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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 2, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period
from to .
Commission File Number: 000-20322
Starbucks Corporation
(Exact Name of Registrant as Specified in its Charter)
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Washington |
91-1325671 |
(State of Incorporation) |
(IRS Employer ID) |
2401 Utah Avenue South, Seattle, Washington 98134
(206) 447-1575
(Address of principal executive office, zip code, telephone
number)
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered |
Common Stock, $0.001 par value per share |
SBUX |
Nasdaq Global Select Market |
Securities Registered Pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ¨
No x
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such
files). Yes x No ¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
x |
Accelerated filer |
¨
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Non-accelerated filer |
¨
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
¨
Indicate by check mark whether the registrant has filed a report on
and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. x
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act). Yes ☐ No x
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of the last business day of the
registrant’s most recently completed second fiscal quarter, based
upon the closing sale price of the registrant’s common stock on
April 3, 2022 as reported on the Nasdaq Global Select Market
was $104.8 billion. As of November 11, 2022, there were
1,147.8 million shares of the registrant’s Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s
Annual Meeting of Shareholders to be held on March 23, 2023
have been incorporated by reference into Part III of this
Annual Report on Form 10-K.
STARBUCKS CORPORATION
Form 10-K
For the Fiscal Year Ended October 2, 2022
TABLE OF CONTENTS
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PART I |
Item 1 |
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Item 1A |
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Item 1B |
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Item 2 |
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Item 3 |
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Item 4 |
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PART II |
Item 5 |
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Item 6 |
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Item 7 |
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Item 7A |
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Item 8 |
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Item 9 |
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Item 9A |
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Item 9B |
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Item 9C |
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PART III |
Item 10 |
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Item 11 |
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Item 12 |
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Item 13 |
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Item 14 |
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PART IV |
Item 15 |
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Item 16 |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report on Form 10-K includes “forward-looking”
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements can be identified by
the fact that they do not relate strictly to historical or current
facts. They often include words such as “believes,” “expects,”
“anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of
similar meaning, or future or conditional verbs, such as “will,”
“should,” “could,” “may,” “aims,” “intends,” or “projects.” 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
forward-looking statements, which speak only as of the date of this
Annual Report on Form 10-K. These forward-looking statements are
all based on currently available operating, financial and
competitive information and are subject to various risks and
uncertainties. Our actual future results and trends may differ
materially depending on a variety of factors, including, but not
limited to, the risks and uncertainties discussed under “Risk
Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” Given these risks and
uncertainties, you should not rely on forward-looking statements as
a prediction of actual results. Any or all of the forward-looking
statements contained in this Annual Report on Form 10-K and any
other public statement made by us, including by our management, may
turn out to be incorrect. We are including this cautionary note to
make applicable and take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 for
forward-looking statements. We expressly disclaim any obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking
statements.
PART I
Item 1.
Business
General
In this Annual Report on Form 10-K (“10-K” or “Report”) for
the fiscal year ended October 2, 2022 (“fiscal 2022”),
Starbucks Corporation (together with its subsidiaries) is referred
to as “Starbucks,” the “Company,” “we,” “us” or “our.”
Starbucks is the premier roaster, marketer and retailer of
specialty coffee in the world, operating in 83 markets. Formed in
1985, Starbucks Corporation’s common stock trades on the Nasdaq
Global Select Market (“Nasdaq”) under the symbol “SBUX.” We
purchase and roast high-quality coffees that we sell, along with
handcrafted coffee, tea and other beverages and a variety of
high-quality food items through company-operated stores. We also
sell a variety of coffee and tea products and license our
trademarks through other channels, such as licensed stores as well
as grocery and foodservice through our Global Coffee Alliance with
Nestlé S.A. (“Nestlé”). In addition to our flagship Starbucks
Coffee®
brand, we sell goods and services under the following brands:
Teavana®,
Seattle’s Best Coffee®,
Ethos®,
Starbucks Reserve®
and Princi®.
Our primary objective is to maintain Starbucks standing as one of
the most recognized and respected brands in the world. We believe
the continuous investments in our brand and operations will deliver
long-term targeted revenue and income growth. This includes
expansion of our global store base, adding stores in both existing,
developed markets such as the U.S. and in higher growth markets
such as China, as well as optimizing the mix of company-operated
and licensed stores around the world. In addition, by leveraging
experiences gained through our stores and elsewhere, we continue to
drive beverage, equipment, process and technology innovation,
including in our industry-leading digital platform. We strive to
regularly offer consumers new, innovative coffee and other products
in a variety of forms, across new categories, diverse channels and
alternative store formats.
Starbucks has always been a different kind of company – one deep
with purpose, where we work together to create a positive impact in
the world. With coffee at our core, we pursue ambitious goals for
our partners (employees), our communities and our planet because we
believe it is our role and responsibility to create a thriving
business powered by thriving people for a thriving planet and
communities. Starbucks work to uplift one another extends well
beyond our partners to the communities where we do business around
the world. We are committed to responsible and ethical sourcing led
by Coffee and Farmer Equity (C.A.F.E.) Practices, the company’s
third-party verification program and the cornerstone of our
approach to ethical sourcing coffee, as well as a more sustainable,
resilient future for our planet and for our
communities.
Human Capital Management
We invest in the well-being – the mental, physical and financial
health – of every partner through our practices, policies and
benefits. This work is grounded in the belief that we are at our
best when we create inclusive and welcoming environments, where we
uplift one another with dignity, respect and kindness. And we are
hard at work uplifting our communities and building environments in
our stores that are welcoming and safe. We believe the strength of
our workforce is one of the significant contributors to our success
as a global brand that leads with purpose. Therefore, one of our
core strategies is to invest in and support our partners to
differentiate our brand, products and services in the competitive
specialty coffee market, including the following areas of
focus:
Oversight and Management
We recognize the diversity of customers, partners and communities
and believe in creating an inclusive and equitable environment that
represents a broad spectrum of backgrounds and cultures. Working
under these principles, our Partner Resources Organization is
tasked with managing employment-related matters, including
recruiting and hiring, onboarding and training, compensation
planning, performance management and professional development. Our
Board of Directors (the “Board”) and Board committees provide
oversight on certain human capital matters, including our Inclusion
and Diversity programs and initiatives. As noted in its charter,
our Compensation and Management Development Committee is
responsible for periodically reviewing Starbucks partner resource
programs and initiatives, including healthcare and other benefits,
as well as our management development and succession planning
practices and strategies. Our Audit and Compliance Committee works
closely with the Risk Management Committee, led by Starbucks cfo
and general counsel, to monitor and mitigate current and emerging
labor and human capital management risks. Furthermore, our
Nominating and Corporate Governance Committee, in consultation with
management, including our chief partner officer and chief inclusion
and diversity officer, annually evaluates the effectiveness of our
social responsibility policies, goals and programs, which also
include partner-related issues. These reports and recommendations
to the Board and its committees are part of the broader framework
that guides how Starbucks should attract, retain and develop a
skilled workforce that aligns with our values and
strategies.
We regularly conduct anonymous surveys to seek feedback from our
partners on a variety of topics, including confidence in company
leadership, competitiveness of our compensation and benefits
package, career growth opportunities and recommendations on how we
can remain an employer of choice. The results are shared with our
partners and reviewed by
senior leadership, who analyze areas of progress or deterioration
and prioritize actions and activities in response to this feedback
to drive meaningful improvements in partner engagement. Our
management and cross-functional teams also work closely to evaluate
human capital management issues such as partner retention,
workplace safety, harassment and bullying, as well as to implement
measures to mitigate these risks.
Diversity, Equity and Inclusion
We are committed to creating a welcoming and inclusive environment.
We believe it is our responsibility to advance racial and social
equity, and we are committed to furthering that work with
intention, transparency and accountability. We continue to welcome
our partners, customers, civil rights and community leaders, along
with our chief inclusion and diversity officer, to advise us along
this journey.
Starbucks has made specific racial equity commitments based on our
principles of being intentional, transparent and accountable at all
levels:
•Being
intentional in cultivating a culture of inclusion, with a focus on
partner retention and development.
◦Expanding
our mentorship program designed to foster and deepen understanding
of inclusion, diversity, equity and accessibility and provide
partners in corporate and retail roles, including Black, Indigenous
and people of color (“BIPOC”) and lesbian, gay, bisexual,
transgender, queer and/or questioning (“LGBTQ+”) partners,
development opportunities and connections with senior
leaders.
•Being
transparent in our approach to Inclusion and Diversity goal setting
and progress.
◦Publicly
sharing workforce diversity data.
◦Setting
annual Inclusion and Diversity goals based on retention rates and
progress towards achieving BIPOC representation. Our goal is for at
least 30% of all corporate roles and at least 40% of all retail and
manufacturing roles to be held by BIPOC partners in the U.S. by
2025.
•Holding
ourselves accountable at the highest levels of the
organization.
◦Incorporating
metrics focused on building inclusive and diverse teams into our
executive compensation programs.
◦Joining
the Board Diversity Action Alliance to act alongside other
companies similarly committed to increasing racially and ethnically
diverse representation on corporate boards.
◦Publicizing
self-identified race/ethnicity/gender of each member of our
Board.
Total Rewards
We have demonstrated a history of investing in our workforce by
offering competitive salaries and wages by continuously assessing
the current business environment and labor market. We have
consistently made enhancements in wages in order to attract talent
to support our growth strategy and to elevate the customer
experience. To foster a stronger sense of ownership and align the
interests of partners with shareholders, restricted stock units are
provided to eligible non-executive partners under our broad-based
stock incentive programs. Furthermore, we offer comprehensive,
locally relevant and innovative benefits to all eligible partners.
