16 July 2024
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Global Industry

Starbucks: Reports 2016 Record Q3 Results

Seattle / WA. (sc) Starbucks Corporation reported financial results for its 13-week fiscal third quarter and 39-week fiscal year to date ended 2016-06-26. Fiscal 2016 and fiscal 2015 GAAP results include items which are excluded from non-GAAP results. Q3 Fiscal 2016 Highlights:

  • Global comparable store sales increased 4 percent, comprised of a 4 percent increase in the Americas segment, a 3 percent increase in the China/Asia Pacific segment, and a 1 percent decline in the EMEA segment
  • Consolidated net revenues grew 7 percent to a Q3 record 5.2 billion USD
  • Consolidated GAAP operating income increased 9 percent to a Q3 record 1.0 billion USD
    • Non-GAAP operating income increased 9 percent over Q3 FY15 non-GAAP, to a Q3 record 1.0 billion USD
  • Consolidated GAAP operating margin increased 30 basis points to a Q3 record 19.5 percent
    • Non-GAAP operating margin expanded 30 basis points over Q3 FY15 non-GAAP, to a Q3 record 19.8 percent
  • GAAP EPS increased 24 percent to a Q3 record 0.51 USD per share
    • Non-GAAP EPS increased 17 percent over Q3 FY15 non-GAAP, to a record 0.49 USD per share
  • Channel Development revenues grew 9 percent to a Q3 record 441 million USD; operating income increased 31 percent to a Q3 record 188 million USD; operating margin expanded 710 basis points to a Q3 record 43 percent
  • The company opened 474 net new stores globally in Q3, bringing total stores to 24’395 in 74 countries worldwide
  • Mobile Order and Pay usage reached 5 percent of U.S. transactions, up from 4 percent in Q2 FY16
  • Membership in the company’s Starbucks Rewards loyalty program increased 18 percent year-over-year to 12.3 million active loyalty members in the U.S.

«Starbucks record Q3 performance, highlighted by strong 7 percent comp growth and record revenues and profits in China and 18 percent year-over-year growth in our Starbucks Rewards loyalty program, demonstrates the strength and resilience of the Starbucks brand and business around the world», said Starbucks chairman and ceo Howard Schultz. «As we enter Q4 and approach fiscal 2017, we have clear line of sight to returning our U.S. business to historic levels of comp sales growth which had been at or above 5 percent for the 25 consecutive quarters prior to Q3».

«Starbucks third quarter results once again reflect strong revenue and profit growth and represent the first non-holiday quarter in which our operating income exceeded 1 billion USD,” said Scott Maw, cfo. «We are confident in the correctness of the strategic, operational and digital moves we outlined today and remain steadfast in our commitment to deliver significant, profitable growth over the long term».

Third Quarter Fiscal 2016 Summary

Quarter Ended 2016-06-26
Comparable Store Sales(1) Sales Growth Change in Transactions Change in Ticket
Consolidated(2) 4 percent 0 percent 4 percent
Americas 4 percent 0 percent 4 percent
CAP(2) 3 percent 2 percent 1 percent
EMEA (1) percent 0 percent (2) percent

(1) Includes only Starbucks company-operated stores open 13 months or longer.
(2) Beginning in December of fiscal 2016, comparable store sales include the results of the 1’009 company-operated stores acquired as part of the acquisition of Starbucks Japan in the first quarter of fiscal 2015.

Operating Results Quarter Ended
(USD in millions, except per share amounts) 2016-06-26 2015-06-28 Change
Net New Stores 474 431 43
Revenues USD 5’238.0 USD 4’881.2 7 percent
Operating Income USD 1’022.3 USD 938.6 9 percent
Operating Margin 19.5 percent 19.2 percent 30 bps
EPS USD 0.51 USD 0.41 24 percent

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Consolidated net revenues were 5.2 billion USD in Q3 FY16, an increase of 7 percent over Q3 FY15. The increase was primarily driven by the opening of 1’876 net new stores over the past 12 months and a 4 percent increase in global comparable store sales.

Consolidated operating income grew 9 percent to 1’022.3 million USD in Q3 FY16, up from 938.6 million USD in Q3 FY15. Consolidated operating margin expanded 30 basis points to 19.5 percent. The increase was primarily due to sales leverage and lower commodity costs, primarily coffee, and was partially offset by investments in our partners (employees) and digital platforms.

