|
|
|
|
Item 1.
|
Financial Statements
|
STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
Company-operated stores
|
$
|
4,195.4
|
|
|
$
|
3,944.2
|
|
|
$
|
8,664.7
|
|
|
$
|
8,154.8
|
|
|
Licensed stores
|
546.7
|
|
|
493.1
|
|
|
1,149.1
|
|
|
1,033.8
|
|
|
CPG, foodservice and other
|
551.9
|
|
|
555.9
|
|
|
1,213.2
|
|
|
1,178.2
|
|
|
Total net revenues
|
5,294.0
|
|
|
4,993.2
|
|
|
11,027.0
|
|
|
10,366.8
|
|
|
Cost of sales including occupancy costs
|
2,141.2
|
|
|
2,010.3
|
|
|
4,436.2
|
|
|
4,196.5
|
|
|
Store operating expenses
|
1,586.4
|
|
|
1,466.4
|
|
|
3,224.6
|
|
|
2,972.6
|
|
|
Other operating expenses
|
134.7
|
|
|
139.6
|
|
|
280.1
|
|
|
285.8
|
|
|
Depreciation and amortization expenses
|
253.6
|
|
|
247.8
|
|
|
503.3
|
|
|
483.3
|
|
|
General and administrative expenses
|
326.8
|
|
|
330.5
|
|
|
683.1
|
|
|
636.0
|
|
|
Total operating expenses
|
4,442.7
|
|
|
4,194.6
|
|
|
9,127.3
|
|
|
8,574.2
|
|
|
Income from equity investees
|
84.1
|
|
|
65.6
|
|
|
168.6
|
|
|
129.7
|
|
|
Operating income
|
935.4
|
|
|
864.2
|
|
|
2,068.3
|
|
|
1,922.3
|
|
|
Interest income and other, net
|
67.9
|
|
|
14.5
|
|
|
92.0
|
|
|
22.5
|
|
|
Interest expense
|
(22.9
|
)
|
|
(18.3
|
)
|
|
(46.7
|
)
|
|
(34.8
|
)
|
|
Earnings before income taxes
|
980.4
|
|
|
860.4
|
|
|
2,113.6
|
|
|
1,910.0
|
|
|
Income tax expense
|
327.6
|
|
|
285.4
|
|
|
709.0
|
|
|
647.4
|
|
|
Net earnings including noncontrolling interests
|
652.8
|
|
|
575.0
|
|
|
1,404.6
|
|
|
1,262.6
|
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
—
|
|
|
Net earnings attributable to Starbucks
|
$
|
652.8
|
|
|
$
|
575.1
|
|
|
$
|
1,404.9
|
|
|
$
|
1,262.6
|
|
|
Earnings per share - basic
|
$
|
0.45
|
|
|
$
|
0.39
|
|
|
$
|
0.97
|
|
|
$
|
0.85
|
|
|
Earnings per share - diluted
|
$
|
0.45
|
|
|
$
|
0.39
|
|
|
$
|
0.96
|
|
|
$
|
0.84
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
1,453.2
|
|
|
1,472.1
|
|
|
1,455.3
|
|
|
1,479.0
|
|
|
Diluted
|
1,464.8
|
|
|
1,486.6
|
|
|
1,467.7
|
|
|
1,495.0
|
|
|
Cash dividends declared per share
|
$
|
0.25
|
|
|
$
|
0.20
|
|
|
$
|
0.50
|
|
|
$
|
0.40
|
|
See Notes to Condensed Consolidated Financial Statements.
STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Net earnings including noncontrolling interests
|
$
|
652.8
|
|
|
$
|
575.0
|
|
|
$
|
1,404.6
|
|
|
$
|
1,262.6
|
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
Unrealized holding gains/(losses) on available-for-sale securities
|
1.9
|
|
|
3.8
|
|
|
(11.5
|
)
|
|
4.8
|
|
|
Tax (expense)/benefit
|
(0.5
|
)
|
|
(1.4
|
)
|
|
3.6
|
|
|
(1.8
|
)
|
|
Unrealized gains/(losses) on cash flow hedging instruments
|
(33.5
|
)
|
|
(68.1
|
)
|
|
80.0
|
|
|
(62.3
|
)
|
|
Tax (expense)/benefit
|
7.7
|
|
|
17.4
|
|
|
(18.8
|
)
|
|
14.7
|
|
|
Unrealized gains/(losses) on net investment hedging instruments
|
(25.2
|
)
|
|
—
|
|
|
15.9
|
|
|
—
|
|
|
Tax (expense)/benefit
|
9.3
|
|
|
—
|
|
|
(5.9
|
)
|
|
—
|
|
|
Translation adjustment and other
|
58.6
|
|
|
56.1
|
|
|
(113.2
|
)
|
|
30.0
|
|
|
Tax (expense)/benefit
|
0.9
|
|
|
4.9
|
|
|
0.9
|
|
|
6.6
|
|
|
Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments, and translation adjustment
|
20.2
|
|
|
27.3
|
|
|
(61.5
|
)
|
|
19.5
|
|
|
Tax expense/(benefit)
|
(3.5
|
)
|
|
(4.1
|
)
|
|
12.5
|
|
|
(1.3
|
)
|
|
Other comprehensive income/(loss)
|
35.9
|
|
|
35.9
|
|
|
(98.0
|
)
|
|
10.2
|
|
|
Comprehensive income including noncontrolling interests
|
688.7
|
|
|
610.9
|
|
|
1,306.6
|
|
|
1,272.8
|
|
|
Comprehensive loss attributable to noncontrolling interests
|
—
|
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
—
|
|
|
Comprehensive income attributable to Starbucks
|
$
|
688.7
|
|
|
$
|
611.0
|
|
|
$
|
1,306.9
|
|
|
$
|
1,272.8
|
|
See Notes to Condensed Consolidated Financial Statements.
STARBUCKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr 2,
2017
|
|
Oct 2,
2016
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,163.9
|
|
|
$
|
2,128.8
|
|
|
Short-term investments
|
231.0
|
|
|
134.4
|
|
|
Accounts receivable, net
|
791.0
|
|
|
768.8
|
|
|
Inventories
|
1,323.6
|
|
|
1,378.5
|
|
|
Prepaid expenses and other current assets
|
409.9
|
|
|
347.4
|
|
|
Total current assets
|
4,919.4
|
|
|
4,757.9
|
|
|
Long-term investments
|
1,070.1
|
|
|
1,141.7
|
|
|
Equity and cost investments
|
391.2
|
|
|
354.5
|
|
|
Property, plant and equipment, net
|
4,564.5
|
|
|
4,533.8
|
|
|
Deferred income taxes, net
|
811.2
|
|
|
885.4
|
|
|
Other long-term assets
|
368.0
|
|
|
403.3
|
|
|
Other intangible assets
|
467.7
|
|
|
516.3
|
|
|
Goodwill
|
1,635.8
|
|
|
1,719.6
|
|
|
TOTAL ASSETS
|
$
|
14,227.9
|
|
|
$
|
14,312.5
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
686.9
|
|
|
$
|
730.6
|
|
|
Accrued liabilities
|
1,730.6
|
|
|
1,999.1
|
|
|
Insurance reserves
|
217.9
|
|
|
246.0
|
|
|
Stored value card liability
|
1,339.7
|
|
|
1,171.2
|
|
|
Short-term debt
|
25.0
|
|
|
—
|
|
|
Current portion of long-term debt
|
—
|
|
|
399.9
|
|
|
Total current liabilities
|
4,000.1
|
|
|
4,546.8
|
|
|
Long-term debt
|
3,942.5
|
|
|
3,185.3
|
|
|
Other long-term liabilities
|
673.9
|
|
|
689.7
|
|
|
Total liabilities
|
8,616.5
|
|
|
8,421.8
|
|
|
Shareholders’ equity:
|
|
|
|
|
Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,447.7 and 1,460.5 shares, respectively
|
1.4
|
|
|
1.5
|
|
|
Additional paid-in capital
|
41.1
|
|
|
41.1
|
|
|
Retained earnings
|
5,768.9
|
|
|
5,949.8
|
|
|
Accumulated other comprehensive loss
|
(206.4
|
)
|
|
(108.4
|
)
|
|
Total shareholders’ equity
|
5,605.0
|
|
|
5,884.0
|
|
|
Noncontrolling interests
|
6.4
|
|
|
6.7
|
|
|
Total equity
|
5,611.4
|
|
|
5,890.7
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
14,227.9
|
|
|
$
|
14,312.5
|
|
See Notes to Condensed Consolidated Financial Statements.
STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
Net earnings including noncontrolling interests
|
$
|
1,404.6
|
|
|
$
|
1,262.6
|
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
529.8
|
|
|
509.3
|
|
|
Deferred income taxes, net
|
62.8
|
|
|
260.2
|
|
|
Income earned from equity method investees
|
(129.4
|
)
|
|
(96.5
|
)
|
|
Distributions received from equity method investees
|
94.1
|
|
|
102.8
|
|
|
Gain resulting from sale of equity in joint venture and certain retail operations
|
(9.6
|
)
|
|
(0.6
|
)
|
|
Stock-based compensation
|
104.9
|
|
|
108.6
|
|
|
Excess tax benefit on share-based awards
|
(52.7
|
)
|
|
(89.3
|
)
|
|
Other
|
(11.4
|
)
|
|
24.5
|
|
|
Cash provided by changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(45.6
|
)
|
|
(39.8
|
)
|
|
Inventories
|
45.4
|
|
|
15.3
|
|
|
Accounts payable
|
(21.5
|
)
|
|
(17.2
|
)
|
|
Stored value card liability
|
179.2
|
|
|
216.2
|
|
|
Other operating assets and liabilities
|
(211.6
|
)
|
|
(70.6
|
)
|
|
Net cash provided by operating activities
|
1,939.0
|
|
|
2,185.5
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
Purchases of investments
|
(485.7
|
)
|
|
(579.0
|
)
|
|
Sales of investments
|
470.6
|
|
|
247.7
|
|
|
Maturities and calls of investments
|
33.6
|
|
|
4.4
|
|
|
Additions to property, plant and equipment
|
(637.9
|
)
|
|
(668.2
|
)
|
|
Proceeds from sale of equity in joint venture
|
—
|
|
|
30.2
|
|
|
Other
|
54.1
|
|
|
12.1
|
|
|
Net cash used by investing activities
|
(565.3
|
)
|
|
(952.8
|
)
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
Proceeds from issuance of commercial paper
|
25.0
|
|
|
149.1
|
|
|
Proceeds from issuance of long-term debt
|
750.2
|
|
|
499.7
|
|
|
Principal payments on long-term debt
|
(400.0
|
)
|
|
—
|
|
|
Proceeds from issuance of common stock
|
97.5
|
|
|
79.6
|
|
|
Excess tax benefit on share-based awards
|
52.7
|
|
|
89.3
|
|
|
Cash dividends paid
|
(727.8
|
)
|
|
(591.8
|
)
|
|
Repurchase of common stock
|
(1,046.1
|
)
|
|
(1,584.5
|
)
|
|
Minimum tax withholdings on share-based awards
|
(70.1
|
)
|
|
(103.6
|
)
|
|
Other
|
0.7
|
|
|
(0.8
|
)
|
|
Net cash used by financing activities
|
(1,317.9
|
)
|
|
(1,463.0
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(20.7
|
)
|
|
(5.4
|
)
|
|
Net increase/(decrease) in cash and cash equivalents
|
35.1
|
|
|
(235.7
|
)
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
Beginning of period
|
2,128.8
|
|
|
1,530.1
|
|
|
End of period
|
$
|
2,163.9
|
|
|
$
|
1,294.4
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
Interest, net of capitalized interest
|
$
|
48.9
|
|
|
$
|
34.4
|
|
|
Income taxes, net of refunds
|
$
|
822.6
|
|
|
$
|
458.1
|
|
See Notes to Condensed Consolidated Financial Statements.
STARBUCKS CORPORATION
INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Note 1
|
|
|
|
Note 2
|
|
|
|
Note 3
|
|
|
|
Note 4
|
|
|
|
Note 5
|
|
|
|
Note 6
|
|
|
|
Note 7
|
|
|
|
Note 8
|
|
|
|
Note 9
|
|
|
|
Note 10
|
|
|
|
Note 11
|
|
|
STARBUCKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
|
|
Note 1:
|
Summary of Significant Accounting Policies
|
Financial Statement Preparation
The unaudited condensed consolidated financial statements as of
April 2, 2017
, and for
the quarter
and
two quarters
ended
April 2, 2017
and
March 27, 2016
, have been prepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial information for
the quarter
and
two quarters
ended
April 2, 2017
and
March 27, 2016
reflects all adjustments and accruals, which are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. In this Quarterly Report on Form 10-Q (“10-Q”), Starbucks Corporation is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”
The financial information as of
October 2, 2016
is derived from our audited consolidated financial statements and notes for the fiscal year ended
October 2, 2016
(“fiscal
2016
”) included in Item 8 in the Fiscal
2016
Annual Report on Form 10-K (the “10-K”). The information included in this 10-Q should be read in conjunction with the footnotes and management’s discussion and analysis of the consolidated financial statements in the 10-K.
The results of operations for
the quarter
and
two quarters
ended
April 2, 2017
are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending
October 1, 2017
("fiscal
2017
").
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance that simplifies the measurement of goodwill impairment. Under this new guidance, an impairment charge, if triggered, is calculated as the difference between a reporting unit’s carrying value and fair value, but it is limited to the carrying value of goodwill. Current guidance, however, requires an impairment charge to be calculated as the excess of the carrying value of goodwill over its implied fair value. During the second quarter of fiscal 2017, we elected to early-adopt this guidance on a prospective basis, and during the third quarter of fiscal 2017, we will conduct our annual goodwill impairment testing. Among our larger reporting units, the fair value of the Teavana reporting unit was closest to its carrying value per our most recently completed test in third quarter of fiscal 2016. As of
April 2, 2017
, goodwill attributed to this unit was
$467.5 million
. We will continue to assess its recoverability as management evaluates the performance and strategy of the reporting unit.
