Starbucks Reports Q3 Fiscal 2020 Results

Starbucks Corporation (NASDAQ: SBUX) today reported financial results for its 13-week fiscal third quarter ended June 28, 2020. GAAP results in fiscal 2020 and fiscal 2019 include items that are excluded from non-GAAP results. Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release for more information.

“Since the beginning of the COVID-19 outbreak in January, we have taken a principled approach to navigate the crisis, true to our mission and values. Every step of the way, we have thoughtfully addressed the needs of Starbucks stakeholders and are particularly proud of the industry-leading investments we have made to support our partners while creating a safe, familiar and convenient experience for our customers. Starbucks partners have risen to the occasion, and our near-term focus is to recover sales safely and responsibly by offering our customers the comfort and care that differentiate the Starbucks Experience,” said Kevin Johnson, president and ceo.

“We are pleased to share that the vast majority of Starbucks stores around the world have reopened and our global business is steadily recovering, demonstrating the relevance of the Starbucks brand and the trust we have built with our customers. As we continue to drive the recovery, we are also building resilience for the future by accelerating the transformation of our business in ways that will elevate the customer and partner experience and drive long-term growth. We firmly believe that we are well positioned to regain the positive business momentum we had before the pandemic began and look forward to reigniting our 'Growth at Scale' agenda,” concluded Johnson.

Q3 Fiscal 2020 Highlights

• Global comparable store sales declined 40%, driven by a 51% decrease in comparable transactions, partially offset by a 23% increase in average ticket
  • Americas comparable store sales declined 41%, driven by a 53% decrease in comparable transactions, partially offset by a 27% increase in average ticket; U.S. comparable store sales were down 40%, with comparable transactions down 52%, partially offset by a 25% increase in average ticket
  • International comparable store sales were down 37%, driven by a 44% decline in comparable transactions, slightly offset by a 13% increase in average ticket; China comparable store sales were down 19%, with comparable transactions down 27%, slightly offset by a 10% increase in average ticket; International and China comparable store sales are inclusive of a benefit from value-added tax exemptions of approximately 2% and 4%, respectively
• The company opened 130 net new stores in Q3, yielding 5% year-over-year unit growth, ending the period with 32,180 stores globally, of which 51% and 49% were company-operated and licensed, respectively
  • Stores in the U.S. and China comprised 61% of the company’s global portfolio at the end of Q3, with 15,243 and 4,447 stores, respectively
• Consolidated net revenues of $4.2 billion declined 38% from the prior year primarily due to lost sales related to the COVID-19 outbreak
  • Lost sales of approximately $3.1 billion relative to the company’s expectations before the outbreak included the effects of temporary store closures, modified operations, reduced hours and reduced customer traffic(1)
• GAAP operating margin of -16.7%, down from 16.4% in the prior year primarily due to the COVID-19 outbreak, mainly sales deleverage, material investments in retail partner support and other items; GAAP operating margin was also adversely impacted by restructuring activities primarily associated with the U.S. store portfolio optimization
  • Non-GAAP operating margin of -12.6%, down from 18.3% in the prior year
• GAAP loss per share of $0.58, down from earnings per share of $1.12 in the prior year primarily due to unfavorable impacts related to the COVID-19 outbreak totaling approximately -$1.20 per share(1)(2)
  • Non-GAAP loss per share of $0.46, down from earnings per share of $0.78 in the prior year
• Starbucks® Rewards loyalty program 90-day active members in the U.S. declined to 16.3 million, down 5% year-over-year due to reduced customer frequency primarily attributable to temporary store closures and other impacts related to the COVID-19 outbreak

Q3 Americas Segment Results

Net revenues for the Americas segment of $2.8 billion in Q3 FY20 were 40% lower relative to Q3 FY19, primarily due to a 41% decrease in comparable store sales as well as lower product sales to and royalty revenues from our licensees as a result of lost sales related to the COVID-19 outbreak. These decreases were slightly offset by 382 net new store openings, or 2% store growth, over the past 12 months.