Q3 Americas Segment Results

Quarter Ended
(USD in millions) Jun 26, 2016 2015-06-28 Change
Net New Stores 194 171 23
Revenues USD 3’645.5 USD 3’414.6 7 percent
Operating Income USD 898.5 USD 855.3 5 percent
Operating Margin 24.6 percent 25.0 percent (40) bps

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Net revenues for the Americas segment were 3.6 billion USD in Q3 FY16, an increase of 7 percent over Q3 FY15. The increase was driven by a 4 percent increase in comparable store sales and incremental revenues from 730 net new store openings over the past 12 months.

Operating income of 898.5 million USD in Q3 FY16 grew 5 percent versus 855.3 million USD in Q3 FY15. Operating margin of 24.6 percent declined 40 basis points primarily due to investments in our partners (employees), partially offset by sales leverage and lower commodity costs.

Q3 China/Asia Pacific Segment Results

Quarter Ended
(USD in millions) Jun 26, 2016 2015-06-28 Change
Net New Stores 209 205 4
Revenues USD 768.2 USD 652.7 18 percent
Operating Income USD 182.8 USD 150.0 22 percent
Operating Margin 23.8 percent 23.0 percent 80 bps

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Net revenues for the China/Asia Pacific segment grew 18 percent over Q3 FY15 to 768.2 million USD in Q3 FY16. The increase was primarily driven by incremental revenues from 888 net new store openings over the past 12 months.

Operating income grew 22 percent over Q3 FY15 to 182.8 million USD in Q3 FY16. Operating margin expanded 80 basis points to 23.8 percent primarily driven by higher income from our joint venture operations and sales leverage, partially offset by the impact of foreign currency translation.

Q3 EMEA Segment Results

Quarter Ended
(USD in millions) Jun 26, 2016 2015-06-28 Change
Net New Stores 77 58 19
Revenues USD 273.4 USD 294.7 (7) percent
Operating Income USD 29.9 USD 36.0 (17) percent
Operating Margin 10.9 percent 12.2 percent (130) bps

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Net revenues for the EMEA segment were 273.4 million USD in Q3 FY16, a 7 percent decrease versus Q3 FY15. The decrease was primarily due to the conversion of 226 company-operated stores to licensed stores over the past 12 months, which included the sale of our Germany retail operations in Q3 FY16, and unfavorable foreign currency translation. Partially offsetting the decrease were incremental revenues from the opening of 291 net new licensed stores over the past 12 months.

Operating income decreased 17 percent to 29.9 million USD in Q3 FY16, down from 36.0 million USD in Q3 FY15. Operating margin declined 130 basis points to 10.9 percent, primarily due to the sale of our Germany retail operations, driven by costs related to the sale and the resulting reduction of company-operated revenue. Sales deleverage of certain company-operated stores in the region also contributed. The margin decline was partially offset by sales leverage driven by the shift in the portfolio towards more licensed stores.

Q3 Channel Development Segment Results

Quarter Ended
(USD in millions) Jun 26, 2016 2015-06-28 Change
Revenues USD 440.8 USD 403.6 9 percent
Operating Income USD 187.8 USD 143.4 31 percent
Operating Margin 42.6 percent 35.5 percent 710 bps

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Net revenues for the Channel Development segment grew 9 percent over Q3 FY15 to 440.8 million USD in Q3 FY16, primarily driven by increased sales of premium single-serve products. Also contributing to the increase were higher foodservice sales and sales of packaged coffee.

Operating income of 187.8 million USD in Q3 FY16 increased 31 percent compared to Q3 FY15. Operating margin increased 710 basis points to 42.6 percent, primarily driven by lower coffee costs, decreased marketing spend, higher income from the North American Coffee Partnership, and leverage on cost of sales.

Q3 All Other Segments Results

Quarter Ended
(USD in millions) Jun 26, 2016 2015-06-28 Change
Net New Stores (6) (3) (3)
Revenues USD 110.1 USD 115.6 (5) percent
Operating Loss USD (14.9) USD (13.1) 14 percent

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Year to Date Financial Results

Three Quarters Ended 2016-06-26
Comparable Store Sales(1) Sales Growth Change in Transactions Change in Ticket
Consolidated(2) 6 percent 2 percent 4 percent
Americas 7 percent 2 percent 5 percent
CAP(2) 4 percent 2 percent 2 percent
EMEA 0 percent 1 percent 0 percent

(1) Includes only Starbucks company-operated stores open 13 months or longer.
(2) Beginning in December of fiscal 2016, comparable store sales include the results of the 1’009 company-operated stores acquired as part of the acquisition of Starbucks Japan in the first quarter of fiscal 2015.
.