In October 2016, the FASB issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. The guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings at the beginning of our first quarter of fiscal 2019 but permits adoption in an earlier period. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.
In June 2016, the FASB issued guidance on the measurement and recognition of credit losses on most financial assets. For trade receivables, loans, and held-to-maturity debt securities, the current probable loss recognition methodology is being replaced by an expected credit loss model. For available-for-sale debt securities, the recognition model on credit losses is generally unchanged, except the losses will be presented as an adjustable allowance. The guidance will be applied retrospectively with the cumulative effect recognized as of the date of adoption. The guidance will become effective at the beginning of our first quarter of fiscal 2021 but can be adopted as early as the beginning of our first quarter of fiscal 2020. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.
In March 2016, the FASB issued guidance related to stock-based compensation, which changes the accounting and classification of excess tax benefits and minimum tax withholdings on share-based awards. The guidance becomes effective at the beginning of our first quarter of fiscal 2018 but permits adoption in an earlier period. With this adoption, excess tax benefits and tax deficiencies related to stock-based compensation will be prospectively reflected as income tax expense in our consolidated statement of earnings instead of additional paid-in capital on our consolidated balance sheet. Additionally, within our consolidated statement of cash flows, this guidance will require excess tax benefits to be presented as an operating activity, rather than a financing activity, in the same manner as other cash flows related to income taxes. We are currently evaluating the timing and impact of adopting this guidance; however, as a result of the presentation requirements associated with the standard, we expect this adoption to have a significant impact on income tax expense and earnings per share, as reported in our consolidated statement of earnings, and consolidated statement of cash flows.
In March 2016, the FASB issued guidance for financial liabilities resulting from selling prepaid stored value products that are redeemable at third-party merchants. Under the new guidance, expected breakage amounts associated with these products must
be recognized proportionately in earnings as redemption occurs. Our current accounting policy of applying the remote method to all of our stored value cards, including cards redeemable at the third-party licensed locations, will no longer be allowed. The guidance will become effective at the beginning of our first quarter of fiscal 2019, with the option to adopt in an earlier period. As the guidance and timing of transition are consistent with the new revenue recognition standard issued by the FASB in May 2014 and discussed below, we expect to implement the provisions of both standards in the same period.
In February 2016, the FASB issued guidance on the recognition and measurement of leases. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. The guidance retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance will require modified retrospective application at the beginning of our first quarter of fiscal 2020, with optional practical expedients, but permits adoption in an earlier period. We are currently evaluating the impact this guidance will have on our consolidated financial statements. We expect this adoption will result in a material increase in the assets and liabilities on our consolidated balance sheets but will likely have an insignificant impact on our consolidated statements of earnings.
In April 2015, the FASB issued guidance on the financial statement presentation of debt issuance costs. This guidance requires these costs to be presented in the balance sheet as a reduction of the related debt liability rather than as an asset. We retrospectively adopted this guidance in the first quarter of fiscal 2017, which resulted in the reclassification of
$17.0 million
of debt issuance costs previously presented in prepaid expenses and other current assets and other long-term assets to long-term debt in our consolidated balance sheet as of October 2, 2016. Components of our long-term debt and aggregate debt issuance costs and unamortized premium are disclosed in
Note 7
, Debt.
In May 2014, the FASB issued guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The original effective date of the guidance would have required us to adopt at the beginning of our first quarter of fiscal 2018; however, the FASB approved an optional one-year deferral of the effective date. The new guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. We are currently evaluating the overall impact this guidance will have on our consolidated financial statements, as well as the expected timing and method of adoption. Based on our preliminary assessment, we determined the adoption will change the timing of recognition and classification of our stored value card breakage income, which is currently recognized using the remote method and recorded in interest income and other, net. The new guidance will require application of the proportional method and classification within total net revenues on our consolidated statements of earnings. Additionally, the new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. We are continuing our assessment, which may identify other impacts.
|
|
|
|
Note 2:
|
Acquisitions and Divestitures
|
Fiscal 2016
During the third quarter of fiscal 2016, we sold our ownership interest in our Germany retail business to AmRest Holdings SE for a total of
$47.3 million
. This transaction converted these company-operated stores to a fully licensed market. The cumulative pre-tax gains recognized upon satisfying certain related contingent items were
insignificant
and were included in interest income and other, net on our condensed consolidated statement of earnings.
In the first quarter of fiscal 2016, we sold our
49%
ownership interest in our Spanish joint venture, Starbucks Coffee España, S.L. ("Starbucks Spain"), to our joint venture partner, Sigla S.A. (Grupo Vips), for a total purchase price of
$30.2 million
. This transaction resulted in an
insignificant
pre-tax gain, which was included in interest income and other, net on our condensed consolidated statements of earnings.
Note 3:
Derivative Financial Instruments
Interest Rates
Depending on market conditions, we enter into interest rate swap agreements to hedge the variability in cash flows due to changes in benchmark interest rates related to anticipated debt issuances. These agreements are cash settled at the time of the pricing of the related debt. The effective portion of the derivative's gain or loss is recorded in accumulated other comprehensive income ("AOCI") and is subsequently reclassified to interest expense over the life of the related debt.
Foreign Currency
To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, and intercompany borrowing and lending activities. The effective portion of the derivative's gain or loss is recorded in AOCI and is subsequently reclassified to revenue, cost of sales including occupancy costs, or interest income and other, net, respectively, when the hedged exposure affects net earnings.
From time to time, we enter into forward contracts or use foreign currency-denominated debt to hedge the currency exposure of our net investment in certain international operations. The effective portion of these instruments' gain or loss is recorded in AOCI and is subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.
Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items. Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency denominated payables and receivables; these gains and losses are recorded in interest income and other, net.
Commodities
Depending on market conditions, we may enter into coffee futures contracts and collars (the combination of a purchased call option and a sold put option) to hedge a portion of anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in
Note 5
, Inventories. The effective portion of each derivative's gain or loss is recorded in AOCI and is subsequently reclassified to cost of sales including occupancy costs when the hedged exposure affects net earnings.
To mitigate the price uncertainty of a portion of our future purchases, primarily of dairy products, diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. Gains and losses from these derivatives are recorded in interest income and other, net to help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in cost of sales including occupancy costs on our consolidated statements of earnings.
Gains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to be reclassified into earnings within 12 months, net of tax (
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gains/(Losses)
Included in AOCI
|
|
Net Gains Expected to be Reclassified from AOCI into Earnings within 12 Months
|
|
Outstanding Contract/Debt Remaining Maturity
(Months)
|
|
|
Apr 2,
2017
|
|
Oct 2,
2016
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
Interest rates
|
$
|
19.0
|
|
|
$
|
20.5
|
|
|
$
|
3.0
|
|
|
0
|
|
Cross-currency swaps
|
(9.0
|
)
|
|
(7.7
|
)
|
|
—
|
|
|
92
|
|
Foreign currency - other
|
11.5
|
|
|
(0.4
|
)
|
|
9.6
|
|
|
34
|
|
Coffee
|
0.1
|
|
|
(1.6
|
)
|
|
0.1
|
|
|
9
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
Foreign currency
|
17.4
|
|
|
1.3
|
|
|
—
|
|
|
0
|
|
Foreign currency debt
|
(6.1
|
)
|
|
—
|
|
|
—
|
|
|
84
|
Pretax gains and losses on derivative contracts and foreign-denominated long-term debt designated as hedging instruments recognized in other comprehensive income ("OCI") and reclassifications from AOCI to earnings (
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Gains/(Losses)
Recognized in
OCI Before Reclassifications
|
|
Gains/(Losses) Reclassified from
AOCI to Earnings
|
|
Gains/(Losses)
Recognized in
OCI Before Reclassifications
|
|
Gains/(Losses) Reclassified from
AOCI to Earnings
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates
|
$
|
—
|
|
|
$
|
(11.4
|
)
|
|
$
|
1.2
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
(8.3
|
)
|
|
$
|
2.4
|
|
|
$
|
2.8
|
|
|
Cross-currency swaps
|
(22.7
|
)
|
|
(39.6
|
)
|
|
(23.4
|
)
|
|
(36.4
|
)
|
|
52.6
|
|
|
(44.9
|
)
|
|
54.2
|
|
|
(38.2
|
)
|
|
Foreign currency - other
|
(10.7
|
)
|
|
(18.1
|
)
|
|
3.6
|
|
|
7.8
|
|
|
26.5
|
|
|
(8.8
|
)
|
|
8.0
|
|
|
16.3
|
|
|
Coffee
|
(0.1
|
)
|
|
0.9
|
|
|
(0.3
|
)
|
|
(0.5
|
)
|
|
0.9
|
|
|
(0.4
|
)
|
|
(1.0
|
)
|
|
(0.6
|
)
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
(15.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency debt
|
(9.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Pretax gains and losses on derivative contracts not designated as hedging instruments recognized in earnings (
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(Losses) Recognized in Earnings
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
Foreign currency
|
$
|
(5.0
|
)
|
|
$
|
(4.0
|
)
|
|
$
|
3.4
|
|
|
$
|
(1.9
|
)
|
|
Coffee
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
Dairy
|
(2.4
|
)
|
|
(1.4
|
)
|
|
2.8
|
|
|
(7.0
|
)
|
|
Diesel fuel and other commodities
|
0.4
|
|
|
0.5
|
|
|
0.5
|
|
|
(4.2
|
)
|
Notional amounts of outstanding derivative contracts
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr 2, 2017
|
|
Oct 2, 2016
|
|
Cross-currency swaps
|
$
|
558
|
|
|
$
|
660
|
|
|
Foreign currency - other
|
1,152
|
|
|
688
|
|
|
Coffee
|
99
|
|
|
7
|
|
|
Dairy
|
45
|
|
|
76
|
|
|
Diesel fuel and other commodities
|
50
|
|
|
46
|
|
Fair value of outstanding derivative contracts (
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
Apr 2, 2017
|
|
Oct 2, 2016
|
|
Apr 2, 2017
|
|
Oct 2, 2016
|
|
Designated Derivative Hedging Instruments:
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
$
|
7.5
|
|
|
$
|
—
|
|
|
$
|
11.9
|
|
|
$
|
57.0
|
|
|
Foreign currency - other
|
21.4
|
|
|
20.8
|
|
|
6.3
|
|
|
24.0
|
|
|
Coffee
|
0.5
|
|
|
1.8
|
|
|
0.5
|
|
|
—
|
|
|
Non-designated Derivative Hedging Instruments:
|
|
|
|
|
|
|
|
|
Foreign currency
|
13.6
|
|
|
6.2
|
|
|
7.6
|
|
|
6.5
|
|
|
Dairy
|
0.2
|
|
|
1.5
|
|
|
1.4
|
|
|
1.6
|
|
|
Diesel fuel and other commodities
|
1.0
|
|
|
3.8
|
|
|
0.8
|
|
|
0.5
|
|
Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in
Note 8
, Equity.
|
|
|
|
Note 4:
|
Fair Value Measurements
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
Balance at
Apr 2, 2017
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,163.9
|
|
|
$
|
2,163.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
Agency obligations
|
3.3
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
|
Commercial paper
|
19.4
|
|
|
—
|
|
|
19.4
|
|
|
—
|
|
|
Corporate debt securities
|
52.7
|
|
|
—
|
|
|
52.7
|
|
|
—
|
|
|
Foreign government obligations
|
5.8
|
|
|
—
|
|
|
5.8
|
|
|
|
|
|
U.S. government treasury securities
|
63.7
|
|
|
63.7
|
|
|
—
|
|
|
—
|
|
|
State and local government obligations
|
3.0
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
|
Certificates of deposit
|
12.3
|
|
|
—
|
|
|
12.3
|
|
|
—
|
|
|
Total available-for-sale securities
|
160.2
|
|
|
63.7
|
|
|
96.5
|
|
|
—
|
|
|
Trading securities
|
70.8
|
|
|
70.8
|
|
|
—
|
|
|
—
|
|
|
Total short-term investments
|
231.0
|
|
|
134.5
|
|
|
96.5
|
|
|
—
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
21.7
|
|
|
0.6
|
|
|
21.1
|
|
|
—
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
Agency obligations
|
35.5
|
|
|
—
|
|
|
35.5
|
|
|
—
|
|
|
Corporate debt securities
|
419.6
|
|
|
—
|
|
|
419.6
|
|
|
—
|
|
|
Auction rate securities
|
5.9
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
Foreign government obligations
|
62.4
|
|
|
—
|
|
|
62.4
|
|
|
—
|
|
|
U.S. government treasury securities
|
281.8
|
|
|
281.8
|
|
|
—
|
|
|
—
|
|
|
State and local government obligations
|
10.2
|
|
|
—
|
|
|
10.2
|
|
|
—
|
|
|
Mortgage and other asset-backed securities
|
254.7
|
|
|
—
|
|
|
254.7
|
|
|
—
|
|
|
Total long-term investments
|
1,070.1
|
|
|
281.8
|
|
|
782.4
|
|
|
5.9
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
22.5
|
|
|
—
|
|
|
22.5
|
|
|
—
|
|
|
Total assets
|
$
|
3,509.2
|
|
|
$
|
2,580.8
|
|
|
$
|
922.5
|
|
|
$
|
5.9
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
13.6
|
|
|
$
|
1.4
|
|
|
$
|
12.2
|
|
|
$
|
—
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
14.9
|
|
|
—
|
|
|
14.9
|
|
|
—
|
|
|
Total liabilities
|
$
|
28.5
|
|
|
$
|
1.4
|
|
|
$
|
27.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
Balance at
Oct 2, 2016
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,128.8
|
|
|
$
|
2,128.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
Agency obligations
|
1.3
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
Commercial paper
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
Corporate debt securities
|
34.2
|
|
|
—
|
|
|
34.2
|
|
|
—
|
|
|
Foreign government obligations
|
5.5
|
|
|
—
|
|
|
5.5
|
|
|
—
|
|
|
U.S. government treasury securities
|
15.8
|
|
|
15.8
|
|
|
—
|
|
|
—
|
|
|
State and local government obligations
|
0.5
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
Certificates of deposit
|
5.8
|
|
|
—
|
|
|
5.8
|
|
|
—
|
|
|
Total available-for-sale securities
|
65.7
|
|
|
15.8
|
|
|
49.9
|
|
|
—
|
|
|
Trading securities
|
68.7
|
|
|
68.7
|
|
|
—
|
|
|
—
|
|
|
Total short-term investments
|
134.4
|
|
|
84.5
|
|
|
49.9
|
|
|
—
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
27.7
|
|
|
3.1
|
|
|
24.6
|
|
|
—
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
Agency obligations
|
44.4
|
|
|
—
|
|
|
44.4
|
|
|
—
|
|
|
Corporate debt securities
|
459.3
|
|
|
—
|
|
|
459.3
|
|
|
—
|
|
|
Auction rate securities
|
5.7
|
|
|
—
|
|
|
—
|
|
|
5.7
|
|
|
Foreign government obligations
|
46.7
|
|
|
—
|
|
|
46.7
|
|
|
—
|
|
|
U.S. government treasury securities
|
358.2
|
|
|
358.2
|
|
|
—
|
|
|
—
|
|
|
State and local government obligations
|
57.5
|
|
|
—
|
|
|
57.5
|
|
|
—
|
|
|
Mortgage and other asset-backed securities
|
169.9
|
|
|
—
|
|
|
169.9
|
|
|
—
|
|
|
Total long-term investments
|
1,141.7
|
|
|
358.2
|
|
|
777.8
|
|
|
5.7
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
6.4
|
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
Total assets
|
$
|
3,439.0
|
|
|
$
|
2,574.6
|
|
|
$
|
858.7
|
|
|
$
|
5.7
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
18.0
|
|
|
$
|
1.7
|
|
|
$
|
16.3
|
|
|
$
|
—
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
71.6
|
|
|
—
|
|
|
71.6
|
|
|
—
|
|
|
Total
|
$
|
89.6
|
|
|
$
|
1.7
|
|
|
$
|
87.9
|
|
|
$
|
—
|
|
There were no transfers between levels, and there was no significant activity within Level 3 instruments during the periods presented. The fair values of any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.