In the U.S., our largest and most mature market, these
include:
•Comprehensive
health insurance coverage is offered to partners working an average
of 20 hours or more each week.
•100%
upfront tuition coverage is offered through the Starbucks College
Achievement Plan for partners to earn a first-time bachelor's
degree online at Arizona State University.
•100%
paid parental leave is available to new parents that welcome a
child through birth, adoption or foster placement and work an
average of 20 hours or more each week.
•A
Partner and Family Sick Time program is provided and allows
partners to accrue paid sick time based on hours worked and use
that time for themselves or family members in need of
care.
•Care@Work
benefit provides partners with backup care benefits for children
and adults at a small cost to partners, as well as free unlimited
senior care planning services. This benefit includes up to 30 days
of backup care services through the end of fiscal 2022, in light of
the COVID-19 pandemic.
•We
view mental health as a fundamental part of our humanity and
provide a comprehensive suite of related programs and benefits.
These include a free subscription to Headspace, an online
application that enables guided mediation, and 20 free mental
health therapy or coaching sessions annually with
Lyra.
Outside of the U.S., we have provided other innovative benefits to
help address market-specific needs, such as providing interest-free
loans to our U.K. partners to help cover rental deposits, mental
health services in Canada, and in China, a monthly housing subsidy
for full-time Starbucks baristas and shift supervisors, as well as
comprehensive health insurance coverage for parents of
partners.
Role-based Support
To help our partners succeed in their roles, we emphasize
continuous training and development opportunities. These include,
but are not limited to, safety and security protocols, updates on
new products and service offerings and deployment of technologies.
Training provided through our Pour Over sessions, which are a
series of inspiring talks with thought leaders to help partners
understand how to bring the
Starbucks Experience
to life, include a wide variety of topics such as achievable goal
setting, giving and receiving constructive feedback and effective
engagement with customers and communities. To help further promote
an inclusive culture and to better serve our customers, we
encourage U.S.-based partners to enroll in the
To Be Welcoming
courses we created in partnership with Arizona State University to
address different forms of bias and discrimination.
Pay Equity
To be an employer of choice and maintain the strength of our
workforce, we consistently assess the current business environment
and labor market to refine our compensation and benefits programs
and other resources available to our partners.
We previously achieved and currently maintain 100 percent pay
equity in the U.S. for women and men and people of all races for
partners performing similar work. We have also achieved gender pay
equity in China and Canada, two of our largest markets outside of
the U.S., and we made a commitment to achieve gender pay equity in
all company-operated markets. Further, we have formulated
pay-equity principles which provide equal footing, transparency and
accountability as best practices that help address known, systemic
barriers to global pay equity.
As of October 2, 2022, Starbucks employed approximately
402,000 people worldwide. In the U.S., Starbucks employed
approximately 258,000 people, with approximately 248,000 in
company-operated stores and the remainder in corporate support,
store development, roasting, manufacturing, warehousing and
distribution operations. Approximately 144,000 employees were
employed outside of the U.S., with approximately 140,000 in
company-operated stores and the remainder in regional support
operations. Some Starbucks partners in company-operated stores are
represented by unions, though it is an immaterial portion of our
total workforce. We believe our efforts in managing our workforce
have been effective, evidenced by a strong Starbucks culture and a
good relationship between the company and our
partners.
Information about our Executive Officers
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Name |
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Age |
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Position |
Howard Schultz |
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69 |
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interim chief executive officer |
Laxman Narasimhan |
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55 |
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chief executive officer-elect |
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Michael Conway |
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56 |
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group president, International and Channel Development |
Zabrina Jenkins |
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52 |
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acting executive vice president and general counsel |
Rachel Ruggeri |
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53 |
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executive vice president, chief financial officer |
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Howard Schultz
is the founder of Starbucks Corporation and has served as interim
chief executive officer and a member of the Starbucks Board since
April 2022. Mr. Schultz previously served as chairman of the Board
of Starbucks since its inception in 1985 and until June 2018, and
since 2018 has held the role of founder and chairman emeritus of
Starbucks. He also previously served as chief executive officer
from January 2008 to April 2017 and from November 1985 to June
2000, and as president from January 2008 until March 2015 and from
November 1985 to June 1994. From June 2000 to February 2005, Mr.
Schultz also held the title of chief global strategist. Mr. Schultz
also held leadership and director roles with Il Giornale Coffee
Company and Starbucks Coffee Company, which were predecessors to
Starbucks.
Laxman Narasimhan
joined Starbucks as its chief executive officer-elect on October 1,
2022. Prior to joining Starbucks, Mr. Narasimhan served as Chief
Executive Officer of Reckitt Benckiser Group Plc (“Reckitt”), a
FTSE 12 listed British multinational consumer health, hygiene and
nutrition company, since September 2019. Prior to joining Reckitt,
Mr. Narasimhan held various roles at PepsiCo from 2012 to 2019. He
served as PepsiCo’s Group Chief Commercial Officer until July 2019,
and prior to that beginning in 2012 served as Chief Executive
Officer - Latin America, Europe and Sub-Saharan Africa, Chief
Executive Officer - Latin America and Chief Financial Officer of
PepsiCo Americas Foods. Prior to joining PepsiCo, Mr. Narasimhan
spent 19 years at McKinsey & Company, where he focused on its
consumer, retail and technology practices in the U.S., Asia and
India. Mr. Narasimhan currently serves on the Board of Directors of
Verizon Communications, Inc., a NYSE-listed telecommunications
company. Mr. Narasimhan is a trustee of the Brookings Institution
and a member of the Council on Foreign Relations.
Michael Conway
joined Starbucks in March 2013 and was named group president,
International and Channel Development in June 2021, where he is
responsible for leading Starbucks retail growth and operations in
over 80 markets across Asia Pacific, Europe, Middle East and
Africa, Latin America and the Caribbean and growth for the Global
Channel Development business, which consists of consumer packaged
goods, ready-to-drink businesses and strategic partnerships,
including those with Nestlé, PepsiCo and other key business
partners. Prior to this, he served as executive vice president and
president, International Licensed Markets, from March 2020 to June
2021. He also served as executive vice president and president,
Starbucks Canada, executive vice president and president for
Starbucks Licensed Stores business for the United States and Latin
America and executive vice president and president of Starbucks
Global Channel Development from December 2014 to March 2020. He
currently serves on the Board of Directors of McCormick &
Company, Incorporated, a NYSE-listed spice and extract
manufacturing company.
Zabrina Jenkins
joined the Starbucks legal department in 2005 and was named acting
executive vice president and general counsel in April 2022, where
she leads legal and regulatory affairs, global security and ethics
and compliance for the company. Prior to being named acting
executive vice president, she served as senior vice president,
deputy general counsel from February 2020 to April 2022. She
previously held roles as senior vice president, deputy general
counsel, interim chief ethics and compliance officer, lead legal
advisor for Teavana and was a member of the Starbucks 2018
Philadelphia incident crisis management response team. She serves
as an independent board director for Retail Opportunity Investments
Corp., a Nasdaq-listed national manager of retail shopping centers,
and is a member of the Board of Trustees for Central Washington
University.
Rachel Ruggeri
joined Starbucks in 2001 as a member of the accounting team and was
named executive vice president and chief financial officer in
February 2021. In this leadership role, Rachel is responsible for
the global finance function for Starbucks, which includes
developing and executing the financial strategies that enable the
long-term growth of the Company. Prior to her promotion in 2021,
she served as senior vice president of Americas with responsibility
for the retail portfolio across the segment, including
company-operated and licensed stores from June 2020 to January
2021. From September 2016 to June 2020, she held various leadership
roles in finance both internal and external to Starbucks, including
Chief Financial Officer of Continental Mills from July 2018 to May
2020 and prior to that she was senior vice president of Finance at
Starbucks in support of the Americas and Global Retail from
September 2016 to June 2018. She also served as vice president of
Finance from December 2010 to September 2016 supporting Corporate
Financial Planning & Analysis and the U.S. Retail
business.
Segment Financial Information
Segment information is prepared on the same basis that our
management reviews financial information for operational
decision-making purposes.
We have three reportable operating segments: 1) North America,
which is inclusive of the U.S. and Canada; 2) International, which
is inclusive of China, Japan, Asia Pacific, Europe, Middle East,
Africa, Latin America and Caribbean; and 3) Channel Development.
Non-reportable operating segments and unallocated corporate
expenses are reported within Corporate and Other. Revenues from our
reportable operating segments as a percentage of total net revenues
for fiscal 2022 were as follows: North America (72%), International
(22%) and Channel Development (6%).
Our North America and International segments include both
company-operated and licensed stores. Our North America segment is
our most mature business and has achieved significant scale.
Certain markets within our International operations are in various
stages of development and may require more extensive support,
relative to their current levels of revenue and operating income,
than our North America operations.
Our Channel Development segment includes roasted whole bean and
ground coffees, Seattle’s Best Coffee, Starbucks- and
Teavana-branded single-serve products, a variety of ready-to-drink
beverages, such as Frappuccino®
and Starbucks Doubleshot®,
foodservice products and other branded products sold worldwide
outside of our company-operated and licensed stores. A large
portion of our Channel Development business operates under a
licensed model of the Global Coffee Alliance with Nestlé, while our
global ready-to-drink businesses operate under collaborative
relationships with PepsiCo, Inc., Tingyi-Ashi Beverages Holding
Co., Ltd., Arla Foods amba, Nestlé and others.
Revenue Components
We generate the majority of our revenues through company-operated
stores and licensed stores.