The Americas segment reported an operating loss of $404.9 million in Q3 FY20, compared to operating income of $1.0 billion in Q3 FY19. Operating margin of -14.4% contracted 3,620 basis points, primarily due to the impact of the COVID-19 outbreak, mainly sales deleverage and additional costs incurred, including catastrophe wages, enhanced pay programs and benefits in support of retail store partners as well as store safety items, partially offset by temporary government subsidies. Higher expenses relating to our U.S. store portfolio optimization also contributed to the operating loss in the quarter.

Q3 International Segment Results

Net revenues for the International segment of $949.6 million in Q3 FY20 were 40% lower relative to Q3 FY19, primarily due to a 37% decrease in comparable store sales as well as lower product sales to our international licensees as a result of lost sales related to the COVID-19 outbreak and temporary royalty relief granted to international licensees. Also contributing to the decrease was the 2% revenue-dilutive impact of converting Thailand to a fully licensed market in FY19. These decreases were partially offset by 1,172 net new store openings, or 9% store growth, over the past 12 months.

The International segment reported an operating loss of $86.0 million in Q3 FY20 compared to operating income of $270.2 million in Q3 FY19. Operating margin contracted 2,610 basis points to -9.1%, primarily due to the impact of the COVID-19 outbreak, mainly sales deleverage, royalty relief granted to international licensees and additional costs incurred including catastrophe wages, partially offset by temporary government subsidies and rent concessions.

Q3 Channel Development Segment Results

Net revenues for the Channel Development segment of $447.3 million in Q3 FY20 were 16% lower relative to Q3 FY19, primarily driven by an approximately 21% unfavorable impact of Global Coffee Alliance transition-related activities, inclusive of lapping higher inventory sales in the prior year as Nestlé prepared to fulfill customer orders. Given Channel Development’s at-home coffee offerings in grocery stores, at mass merchants and online, the COVID-19 outbreak did not materially disrupt the segment's overall revenue in Q3 FY20.

Operating income decreased 32% to $124.2 million in Q3 FY20, down from $181.9 million in Q3 FY19. Operating margin contracted 630 basis points to 27.8%, primarily driven by certain transition items related to the Global Coffee Alliance, partially offset by a business mix shift as we lapped higher inventory sales in the prior year as Nestlé prepared to fulfill customer orders.

Global Store Status

Since the peak of widespread store closures in response to the COVID-19 outbreak across our global markets in April, the vast majority of Starbucks company-operated stores in both the Americas and International segments had reopened by the end of Q3 FY20, most with modified store hours and limited seating. Today, approximately 97% of our global company-operated store portfolio is open, led by 96% in the U.S. and 99% in China, as well as 99% in Japan and 97% in Canada. Currently, approximately 87% of our global licensed store portfolio is open, with remaining temporary closures predominantly in airport, college and university locations within the U.S. and Canadian licensed store portfolios.

Fiscal 2020 Guidance

The company provides the following fiscal 2020 guidance for Q4 and the full year, including updates to certain targets previously discussed in its Form 8-K dated June 10, 2020. The company continues to expect the adverse impacts of the COVID-19 outbreak to moderate meaningfully in Q4 FY20.

All guidance for the metrics noted above is for Q4 FY20 and fiscal year 2020, and growth metrics are relative to Q4 FY19 and fiscal year 2019. Please note, the guidance provided above is dependent on our current expectations which may be impacted by evolving, external conditions and local safety guidelines.

Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release.

The company will provide additional information regarding its business outlook during its regularly scheduled quarterly earnings conference call today; this information will also be available following the call on the company’s website at http://investor.starbucks.com.