Gross unrealized holding gains and losses on investments were not material as of
April 2, 2017
and
October 2, 2016
.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the condensed consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, goodwill and other intangible assets, equity and cost method
investments, and other assets. These assets are measured at fair value if determined to be impaired. During
the quarter
and
two quarters
ended
April 2, 2017
and
March 27, 2016
, there were no material fair value adjustments.
The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at
Note 7
, Debt.
|
|
|
|
Note 5:
|
Inventories
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr 2, 2017
|
|
Oct 2, 2016
|
|
Mar 27, 2016
|
|
Coffee:
|
|
|
|
|
|
|
Unroasted
|
$
|
599.2
|
|
|
$
|
561.6
|
|
|
$
|
585.5
|
|
|
Roasted
|
272.8
|
|
|
300.4
|
|
|
261.8
|
|
|
Other merchandise held for sale
|
244.6
|
|
|
308.6
|
|
|
255.0
|
|
|
Packaging and other supplies
|
207.0
|
|
|
207.9
|
|
|
190.8
|
|
|
Total
|
$
|
1,323.6
|
|
|
$
|
1,378.5
|
|
|
$
|
1,293.1
|
|
Other merchandise held for sale includes, among other items, serveware and tea. Inventory levels vary due to seasonality, commodity market supply and price fluctuations.
As of
April 2, 2017
, we had committed to purchasing green coffee totaling
$441 million
under fixed-price contracts and an estimated
$676 million
under price-to-be-fixed contracts. As of
April 2, 2017
, approximately
$99 million
of our price-to-be fixed contracts were effectively fixed through the use of futures contracts. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. For most contracts, either Starbucks or the seller has the option to “fix” the base “C” coffee commodity price prior to the delivery date. For other contracts, Starbucks and the seller may agree upon pricing parameters determined by the base "C" coffee commodity price. Until prices are fixed, we estimate the total cost of these purchase commitments. We believe, based on relationships established with our suppliers in the past, the risk of non-delivery on these purchase commitments is remote.
|
|
|
|
Note 6:
|
Supplemental Balance Sheet Information
(in millions)
|
Property, Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr 2, 2017
|
|
Oct 2, 2016
|
|
Land
|
$
|
46.8
|
|
|
$
|
46.6
|
|
|
Buildings
|
468.2
|
|
|
458.4
|
|
|
Leasehold improvements
|
6,042.5
|
|
|
5,892.9
|
|
|
Store equipment
|
1,983.7
|
|
|
1,931.7
|
|
|
Roasting equipment
|
603.3
|
|
|
605.4
|
|
|
Furniture, fixtures and other
|
1,431.3
|
|
|
1,366.9
|
|
|
Work in progress
|
311.5
|
|
|
271.4
|
|
|
Property, plant and equipment, gross
|
10,887.3
|
|
|
10,573.3
|
|
|
Accumulated depreciation
|
(6,322.8
|
)
|
|
(6,039.5
|
)
|
|
Property, plant and equipment, net
|
$
|
4,564.5
|
|
|
$
|
4,533.8
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr 2, 2017
|
|
Oct 2, 2016
|
|
Accrued compensation and related costs
|
$
|
468.4
|
|
|
$
|
510.8
|
|
|
Accrued occupancy costs
|
135.5
|
|
|
137.5
|
|
|
Accrued taxes
|
201.8
|
|
|
368.4
|
|
|
Accrued dividends payable
|
361.9
|
|
|
365.1
|
|
|
Accrued capital and other operating expenditures
|
563.0
|
|
|
617.3
|
|
|
Total accrued liabilities
|
$
|
1,730.6
|
|
|
$
|
1,999.1
|
|
Short-term Debt
Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of
$1 billion
, with individual maturities that may vary but not exceed
397 days
from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our credit facility. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases. As of
April 2, 2017
, we had
$25 million
of borrowings outstanding under the program. The estimated fair value of the commercial paper approximates its carrying value.
Long-term Debt
In March 2017, we issued Japanese yen-denominated long-term debt in an underwritten registered public offering. The
7
-year
0.372%
Senior Notes (the "2024 notes") due March 2024 were issued with a face value of ¥
85 billion
, of which ¥
76.0 billion
has been designated to hedge the foreign currency exposure of our net investment in Japan. Interest on the 2024 notes is payable semi-annually on
March 15
and
September 15
of each year, commencing on
September 15, 2017
.
In December 2016, we repaid the
$400 million
of
0.875%
Senior Notes (the "2016 notes") at maturity.
Components of long-term debt including the associated interest rates and related estimated fair values by calendar maturity (
in millions, except interest rates)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr 2, 2017
|
|
Oct 2, 2016
|
|
Stated Interest Rate
|
Effective Interest Rate
(1)
|
|
Issuance
|
Face Value
|
Estimated Fair Value
|
|
Face Value
|
Estimated Fair Value
|
|
|
2016 notes
|
$
|
—
|
|
$
|
—
|
|
|
$
|
400.0
|
|
$
|
400
|
|
|
0.875
|
%
|
0.941
|
%
|
|
2018 notes
|
350.0
|
|
354
|
|
|
350.0
|
|
357
|
|
|
2.000
|
%
|
2.012
|
%
|
|
2021 notes
|
500.0
|
|
502
|
|
|
500.0
|
|
511
|
|
|
2.100
|
%
|
2.293
|
%
|
|
2021 notes
|
250.0
|
|
251
|
|
|
250.0
|
|
255
|
|
|
2.100
|
%
|
1.600
|
%
|
|
2022 notes
|
500.0
|
|
509
|
|
|
500.0
|
|
526
|
|
|
2.700
|
%
|
2.819
|
%
|
|
2023 notes
|
750.0
|
|
806
|
|
|
750.0
|
|
839
|
|
|
3.850
|
%
|
2.860
|
%
|
|
2024 notes
(2)
|
761.1
|
|
762
|
|
|
—
|
|
—
|
|
|
0.372
|
%
|
0.462
|
%
|
|
2026 notes
|
500.0
|
|
480
|
|
|
500.0
|
|
509
|
|
|
2.450
|
%
|
2.511
|
%
|
|
2045 notes
|
350.0
|
|
370
|
|
|
350.0
|
|
417
|
|
|
4.300
|
%
|
4.348
|
%
|
|
Total
|
3,961.1
|
|
4,034
|
|
|
3,600.0
|
|
3,814
|
|
|
|
|
|
Aggregate debt issuance costs and unamortized premium, net
|
(18.6
|
)
|
|
|
(14.8
|
)
|
|
|
|
|
|
Total
|
$
|
3,942.5
|
|
|
|
$
|
3,585.2
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-starting interest rate swaps utilized to hedge the interest rate risk prior to the debt issuance.
|
|
|
|
|
(2)
|
Japanese yen-denominated long-term debt.
|
The indentures under which the above notes were issued require us to maintain compliance with certain covenants, including limits on future liens and sale and leaseback transactions on certain material properties. As of
April 2, 2017
, we were in compliance with all applicable covenants.
The following table summarizes our long-term debt maturities as of
April 2, 2017
by fiscal year (
in millions
):
|
|
|
|
|
|
|
|
Fiscal Year
|
Total
|
|
2018
|
$
|
—
|
|
|
2019
|
350.0
|
|
|
2020
|
—
|
|
|
2021
|
750.0
|
|
|
2022
|
500.0
|
|
|
Thereafter
|
2,361.1
|
|
|
Total
|
$
|
3,961.1
|
|
Changes in total equity
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Quarters Ended
|
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
|
Attributable to Starbucks
|
|
Noncontrolling interests
|
|
Total Equity
|
|
Attributable to Starbucks
|
|
Noncontrolling interest
|
|
Total Equity
|
|
Beginning balance of total equity
|
$
|
5,884.0
|
|
|
$
|
6.7
|
|
|
$
|
5,890.7
|
|
|
$
|
5,818.0
|
|
|
$
|
1.8
|
|
|
$
|
5,819.8
|
|
|
Net earnings including noncontrolling interests
|
1,404.9
|
|
|
(0.3
|
)
|
|
1,404.6
|
|
|
1,262.6
|
|
|
—
|
|
|
1,262.6
|
|
|
Translation adjustment and other, net of reclassifications and tax
|
(112.3
|
)
|
|
—
|
|
|
(112.3
|
)
|
|
36.6
|
|
|
—
|
|
|
36.6
|
|
|
Unrealized gains/(losses), net of reclassifications and tax
|
14.3
|
|
|
—
|
|
|
14.3
|
|
|
(26.4
|
)
|
|
—
|
|
|
(26.4
|
)
|
|
Other comprehensive income/(loss)
|
(98.0
|
)
|
|
—
|
|
|
(98.0
|
)
|
|
10.2
|
|
|
—
|
|
|
10.2
|
|
|
Stock-based compensation expense
|
105.8
|
|
|
—
|
|
|
105.8
|
|
|
109.5
|
|
|
—
|
|
|
109.5
|
|
|
Exercise of stock options/vesting of RSUs
|
64.7
|
|
|
—
|
|
|
64.7
|
|
|
59.7
|
|
|
—
|
|
|
59.7
|
|
|
Sale of common stock
|
14.2
|
|
|
—
|
|
|
14.2
|
|
|
6.9
|
|
|
—
|
|
|
6.9
|
|
|
Repurchase of common stock
|
(1,046.1
|
)
|
|
—
|
|
|
(1,046.1
|
)
|
|
(1,584.5
|
)
|
|
—
|
|
|
(1,584.5
|
)
|
|
Cash dividends declared
|
(724.5
|
)
|
|
—
|
|
|
(724.5
|
)
|
|
(587.8
|
)
|
|
—
|
|
|
(587.8
|
)
|
|
Ending balance of total equity
|
$
|
5,605.0
|
|
|
$
|
6.4
|
|
|
$
|
5,611.4
|
|
|
$
|
5,094.6
|
|
|
$
|
1.8
|
|
|
$
|
5,096.4
|
|
Changes in AOCI by component, net of tax
(in millions)
:
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
|
Cash Flow Hedges
|
|
Net Investment Hedges
|
|
Translation Adjustment and Other
|
|
Total
|
|
April 2, 2017
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
(7.6
|
)
|
|
$
|
31.6
|
|
|
$
|
27.2
|
|
|
$
|
(293.5
|
)
|
|
$
|
(242.3
|
)
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
1.4
|
|
|
(25.8
|
)
|
|
(15.9
|
)
|
|
59.5
|
|
|
19.2
|
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
0.9
|
|
|
15.8
|
|
|
—
|
|
|
—
|
|
|
16.7
|
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
2.3
|
|
|
(10.0
|
)
|
|
(15.9
|
)
|
|
59.5
|
|
|
35.9
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
(5.3
|
)
|
|
$
|
21.6
|
|
|
$
|
11.3
|
|
|
$
|
(234.0
|
)
|
|
$
|
(206.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2016
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
0.8
|
|
|
$
|
23.4
|
|
|
$
|
1.3
|
|
|
$
|
(250.6
|
)
|
|
$
|
(225.1
|
)
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
2.4
|
|
|
(50.7
|
)
|
|
—
|
|
|
61.0
|
|
|
12.7
|
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
(0.3
|
)
|
|
23.5
|
|
|
—
|
|
|
—
|
|
|
23.2
|
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
2.1
|
|
|
(27.2
|
)
|
|
—
|
|
|
61.0
|
|
|
35.9
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
2.9
|
|
|
$
|
(3.8
|
)
|
|
$
|
1.3
|
|
|
$
|
(189.6
|
)
|
|
$
|
(189.2
|
)
|
Two Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
|
Cash Flow Hedges
|
|
Net Investment Hedges
|
|
Translation Adjustment and Other
|
|
Total
|
|
April 2, 2017
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
1.1
|
|
|
$
|
10.9
|
|
|
$
|
1.3
|
|
|
$
|
(121.7
|
)
|
|
$
|
(108.4
|
)
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
(7.9
|
)
|
|
61.2
|
|
|
10.0
|
|
|
(112.3
|
)
|
|
(49.0
|
)
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
1.5
|
|
|
(50.5
|
)
|
|
—
|
|
|
—
|
|
|
(49.0
|
)
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
(6.4
|
)
|
|
10.7
|
|
|
10.0
|
|
|
(112.3
|
)
|
|
(98.0
|
)
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
(5.3
|
)
|
|
$
|
21.6
|
|
|
$
|
11.3
|
|
|
$
|
(234.0
|
)
|
|
$
|
(206.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2016
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
(0.1
|
)
|
|
$
|
25.6
|
|
|
$
|
1.3
|
|
|
$
|
(226.2
|
)
|
|
$
|
(199.4
|
)
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
3.0
|
|
|
(47.6
|
)
|
|
—
|
|
|
36.6
|
|
|
(8.0
|
)
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
—
|
|
|
18.2
|
|
|
—
|
|
|
—
|
|
|
18.2
|
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
3.0
|
|
|
(29.4
|
)
|
|
—
|
|
|
36.6
|
|
|
10.2
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
2.9
|
|
|
$
|
(3.8
|
)
|
|
$
|
1.3
|
|
|
$
|
(189.6
|
)
|
|
$
|
(189.2
|
)
|
Impact of reclassifications from AOCI on the consolidated statements of earnings
(in millions)
:
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCI
Components
|
|
Amounts Reclassified from AOCI
|
|
Affected Line Item in
the Statements of Earnings
|
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
|
Gains/(losses) on available-for-sale securities
|
|
$
|
(1.2
|
)
|
|
$
|
0.5
|
|
|
Interest income and other, net
|
|
Gains/(losses) on cash flow hedges
|
|
|
|
|
|
|
|
Interest rate hedges
|
|
1.2
|
|
|
1.3
|
|
|
Interest expense
|
|
Cross-currency swaps
|
|
(23.4
|
)
|
|
(36.4
|
)
|
|
Interest income and other, net
|
|
Foreign currency hedges
|
|
1.2
|
|
|
2.3
|
|
|
Revenues
|
|
Foreign currency/coffee hedges
|
|
2.1
|
|
|
5.0
|
|
|
Cost of sales including occupancy costs
|
|
|
|
(20.1
|
)
|
|
(27.3
|
)
|
|
Total before tax
|
|
|
|
3.4
|
|
|
4.1
|
|
|
Tax benefit
|
|
|
|
$
|
(16.7
|
)
|
|
$
|
(23.2
|
)
|
|
Net of tax
|
Two Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCI
Components
|
|
Amounts Reclassified from AOCI
|
|
Affected Line Item in
the Statements of Earnings
|
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
|
Gains/(losses) on available-for-sale securities
|
|
$
|
(2.0
|
)
|
|
$
|
0.2
|
|
|
Interest income and other, net
|
|
Gains/(losses) on cash flow hedges
|
|
|
|
|
|
|
|
Interest rate hedges
|
|
2.4
|
|
|
2.8
|
|
|
Interest expense
|
|
Cross-currency swaps
|
|
54.2
|
|
|
(38.2
|
)
|
|
Interest income and other, net
|
|
Foreign currency hedges
|
|
2.5
|
|
|
5.4
|
|
|
Revenues
|
|
Foreign currency/coffee hedges
|
|
4.5
|
|
|
10.3
|
|
|
Cost of sales including occupancy costs
|
|
|
|
61.6
|
|
|
(19.5
|
)
|
|
Total before tax
|
|
|
|
(12.6
|
)
|
|
1.3
|
|
|
Tax (expense)/benefit
|
|
|
|
$
|
49.0
|
|
|
$
|
(18.2
|
)
|
|
Net of tax
|
In addition to
2.4 billion
shares of authorized common stock with
$0.001
par value per share, the Company has authorized
7.5 million
shares of preferred stock,
none
of which was outstanding as of
April 2, 2017
.