Company-operated and Licensed Store Summary as of October 2,
2022:
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North America |
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As a % of
Total
North America Stores |
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International |
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As a % of
Total
International Stores |
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Total |
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As a % of
Total
Stores |
Company-operated stores |
10,216 |
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59 |
% |
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8,037 |
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44 |
% |
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18,253 |
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51 |
% |
Licensed stores |
7,079 |
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41 |
% |
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10,379 |
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56 |
% |
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17,458 |
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49 |
% |
Total |
17,295 |
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100 |
% |
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18,416 |
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100 |
% |
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35,711 |
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100 |
% |
The mix of company-operated versus licensed stores in a given
market generally varies based on several factors, including our
ability to access desirable local retail space, the complexity,
profitability and expected ultimate size of the market for
Starbucks and our ability to leverage the support infrastructure
within a geographic region.
Company-operated Stores
Revenue from company-operated stores accounted for 82% of total net
revenues during fiscal 2022. Our retail objective is to be the
leading retailer and brand of coffee and tea in each of our target
markets by selling the finest quality coffee, tea and related
products, as well as complementary food offerings, and by providing
each customer with a unique
Starbucks Experience.
The
Starbucks Experience
is built upon superior customer service, convenience and a seamless
digital experience as well as safe, clean and well-maintained
stores that reflect the personalities of the communities in which
they operate, thereby building a high degree of customer
loyalty.
Our strategy for expanding our global retail business is to
increase our category share in a disciplined manner, by selectively
opening additional stores in new and existing markets, as well as
increasing sales in existing stores, to support our long-term
strategic objective to maintain Starbucks standing as one of the
most recognized and respected brands in the world. Store growth in
specific existing markets will vary due to many factors, including
expected financial returns, the maturity of the market, economic
conditions, consumer behavior and local business
environment.
Company-operated store data for the fiscal year-ended
October 2, 2022:
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Stores Open
as of
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Stores Open
as of
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Oct 3, 2021 |
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Opened |
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Closed |
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Transfers |
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Net |
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Oct 2, 2022 |
North America: |
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U.S. |
8,947 |
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437 |
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(116) |
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(3) |
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|
318 |
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9,265 |
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Canada |
908 |
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44 |
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(6) |
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— |
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38 |
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|
946 |
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Siren Retail |
6 |
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— |
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(1) |
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— |
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(1) |
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5 |
|
Total North America |
9,861 |
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|
481 |
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(123) |
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(3) |
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|
355 |
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|
10,216 |
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International: |
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China |
5,358 |
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724 |
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(63) |
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— |
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|
661 |
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|
6,019 |
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Japan |
1,546 |
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|
102 |
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(18) |
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|
— |
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|
84 |
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|
1,630 |
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U.K. |
298 |
|
|
29 |
|
|
(6) |
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|
(3) |
|
|
20 |
|
|
318 |
|
All Other |
65 |
|
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2 |
|
|
(2) |
|
|
— |
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|
— |
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|
65 |
|
Siren Retail |
5 |
|
|
— |
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|
— |
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|
— |
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|
— |
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|
5 |
|
Total International |
7,272 |
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|
857 |
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|
(89) |
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|
(3) |
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|
765 |
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|
8,037 |
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Total company-operated |
17,133 |
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|
1,338 |
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(212) |
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(6) |
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|
1,120 |
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|
18,253 |
|
Starbucks company-operated stores are typically located in
high-traffic, high-visibility locations. Our ability to vary the
size and format of our stores allows us to locate them in or near a
variety of settings, including downtown and suburban retail
centers, office buildings, university campuses and rural and
off-highway locations. We are continuing the expansion of our
stores, particularly drive-thru formats that provide a higher
degree of access and convenience, and alternative store formats,
which are designed to provide a more streamlined customer
experience in dense metropolitan areas.
In fiscal 2022, we announced our plan in the U.S. market to
increase efficiency while elevating the partner and customer
experience (the “Reinvention Plan”). We believe the investments in
partner wages and trainings will increase retention
and
productivity while the acceleration of purpose-built store concepts
and innovations in technologies will provide additional convenience
and connection with our customers. In our major international
markets, we also continue to invest in technology and establish
partnerships with third parties with relevant expertise to increase
digital adoption to provide convenience and elevate the customer
experience. In China, we leverage platforms such as Starbucks
NowTM
stores to enable a seamless integration of physical and digital
customer touchpoints. Orders may be placed in advance through the
Starbucks Mobile App or Starbucks DeliversTM
and can be conveniently picked up by customers and delivery
providers in these express retail format locations. These
strategies align closely with rapidly evolving customer
preferences, including higher levels of mobile ordering, more
contactless pick-up experiences and reduced in-store congestion,
all of which naturally allow for greater physical distancing. We
announced plans to invest in a digital third place that will offer
members access to new benefits, a digital community and immersive
coffee experiences, giving our customers new ways to experience and
connect with Starbucks. We believe our continued efforts to
transform our store portfolio and elevate technology will enhance
the customer experience and position Starbucks for long-term
growth.
Retail sales mix by product type for company-operated
stores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Sep 27,
2020 |
Beverages |
74 |
% |
|
74 |
% |
|
75 |
% |
Food |
22 |
% |
|
21 |
% |
|
20 |
% |
Other(1)
|
4 |
% |
|
5 |
% |
|
5 |
% |
Total |
100 |
% |
|
100 |
% |
|
100 |
% |
(1)“Other”
primarily consists of sales of packaged and single-serve coffees
and teas, serveware and ready-to-drink beverages, among other
items.
Stored Value Cards and Loyalty Program
The Starbucks Card, our branded stored value card program, is
designed to provide customers with a convenient payment method,
support gifting and increase the frequency of store visits by
cardholders, in part through the related
Starbucks®
Rewards loyalty program where available, as discussed below. Stored
value cards are issued to customers when they initially load them
with an account balance. They can be obtained in our
company-operated and most licensed stores in North America, China,
Japan and many of our markets in our International segment. Stored
value cards can also be obtained online, via the
Starbucks®
Mobile App and through other U.S. and international retailers.
Customers may access their card balances by utilizing their stored
value card or the Starbucks Mobile App in participating stores. In
nearly all markets, including the U.S. and Canada, customers who
register their Starbucks Cards are automatically enrolled in the
Starbucks Rewards program. Registered members can receive various
benefits depending on factors such as the number of reward points
(“Stars”) earned. In addition to using their Starbucks Cards,
Starbucks Rewards members can earn Stars by paying with cash,
credit or debit cards, or selected mobile wallets at all
company-operated stores and a majority of licensed stores in North
America. Using the Mobile Order and Pay functionality of the
Starbucks Mobile App, customers can also place orders in advance
for pick-up at certain participating locations in several markets.
Refer to
Note
1,
Summary of Significant Accounting Policies and Estimates, included
in Item 8 of Part II of this 10-K, for further discussion of
our stored value cards and loyalty program.
Licensed Stores
Revenues from our licensed stores accounted for 11% of total net
revenues in fiscal 2022. Licensed stores generally have a lower
gross margin and a higher operating margin than company-operated
stores. Under the licensed model, Starbucks receives a margin on
branded products and supplies sold to the licensed store operator
along with a royalty on retail sales. Licensees are responsible for
operating costs and capital investments, which more than offset the
lower revenues we receive under the licensed store
model.
In our licensed store operations, we seek to leverage the expertise
of our local partners and share our operating and store development
experience. Licensees provide improved, and at times the only,
access to desirable retail space. Most licensees are prominent
retailers with in-depth market knowledge and access. As part of
these arrangements, we sell coffee, tea, food and related products
to licensees for resale to customers and receive royalties and
license fees from the licensees. We also sell certain equipment,
such as coffee brewers and espresso machines, to our licensees for
use in their operations. Licensee employees working in licensed
retail locations are required to follow our detailed store
operating procedures and attend training classes similar to those
given to employees in company-operated stores. In a limited number
of international markets, we also use traditional franchising and
include these stores in the results of operations from our other
licensed stores.
Licensed store data for the fiscal year-ended October 2,
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores Open
as of
|
|
|
|
|
|
|
|
|
|
Stores Open
as of
|
|
Oct 3, 2021 |
|
Opened |
|
Closed |
|
Transfers |
|
Net |
|
Oct 2, 2022 |
North America: |
|
|
|
|
|
|
|
|
|
|
|
U.S. |
6,497 |
|
|
217 |
|
|
(109) |
|
|
3 |
|
|
111 |
|
|
6,608 |
|
Canada |
468 |
|
|
27 |
|
|
(24) |
|
|
— |
|
|
3 |
|
|
471 |
|
Total North America |
6,965 |
|
|
244 |
|
|
(133) |
|
|
3 |
|
|
114 |
|
|
7,079 |
|
International: |
|
|
|
|
|
|
|
|
|
|
|
Korea |
1,611 |
|
|
168 |
|
|
(29) |
|
|
— |
|
|
139 |
|
|
1,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
1,437 |
|
|
115 |
|
|
(3) |
|
|
— |
|
|
112 |
|
|
1,549 |
|
U.K. |
791 |
|
|
74 |
|
|
(30) |
|
|
3 |
|
|
47 |
|
|
838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey |
559 |
|
|
50 |
|
|
(5) |
|
|
— |
|
|
45 |
|
|
604 |
|
Taiwan |
523 |
|
|
30 |
|
|
(9) |
|
|
— |
|
|
21 |
|
|
544 |
|
Indonesia |
487 |
|
|
48 |
|
|
(12) |
|
|
— |
|
|
36 |
|
|
523 |
|
Thailand |
425 |
|
|
27 |
|
|
(6) |
|
|
— |
|
|
21 |
|
|
446 |
|
Philippines |
401 |
|
|
19 |
|
|
(2) |
|
|
— |
|
|
17 |
|
|
418 |
|
All Other |
3,501 |
|
|
394 |
|
|
(188) |
|
|
— |
|
|
206 |
|
|
3,707 |
|
Total International |
9,735 |
|
|
925 |
|
|
(284) |
|
|
3 |
|
|
644 |
|
|
10,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total licensed |
16,700 |
|
|
1,169 |
|
|
(417) |
|
|
6 |
|
|
758 |
|
|
17,458 |
|
Other Revenues
Other revenues primarily are recorded in our Channel Development
segment and include sales of packaged coffee, tea and
ready-to-drink beverages to customers outside of our
company-operated and licensed stores, as well as royalties received
from Nestlé under the Global Coffee Alliance and other
collaborative partnerships.