Company Updates

1. Beginning in May, the company outlined that it would accelerate the transformation of the Americas store portfolio by expanding convenience-led formats with curbside delivery and Starbucks® Pickup locations. The company plans to launch curbside pickup in several hundred existing locations in the near future and add over 50 Starbucks Pickup locations in the next 12 to 18 months. Both formats naturally allow for mobile ordering and physical distancing to meet evolving customer preferences that have accelerated because of COVID-19.
2. In May, the company executed a $3 billion bond issuance, taking advantage of the favorable interest rate environment to secure additional liquidity to cover medium-term operating cash needs while also prefunding fiscal 2021 bond maturities.
3. In June, the company announced the U.S. launch of the Impossible™ Breakfast Sandwich featuring a plant-based sausage patty. This new menu offering joins its plant-based milk alternatives. As part of the company’s aspiration to be resource-positive and to meet increasing customer demand, Starbucks will continue to introduce plant-based choices as it expands its environmentally friendly menu.
4. In July, the company announced plans to update its industry-leading Starbucks® Rewards loyalty program by giving members more payment options and ways to earn Stars through the Starbucks app. Beginning this fall in company-operated stores in the U.S. and Canada, new and current Starbucks Rewards members will be able to pay with cash, credit/debit cards or select mobile wallets and earn Stars toward free items, without having to preload a Starbucks card within the app.
5. The Board of Directors declared a cash dividend of $0.41 per share, payable on August 21, 2020, to shareholders of record as of August 7, 2020.

Conference Call

Starbucks will hold a conference call today at 2:00 p.m. Pacific Time, which will be hosted by Kevin Johnson, president and ceo, and Patrick Grismer, cfo. The call will be webcast and can be accessed at http://investor.starbucks.com. A replay of the webcast will be available until end of day Friday, August 28, 2020.

About Starbucks

Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with more than 32,000 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 stories.starbucks.com or www.starbucks.com.

Forward-Looking Statements

Certain statements contained herein and in our investor conference call related to these results are “forward-looking” statements within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “remain,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements include statements relating to: the estimated financial impact related to the outbreak of coronavirus disease (COVID-19) including the outlook, guidance and projections for revenues, earnings per share, operating income, operating margins, comparable store sales, net new stores, capital expenditures, interest expense, quarterly and fiscal 2020 guidance; the nature and extent of the impact of COVID-19 on our business, operations and financial results; the anticipated timing and effects of recovery of our business; our plans for streamlining our operations, including store openings, closures and changes in store formats and models; our ability to continue steady business improvement and improve customer and partner experiences; and our ability to emerge from this global crisis and drive long-term growth. These forward-looking statements do not represent historical data, are based on currently available operating, financial and competitive information and are subject to a number of significant risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to: further spread of COVID-19; regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; the potential for a resurgence of COVID-19 infections in a given geographic region after it has hit its “peak”; fluctuations in U.S. and international economies and currencies; our ability to preserve, grow and leverage our brands; the ability of our business partners and third-party providers to fulfill their responsibilities and commitments; potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling; potential negative effects of material breaches of our information technology systems to the extent we experience a material breach; material failures of our information technology systems; costs associated with, and the successful execution of, the company’s initiatives and plans, including the integration of the East China business and the successful expansion of our Global Coffee Alliance with Nestlé; our ability to obtain financing on acceptable terms; the acceptance of the company’s products by our customers, evolving consumer preferences and tastes and the availability of consumer financing; changes in the availability and cost of labor; the impact of competition; inherent risks of operating a global business; the prices and availability of coffee, dairy and other raw materials; the effect of legal proceedings; and the effects of changes in tax laws and related guidance and regulations that may be implemented and other risks detailed in the company filings with the Securities and Exchange Commission, including the “Risk Factors” sections of Starbucks Annual Report on Form 10-K for the fiscal year ended September 29, 2019 and Starbucks Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2020. The company assumes no obligation to update any of these forward-looking statements.

Non-GAAP Financial Measures

Certain non-GAAP measures included in our press release and in our investor conference call related to these results were not reconciled to the comparable GAAP financial measures because the GAAP measures are not accessible on a forward-looking basis. The company is unable to reconcile these forward-looking non-GAAP financial measures to the most directly comparable GAAP measures without unreasonable efforts because the company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures for these periods but would not impact the non-GAAP measures. Such items may include acquisitions, divestitures, restructuring and other items. The unavailable information could have a significant impact on the company’s GAAP financial results.

Segment Results (in millions)

Corporate and Other primarily consists of our unallocated corporate operating expenses and Evolution Fresh.

Supplemental Information

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

U.S. Supplemental Data

China Supplemental Data

Store Data