We repurchased
19.0 million
shares of common stock at a total cost
of
$1.0 billion
, a
nd
27.5 million
shares at a total cost of
$1.6 billion
for
two quarters
ended
April 2, 2017
and
March 27, 2016
, respectively. As of
April 2, 2017
,
98.9 million
shares remained available for repurchase under current authorizations.
During the
second
quarter of fiscal
2017
, our Board of Directors declared a quarterly cash dividend to shareholders of
$0.25
per share to be paid on
May 26, 2017
to shareholders of record as of the close of business on
May 11, 2017
.
|
|
|
|
Note 9:
|
Employee Stock Plans
|
As of
April 2, 2017
, there were
72.5 million
shares of common stock available for issuance pursuant to future equity-based compensation awards and
13.6 million
shares available for issuance under our employee stock purchase plan.
Stock-based compensation expense recognized in the consolidated statements of earnings
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
Options
|
$
|
9.1
|
|
|
$
|
7.5
|
|
|
$
|
24.0
|
|
|
$
|
23.0
|
|
|
Restricted Stock Units (“RSUs”)
|
40.8
|
|
|
43.8
|
|
|
80.9
|
|
|
85.6
|
|
|
Total stock-based compensation expense
|
$
|
49.9
|
|
|
$
|
51.3
|
|
|
$
|
104.9
|
|
|
$
|
108.6
|
|
Stock option and RSU transactions from
October 2, 2016
through
April 2, 2017
(
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
RSUs
|
|
Options outstanding/Nonvested RSUs, October 2, 2016
|
31.3
|
|
|
8.3
|
|
|
Granted
|
6.8
|
|
|
4.8
|
|
|
Options exercised/RSUs vested
|
(3.5
|
)
|
|
(3.7
|
)
|
|
Forfeited/expired
|
(1.0
|
)
|
|
(0.8
|
)
|
|
Options outstanding/Nonvested RSUs, April 2, 2017
|
33.6
|
|
|
8.6
|
|
|
Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of April 2, 2017
|
$
|
56.2
|
|
|
$
|
192.2
|
|
|
|
|
|
Note 10:
|
Earnings per Share
|
Calculation of net earnings per common share (“EPS”) — basic and diluted (
in millions, except EPS
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
Net earnings attributable to Starbucks
|
$
|
652.8
|
|
|
$
|
575.1
|
|
|
$
|
1,404.9
|
|
|
$
|
1,262.6
|
|
|
Weighted average common shares outstanding (for basic calculation)
|
1,453.2
|
|
|
1,472.1
|
|
|
1,455.3
|
|
|
1,479.0
|
|
|
Dilutive effect of outstanding common stock options and RSUs
|
11.6
|
|
|
14.5
|
|
|
12.4
|
|
|
16.0
|
|
|
Weighted average common and common equivalent shares outstanding (for diluted calculation)
|
1,464.8
|
|
|
1,486.6
|
|
|
1,467.7
|
|
|
1,495.0
|
|
|
EPS — basic
|
$
|
0.45
|
|
|
$
|
0.39
|
|
|
$
|
0.97
|
|
|
$
|
0.85
|
|
|
EPS — diluted
|
$
|
0.45
|
|
|
$
|
0.39
|
|
|
$
|
0.96
|
|
|
$
|
0.84
|
|
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and nonvested) and unvested RSUs, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. Out-of-the-money stock options totaled approximately
5.2 million
as of
April 2, 2017
and
March 27, 2016
.
|
|
|
|
Note 11:
|
Segment Reporting
|
Our chief executive officer and chief operating officer comprised the Company's Chief Operating Decision Maker function ("CODM"). Segment information is prepared on the same basis that our CODM manages the segments, evaluates financial results and makes key operating decisions.
The table below presents financial information for our reportable operating segments and All Other Segments
(in millions)
:
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
China/
Asia Pacific
|
|
EMEA
|
|
Channel
Development
|
|
All Other Segments
|
|
Segment
Total
|
|
April 2, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
3,720.4
|
|
|
$
|
768.9
|
|
|
$
|
231.7
|
|
|
$
|
461.3
|
|
|
$
|
111.7
|
|
|
$
|
5,294.0
|
|
|
Depreciation and amortization expenses
|
155.4
|
|
|
49.3
|
|
|
7.6
|
|
|
0.6
|
|
|
3.5
|
|
|
216.4
|
|
|
Income from equity investees
|
—
|
|
|
44.1
|
|
|
—
|
|
|
40.0
|
|
|
—
|
|
|
84.1
|
|
|
Operating income/(loss)
|
826.1
|
|
|
175.9
|
|
|
27.7
|
|
|
193.6
|
|
|
(25.5
|
)
|
|
1,197.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
3,455.6
|
|
|
$
|
677.9
|
|
|
$
|
268.3
|
|
|
$
|
461.2
|
|
|
$
|
130.2
|
|
|
$
|
4,993.2
|
|
|
Depreciation and amortization expenses
|
151.7
|
|
|
44.0
|
|
|
10.7
|
|
|
0.7
|
|
|
3.4
|
|
|
210.5
|
|
|
Income from equity investees
|
—
|
|
|
32.7
|
|
|
0.3
|
|
|
32.6
|
|
|
—
|
|
|
65.6
|
|
|
Operating income/(loss)
|
812.0
|
|
|
129.3
|
|
|
27.6
|
|
|
182.0
|
|
|
(19.2
|
)
|
|
1,131.7
|
|
Two Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
China/
Asia Pacific
|
|
EMEA
|
|
Channel
Development
|
|
All Other Segments
|
|
Segment
Total
|
|
April 2, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
7,711.8
|
|
|
$
|
1,539.6
|
|
|
$
|
493.9
|
|
|
$
|
1,014.9
|
|
|
$
|
266.8
|
|
|
$
|
11,027.0
|
|
|
Depreciation and amortization expenses
|
307.8
|
|
|
98.0
|
|
|
15.2
|
|
|
1.2
|
|
|
6.3
|
|
|
428.5
|
|
|
Income from equity investees
|
—
|
|
|
86.6
|
|
|
—
|
|
|
82.0
|
|
|
—
|
|
|
168.6
|
|
|
Operating income/(loss)
|
1,784.6
|
|
|
339.1
|
|
|
71.6
|
|
|
436.4
|
|
|
(15.4
|
)
|
|
2,616.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
7,181.8
|
|
|
$
|
1,331.4
|
|
|
$
|
581.4
|
|
|
$
|
973.3
|
|
|
$
|
298.9
|
|
|
$
|
10,366.8
|
|
|
Depreciation and amortization expenses
|
292.5
|
|
|
86.1
|
|
|
22.2
|
|
|
1.4
|
|
|
7.0
|
|
|
409.2
|
|
|
Income from equity investees
|
—
|
|
|
63.9
|
|
|
1.5
|
|
|
64.3
|
|
|
—
|
|
|
129.7
|
|
|
Operating income/(loss)
|
1,746.5
|
|
|
256.1
|
|
|
75.8
|
|
|
375.2
|
|
|
(13.1
|
)
|
|
2,440.5
|
|
Reconciliation of total segment operating income to consolidated earnings before income taxes
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
Apr 2, 2017
|
|
Mar 27, 2016
|
|
Total segment operating income
|
$
|
1,197.8
|
|
|
$
|
1,131.7
|
|
|
$
|
2,616.3
|
|
|
$
|
2,440.5
|
|
|
Unallocated corporate operating expenses
|
(262.4
|
)
|
|
(267.5
|
)
|
|
(548.0
|
)
|
|
(518.2
|
)
|
|
Consolidated operating income
|
935.4
|
|
|
864.2
|
|
|
2,068.3
|
|
|
1,922.3
|
|
|
Interest income and other, net
|
67.9
|
|
|
14.5
|
|
|
92.0
|
|
|
22.5
|
|
|
Interest expense
|
(22.9
|
)
|
|
(18.3
|
)
|
|
(46.7
|
)
|
|
(34.8
|
)
|
|
Earnings before income taxes
|
$
|
980.4
|
|
|
$
|
860.4
|
|
|
$
|
2,113.6
|
|
|
$
|
1,910.0
|
|
|
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements herein, including statements regarding trends in or expectations relating to the expected effects of our initiatives and plans, as well as trends in or expectations regarding revenues, operating margins, comparable store sales, anticipated net new stores, the effects of foreign currency translation, the repositioning of the EMEA segment to a predominately licensed model, earnings per share, tax rates, capital expenditures, sales leverage, other financial results, the health, strength and growth of our business overall and of specific businesses or markets, benefits of recent initiatives, investments in our business and partners, including investments in our digital platforms, product development and innovation, business opportunities and expansion, strategic acquisitions, expenses, dividends, share repurchases, commodity costs and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, borrowing capacity and use of proceeds, repatriation of cash to the U.S., the potential issuance of debt and applicable interest rate, and the expected effects of new accounting pronouncements, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, fluctuations in U.S. and international economies and currencies, our ability to preserve, grow and leverage our brands, potential negative effects of incidents involving food or beverage-borne illnesses, tampering, 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 Starbucks Japan, the acceptance of the company's products by our customers, the impact of competition, coffee, dairy and other raw materials prices and availability, the effect of legal proceedings, and other risks detailed in our filings with the SEC, including in Part I Item IA “Risk Factors” in the 10-K.
A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
This information should be read in conjunction with the condensed consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the 10-K.
General
Our fiscal year ends on the Sunday closest to September 30. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted.
Overview
Starbucks
second
quarter results reflect strong operating and financial performance and our continued ability to make disciplined investments in our business and our partners (employees). Consolidated total net revenues increased
6%
to
$5.3 billion
, primarily driven by incremental revenues from 2,240 net new store openings over the last 12 months and global comparable store sales growth of
3%
. Consolidated operating income increased $71 million, or 8%, to $935 million. Operating margin expanded 40 basis points to 17.7%, primarily due to sales leverage, partially offset by increased partner investments, largely in the Americas segment. Earnings per share of $0.45 increased 15% over the prior year quarter earnings per share of $0.39.