Product Supply
Starbucks is committed to selling the finest whole bean coffees and
coffee beverages. To help ensure compliance with our rigorous
coffee standards, we generally control substantially all coffee
purchasing, roasting and packaging and the global distribution of
coffee used in our operations. Nestlé controls distribution of
certain finished goods through the Global Coffee Alliance. We
purchase green coffee beans from multiple coffee-producing regions
around the world and custom roast them to our exacting standards
for our many blends and single-origin coffees.
The price of coffee is subject to significant volatility. Although
most coffee trades in the commodity market, high-altitude
arabica
coffee of the quality sought by Starbucks tends to trade on a
negotiated basis at a premium above the “C” coffee commodity price.
Both the premium and the commodity price depend upon the supply and
demand at the time of purchase. Supply and price can be affected by
multiple factors in the producing countries, including weather,
water supply quality and availability throughout the coffee
production chain, natural disasters, crop disease and pests,
general increase in farm inputs and costs of production, inventory
levels and political and economic conditions. Climate change may
further exacerbate many of these factors. Price is also impacted by
trading activities in the
arabica
coffee futures market, including hedge funds and commodity index
funds. In addition, green coffee prices have been affected in the
past, and may be affected in the future, by the actions of certain
organizations and associations that have historically attempted to
influence prices of green coffee through agreements establishing
export quotas or by restricting coffee supplies.
We buy coffee using fixed-price and price-to-be-fixed purchase
commitments, depending on market conditions, to secure an adequate
supply of quality green coffee. We also utilize forward contracts,
futures contracts and collars to hedge “C” price exposure under our
price-to-be-fixed green coffee contracts and our long-term
forecasted coffee demand where underlying fixed-price and
price-to-be-fixed contracts are not yet available. Total purchase
commitments, together with existing inventory, are expected to
provide an adequate supply of green coffee through fiscal
2023.
We depend upon our relationships with coffee producers, outside
trading companies and exporters for our supply of green coffee. We
believe, based on relationships established with our suppliers, the
risk of non-delivery on such purchase commitments is
remote.
To help ensure the future supply of high-quality green coffee and
to reinforce our leadership role in the coffee industry, Starbucks
operates ten farmer support centers, including our China Farmer
Support Center located in the Yunnan Province of
this high-growth market. Farmer support centers are staffed with
agronomists and sustainability experts who work with coffee farming
communities to promote best practices in coffee production designed
to improve both coffee quality and yields and agronomy support to
address climate change and other impacts.
In addition to coffee, we also purchase significant amounts of
dairy and plant-based dairy-free alternative products, particularly
fluid milk, oat milk and almond milk to support the needs of our
company-operated stores. We believe, based on relationships
established with our dairy and plant-based dairy-free suppliers,
that the risk of non-delivery of sufficient fluid milk and
plant-based dairy-free alternatives to support our stores generally
is remote.
Products other than whole bean coffees and coffee beverages sold in
Starbucks stores include tea and a number of ready-to-drink
beverages that are purchased from several specialty suppliers,
usually under long-term supply contracts. Food products, such as
pastries, breakfast sandwiches and lunch items, are purchased from
national, regional and local sources. We also purchase a broad
range of paper and plastic products, such as cups and cutlery, from
several companies to support the needs of our retail stores as well
as our manufacturing and distribution operations. We are also
expanding our use of reusable packaging to reduce landfill waste.
We believe, based on relationships established with these suppliers
and manufacturers, that the risk of non-delivery of sufficient
amounts of these items generally is remote.
During fiscal 2021 and continuing into fiscal 2022, we experienced
certain supply shortages and transportation delays largely
attributable to impacts of the COVID-19 pandemic as well as changes
in customer demand and behaviors. While we expect these shortages
and delays may continue into fiscal 2023, we view them to be
temporary and do not believe they will have a material impact to
our long-term growth and profitability.
Competition
Our primary competitors for coffee beverage sales are specialty
coffee retailers and shops. We believe that our customers choose
among specialty coffee retailers and shops primarily on the basis
of product quality, brand reputation, service and convenience, as
well as price. We continue to experience direct competition from
large competitors in the quick-service restaurant sector and the
ready-to-drink coffee beverage market, in addition to both
well-established and start-up companies in many international
markets. We also compete with restaurants and other specialty
retailers for prime retail locations and qualified personnel to
operate both new and existing stores.
Our coffee and tea products sold through our Channel Development
segment compete directly against specialty coffees and teas sold
through grocery stores, warehouse clubs, specialty retailers,
convenience stores and foodservice accounts and compete indirectly
against all other coffees and teas on the market.
Trademarks, Copyrights, Patents and Domain Names
Starbucks owns and has applied to register numerous trademarks and
service marks in the U.S. and in other countries throughout the
world. Some of our trademarks, including Starbucks, the Starbucks
logo, Starbucks Reserve and Frappuccino are of material importance.
The duration of trademark registrations varies from country to
country. However, trademarks are generally valid and may be renewed
indefinitely as long as they are in use and/or their registrations
are properly maintained.
We own numerous copyrights for items such as product packaging,
promotional materials, in-store graphics and training materials. We
also hold patents on certain products, systems and designs which
have an average remaining useful life of approximately seven years.
In addition, Starbucks has registered and maintains numerous
Internet domain names, including “Starbucks.com,” “Starbucks.net”
and “Starbucksreserve.com.”
Seasonality and Quarterly Results
Our business is subject to moderate seasonal fluctuations, of which
our second fiscal quarter typically experiences lower revenues and
operating income. The COVID-19 pandemic has had an impact on
consumer behaviors and customer traffic; however, it is not yet
certain that these changes will sustain and cause other than
temporary changes in the seasonal fluctuations of our business.
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.
Government Regulation
As a company with global operations, we are subject to the laws and
regulations of the United States and the multiple foreign
jurisdictions in which we operate as well as the rules, reporting
obligations and interpretations of all such requirements and
obligations by various governing bodies, which may differ among
jurisdictions. In addition, changes to such laws, regulations,
rules, reporting obligations and related compliance obligations
could result in significant costs but are not expected to have a
material effect on our capital expenditures, results of operations
and competitive position as compared to prior periods.
Available Information
Starbucks Annual Report on Form 10-K reports, along with all other
reports and amendments filed with or furnished to the Securities
and Exchange Commission (the “SEC”), are publicly available free of
charge on the Investor Relations section of our website at
investor.starbucks.com as soon as reasonably practicable after
these materials are filed with or furnished to the SEC. In
addition, the SEC maintains an internet site that contains reports,
proxy and information statements and other information regarding
issuers that file electronically with the SEC at www.sec.gov. We
also use our website as a tool to disclose important information
about the company and comply with our disclosure obligations under
Regulation Fair Disclosure. Our corporate governance policies, code
of ethics and Board committee charters and policies are also posted
on the Investor Relations section of Starbucks website. The
information on our website (or any webpages referenced in this
Annual Report on Form 10-K) is not part of this or any other report
Starbucks files with, or furnishes to, the SEC.
Item 1A.
Risk Factors
You should carefully consider the risks described below in addition
to the other information set forth in this Annual Report on Form
10-K, including the Management’s Discussion and Analysis of
Financial Conditions and Results of Operations section, the
Quantitative and Qualitative Disclosures About Market Risk section
and the consolidated financial statements and related notes. If any
of the risks and uncertainties described in the cautionary factors
described below actually occur or continue to occur, our business,
financial condition and results of operations and the trading price
of our common stock could be materially and adversely affected. The
considerations and risks that follow are organized within relevant
headings but may be relevant to other headings as well. Moreover,
the risks below are not the only risks we face and additional risks
not currently known to us or that we presently deem immaterial may
emerge or become material at any time and may negatively impact our
business, reputation, financial condition, results of operations or
the trading price of our common stock.
Risks Related to Macroeconomic Conditions
•Our
financial condition and results of operations are subject to, and
may be adversely affected by, a number of macroeconomic and other
factors, many of which are also largely outside our
control.
Our operating results have been in the past and will continue to be
subject to a number of macroeconomic and other factors, many of
which are largely outside our control. Any one or more of the
factors listed below or described elsewhere in this risk factors
section could have a material adverse impact on our business,
financial condition and/or results of operations:
•increases
in real estate costs in certain domestic and international
markets;
•inflationary
pressures;
•disruptions
to our supply chain;
•changes
in governmental rules and approaches to taxation;
•fluctuations
in foreign currency exchange rates;
•adverse
outcomes of litigation;
•severe
weather or other natural or man-made disasters affecting a large
market or several closely located markets that may temporarily but
significantly affect our retail business in such
markets;
•changes
in climate, including changes to the frequency of severe weather
events, that impact the price and availability or cost of goods and
services, energy and other materials throughout our supply chain;
and
•especially
in our largest markets, including the U.S. and China, labor discord
or disruption, geopolitical events, war, terrorism (including
incidents targeting us), political instability, acts of public
violence, boycotts, increasing anti-American sentiment in certain
markets, hostilities and social unrest and other health pandemics
that lead to avoidance of public places or restrictions on public
gatherings such as in our stores.