Operating Results Three Quarters Ended
(USD in millions, except per share amounts) Jun 26, 2016 2015-06-28 Change
Net New Stores 1’352 1’153 199
Revenues USD 15’604.7 USD 14’247.9 10 percent
Operating Income USD 2’944.5 USD 2’631.6 12 percent
Operating Margin 18.9 percent 18.5 percent 40 bps
EPS USD 1.35 USD 1.39 (3) percent

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Fiscal 2016 Targets

Starbucks fiscal year 2016 will include an extra week in the fourth quarter, because it is a 53-week year for the company. The company reiterates the following FY16 targets, unless otherwise noted. FY16 targets are based on actual FY15 non-GAAP results and projected FY16 non-GAAP results as noted. Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release.

  • Now expecting approximately 1’900 net new store openings in the fiscal year (from 1’800):
    • Americas: now expecting approximately 750, half licensed (from 700)
    • China/Asia Pacific: approximately 900, two-thirds licensed
    • EMEA: now expecting approximately 250, primarily licensed (from 200)
  • Full year consolidated revenue growth now expected to be approximately 10 percent on a 52 week basis (from 10 percent+), the 53rd week expected to add approximately 2 percent
  • Full year global comparable store sales growth now expected to be mid-single digits (from somewhat above mid-single digits)
  • FY16 operating margin is expected to increase slightly versus prior year:
    • Americas: now expected to increase slightly over prior year (from moderate improvement)
    • China/Asia Pacific: now expected to increase slightly over prior year (from roughly flat)
    • EMEA: now expected to be flat to prior year (from approaching 15 percent)
    • Channel Development: now expect strong expansion versus prior year (from moderate improvement)
  • Consolidated tax rate now expected to be approximately 33 percent (from 34 percent)
  • Full year FY16 earnings per share, including an estimated 0.06 USD for the 53rd week in Q4:
    • GAAP EPS now expected to be in the range of 1.88 USD to 1.89 USD (up from a range of 1.85 USD to 1.86 USD due to the gain on the sale of our Germany retail operations in Q3 FY16)
    • Non-GAAP EPS in the range of 1.88 USD to 1.89 USD (reiterated)
  • Introduced – Q4 FY16 earnings per share, including an estimated 0.06 USD for the 53rd week:
    • GAAP EPS in the range of 0.53 USD to 0.54 USD
    • Non-GAAP EPS in the range of 0.54 USD to 0.55 USD
  • Capital expenditures of approximately 1.4 billion USD

Company Updates

  • Earlier this month, Starbucks announced its role as global licensee and investor in the Italian restaurant Princi, a renowned boutique bakery and café with locations in Milan and London. The investment team, which includes Milan-based Angel Lab and Pekepan Investments, will focus on expanding the number of standalone Princi locations worldwide as well as making Princi the exclusive food purveyor at the new Starbucks ReserveTM Roastery and Tasting Rooms and in Starbucks Reserve®-only stores as they open beginning in 2017.
  • The company rolled out mobile payment in China and Japan in recent months, building on its rapidly expanding portfolio of digital innovations in the region.
  • In July, the company made announcements that reflect its ongoing commitment to invest in its partners (employees); developments apply to certain populations of U.S. partners and include base pay increases, enhancements to Bean Stock, an evolving health care program, a commitment to scheduling consideration, and changes to dress code.
  • Starbucks opened its first location in the Central European country of Slovakia in May; in partnership with AmRest, a long term strategic partner of the company and the largest independent operator of restaurant chains in Central and Eastern Europe.
  • In June, the company opened a flagship location inside Disneytown at the new Shanghai Disney Resort, representing its 12th Starbucks store inside a Disney resort globally.
  • Anheuser-Busch and Starbucks announced in June that they are working together to produce, bottle, distribute and market the first Teavana Ready-to-Drink (RTD) tea in the U.S., with an anticipated product launch in 2017.
  • The company announced Shanghai, China as the location of its first international Starbucks Reserve Roastery and Tasting Room. Scheduled to open in late 2017, the 30’000 square-foot space will reflect a similar, immersive all-sensory experience as the company’s first location, which debuted in its hometown of Seattle, Washington in 2014.
  • In May, Starbucks announced that it had closed an underwritten public offering of senior notes, including the first U.S. Corporate Sustainability Bond. The company will use the net proceeds from the offering of 500 million USD in 2.450 percent Senior Notes due 2026 to enhance its sustainability programs around coffee supply chain management through Eligible Sustainability Projects.
  • The Board of Directors declared a cash dividend of 0.20 USD per share, payable on August 19, 2016 to shareholders of record as of August 4, 2016.

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