The Americas segment continued to perform well in the
second
quarter, growing revenues by
8%
to
$3.7 billion
, primarily driven by incremental revenues from 952 net new store openings over the past 12 months and comparable store sales growth of
3%
. Continued strength in all dayparts from the success of our food offerings and iced beverages contributed to the increase in comparable store sales. Operating income increased $14 million and operating margin at 22.2% declined 130 basis points from a year ago, primarily due to increased investments in our store partners and a product mix shift towards food, partially offset by sales leverage.
In our China/Asia Pacific segment, revenues grew by
13%
to
$769 million
, primarily driven by incremental revenues from 1,015 net new stores over the past 12 months and a
3%
increase in comparable store sales. Operating income grew 36% to $176 million, while operating margin expanded 380 basis points to 22.9%. The overall operating margin expansion was primarily due to the transition to China's new value added tax structure and sales leverage.
We continue to execute on our strategy of repositioning the EMEA segment to a predominantly licensed model. As part of this strategy, EMEA revenues declined
$37 million
, or
14%
, primarily due to the absence of revenue related to the sale of our
Germany retail operations in the third quarter of fiscal 2016. Partially offsetting lower company-operated store revenues were higher licensed store sales, primarily resulting from the opening of 304 net new licensed stores and the transfer of 174 company-operated stores to licensed stores over the past 12 months. Operating margin expanded 170 basis points to 12.0% due to sales leverage driven by the shift in the portfolio towards more licensed stores, primarily related to the sale of our Germany retail operations in the third quarter of fiscal 2016, partially offset by unfavorable foreign currency exchange and sales deleverage in certain company-operated stores.
Channel Development segment revenues were flat, primarily driven by increased sales of packaged coffee as well as higher international and foodservice sales, offset by an unfavorable revenue deduction adjustment pertaining to prior periods. Operating income grew $12 million, or 6%, to $194 million. Operating margin increased 250 basis points to 42.0% in the second quarter of fiscal 2017 primarily due to lower coffee costs, leverage on cost of sales and higher income from our North American Coffee Partnership joint venture, partially offset by an unfavorable revenue deduction adjustment pertaining to prior periods.
Fiscal
2017
— Financial Outlook for the Year
For fiscal 2017, we expect consolidated revenue growth in the mid-single-digits when compared to our 53-week results in fiscal 2016. After adjusting for the 2% of additional revenue attributable to the extra week in fiscal 2016 and the approximate 1% of anticipated unfavorable foreign currency translation for fiscal 2017, consolidated revenue growth is expected to be at the lower end of the range of 8% to 10%. Revenue growth is expected to be driven by approximately 2,100 net new stores worldwide and global comparable store sales in the mid-single digits, with some expected improvement in global comparable store sales in the second half of fiscal 2017. Approximately 1,000 net new store openings will be in our China/Asia Pacific segment, approximately 800 net new stores coming from the Americas segment and the remaining store growth from the EMEA segment.
We expect consolidated operating margin to increase slightly and earnings per share to be in the range of $2.06 to $2.10 for fiscal 2017. Revenue growth and sales leverage are expected to be partially offset by investments in our partners (employees) and digital platforms, as well as our continued focus on product development and innovation, which includes the expansion of our Starbucks Reserve
®
and Roastery businesses. When compared to fiscal 2016, we expect these investments to increase by more than $250 million in fiscal 2017 and will continue to elevate both our global brand and customer experience.
Comparable Store Sales
Starbucks comparable store sales for the
second
quarter and the first
two quarters
of fiscal
2017
:
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|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Apr 2, 2017
|
|
Two Quarters Ended Apr 2, 2017
|
|
|
Sales
Growth
|
|
Change in
Transactions
|
|
Change in
Ticket
|
|
Sales
Growth
|
|
Change in
Transactions
|
|
Change in
Ticket
|
|
Consolidated
|
3%
|
|
(1)%
|
|
4%
|
|
3%
|
|
(1)%
|
|
4%
|
|
Americas
|
3%
|
|
(1)%
|
|
4%
|
|
3%
|
|
(1)%
|
|
4%
|
|
China/Asia Pacific
|
3%
|
|
1%
|
|
1%
|
|
4%
|
|
2%
|
|
2%
|
|
EMEA
(1)
|
(1)%
|
|
—%
|
|
(1)%
|
|
(1)%
|
|
(1)%
|
|
—%
|
(1)
Company-operated stores represent 18% of the EMEA segment store portfolio as of April 2, 2017.
Our comparable store sales represent the growth in revenues from Starbucks
®
company-operated stores open 13 months or longer. Comparable store sales exclude the effect of foreign currency translation. Refer to our
Quarterly Store Data
also included in Item 2 of Part I of this 10-Q, for additional information on our company-operated and licensed store portfolio.
Results of Operations
(in millions)
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
%
Change
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
%
Change
|
|
Company-operated stores
|
$
|
4,195.4
|
|
|
$
|
3,944.2
|
|
|
6.4
|
%
|
|
$
|
8,664.7
|
|
|
$
|
8,154.8
|
|
|
6.3
|
%
|
|
Licensed stores
|
546.7
|
|
|
493.1
|
|
|
10.9
|
|
|
1,149.1
|
|
|
1,033.8
|
|
|
11.2
|
|
|
CPG, foodservice and other
|
551.9
|
|
|
555.9
|
|
|
(0.7
|
)
|
|
1,213.2
|
|
|
1,178.2
|
|
|
3.0
|
|
|
Total net revenues
|
$
|
5,294.0
|
|
|
$
|
4,993.2
|
|
|
6.0
|
%
|
|
$
|
11,027.0
|
|
|
$
|
10,366.8
|
|
|
6.4
|
%
|
Quarter ended
April 2, 2017
compared with quarter ended
March 27, 2016
Total net revenues for the
second
quarter of fiscal
2017
increased
$301 million
compared to a year ago, primarily due to increased revenues from company-operated stores (
$251 million
). The increase in company-operated store revenues was driven by an increase in incremental revenues from 763 net new Starbucks
®
company-operated store openings over the past 12 months ($207 million) and
3%
growth in comparable store sales ($105 million), attributable to a
4%
increase in average ticket. Partially offsetting these increases was the absence of revenue from the conversion of certain company-operated stores to licensed ($39 million) and the impact of unfavorable foreign currency translation ($9 million).
Licensed store revenue growth also contributed to the increase in total net revenues (
$54 million
), primarily due to increased product sales to and royalty revenues from our licensees ($60 million), largely due to the opening of 1,499 net new Starbucks
®
licensed stores, the transfer of 174 company-operated stores to licensed stores over the past 12 months and improved comparable store sales. These increases were partially offset by unfavorable foreign currency translation ($8 million).
CPG (consumer packaged goods), foodservice and other revenues decreased
$4 million
, primarily due to an unfavorable revenue deduction adjustment pertaining to prior periods ($21 million), partially offset by increased U.S. packaged coffee ($10 million) and foodservice sales ($10 million).
Two quarters ended
April 2, 2017
compared with two quarters ended
March 27, 2016
Total net revenues for the first
two quarters
of fiscal
2017
increased
$660 million
compared to a year ago, primarily due to increased revenues from company-operated stores (
$510 million
). The increase in company-operated store revenues was driven by an increase in incremental revenues from 763 net new Starbucks
®
company-operated store openings over the past 12 months ($407 million) and 3% growth in comparable store sales ($224 million), attributable to a 4% increase in average ticket. Partially offsetting these increases was the absence of revenue from the conversion of certain company-operated stores to licensed ($87 million) and the impact of unfavorable foreign currency translation ($8 million).
Licensed store revenue growth also contributed to the increase in total net revenues
$115 million
, primarily due to increased product sales to and royalty revenues from our licensees ($129 million), largely due to the opening of 1,499 net new Starbucks
®
licensed stores, the transfer of 174 company-operated stores to licensed stores over the past 12 months and improved comparable store sales. These increases were partially offset by unfavorable foreign currency translation ($22 million).
CPG, foodservice and other revenues increased
$35 million
, primarily due to increased sales of U.S. packaged coffee ($20 million) and premium single-serve products ($19 million), as well as increased sales through our international channels, primarily associated with our European and North American regions ($15 million). Increased sales were partially offset by an unfavorable revenue deduction adjustment pertaining to prior periods ($13 million).
Operating Expenses
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
|
|
|
|
|
As a % of Total
Net Revenues
|
|
|
|
|
|
As a % of Total
Net Revenues
|
|
Cost of sales including occupancy costs
|
$
|
2,141.2
|
|
|
$
|
2,010.3
|
|
|
40.4
|
%
|
|
40.3
|
%
|
|
$
|
4,436.2
|
|
|
$
|
4,196.5
|
|
|
40.2
|
%
|
|
40.5
|
%
|
|
Store operating expenses
|
1,586.4
|
|
|
1,466.4
|
|
|
30.0
|
|
|
29.4
|
|
|
3,224.6
|
|
|
2,972.6
|
|
|
29.2
|
|
|
28.7
|
|
|
Other operating expenses
|
134.7
|
|
|
139.6
|
|
|
2.5
|
|
|
2.8
|
|
|
280.1
|
|
|
285.8
|
|
|
2.5
|
|
|
2.8
|
|
|
Depreciation and amortization expenses
|
253.6
|
|
|
247.8
|
|
|
4.8
|
|
|
5.0
|
|
|
503.3
|
|
|
483.3
|
|
|
4.6
|
|
|
4.7
|
|
|
General and administrative expenses
|
326.8
|
|
|
330.5
|
|
|
6.2
|
|
|
6.6
|
|
|
683.1
|
|
|
636.0
|
|
|
6.2
|
|
|
6.1
|
|
|
Total operating expenses
|
4,442.7
|
|
|
4,194.6
|
|
|
83.9
|
|
|
84.0
|
|
|
9,127.3
|
|
|
8,574.2
|
|
|
82.8
|
|
|
82.7
|
|
|
Income from equity investees
|
84.1
|
|
|
65.6
|
|
|
1.6
|
|
|
1.3
|
|
|
168.6
|
|
|
129.7
|
|
|
1.5
|
|
|
1.3
|
|
|
Operating income
|
$
|
935.4
|
|
|
$
|
864.2
|
|
|
17.7
|
%
|
|
17.3
|
%
|
|
$
|
2,068.3
|
|
|
$
|
1,922.3
|
|
|
18.8
|
%
|
|
18.5
|
%
|
|
Store operating expenses as a % of company-operated store revenues
|
|
|
|
|
37.8
|
%
|
|
37.2
|
%
|
|
|
|
|
|
37.2
|
%
|
|
36.5
|
%
|
|
Other operating expenses as a % of non-company-operated store revenues
|
|
|
|
|
12.3
|
%
|
|
13.3
|
%
|
|
|
|
|
|
11.9
|
%
|
|
12.9
|
%
|
Quarter ended
April 2, 2017
compared with quarter ended
March 27, 2016
Cost of sales including occupancy costs as a percentage of total net revenues increased 10 basis points for the
second
quarter of fiscal
2017
, primarily due to a product mix shift towards food (approximately 80 basis points), partially offset by leverage on cost of sales including occupancy costs (approximately 30 basis points) and lower coffee costs (approximately 30 basis points).
Store operating expenses as a percentage of total net revenues increased 60 basis points for the
second
quarter of fiscal
2017
. Store operating expenses as a percentage of company-operated store revenues increased 60 basis points, primarily driven by increased investments in our store partners, largely in the Americas segment (approximately 130 basis points), partially offset by sales leverage (approximately 100 basis points).
Other operating expenses as a percentage of total net revenues decreased 30 basis points for the
second
quarter of fiscal
2017
. Excluding the impact of company-operated store revenues, other operating expenses decreased 100 basis points, primarily due to sales leverage.
General and administrative expenses as a percentage of total net revenues decreased 40 basis points, primarily driven by the lapping of employment taxes accrued in the prior year period (approximately 50 basis points), and reduced performance-based compensation (approximately 10 basis points). Partially offsetting this favorability was higher salaries and benefits related to digital platforms, technology infrastructure and innovations.
Income from equity investees increased $19 million, primarily due to higher income from our joint ventures, primarily our China and South Korea as well as our North American Coffee Partnership joint venture operations.
The combination of these changes resulted in an overall increase in operating margin of 40 basis points for the
second
quarter of fiscal
2017
.
Two quarters ended
April 2, 2017
compared with two quarters ended
March 27, 2016
Cost of sales including occupancy costs as a percentage of total net revenues decreased 30 basis points for the first
two quarters
of fiscal
2017
, primarily due to leverage on cost of sales including occupancy costs (approximately 40 basis points) and lower coffee costs (approximately 30 basis points), partially offset by a product mix shift towards food (approximately 50 basis points).
Store operating expenses as a percentage of total net revenues increased 50 basis points for the first
two quarters
of fiscal
2017
. Store operating expenses as a percentage of company-operated store revenues increased 70 basis points, primarily driven by increased investments in our store partners, largely in the Americas segment (approximately 160 basis points), partially offset by sales leverage (approximately 90 basis points).
Other operating expenses as a percentage of total net revenues decreased 30 basis points for the first
two quarters
of fiscal
2017
. Excluding the impact of company-operated store revenues, other operating expenses decreased 100 basis points, primarily due to sales leverage.
General and administrative expenses as a percentage of total net revenues increased 10 basis points, primarily driven by higher salaries and benefits related to digital platforms, technology infrastructure and innovations, partially offset by lower employment taxes, including the lapping of employment taxes accrued in prior periods (approximately 20 basis points) and lower performance-based compensation (approximately 10 basis points).
Income from equity investees increased $39 million due to higher income from our joint ventures, primarily our North American Coffee Partnership, China and South Korea joint venture operations.
The combination of these changes resulted in an overall increase in operating margin of 30 basis points for the first
two quarters
of fiscal
2017
.