•Economic
conditions in the U.S. and international markets could adversely
affect our business and financial results.
As a retailer that is dependent upon consumer discretionary
spending, our results of operations are sensitive to changes in or
uncertainty about macroeconomic conditions. A continued economic
downturn or recession, or slowing or stalled recovery therefrom,
may have a material adverse effect on our business, financial
condition or results of operations. Our customers may have or in
the future have less money for discretionary purchases and may stop
or reduce their purchases of our products or switch to Starbucks or
competitors’ lower-priced products as a result of various factors,
including job losses, inflation, higher taxes, reduced access to
credit, changes in federal economic policy, the COVID-19 pandemic
and recent international trade disputes. Due to the COVID-19
pandemic or other global health events, we may experience a
reduction and increased volatility in demand for our products. Such
reductions and volatility may be caused by, among other things:
store closures or modified operating hours and business model,
reduced customer traffic due to illness, quarantine or government
or self-imposed
restrictions placed on our stores’ operations, impacts caused by
precautionary measures such as those related to face coverings and
vaccinations and changes in consumer spending behaviors, including
those caused by social distancing, a decrease in consumer
confidence in general macroeconomic conditions and a decrease in
consumer discretionary spending. Decreases in customer traffic
and/or average value per transaction without a corresponding
decrease in costs would put downward pressure on margins and would
negatively impact our financial results. There is also a risk that
if negative economic conditions or uncertainty, as a result of the
COVID-19 pandemic or any other public health emergency, persist for
a long period of time or worsen, consumers may make long-lasting
changes to their discretionary purchasing behavior, including less
frequent discretionary purchases on a more permanent basis or there
may be a general downturn in the restaurant industry. These and
other macroeconomic factors could have an adverse effect on our
sales, profitability or development plans, which could harm our
results of operations and financial condition.
•Failure
to meet market expectations for our financial performance and
fluctuations in the stock market as a whole will likely adversely
affect the market price and volatility of our stock.
Failure to meet market expectations going forward, particularly
with respect to our operational and financial results, and
expectations regarding the success of our Reinvention Plan and
related guidance, environmental performance and shareholder
returns, will likely result in a decline and/or increased
volatility in the market price of our stock. In addition, price and
volume fluctuations in the stock market as a whole may affect the
market price of our stock in ways that may be unrelated to our
financial performance.
Risks Related to COVID-19
•Our
financial condition and results of operations have been and are
expected to continue to be adversely affected by the COVID-19
pandemic.
The COVID-19 pandemic has had, and is continuing to have, a
significant impact on our business and results of operations. At
the peak of the COVID-19 outbreak, many of our company-operated and
licensed stores were closed. For stores that remained open,
same-store sales declined due to modified operating hours and
reduced customer traffic. While nearly all of our company-operated
and licensed stores have reopened, we expect that certain parts of
our operations will continue to be impacted by the continuing
effects of COVID-19, including resurgences and variants of the
virus. Our China market experienced unprecedented COVID-19
pandemic-related restrictions in multiple cities that severely
impacted customer mobility. It remains difficult to predict the
full impact of the COVID-19 pandemic on the broader economy and how
consumer behavior may change, and whether such change is temporary
or permanent. Social distancing, telecommuting and reductions in
travel may become the new normal. In addition, the COVID-19
pandemic has required and may continue to require us to make
controversial decisions about precautionary measures, such as
vaccinations, showing proof of vaccinations and face coverings,
that could impact our results, including by impacting our brand,
our employee retention and satisfaction and the willingness of
customers to buy our products. All of these conditions could
fundamentally impact the way we work and the services we provide,
and could have continuing adverse effects on our financial
performance. As a result, we may incur additional impairment
charges to our inventory, store and corporate assets—and our
ability to realize the benefits from deferred tax assets may become
limited—any of which may have a significant or material impact on
our financial results.
Prolonged volatility or significant disruption of global financial
markets due in part to the COVID-19 pandemic could have a negative
impact on our ability to access capital markets and other funding
sources, on acceptable terms or at all and impede our ability to
comply with debt covenants.
Risks Related to Our Business
If our business partners and third-party providers do not
satisfactorily fulfill their responsibilities and commitments, it
could damage our brand and our financial results could
suffer.
Our global business strategy, including our plans for new stores,
branded products and other initiatives, relies significantly on a
variety of business partners, including licensee and joint venture
relationships, third-party manufacturers, distributors and
retailers, particularly for our entire global Channel Development
business. Licensees, retailers and foodservice operators are often
authorized to use our logos and provide branded food, beverage and
other products directly to customers. We believe our customers
expect the same quality of service regardless of whether they visit
a licensed or company-operated store, so we provide training and
support to, and monitor the operations of, certain of these
licensees and other business partners. However, the product quality
and service they deliver may still be diminished by any number of
factors beyond our control, including financial constraints,
adherence to sanitation protocols and guidance (including those
resulting from the COVID-19 pandemic), labor shortages and other
factors. We do not have direct control over our business partners
and may not have visibility into their practices.
We also source our food, beverage and other products from a wide
variety of domestic and international business partners, and in
certain cases such products are produced or sourced by our
licensees directly. And although foodservice operators are
authorized to use our logos and provide branded products as part of
their foodservice business, we do not monitor the quality of
non-Starbucks products served in those locations. Additionally,
inconsistent uses of our brand and other of our intellectual
property assets, as well as failure to protect our intellectual
property, can erode consumer trust and our brand value and have a
material negative impact on our financial results.
•Incidents
involving food or beverage-borne illnesses, tampering,
adulteration, contamination or mislabeling, whether or not
accurate, as well as adverse public or medical opinions about the
health effects of consuming our products, could harm our
business.
Instances or reports, whether true or not, of unclean water supply
or food-safety issues, such as food or beverage-borne illnesses,
tampering, adulteration, contamination or mislabeling, either
during growing, manufacturing, packaging, storing or preparation,
have in the past severely injured the reputations of companies in
the food and beverage processing, grocery and quick-service
restaurant sectors. Any report linking us to such instances could
severely hurt our sales and could possibly lead to product
liability claims, litigation (including class actions) and/or
temporary store closures. Clean water is critical to the
preparation of coffee, tea and other beverages, as well as ice for
our cold beverages, and our ability to ensure adequate supplies of
clean water and ice to our stores can be limited, particularly in
some international locations. We are also continuing to incorporate
more products in our food and beverage lineup that require freezing
or refrigeration, which increases the risk of food safety related
incidents if correct temperatures are not maintained due to
mechanical malfunction or human error.
We also face risk by relying on third-party food suppliers to
provide and transport ingredients and finished products to our
stores. While we monitor the operations of certain of these
business partners, the product quality and service they deliver may
be diminished by any number of factors beyond our control and it
may be difficult to detect contamination or other defects in these
products. There is greater risk from those we do not monitor, or do
not monitor as closely. Furthermore, due to the COVID-19 pandemic,
there are stricter health regulations and guidelines and increased
public concern over food safety standards and controls. Potential
food safety incidents, whether at our stores or involving our
business partners, could lead to wide public exposure, which could
materially harm our business.
Additionally, we are evolving our product lineup to include more
local or smaller suppliers for some of our products who may not
have as rigorous quality and safety systems and protocols as larger
or more national suppliers, especially in light of the heightened
safety protocols as a result of the COVID-19 pandemic. In addition,
instances of food or beverage-safety issues, even those involving
solely the restaurants or stores of competitors or of suppliers or
distributors (regardless of whether we use or have used those
suppliers or distributors), could adversely affect our sales on a
regional or global basis by resulting in negative publicity about
us or the foodservice industry in general. A decrease in customer
traffic as a result of food-safety concerns or negative publicity,
or as a result of a temporary closure of any of our stores, product
recalls, viral-contaminated food or beverage claims or other food
or beverage-safety claims or litigation, could materially harm our
business and results of operations.
•We
may not be successful in implementing important strategic
initiatives or effectively managing growth, which may have an
adverse impact on our business and financial results.
There is no assurance that we will be able to implement important
strategic initiatives in accordance with our expectations or that
they will generate expected returns, which may result in an adverse
impact on our business and financial results. These strategic
initiatives, which includes our Reinvention Plan, are designed to
create growth, improve our results of operations and drive
long-term shareholder value, and include:
•being
an employer of choice and investing in employees to deliver a
superior customer experience;
•building
our leadership position around coffee;
•driving
convenience, brand engagement and digital relationships through our
mobile, loyalty, delivery and digital capabilities both
domestically and internationally;
•simplifying
store administrative tasks to allow store partners to better engage
with customers;
•increasing
the scale of the Starbucks store footprint with disciplined global
expansion and introducing flexible and unique store formats,
including the accelerated development of alternative store formats
(such as Starbucks Pickup stores, Starbucks Now stores and curbside
pickup) especially in light of the COVID-19 pandemic;
•adjusting
rapidly to changing customer preferences and behaviors in light of
the COVID-19 pandemic, inflation and changing economic
conditions;
•moving
to a more licensed store model in some markets and a more
company-operated model in certain markets;
•creating
new occasions in stores across all dayparts with new product
offerings, including our growing lunch food and beverage product
lineup;
•continuing
the global growth of our Channel Development business through our
supply, distribution and licensing agreements with Nestlé and other
Channel Development business partners;
•delivering
continued growth in our cold beverage business;
•working
to address the potential effects of climate change and the
sustainability of our business; and
•reducing
our operating costs, particularly general and administrative
expenses.
