of the company's products by our customers, fluctuations in U.S. and international economies and currencies, the impact of competition, the effect of legal proceedings, and other risks detailed in the company filings with the Securities and Exchange Commission, including the “Risk Factors” section of Starbucks Annual Report on Form 10-K for the fiscal year ended September 29, 2013. The company assumes no obligation to update any of these forward-looking statements.

Supplemental Information

The following supplemental information is provided for historical and comparative purposes.