Other Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
|
|
|
|
|
As a % of Total
Net Revenues
|
|
|
|
|
|
As a % of Total
Net Revenues
|
|
Operating income
|
$
|
935.4
|
|
|
$
|
864.2
|
|
|
17.7
|
%
|
|
17.3
|
%
|
|
$
|
2,068.3
|
|
|
$
|
1,922.3
|
|
|
18.8
|
%
|
|
18.5
|
%
|
|
Interest income and other, net
|
67.9
|
|
|
14.5
|
|
|
1.3
|
|
|
0.3
|
|
|
92.0
|
|
|
22.5
|
|
|
0.8
|
|
|
0.2
|
|
|
Interest expense
|
(22.9
|
)
|
|
(18.3
|
)
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|
(46.7
|
)
|
|
(34.8
|
)
|
|
(0.4
|
)
|
|
(0.3
|
)
|
|
Earnings before income taxes
|
980.4
|
|
|
860.4
|
|
|
18.5
|
|
|
17.2
|
|
|
2,113.6
|
|
|
1,910.0
|
|
|
19.2
|
|
|
18.4
|
|
|
Income tax expense
|
327.6
|
|
|
285.4
|
|
|
6.2
|
|
|
5.7
|
|
|
709.0
|
|
|
647.4
|
|
|
6.4
|
|
|
6.2
|
|
|
Net earnings including noncontrolling interests
|
652.8
|
|
|
575.0
|
|
|
12.3
|
|
|
11.5
|
|
|
1,404.6
|
|
|
1,262.6
|
|
|
12.7
|
|
|
12.2
|
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net earnings attributable to Starbucks
|
$
|
652.8
|
|
|
$
|
575.1
|
|
|
12.3
|
%
|
|
11.5
|
%
|
|
$
|
1,404.9
|
|
|
$
|
1,262.6
|
|
|
12.7
|
%
|
|
12.2
|
%
|
|
Effective tax rate including noncontrolling interests
|
|
|
|
|
33.4
|
%
|
|
33.2
|
%
|
|
|
|
|
|
33.5
|
%
|
|
33.9
|
%
|
Quarter ended
April 2, 2017
compared with quarter ended
March 27, 2016
Net interest income and other increased
$53 million
primarily related to the gain on the sale of our investment in Square, Inc. warrants ($41 million) and an adjustment associated with estimated indemnifications related to the sale of our Germany retail operations, which occurred in fiscal 2016.
Interest expense increased
$5 million
primarily due to additional interest incurred on the long-term debt we issued in February 2016, May 2016 and March 2017, partially offset by lower interest expense from the repayment of our 2016 notes in the first quarter of fiscal 2017.
The effective tax rate for the quarter ended
April 2, 2017
was
33.4%
compared to
33.2%
for the same quarter in fiscal 2016. The increase was primarily related to income tax credits associated with additional employment taxes recorded in fiscal 2016 (approximately 70 basis points), partially offset by favorability from our mix of earnings in foreign jurisdictions (approximately 30 basis points).
Two quarters ended
April 2, 2017
compared with two quarters ended
March 27, 2016
Net interest income and other increased
$70 million
primarily related to the gain on the sale of our investment in Square, Inc. warrants ($41 million), net favorable fair value adjustments from derivative instruments used to manage our risk of commodity price fluctuations ($15 million) and an adjustment associated with estimated indemnifications related to the sale of our Germany retail operations, which occurred in fiscal 2016.
Interest expense increased
$12 million
primarily due to additional interest incurred on the long-term debt we issued in February 2016, May 2016 and March 2017, partially offset by lower interest expense from the repayment of the 2016 notes in the first quarter of fiscal 2017.
The effective tax rate for the
two quarters
ended
April 2, 2017
was
33.5%
compared to
33.9%
for the same period in fiscal 2016. The decrease was primarily related to favorability from our mix of earnings in foreign jurisdictions (approximately 20 basis points).
Segment Information
Results of operations by segment
(in millions)
:
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
|
|
|
|
|
As a % of Americas
Total Net Revenues
|
|
|
|
|
|
As a % of Americas
Total Net Revenues
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
$
|
3,334.9
|
|
|
$
|
3,097.5
|
|
|
89.6
|
%
|
|
89.6
|
%
|
|
$
|
6,895.9
|
|
|
$
|
6,428.2
|
|
|
89.4
|
%
|
|
89.5
|
%
|
|
Licensed stores
|
376.7
|
|
|
351.8
|
|
|
10.1
|
|
|
10.2
|
|
|
798.0
|
|
|
739.4
|
|
|
10.3
|
|
|
10.3
|
|
|
Foodservice and other
|
8.8
|
|
|
6.3
|
|
|
0.2
|
|
|
0.2
|
|
|
17.9
|
|
|
14.2
|
|
|
0.2
|
|
|
0.2
|
|
|
Total net revenues
|
3,720.4
|
|
|
3,455.6
|
|
|
100.0
|
|
|
100.0
|
|
|
7,711.8
|
|
|
7,181.8
|
|
|
100.0
|
|
|
100.0
|
|
|
Cost of sales including occupancy costs
|
1,354.9
|
|
|
1,230.0
|
|
|
36.4
|
|
|
35.6
|
|
|
2,795.2
|
|
|
2,576.9
|
|
|
36.2
|
|
|
35.9
|
|
|
Store operating expenses
|
1,299.1
|
|
|
1,186.7
|
|
|
34.9
|
|
|
34.3
|
|
|
2,655.5
|
|
|
2,413.5
|
|
|
34.4
|
|
|
33.6
|
|
|
Other operating expenses
|
31.5
|
|
|
27.7
|
|
|
0.8
|
|
|
0.8
|
|
|
63.4
|
|
|
60.4
|
|
|
0.8
|
|
|
0.8
|
|
|
Depreciation and amortization expenses
|
155.4
|
|
|
151.7
|
|
|
4.2
|
|
|
4.4
|
|
|
307.8
|
|
|
292.5
|
|
|
4.0
|
|
|
4.1
|
|
|
General and administrative expenses
|
53.4
|
|
|
47.5
|
|
|
1.4
|
|
|
1.4
|
|
|
105.3
|
|
|
92.0
|
|
|
1.4
|
|
|
1.3
|
|
|
Total operating expenses
|
2,894.3
|
|
|
2,643.6
|
|
|
77.8
|
|
|
76.5
|
|
|
5,927.2
|
|
|
5,435.3
|
|
|
76.9
|
|
|
75.7
|
|
|
Operating income
|
$
|
826.1
|
|
|
$
|
812.0
|
|
|
22.2
|
%
|
|
23.5
|
%
|
|
$
|
1,784.6
|
|
|
$
|
1,746.5
|
|
|
23.1
|
%
|
|
24.3
|
%
|
|
Store operating expenses as a % of company-operated store revenues
|
|
|
|
|
39.0
|
%
|
|
38.3
|
%
|
|
|
|
|
|
38.5
|
%
|
|
37.5
|
%
|
|
Other operating expenses as a % of non-company-operated store revenues
|
|
|
|
|
8.2
|
%
|
|
7.7
|
%
|
|
|
|
|
|
7.8
|
%
|
|
8.0
|
%
|
Quarter ended
April 2, 2017
compared with quarter ended
March 27, 2016
Revenues
Americas total net revenues for the
second
quarter of fiscal
2017
increased
$265 million
, or
8%
, primarily due to higher revenues from company-operated stores (contributing
$237 million
) and licensed stores (contributing
$25 million
).
The increase in company-operated store revenues was driven by incremental revenues from
386
net new Starbucks
®
company-operated store openings over the past 12 months ($136 million) and a
3%
increase in comparable store sales ($90 million), attributable to a
4%
increase in average ticket, and favorable foreign currency translation ($11 million).
The increase in licensed store revenues was due to higher product sales to and royalty revenues from our licensees ($25 million), primarily resulting from the opening of
566
net new licensed stores over the past 12 months and improved comparable store sales.
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 80 basis points for the
second
quarter of fiscal
2017
, primarily due to a product mix shift towards food (approximately 80 basis points).
Store operating expenses as a percentage of total net revenues increased 60 basis points for the
second
quarter of fiscal
2017
. Store operating expenses as a percentage of company-operated store revenues increased 70 basis points, primarily driven by increased investments in our store partners (approximately 160 basis points), partially offset by sales leverage on salaries and benefits (approximately 110 basis points).
General and administrative expenses as a percentage of total net revenues were flat, primarily driven by higher salaries and benefits (approximately 20 basis points), partially offset by lower performance-based compensation (approximately 10 basis points).
The combination of these changes resulted in an overall decrease in operating margin of 130 basis points for the
second
quarter of fiscal
2017
.
Two quarters ended
April 2, 2017
compared with two quarters ended
March 27, 2016
Revenues
Americas total net revenues for the first
two quarters
of fiscal
2017
increased
$530 million
, or
7%
primarily due to higher revenues from company-operated stores (contributing
$468 million
) and licensed stores (contributing
$59 million
).
The increase in company-operated store revenues was driven by incremental revenues from
386
net new Starbucks
®
company-operated store openings over the past 12 months ($274 million) and a
3%
increase in comparable store sales ($181 million), attributable to a
4%
increase in average ticket, and favorable foreign currency translation ($13 million).
The increase in licensed store revenues was due to higher product sales to and royalty revenues from our licensees ($55 million), primarily resulting from the opening of
566
net new licensed stores over the past 12 months and improved comparable store sales.
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 30 basis points for the first
two quarters
of fiscal
2017
, primarily due to a product mix shift towards food (approximately 80 basis points), partially offset by leverage on cost of sales including occupancy costs (approximately 20 basis points).
Store operating expenses as a percentage of total net revenues increased 80 basis points for the first
two quarters
of fiscal
2017
. Store operating expenses as a percentage of company-operated store revenues increased 100 basis points, primarily driven by increased investments in our store partners (approximately 210 basis points), partially offset by sales leverage on salaries and benefits (approximately 100 basis points).
General and administrative expenses as a percentage of total net revenues increased 10 basis points, primarily driven by higher salaries and benefits (approximately 20 basis points).
The combination of these changes resulted in an overall decrease in operating margin of 120 basis points for the first
two quarters
of fiscal
2017
.
China/Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
|
|
|
|
|
As a % of CAP
Total Net Revenues
|
|
|
|
|
|
As a % of CAP
Total Net Revenues
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
$
|
687.8
|
|
|
$
|
608.5
|
|
|
89.5
|
%
|
|
89.8
|
%
|
|
$
|
1,379.2
|
|
|
$
|
1,188.6
|
|
|
89.6
|
%
|
|
89.3
|
%
|
|
Licensed stores
|
78.4
|
|
|
67.0
|
|
|
10.2
|
|
|
9.9
|
|
|
156.4
|
|
|
139.1
|
|
|
10.2
|
|
|
10.4
|
|
|
Foodservice and other
|
2.7
|
|
|
2.4
|
|
|
0.4
|
|
|
0.4
|
|
|
4.0
|
|
|
3.7
|
|
|
0.3
|
|
|
0.3
|
|
|
Total net revenues
|
768.9
|
|
|
677.9
|
|
|
100.0
|
|
|
100.0
|
|
|
1,539.6
|
|
|
1,331.4
|
|
|
100.0
|
|
|
100.0
|
|
|
Cost of sales including occupancy costs
|
333.5
|
|
|
307.2
|
|
|
43.4
|
|
|
45.3
|
|
|
670.8
|
|
|
602.3
|
|
|
43.6
|
|
|
45.2
|
|
|
Store operating expenses
|
202.5
|
|
|
182.3
|
|
|
26.3
|
|
|
26.9
|
|
|
406.8
|
|
|
357.6
|
|
|
26.4
|
|
|
26.9
|
|
|
Other operating expenses
|
17.6
|
|
|
17.2
|
|
|
2.3
|
|
|
2.5
|
|
|
36.7
|
|
|
32.1
|
|
|
2.4
|
|
|
2.4
|
|
|
Depreciation and amortization expenses
|
49.3
|
|
|
44.0
|
|
|
6.4
|
|
|
6.5
|
|
|
98.0
|
|
|
86.1
|
|
|
6.4
|
|
|
6.5
|
|
|
General and administrative expenses
|
34.2
|
|
|
30.6
|
|
|
4.4
|
|
|
4.5
|
|
|
74.8
|
|
|
61.1
|
|
|
4.9
|
|
|
4.6
|
|
|
Total operating expenses
|
637.1
|
|
|
581.3
|
|
|
82.9
|
|
|
85.8
|
|
|
1,287.1
|
|
|
1,139.2
|
|
|
83.6
|
|
|
85.6
|
|
|
Income from equity investees
|
44.1
|
|
|
32.7
|
|
|
5.7
|
|
|
4.8
|
|
|
86.6
|
|
|
63.9
|
|
|
5.6
|
|
|
4.8
|
|
|
Operating income
|
$
|
175.9
|
|
|
$
|
129.3
|
|
|
22.9
|
%
|
|
19.1
|
%
|
|
$
|
339.1
|
|
|
$
|
256.1
|
|
|
22.0
|
%
|
|
19.2
|
%
|
|
Store operating expenses as a % of company-operated store revenues
|
|
|
|
|
29.4
|
%
|
|
30.0
|
%
|
|
|
|
|
|
29.5
|
%
|
|
30.1
|
%
|
|
Other operating expenses as a % of non-company-operated store revenues
|
|
|
|
|
21.7
|
%
|
|
24.8
|
%
|
|
|
|
|
|
22.9
|
%
|
|
22.5
|
%
|
Quarter ended
April 2, 2017
compared with quarter ended
March 27, 2016
Revenues
China/Asia Pacific total net revenues for the
second
quarter of fiscal
2017
increased
$91 million
, or
13%
over the prior year period, primarily from higher company-operated store revenues (
$79 million
), driven by incremental revenues from
386
net new company-operated store openings over the past 12 months ($71 million). Also contributing was a
3%
increase in comparable store sales ($16 million), partially offset by unfavorable foreign currency translation ($7 million).
Licensed store revenues increased
$11 million
due to increased product sales to and royalty revenues from licensees ($13 million), primarily resulting from the opening of
629
net new licensed stores over the past 12 months.