In addition to other factors listed in this risk factors section,
factors that may adversely affect the successful implementation of
these initiatives, which could have a material adverse impact on
our business and financial results, include the
following:
•imposition
of additional taxes by jurisdictions, such as on certain types of
beverages or based on number of employees;
•construction
cost increases associated with new store openings and remodeling of
existing stores; delays in store openings for reasons beyond our
control, such as potential shortages of materials and labor and
delays in permits, or a lack of desirable real estate locations
available for lease at reasonable rates, either of which could keep
us from meeting annual store opening targets in the U.S. and
internationally;
•governmental
regulations or other health guidelines concerning operations of
stores, including due to the COVID-19 pandemic or other public
health emergencies;
•not
successfully scaling our supply chain infrastructure as our product
offerings increase and as we continue to expand, including our
emphasis on a broad range of high-quality food
offerings;
•not
successfully adapting to customer or market factors affecting our
supply chain as we work to address sustainability and climate
change; and
•the
deterioration in our credit ratings, which could limit the
availability of additional financing and increase the cost of
obtaining financing to fund our initiatives.
Effectively managing growth can be challenging, particularly as we
expand in international markets where we must balance the need for
flexibility and a degree of autonomy for local management against
the need for consistency with our goals, policies and standards. If
we are not successful in implementing our strategic initiatives,
or, in the event we undertake large acquisitions, integrations and
divestitures, we may be required to evaluate whether certain
assets, including goodwill and other intangibles, have become
impaired. In the event we record an impairment charge, it could
have a material impact on our financial results.
•Evolving
consumer preferences and tastes may adversely affect our
business.
Our continued success depends on our ability to attract and retain
customers. Our financial results could be adversely affected by a
shift in consumer spending away from outside-the-home food and
beverages (such as the disruption caused by online commerce that
results in reduced foot traffic to “brick & mortar” retail
stores); lack of customer acceptance of new products (including due
to price increases necessary to cover the costs of new products or
higher input costs), brands (such as the global expansion of the
Starbucks brand) and platforms (such as features of our mobile
technology, changes in our loyalty rewards programs, the Starbucks
Odyssey experience and our delivery services initiatives); or
customers reducing their demand for our current offerings as new
products are introduced. In addition, some of our products contain
caffeine, dairy products, sugar and other compounds and allergens,
the health effects of which are the subject of public and
regulatory scrutiny, including the suggestion of linkages to a
variety of adverse health effects. Particularly in the U.S., there
is increasing consumer awareness of health risks, including
obesity, as well as increased consumer litigation based on alleged
adverse health impacts of consumption of various food and beverage
products. While we have a variety of beverage and food items,
including items that are coffee-free and have reduced calories, an
unfavorable report on the health effects of caffeine or other
compounds present in our products, whether accurate or not,
imposition of additional taxes on certain types of food and
beverage components, or negative publicity or litigation arising
from certain health risks could significantly reduce the demand for
our beverages and food products and could materially harm our
business and results of operations. Furthermore, our financial
results have been and could continue to be adversely affected by
the impact of the COVID-19 pandemic, which has resulted in a
disruption of customer routines, changes to employer
“work-from-home” policies, reduced business and recreational travel
and changes in consumer behavior and the ability or willingness to
spend discretionary income on our products.
Risks Related to Brand Relevance and Brand Execution
•Our
success depends substantially on the value of our brands and
failure to preserve their value could have a negative impact on our
financial results.
We believe we have built an excellent reputation globally for the
quality of our products, for delivery of a consistently positive
consumer experience and for our global social and environmental
impact programs. The Starbucks brand is recognized throughout most
of the world, and we have received high ratings in global brand
value studies. To be successful in the future, particularly outside
of the U.S. where the Starbucks brand and our other brands are less
well-known, we believe we must preserve, grow and leverage the
value of our brands across all sales channels. Brand value is based
in part on consumer perceptions on a variety of subjective
qualities.
Business incidents, whether isolated or recurring and whether
originating from us or our business partners, that erode consumer
trust can significantly reduce brand value, potentially trigger
boycotts of our stores or result in civil or criminal liability and
can have a negative impact on our financial results. Such incidents
include actual or perceived breaches of privacy or violations of
domestic or international privacy laws, contaminated food, product
recalls, store employees or other food handlers infected with
communicable diseases, such as COVID-19, safety-related incidents
or other potential incidents discussed in this risk factors
section. The impact of such incidents may be exacerbated if they
receive considerable publicity, including rapidly through social or
digital media (including for malicious reasons) or result in
litigation. Consumer demand for our products and our brand equity
could diminish significantly if we, our employees, licensees or
other business partners fail to preserve the quality of our
products, act or are perceived to act in an unethical, illegal,
racially-biased, unequal or socially irresponsible manner,
including with respect to the sourcing, content or sale of our
products, service and treatment of customers at Starbucks stores,
treatment of employees or the use of customer data for general or
direct marketing or other purposes. Furthermore, if we are not
effective in addressing our social and environmental program goals,
executing on our Reinvention Plan, or achieving relevant
sustainability goals, consumer trust in our brand may suffer, and
this perception could result in negative publicity or litigation.
Additionally, if we fail to comply with laws and regulations, take
controversial positions or actions or fail to deliver a
consistently positive consumer experience in each of our markets,
including by failing to invest in the right balance of wages and
benefits to attract and retain employees that represent the brand
well or to foster an inclusive and diverse environment, our brand
value may be diminished.
The ongoing relevance of our brand may depend on the success of our
social and environmental program goals as well as the success of
the Reinvention Plan, which requires company-wide coordination and
alignment. We are working to manage risks and costs to us, our
licensees and our supply chain of any effects of climate change as
well as diminishing energy and water resources. These risks include
any increased public focus, including by governmental and
nongovernmental organizations, on these and other environmental
sustainability matters, including packaging and waste, animal
health and welfare, deforestation and land use. These risks may
also include any increased pressure to make commitments, set
targets or establish additional goals and take actions to meet
them, which could expose us to market, operational and execution
costs or risks.
•We
may not be successful in our marketing, promotional and advertising
plans and pricing strategies.
Our continued success depends in part on our ability to adjust our
marketing, promotional and advertising plans and pricing strategy
to respond quickly and effectively to shifting economic and
competitive conditions as well as evolving customer preferences. We
operate in a complex and costly marketing, promotional and
advertising environment. Our marketing, promotional and advertising
programs may not be successful in reaching our customers in the way
we intend. Our success depends in part on whether the allocation of
our advertising, promotional and marketing resources across
different channels, including digital marketing, allows us to reach
our customers effectively and efficiently, and in ways that are
meaningful to them. If the advertising, promotional and marketing
programs or our pricing strategies are not successful, or are not
as successful as those of our competitors, our sales and market
share could decrease.
Finally, customers are focusing more on sustainability and the
environmental impacts of operations. An inability to meet customer
expectations with respect to these issues could adversely affect
our financial results.
Risks Related to Cybersecurity and Data Privacy
•Failure
to maintain satisfactory compliance with certain privacy and data
protections laws and regulations may subject us to substantial
negative financial consequences and civil or criminal
penalties.
Complex local, state, national, foreign and international laws and
regulations apply to the collection, use, retention, protection,
disclosure, transfer and other processing of personal data. These
privacy and data protection laws and regulations are quickly
evolving, with new or modified laws and regulations proposed and
implemented frequently and existing laws and regulations subject to
new or different interpretations and enforcement. In addition, our
legal and regulatory obligations in jurisdictions outside the U.S.
are subject to unexpected changes, including the potential for
regulatory or other governmental entities to enact new or
additional laws or regulations, to issue rulings that invalidate
prior laws or regulations or to increase penalties
significantly. Complying with these laws and regulations can be
costly and can impede the development and offering of new products
and services.
For example, Europe’s General Data Protection Regulation (“GDPR”)
and the U.K. General Data Protection Regulation (which implements
the GDPR into U.K. law), impose stringent data protection
requirements and provide for significant penalties for
noncompliance. Additionally, California enacted legislation, the
California Consumer Privacy Act (“CCPA”). The CCPA requires, among
other things, covered companies to provide new disclosures to
California consumers and allows such consumers new abilities to
opt-out of certain sales of personal data. The CCPA also provides
for civil penalties for violations as well as a private right of
action for data breaches that may increase data breach litigation.
Further, the California Privacy Rights Act, which was passed in
November 2020 and is fully effective in January 2023, significantly
modifies the CCPA. Colorado, Connecticut, Utah and Virginia
recently enacted similar data privacy legislation that will also
take effect in 2023, and
several other states and countries are considering expanding or
passing privacy laws in the near term. These modifications and new
laws will require us to incur additional costs and expenses in our
efforts to comply.
In June 2021, the European Commission published new versions of the
Standard Contractual Clauses and in March 2022, the U.K. finalized
the U.K. International Data Transfer Agreement. The new
requirements will require us to incur costs and expenses in order
to comply and may impact the transfer of personal data throughout
our organization and to third parties.
Our failure to comply with applicable laws and regulations or other
obligations to which we may be subject relating to personal data,
or to protect personal data from unauthorized access, use or other
processing, could result in enforcement actions and regulatory
investigations against us, claims for damages by customers and
other affected individuals, fines, damage to our brand reputation,
any of which could have a material adverse effect on our
operations, financial performance and business.
•The
unauthorized access, use, theft or destruction of customer or
employee personal, financial or other data or of Starbucks
proprietary or confidential information that is stored in our
information systems or by third parties on our behalf could impact
our reputation and brand and expose us to potential liability and
loss of revenues.