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues decreased 190 basis points for the
second
quarter of fiscal
2017
, primarily due to favorability from the transition to China's new value added tax structure (approximately 160 basis points) and leverage on cost of sales including occupancy costs (approximately 20 basis points).
Store operating expenses as a percentage of total net revenues decreased 60 basis points for the
second
quarter of fiscal
2017
. As a percentage of company-operated store revenues, store operating expenses also decreased 60 basis points, primarily due to sales leverage on salaries and benefits (approximately 110 basis points), partially offset by higher payroll-related expenditures and partner investments (approximately 50 basis points).
Other operating expenses as a percentage of total net revenues decreased 20 basis points for the
second
quarter of fiscal
2017
. Excluding the impact of company-operated store revenues, other operating expenses decreased 310 basis points in the
second
quarter, primarily due to the lapping of investments in regional leadership and training conferences in the prior year (approximately 200 basis points).
Income from equity investees increased $11 million due to higher income from our joint venture operations, primarily in China and South Korea. Our China joint venture operations benefited from the new value added tax structure.
The combination of these changes resulted in an overall increase in operating margin of 380 basis points for the
second
quarter of fiscal
2017
.
Two quarters ended
April 2, 2017
compared with two quarters ended
March 27, 2016
Revenues
China/Asia Pacific total net revenues for the first
two quarters
of fiscal
2017
increased
$208 million
, or
16%
over the prior year period, primarily from higher company-operated store revenues (
$191 million
), driven by incremental revenues from
386
net new company-operated store openings over the past 12 months ($133 million). Also contributing was a
4%
increase in comparable store sales ($44 million) and favorable foreign currency translation ($13 million).
Licensed store revenues increased
$17 million
due to increased product sales to and royalty revenues from licensees ($21 million), primarily resulting from the opening of
629
net new licensed stores over the past 12 months, partially offset by unfavorable foreign currency translation ($4 million).
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues decreased 160 basis points for the first
two quarters
of fiscal
2017
, primarily driven by favorability from the transition to China's new value added tax structure (approximately 140 basis points).
Store operating expenses as a percentage of total net revenues decreased 50 basis points for the first
two quarters
of fiscal
2017
. As a percentage of company-operated store revenues, store operating expenses decreased 60 basis points for the first
two quarters
of fiscal
2017
, primarily due to sales leverage on salaries and benefits (approximately 120 basis points), partially offset by higher payroll-related expenditures and partner investments (approximately 70 basis points).
Other operating expenses as a percentage of total net revenues was flat for the first
two quarters
of fiscal
2017
. Excluding the impact of company-operated store revenues, other operating expenses increased 40 basis points, primarily due to the timing of certain business taxes (approximately 110 basis points) and increased investment in our e-commerce business (approximately 100 basis points), partially offset by the lapping of investments in regional leadership and training conferences in the prior year (approximately 90 basis points).
General and administrative expenses as a percentage of total net revenues increased 30 basis points, primarily due to continued focus on product quality and innovation (approximately 30 basis points).
Income from equity investees increased $23 million, driven by higher income from our joint venture operations, primarily in China and South Korea. Our China joint venture operations benefited from the new value added tax structure.
The combination of these changes resulted in an overall increase in operating margin of 280 basis points for the first
two quarters
of fiscal
2017
.
EMEA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
|
|
|
|
|
As a % of EMEA
Total Net Revenues
|
|
|
|
|
|
As a % of EMEA
Total Net Revenues
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
$
|
127.5
|
|
|
$
|
182.8
|
|
|
55.0
|
%
|
|
68.1
|
%
|
|
$
|
273.4
|
|
|
$
|
401.7
|
|
|
55.4
|
%
|
|
69.1
|
%
|
|
Licensed stores
|
90.9
|
|
|
73.3
|
|
|
39.2
|
|
|
27.3
|
|
|
193.0
|
|
|
153.1
|
|
|
39.1
|
|
|
26.3
|
|
|
Foodservice
|
13.3
|
|
|
12.2
|
|
|
5.7
|
|
|
4.5
|
|
|
27.5
|
|
|
26.6
|
|
|
5.6
|
|
|
4.6
|
|
|
Total net revenues
|
231.7
|
|
|
268.3
|
|
|
100.0
|
|
|
100.0
|
|
|
493.9
|
|
|
581.4
|
|
|
100.0
|
|
|
100.0
|
|
|
Cost of sales including occupancy costs
|
122.6
|
|
|
136.6
|
|
|
52.9
|
|
|
50.9
|
|
|
258.7
|
|
|
288.0
|
|
|
52.4
|
|
|
49.5
|
|
|
Store operating expenses
|
50.3
|
|
|
66.5
|
|
|
21.7
|
|
|
24.8
|
|
|
97.1
|
|
|
140.4
|
|
|
19.7
|
|
|
24.1
|
|
|
Other operating expenses
|
14.1
|
|
|
13.9
|
|
|
6.1
|
|
|
5.2
|
|
|
30.2
|
|
|
28.7
|
|
|
6.1
|
|
|
4.9
|
|
|
Depreciation and amortization expenses
|
7.6
|
|
|
10.7
|
|
|
3.3
|
|
|
4.0
|
|
|
15.2
|
|
|
22.2
|
|
|
3.1
|
|
|
3.8
|
|
|
General and administrative expenses
|
9.4
|
|
|
13.3
|
|
|
4.1
|
|
|
5.0
|
|
|
21.1
|
|
|
27.8
|
|
|
4.3
|
|
|
4.8
|
|
|
Total operating expenses
|
204.0
|
|
|
241.0
|
|
|
88.0
|
|
|
89.8
|
|
|
422.3
|
|
|
507.1
|
|
|
85.5
|
|
|
87.2
|
|
|
Income from equity investees
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
0.3
|
|
|
Operating income
|
$
|
27.7
|
|
|
$
|
27.6
|
|
|
12.0
|
%
|
|
10.3
|
%
|
|
$
|
71.6
|
|
|
$
|
75.8
|
|
|
14.5
|
%
|
|
13.0
|
%
|
|
Store operating expenses as a % of company-operated store revenues
|
|
|
|
|
39.5
|
%
|
|
36.4
|
%
|
|
|
|
|
|
35.5
|
%
|
|
35.0
|
%
|
|
Other operating expenses as a % of non-company-operated store revenues
|
|
|
|
|
13.5
|
%
|
|
16.3
|
%
|
|
|
|
|
|
13.7
|
%
|
|
16.0
|
%
|
Quarter ended
April 2, 2017
compared with quarter ended
March 27, 2016
Revenues
EMEA total net revenues decreased
$37 million
, or
14%
, for the
second
quarter of fiscal
2017
. The decrease was primarily due to a decline in company-operated store revenues (
$55 million
), driven by the shift to more licensed stores in the region ($39 million), which includes the absence of revenue related to the sale of our Germany retail operations in the third quarter of fiscal 2016, as well as unfavorable foreign currency translation ($14 million).
Licensed store revenues increased
$18 million
, or
24%
due to higher product sales to and royalty revenues from our licensees ($23 million), primarily resulting from the opening of 304 net new licensed stores and the transfer of 174 company-operated stores to licensed stores over the past 12 months, partially offset by unfavorable foreign currency translation ($7 million).
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 200 basis points for the
second
quarter of fiscal
2017
, primarily due to unfavorable foreign currency transactions (approximately 140 basis points) and the shift in the composition of our store portfolio to more licensed stores, which have a lower gross margin (approximately 110 basis points), partially offset by lower commodity costs, primarily coffee (approximately 30 basis points).
Store operating expenses as a percentage of total net revenues decreased 310 basis points for the
second
quarter of fiscal
2017
. As a percentage of company-operated store revenues, store operating expenses increased 310 basis points, primarily driven by sales deleverage in certain company-operated stores (approximately 210 basis points).
Other operating expenses as a percentage of total net revenues increased 90 basis points for the
second
quarter of fiscal
2017
. Excluding the impact of company-operated store revenues, other operating expenses decreased 280 basis points, primarily due to sales leverage driven by the shift to more licensed stores in the region (approximately 280 basis points).
Depreciation and amortization expense as a percentage of total net revenue decreased 70 basis points, primarily due to the shift in the portfolio towards more licensed stores (approximately 60 basis points).
General and administrative expenses as a percentage of total net revenues decreased 90 basis points, primarily due to the shift in the portfolio towards more licensed stores (approximately 50 basis points).
The combination of these changes resulted in an overall increase in operating margin of 170 basis points for the
second
quarter of fiscal
2017
.
Two quarters ended
April 2, 2017
compared with two quarters ended
March 27, 2016
Revenues
EMEA total net revenues decreased
$88 million
, or
15%
, for the first
two quarters
of fiscal
2017
. The decrease was primarily due to a decline in company-operated store revenues (
$128 million
), driven by the shift to more licensed stores in the region ($87 million), which includes the absence of revenue related to the sale of our Germany retail operations in the third quarter of fiscal 2016, as well as unfavorable foreign currency translation ($33 million).
Licensed store revenues increased
$40 million
, or
26%
due to higher product sales to and royalty revenues from our licensees ($53 million), primarily resulting from the opening of 304 net new licensed stores and the transfer of 174 company-operated stores to licensed stores over the past 12 months, partially offset by unfavorable foreign currency translation ($17 million).
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 290 basis points for the first
two quarters
of fiscal
2017
, primarily due to unfavorable foreign currency transactions (approximately 190 basis points) and the shift in the composition of our store portfolio to more licensed stores, which have a lower gross margin (approximately 100 basis points).
Store operating expenses as a percentage of total net revenues decreased 440 basis points for the first
two quarters
of fiscal
2017
. As a percentage of company-operated store revenues, store operating expenses increased 50 basis points in the second quarter, primarily driven by sales deleverage in certain company-operated stores (approximately 170 basis points), partially offset by the shift in the portfolio towards more licensed stores (approximately 150 basis points).
Other operating expenses as a percentage of total net revenues increased 120 basis points for the first
two quarters
of fiscal
2017
. Excluding the impact of company-operated store revenues, other operating expenses decreased 230 basis points for the
second
quarter, primarily due to sales leverage driven by the shift to more licensed stores in the region (approximately 230 basis points).
Depreciation and amortization expense as a percentage of total net revenue decreased 70 basis points, primarily due to the shift in the portfolio towards more licensed stores (approximately 60 basis points).
General and administrative expenses as a percentage of total net revenues decreased 50 basis points, primarily due to the shift in the portfolio towards more licensed stores (approximately 40 basis points).
The combination of these changes resulted in an overall increase in operating margin of 150 basis points for the first
two quarters
of fiscal
2017
.
Channel Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
|
|
|
|
|
As a % of Channel Development
Total Net Revenues
|
|
|
|
|
|
As a % of Channel Development
Total Net Revenues
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPG
|
$
|
346.3
|
|
|
$
|
354.4
|
|
|
75.1
|
%
|
|
76.8
|
%
|
|
$
|
783.3
|
|
|
$
|
753.6
|
|
|
77.2
|
%
|
|
77.4
|
%
|
|
Foodservice
|
115.0
|
|
|
106.8
|
|
|
24.9
|
|
|
23.2
|
|
|
231.6
|
|
|
219.7
|
|
|
22.8
|
|
|
22.6
|
|
|
Total net revenues
|
461.3
|
|
|
461.2
|
|
|
100.0
|
|
|
100.0
|
|
|
1,014.9
|
|
|
973.3
|
|
|
100.0
|
|
|
100.0
|
|
|
Cost of sales
|
254.5
|
|
|
252.9
|
|
|
55.2
|
|
|
54.8
|
|
|
543.0
|
|
|
538.4
|
|
|
53.5
|
|
|
55.3
|
|
|
Other operating expenses
|
50.5
|
|
|
53.5
|
|
|
10.9
|
|
|
11.6
|
|
|
110.9
|
|
|
113.8
|
|
|
10.9
|
|
|
11.7
|
|
|
Depreciation and amortization expenses
|
0.6
|
|
|
0.7
|
|
|
0.1
|
|
|
0.2
|
|
|
1.2
|
|
|
1.4
|
|
|
0.1
|
|
|
0.1
|
|
|
General and administrative expenses
|
2.1
|
|
|
4.7
|
|
|
0.5
|
|
|
1.0
|
|
|
5.4
|
|
|
8.8
|
|
|
0.5
|
|
|
0.9
|
|
|
Total operating expenses
|
307.7
|
|
|
311.8
|
|
|
66.7
|
|
|
67.6
|
|
|
660.5
|
|
|
662.4
|
|
|
65.1
|
|
|
68.1
|
|
|
Income from equity investees
|
40.0
|
|
|
32.6
|
|
|
8.7
|
|
|
7.1
|
|
|
82.0
|
|
|
64.3
|
|
|
8.1
|
|
|
6.6
|
|
|
Operating income
|
$
|
193.6
|
|
|
$
|
182.0
|
|
|
42.0
|
%
|
|
39.5
|
%
|
|
$
|
436.4
|
|
|
$
|
375.2
|
|
|
43.0
|
%
|
|
38.5
|
%
|
Discussion of our Channel Development segment results below reflect the impact of an unfavorable revenue deduction adjustment. While this adjustment was immaterial, the discussion below quantifies the impact to provide a better understanding of our results for the quarter and two quarters ended
April 2, 2017
.
Quarter ended
April 2, 2017
compared with quarter ended
March 27, 2016
Revenues
Channel Development total net revenues for the
second
quarter of fiscal
2017
were flat when compared to the prior year period. Increased sales of packaged coffee ($10 million) and higher international sales, primarily associated with our European and North American regions ($8 million), were offset by an unfavorable revenue deduction adjustment pertaining to periods prior to the second quarter of fiscal 2017 ($21 million). Higher foodservice sales was primarily the result of a change to a direct distribution model and recognizing the benefit of full revenue from premium single-serve product sales.
Operating Expenses
Cost of sales as a percentage of total net revenues increased 40 basis points for the
second
quarter, primarily driven by the unfavorable revenue deduction adjustment (approximately 220 basis points), partially offset by lower coffee costs (approximately 120 basis points) and leverage on cost of sales (approximately 50 basis points).
Other operating expenses as a percentage of total net revenues decreased 70 basis points, primarily driven by lower performance-based compensation (approximately 70 basis points), partially offset by higher salaries and benefits (approximately 40 basis points).
Income from equity investees increased $7 million due to higher income from our North American Coffee Partnership joint venture, primarily due to increased sales of Frappuccino
®
and Starbucks Doubleshot
®
beverages and new product launches over the past 12 months.
The combination of these changes resulted in an overall increase in operating margin of 250 basis points for the
second
quarter of fiscal
2017
.
Two quarters ended
April 2, 2017
compared with two quarters ended
March 27, 2016
Revenues
Channel Development total net revenues for the first
two quarters
of fiscal
2017
increased
$42 million
or
4%
, primarily driven by higher sales of U.S. packaged coffee ($20 million) and premium single-serve products ($19 million), as well as increased sales through our international channels, primarily associated with our European and North American regions ($15 million), partially offset by an unfavorable revenue deduction adjustment pertaining to periods prior to fiscal 2017 ($13 million). Higher
foodservice sales was primarily the result of a change to a direct distribution model and recognizing the benefit of full revenue from premium single-serve product sales.
Operating Expenses
Cost of sales as a percentage of total net revenues decreased 180 basis points for the first
two quarters
of fiscal
2017
, primarily driven by lower coffee costs (approximately 140 basis points) and leverage on cost of sales (approximately 130 basis points), partially offset by the unfavorable revenue deduction adjustment (approximately 60 basis points).
Other operating expenses as a percentage of total net revenues decreased 80 basis points for the first
two quarters
of fiscal
2017
, primarily driven by lower performance-based compensation (approximately 40 basis points).
Income from equity investees increased $18 million for the first
two quarters
of fiscal
2017
due to higher income from our North American Coffee Partnership joint venture, primarily from increased sales of Frappuccino
®
and Starbucks Doubleshot
®
beverages and new product launches over the past 12 months.
The combination of these changes resulted in an overall increase in operating margin of 450 basis points for the first
two quarters
of fiscal
2017
.
All Other Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
%
Change
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
%
Change
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
$
|
45.2
|
|
|
$
|
55.4
|
|
|
(18.4
|
)%
|
|
$
|
116.2
|
|
|
$
|
136.3
|
|
|
(14.7
|
)%
|
|
Licensed stores
|
0.7
|
|
|
1.0
|
|
|
(30.0
|
)
|
|
1.7
|
|
|
2.2
|
|
|
(22.7
|
)
|
|
CPG, foodservice and other
|
65.8
|
|
|
73.8
|
|
|
(10.8
|
)
|
|
148.9
|
|
|
160.4
|
|
|
(7.2
|
)
|
|
Total net revenues
|
111.7
|
|
|
130.2
|
|
|
(14.2
|
)
|
|
266.8
|
|
|
$
|
298.9
|
|
|
(10.7
|
)
|
|
Cost of sales including occupancy costs
|
74.1
|
|
|
83.0
|
|
|
(10.7
|
)
|
|
164.5
|
|
|
178.3
|
|
|
(7.7
|
)
|
|
Store operating expenses
|
34.5
|
|
|
30.9
|
|
|
11.7
|
|
|
65.2
|
|
|
61.1
|
|
|
6.7
|
|
|
Other operating expenses
|
20.7
|
|
|
27.2
|
|
|
(23.9
|
)
|
|
38.2
|
|
|
50.8
|
|
|
(24.8
|
)
|
|
Depreciation and amortization expenses
|
3.5
|
|
|
3.4
|
|
|
2.9
|
|
|
6.3
|
|
|
7.0
|
|
|
(10.0
|
)
|
|
General and administrative expenses
|
4.4
|
|
|
4.9
|
|
|
(10.2
|
)
|
|
8.0
|
|
|
14.8
|
|
|
(45.9
|
)
|
|
Total operating expenses
|
137.2
|
|
|
149.4
|
|
|
(8.2
|
)
|
|
282.2
|
|
|
312.0
|
|
|
(9.6
|
)
|
|
Operating loss
|
$
|
(25.5
|
)
|
|
$
|
(19.2
|
)
|
|
32.8
|
%
|
|
$
|
(15.4
|
)
|
|
$
|
(13.1
|
)
|
|
17.6%
|
All Other Segments primarily includes Teavana, Seattle’s Best Coffee, Evolution Fresh, as well as Starbucks Reserve
®
and Roastery businesses.
Quarterly Store Data
Our store data for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net stores opened/(closed) and
transferred during the period
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
Stores open as of
|
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Apr 2,
2017
|
|
Mar 27,
2016
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
82
|
|
|
38
|
|
|
157
|
|
|
119
|
|
|
9,176
|
|
|
8,790
|
|
|
Licensed stores
|
118
|
|
|
94
|
|
|
294
|
|
|
184
|
|
|
6,882
|
|
|
6,316
|
|
|
Total Americas
|
200
|
|
|
132
|
|
|
451
|
|
|
303
|
|
|
16,058
|
|
|
15,106
|
|
|
China/Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
67
|
|
|
54
|
|
|
171
|
|
|
144
|
|
|
2,982
|
|
|
2,596
|
|
|
Licensed stores
|
120
|
|
|
121
|
|
|
319
|
|
|
312
|
|
|
3,951
|
|
|
3,322
|
|
|
Total China/Asia Pacific
|
187
|
|
|
175
|
|
|
490
|
|
|
456
|
|
|
6,933
|
|
|
5,918
|
|
|
EMEA
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
—
|
|
|
(10
|
)
|
|
(18
|
)
|
|
(49
|
)
|
|
505
|
|
|
688
|
|
|
Licensed stores
|
46
|
|
|
57
|
|
|
159
|
|
|
175
|
|
|
2,278
|
|
|
1,800
|
|
|
Total EMEA
|
46
|
|
|
47
|
|
|
141
|
|
|
126
|
|
|
2,783
|
|
|
2,488
|
|
|
All Other Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
(7
|
)
|
|
(4
|
)
|
|
(9
|
)
|
|
(5
|
)
|
|
349
|
|
|
370
|
|
|
Licensed stores
|
1
|
|
|
—
|
|
|
3
|
|
|
(2
|
)
|
|
38
|
|
|
39
|
|
|
Total All Other Segments
|
(6
|
)
|
|
(4
|
)
|
|
(6
|
)
|
|
(7
|
)
|
|
387
|
|
|
409
|
|
|
Total Company
|
427
|
|
|
350
|
|
|
1,076
|
|
|
878
|
|
|
26,161
|
|
|
23,921
|
|
Financial Condition, Liquidity and Capital Resources
Investment Overview
Our cash and investments totaled
$3.5 billion
as of
April 2, 2017
and
$3.4 billion
as of
October 2, 2016
. We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, make acquisitions, and return cash to shareholders through common stock cash dividend payments and share repurchases. Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities, government treasury securities (foreign and domestic), mortgage and asset-backed securities and agency obligations. As of
April 2, 2017
, approximately
$1.8 billion
of our cash and investments were held in foreign subsidiaries.
Borrowing Capacity
Our
$1.5 billion
unsecured, revolving credit facility with various banks, of which
$150 million
may be used for issuances of letters of credit, is available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases, and is currently set to mature on
November 6, 2020
. Starbucks has the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional
$750 million
. Borrowings under the credit facility will bear interest at a variable rate based on LIBOR, and, for U.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the credit facility), in each case plus an applicable margin. The applicable margin is based on the better of (i) the Company's long-term credit ratings assigned by Moody's and Standard & Poor's rating agencies and (ii) the Company's fixed charge coverage ratio, pursuant to a pricing grid set forth in the credit agreement. The current applicable margin is
0.565%
for Eurocurrency Rate Loans and 0.00% (nil) for Base Rate Loans. The credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. As of
April 2, 2017
, we were in compliance with all applicable covenants. No amounts were outstanding under our credit facility as of
April 2, 2017
.
Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of
$1 billion
, with individual maturities that may vary but not exceed
397 days
from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our credit facility discussed above. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of
cash dividends on our common stock and share repurchases. As of
April 2, 2017
, we had
$25 million
of borrowings outstanding under the program.
The indentures under which all of our Senior Notes were issued, as detailed in
Note 7
, Debt, to the condensed consolidated financial statements included in Item 1 of Part I of this 10-Q, require us to maintain compliance with certain covenants, including limits on future liens and sale and leaseback transactions on certain material properties. As of
April 2, 2017
, we were in compliance with all applicable covenants.
In March 2017, we issued Japanese yen-denominated long-term debt in an underwritten registered public offering. The 7-year 0.372% Senior Notes (the "2024 notes") due March 2024 were issued with a face value of ¥85 billion, or $761.1 million as of
April 2, 2017
. We will use the net proceeds from the offering to enhance our sustainability programs around coffee supply chain management through Eligible Sustainability Projects. Interest on the 2024 notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017. Additionally, in the first quarter of fiscal 2017, our
$400 million
of
0.875%
Senior Notes (the "2016 notes") were repaid. See
Note 7
, Debt, to the condensed consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.
Use of Cash
We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facility and commercial paper program, to invest in our core businesses, including capital expenditures, new product innovations, related marketing support and partner and digital investments, return cash to shareholders through common stock cash dividend payments and share repurchases, as well as other new business opportunities related to our core businesses, including Siren Retail. Further, we may use our available cash resources to make proportionate capital contributions to our investees. We may also seek strategic acquisitions to leverage existing capabilities and further build our business in support of our growth agenda. Acquisitions may include increasing our ownership interests in our investees. Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy.
We believe that future cash flows generated from operations and existing cash and investments both domestically and internationally will be sufficient to finance capital requirements for our core businesses in those respective markets as well as shareholder distributions for the foreseeable future. Significant new joint ventures, acquisitions and/or other new business opportunities may require additional outside funding. We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates; however, additional borrowings would result in increased interest expense in the future.
We consider the majority of undistributed earnings of our foreign subsidiaries and equity investees as of
April 2, 2017
to be indefinitely reinvested and, accordingly, no U.S. income and foreign withholding taxes have been provided on such earnings. We have not, nor do we anticipate the need to, repatriate funds to the U.S. to satisfy domestic liquidity needs; however, in the event that we need to repatriate all or a portion of our foreign cash to the U.S., we would be subject to additional U.S. income taxes, which could be material. We do not believe it is practicable to calculate the potential tax impact of repatriation, as there is a significant amount of uncertainty around the calculation, including the availability and amount of foreign tax credits at the time of repatriation, tax rates in effect and other indirect tax consequences associated with repatriation.
During the
second
quarter of fiscal
2017
, our Board of Directors declared a quarterly cash dividend to shareholders of
$0.25
per share to be paid on
May 26, 2017
to shareholders of record as of the close of business on
May 11, 2017
. We repurchased
19.0 million
shares of common stock (
$1.0 billion
) during the first two quarters of fiscal
2017
under our ongoing share repurchase program. The number of remaining shares authorized for repurchase as of
April 2, 2017
totaled
98.9 million
.
Other than normal operating expenses, cash requirements for the remainder of fiscal
2017
are expected to consist primarily of capital expenditures for new company-operated stores; remodeling and refurbishment of, and equipment upgrades for, existing company-operated stores; systems and technology investments in the stores and in the support infrastructure; and additional investments in manufacturing capacity. Total capital expenditures for fiscal
2017
are expected to be approximately
$1.6 billion
.
Cash Flows
Cash
provided
by operating activities was
$1.9 billion
for the first two quarters of fiscal
2017
, compared to
$2.2 billion
for the same period in fiscal
2016
. The change was primarily due to the timing of our cash payments for income taxes, partially offset by increased earnings.
Cash
used
by investing activities for the first two quarters of fiscal
2017
totaled
$565.3 million
, compared to
$1.0 billion
for the same period in fiscal
2016
. The change was primarily due to an increase in the sale of investments as well as lower purchases of investments.
Cash
used
by financing activities for the first two quarters of fiscal
2017
totaled
$1.3 billion
, compared to
$1.5 billion
for the same period in fiscal
2016
. The change was primarily due to a decrease in share repurchases and higher proceeds from issuances of long-term debt, partially offset by the repayment of the 2016 notes and an increase in dividend payments in fiscal 2017.
Contractual Obligations
In Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K, we disclosed that we had $13.3 billion in total contractual obligations as of
October 2, 2016
. Other than the issuance of our 2024 notes in the second quarter of fiscal 2017 and the repayment of the 2016 notes in the first quarter of fiscal 2017, as described in
Note 7
, Debt, to the condensed consolidated financial statements included in Item 1 of Part I of this 10-Q, there have been no material changes to our total obligations during the period covered by this 10-Q outside of the normal course of our business.
Off-Balance Sheet Arrangements
There has been no material change in our off-balance sheet arrangements discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K.
Commodity Prices, Availability and General Risk Conditions
Commodity price risk represents our primary market risk, generated by our purchases of green coffee and dairy products, among other items. We purchase, roast and sell high-quality
arabica
coffee and related products and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores. The price and availability of these commodities directly impact our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations. For additional details, see Product Supply in Item 1 of the 10-K, as well as Risk Factors in Item 1A of the 10-K.
Seasonality and Quarterly Results
Our business is subject to moderate seasonal fluctuations, of which our fiscal second quarter typically experiences lower revenues and operating income. Additionally, as Starbucks Cards are issued to and loaded by customers during the holiday season, we tend to have higher cash flows from operations during the first quarter of the fiscal year. However, since revenues from Starbucks Cards are recognized upon redemption and not when cash is loaded onto the Card, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced. As a result of moderate seasonal fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
See
Note 1
, Summary of Significant Accounting Policies, to the condensed consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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There has been no material change in the commodity price risk, foreign currency exchange risk, equity security price risk or interest rate risk discussed in Item 7A of the 10-K.
Item 4.
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
During the
second
quarter of fiscal
2017
, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report (
April 2, 2017
).
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits
31.1
and
31.2
to this 10-Q.