Many of our information technology systems (whether cloud-based or
hosted in proprietary servers), including those used for our
point-of-sale, web and mobile platforms, online and mobile payment
systems, delivery services and rewards programs and administrative
functions, contain personal, financial or other information that is
entrusted to us by our customers and employees. Many of our
information technology systems also contain Starbucks proprietary
and other confidential information related to our business, such as
business plans and product development initiatives and designs, and
confidential information about third parties, such as licensees and
business partners. Similar to many other retail companies and
because of the prominence of our brand, we are consistently subject
to attempts to compromise our information technology systems from
both internal and external sources. The number and frequency of
these attempts varies from year to year but could be exacerbated to
some extent by an increase in our digital operations, including our
efforts to comply with state and local mandates in response to
COVID‑19. In addition, we provide some customer and employee data,
as well as Starbucks proprietary information and other confidential
information important to our business, to third parties where
necessary to conduct our business, including licensees and business
partners. Individuals performing work for Starbucks and such third
parties also may possess some of this data, including on
personally-owned digital devices. To the extent we, a third party
or such an individual were to experience a breach of our or their
information technology systems that results in the unauthorized
access, theft, use, destruction or other compromises of customers’
or employees’ data or confidential information of the Company
stored in or transmitted through such systems, including through
cyber-attacks or other external or internal methods, it could
result in a material loss of revenues from the potential adverse
impact to our reputation and brand, a decrease in our ability to
retain customers or attract new ones, the imposition of potentially
significant costs (including loss of data or payment for recovery
of data) and liabilities, loss of business, loss of business
partners and licensees and the disruption to our supply chain,
business and plans. Unauthorized access, theft, use, destruction or
other compromises may occur through a variety of methods, including
attacks using malicious code, those taking advantage of
vulnerabilities in software, hardware or other infrastructure
(including systems used by our supply chain), those using
techniques aimed at convincing those with access to such data or
information to share passwords or otherwise allow access through
deceit or otherwise and those taking advantage of inadequate
account security practices.
Such security breaches also could result in a violation of
applicable U.S. and international privacy, cyber and other laws or
trigger U.S. state data breach notification laws, and subject us to
private consumer, business partner or licensee or securities
litigation and governmental investigations and proceedings, any of
which could result in our exposure to material civil or criminal
liability.
Significant capital investments and other expenditures could also
be required to investigate security incidents, remedy cybersecurity
problems, recuperate lost data, prevent future compromises and
adapt systems and practices to react to the changing threat
environment. These include costs associated with notifying affected
individuals and other agencies, additional security technologies,
trainings, personnel, experts and credit monitoring services for
those whose data has been breached. These costs, which could be
material, could adversely impact our results of operations in the
period in which they are incurred,
including by interfering with the pursuit of other important
business strategies and initiatives, and may not meaningfully limit
the success of future attempts to breach our information technology
systems.
Media or other reports of existing or perceived security
vulnerabilities in our systems or those of our third-party business
partners or service providers can also adversely impact our brand
and reputation and materially impact our business. Additionally,
the techniques and sophistication used to conduct cyber-attacks and
compromise information technology systems, as well as the sources
and targets of these attacks, change frequently and are often not
recognized until such attacks are launched or have been in place
for a period of time. We continue to make significant investments
in technology, third-party services and personnel to develop and
implement systems and processes that are designed to anticipate
cyber-attacks and to prevent or minimize breaches of our
information technology systems or data loss, but these security
measures cannot provide assurance that we will be successful in
preventing such breaches or data loss.
•We
rely heavily on information technology in our operations and growth
initiatives, and any material failure, inadequacy, interruption or
security failure of that technology could harm our ability to
effectively operate and grow our business and could adversely
affect our financial results.
We rely heavily on information technology systems across our
operations for numerous purposes including for administrative
functions, point-of-sale processing and payment in our stores and
online, management of our supply chain, Starbucks Cards, online
business, delivery services, mobile technology, including mobile
payments and ordering apps, reloads and loyalty functionality and
various other processes and transactions, and many of these systems
are interdependent on one another for their functionality.
Additionally, the success of several of our initiatives to drive
growth, including our ability to increase digital relationships
with our customers to drive incremental traffic and spend, is
highly dependent on our technology systems. Furthermore, due to the
social distancing measures put in place as a result of the COVID-19
pandemic, we accelerated the transformation of our store portfolio
by expanding convenience-led formats, which depend heavily on our
mobile ordering capabilities. We also rely on third-party providers
and platforms for some of these information technology systems and
support. Additionally, our systems hardware, software and services
provided by third-party service providers are not fully redundant
within a market or across our markets. Although we have operational
safeguards in place, they may not be effective in preventing the
failure of these systems or platforms to operate effectively and be
available. Such failures may be caused by various factors,
including power outages, climate change-related impacts,
catastrophic events, physical theft, computer and network failures,
inadequate or ineffective redundancy, problems with transitioning
to upgraded or replacement systems or platforms, flaws in
third-party software or services, errors or improper use by our
employees or third-party service providers, or a breach in the
security of these systems or platforms, including through
cyber-attacks such as those that result in the blockage of our or
our third-party business partners’ or service providers’ systems
and platforms and those discussed in more detail in this risk
factors section. If our incident response, disaster recovery and
business continuity plans do not resolve these issues in an
effective and timely manner, they could result in an interruption
in our operations and could cause material negative impacts to our
product availability and sales, the efficiency of our operations
and our financial results. In addition, remediation of any problems
with our systems could result in significant, unplanned
expenses.
Risks Related to Intellectual Property
•We
may not be able to adequately protect our intellectual property or
adequately ensure that we are not infringing the intellectual
property of others, which could harm the value of our brand and our
business.
The success of our business depends on our continued ability to use
our existing trademarks and service marks in order to increase
brand awareness and further develop our branded products in both
domestic and international markets. We rely on a combination of
trademarks, copyrights, service marks, trade secrets, patents and
other intellectual property rights to protect our brand and branded
products.
We have registered certain trademarks and have other trademark
registrations pending in the U.S. and certain foreign
jurisdictions. The trademarks that we currently use have not been
registered in all of the countries outside of the U.S. in which we
do business or may do business in the future and may never be
registered in all of these countries. It may be costly and time
consuming to protect our intellectual property, and the steps we
have taken to protect our intellectual property in the U.S. and
foreign countries may not be adequate. In addition, the steps we
have taken may not adequately ensure that we do not infringe the
intellectual property of others, and third parties may claim
infringement by us in the future. Any claim of infringement,
whether or not it has merit, could be time-consuming, result in
costly litigation and harm our business. In addition, we cannot
ensure that licensees will not take actions that hurt the value of
our intellectual property.
Risks Related to Supply Chain
•Our
reliance on key business partners may adversely affect our business
and operations.
The growth of our business relies on the ability of our licensee
partners to implement our growth platforms and product innovations
as well as on the degree to which we are able to enter into,
maintain, develop and negotiate appropriate terms and
conditions of, and enforce, commercial and other agreements and the
performance of our business partners under such agreements. Our
international licensees may face capital constraints or other
factors that may limit the speed at which they are able to expand
and develop in a certain market. Our Channel Development business
is heavily reliant on Nestlé, which has the right to sell and
distribute our packaged goods and foodservice products to retailers
and operators, with few exceptions. If Nestlé fails to perform its
distribution and marketing commitments under our agreements and/or
fails to support, protect and grow our brand in Channel
Development, our Channel Development business could be adversely
impacted for a period of time, present long-term challenges to our
brand, limit our ability to grow our Channel Development business
and have a material adverse impact on our business and financial
results. Additionally, the growth of our Channel Development
business is in part dependent on the level of discretionary support
provided by our retail and licensed store businesses.
There are generally a relatively small number of licensee partners
operating in specific markets. If they are not able to access
sufficient funds or financing, or are otherwise unable or unwilling
to successfully operate and grow their businesses it could have a
material adverse effect on our results in the markets. Due to the
COVID-19 pandemic, our financial results have been and could
continue in the future to be adversely affected by the disruption
to the operations of our business partners, including licensee
relationships, third-party manufacturers, distributors and
retailers, through the effects of business and facilities closures,
reductions in operating hours, social, economic, political or labor
instability in affected areas, transportation delays, travel
restrictions and changes in operating procedures, including for
additional cleaning and safety protocols.
•Increases
in the cost of high-quality
arabica
coffee beans or other commodities or decreases in the availability
of high-quality
arabica
coffee beans or other commodities could have an adverse impact on
our business and financial results.
The availability and prices of coffee beans and other commodities
are subject to significant volatility. We purchase, roast and sell
high-quality whole bean
arabica
coffee beans and related coffee products. The high-quality
arabica
coffee of the quality we seek tends to trade on a negotiated basis
at a premium above the “C” price. This premium depends upon the
supply and demand at the time of purchase and the amount of the
premium can vary significantly. Increases in the “C” coffee
commodity price increase the price of high-quality
arabica
coffee and also impact our ability to enter into fixed-price
purchase commitments. We frequently enter into supply contracts
whereby the quality, quantity, delivery period and other negotiated
terms are agreed upon, but the date, and therefore price, at which
the base “C” coffee commodity price component will be fixed has not
yet been established.
The supply and price of coffee we purchase can also be affected by
multiple factors in the producing countries, such as weather, water
supply quality and availability throughout the coffee production
chain, natural disasters, crop disease and pests, general increase
in farm inputs and costs of production, inventory levels, political
and economic conditions and the actions of certain organizations
and associations that have historically attempted to influence
prices of green coffee through agreements establishing export
quotas or by restricting coffee supplies. Climate change may
further exacerbate many of these factors. Speculative trading in
coffee commodities can also influence coffee prices. For example,
drought conditions in Brazil have and, given continued drought
conditions, are predicted to continue to impact coffee prices.
Because of the significance of coffee beans to our operations,
combined with our ability to only partially mitigate future price
risk through purchasing practices and hedging activities, increases
in the cost of high-quality
arabica
coffee beans could have a material adverse impact on our
profitability. In addition, if we are not able to purchase
sufficient quantities of green coffee due to any of the above
factors or due to a worldwide or regional shortage, we may not be
able to fulfill the demand for our coffee, which could have a
material adverse impact on our business operations and financial
performance.
We also purchase significant amounts of dairy products,
particularly fluid milk, to support the needs of our
company-operated retail stores. Additionally, and although less
significant to our operations than coffee or dairy, other
commodities, including tea and those related to food and beverage
inputs, such as cocoa, produce, baking ingredients, meats, eggs and
energy, as well as the processing of these inputs, are important to
our operations. Increases in the cost of dairy products and other
commodities, or lack of availability, whether due to supply
shortages, delays or interruptions in processing, or otherwise,
especially in international markets, could have a material adverse
impact on our profitability. Similarly, increases in the cost of,
or lack of availability, whether due to supply shortages, delays or
interruptions in the processing of plant-based alternatives could
have a material adverse impact on our profitability.
•Interruption
of our supply chain could affect our ability to produce or deliver
our products and could negatively impact our business and
profitability.
Any material interruption in our supply chain, such as material
interruption of roasted coffee supply due to the casualty loss of
any of our roasting plants, interruptions in service by our
third-party logistic service providers or common carriers that ship
goods within our distribution channels, trade restrictions, such as
increased tariffs or quotas, embargoes or customs restrictions,
pandemics, social or labor unrest, labor shortages, natural
disasters or political disputes and military conflicts that cause a
material disruption in our supply chain could have a negative
material impact on our business and our profitability.
Additionally, our food, beverage and other products are sourced
from a wide variety of domestic and international business partners
in our supply chain operations, and in certain cases are produced
or sourced by our licensees directly. We rely on these
suppliers to provide high-quality products and to comply with
applicable laws. Our ability to find qualified suppliers who meet
our standards and supply products in a timely and efficient manner
is a significant challenge as we increase our fresh and prepared
food offerings, especially with respect to goods sourced from
outside the U.S. and from countries or regions with diminished
infrastructure, developing or failing economies or which are
experiencing political instability or social unrest. For certain
products, we may rely on one or very few suppliers. A supplier's
failure to meet our standards, provide products in a timely and
efficient manner or comply with applicable laws is beyond our
control. These issues could have a material negative impact on our
business and profitability.
Risks Related to Human Capital
•Changes
in the availability of and the cost of labor could adversely affect
our business.
Our business could be adversely impacted by increases in labor
costs, including wages and benefits, which, in a retail business
such as ours, are two of our most significant costs, both
domestically and internationally, including those increases
triggered by state and federal legislation and regulatory actions
regarding wages, scheduling and benefits; increased healthcare and
workers’ compensation insurance costs; increased wages and costs of
other benefits necessary to attract and retain high-quality
employees with the right skill sets and increased wages, benefits
and costs related to the COVID-19 pandemic. The growth of our
business can make it increasingly difficult to locate and hire
sufficient numbers of employees, to maintain an effective system of
internal controls for a globally dispersed enterprise and to train
employees worldwide to deliver a consistently high-quality product
and customer experience, which could materially harm our business
and results of operations. Furthermore, we have experienced, and
could continue to experience, a shortage of labor for store
positions, including due to market trends and conditions such as
continued concerns around COVID-19, the availability of new
telecommuting employment options and other factors, which could
decrease the pool of available qualified talent for key functions.
Such labor shortages could be further exacerbated by expanded
COVID-19 vaccination requirements. In addition, our wages and
benefits programs may be insufficient to attract and retain the
best talent. Starting in December 2021, Starbucks partners at
company-operated stores in multiple jurisdictions across the U.S.
began filing for unionization elections and a number of these
stores have now successfully unionized, with potentially more to
follow. While the number of partners represented by unions is not
significant, if a significant portion of our employees were to
become unionized, our labor costs could increase and our business
could be negatively affected by other requirements and expectations
that could increase our costs, change our employee culture,
decrease our flexibility and disrupt our business. Additionally,
our responses to any union organizing efforts could negatively
impact how our brand is perceived and have adverse effects on our
business, including on our financial results. These responses could
also expose us to legal risk, causing us to incur costs to defend
legal and regulatory actions, potential penalties and restrictions
or reputational harm.
•The
loss of key personnel or difficulties recruiting and retaining
qualified personnel could adversely impact our business and
financial results.
Much of our future success depends on the continued availability
and service of senior management personnel. The loss of any of our
executive officers or other key senior management personnel could
harm our business. Our success also depends substantially on the
contributions and abilities of our retail store employees on whom
we rely to give customers a superior in-store experience and
elevate our brand. Accordingly, our performance depends on our
ability to recruit and retain high-quality management personnel and
other employees to work in and manage our stores, both domestically
and internationally. Our ability to attract and retain corporate,
retail and other personnel is also acutely impacted in certain
international and domestic markets where the competition for a
relatively small number of qualified employees is intense or in
markets where large high-tech companies are able to offer more
competitive salaries and benefits. Additionally, there is intense
competition for qualified technology systems developers necessary
to develop and implement new technologies for our growth
initiatives, including increasing our digital relationships with
customers. If we are unable to recruit, retain and motivate
employees sufficiently to maintain our current business and support
our projected growth, our business and financial performance may be
adversely affected.
Environmental, Social and Governance Risk Factors
•Our
business is subject to evolving corporate governance and public
disclosure regulations and expectations, including with respect to
environmental, social and governance matters, that could expose us
to numerous risks.
We are subject to changing rules and regulations promulgated by a
number of governmental and self-regulatory organizations, including
the SEC, the Nasdaq Stock Market and the Financial Accounting
Standards Board. These rules and regulations continue to evolve in
scope and complexity and many new requirements have been created in
response to laws enacted by Congress, making compliance more
difficult and uncertain. In addition, increasingly regulators,
customers, investors, employees and other stakeholders are focusing
on environmental, social and governance (“ESG”) matters and related
disclosures. These changing rules, regulations and stakeholder
expectations have resulted in, and are likely to continue to result
in, increased general and administrative expenses and increased
management time and attention spent complying with or meeting such
regulations and expectations. For example, developing and acting on
initiatives within the scope of ESG, and
collecting, measuring and reporting ESG related information and
metrics can be costly, difficult and time consuming and is subject
to evolving reporting standards, including the SEC’s recently
proposed climate-related reporting requirements, and similar
proposals by other international regulatory bodies. We may also
communicate certain initiatives and goals, regarding environmental
matters, diversity, responsible sourcing and social investments and
other ESG related matters, in our SEC filings or in other public
disclosures. These initiatives and goals within the scope of ESG
could be difficult and expensive to implement, the technologies
needed to implement them may not be cost effective and may not
advance at a sufficient pace, and we could be criticized for the
accuracy, adequacy or completeness of the disclosure. Further,
statements about our ESG related initiatives and goals, and
progress against those goals, may be based on standards for
measuring progress that are still developing, internal controls and
processes that continue to evolve, and assumptions that are subject
to change in the future. In addition, we could be criticized for
the scope or nature of such initiatives or goals, or for any
revisions to these goals. If our ESG-related data, processes and
reporting are incomplete or inaccurate, or if we fail to achieve
progress with respect to our goals within the scope of ESG on a
timely basis, or at all, our reputation, business, financial
performance and growth could be adversely affected.
•Climate
change may have an adverse impact on our business.
While we seek to mitigate our business risks associated with
climate change by establishing environmental goals and standards
and seeking business partners, including within our supply chain,
that are committed to operating in ways that protect the
environment or mitigate environmental impacts, we recognize that
there are inherent climate-related risks wherever business is
conducted. For example, as we noted above, the supply and price of
coffee we purchase can also be affected by multiple factors in the
producing countries, such as weather and water supply quality and
availability, which factors may be caused by or exacerbated by
climate change. We operate in 83 markets globally. While we believe
this geographic diversity is likely to lessen the impact of
individual climate change related events on our financial results,
our properties and operations may nonetheless be vulnerable to the
adverse effects of climate change, which are predicted to increase
the frequency and severity of weather events and other natural
cycles such as wildfires and droughts. Such events have the
potential to disrupt our operations, cause store closures, disrupt
the business of our third-party suppliers and impact our customers,
all of which may cause us to suffer losses and additional costs to
maintain or resume operations.
Risks Related to Competition
•We
face intense competition in each of our channels and markets, which
could lead to reduced profitability.
The specialty coffee market is intensely competitive, including
with respect to product quality, innovation, service, convenience,
such as delivery service and mobile ordering, and price, and we
face significant and increasing competition in all of these areas
in each of our channels and markets. Accordingly, we do not have
leadership positions in all channels and markets. In the U.S., the
ongoing focus by large competitors in the quick-service restaurant
sector on selling high-quality specialty coffee beverages could
lead to decreases in customer traffic to
Starbucks®
stores and/or average value per transaction adversely affecting our
sales and results of operations. Similarly, continued competition
from well-established competitors, or competition from large new
entrants or well-funded smaller companies, in our domestic and
international markets could hinder growth and adversely affect our
sales and results of operations in those markets. Many small
competitors also continue to open coffee specialty stores in many
of our markets across the world, which in the aggregate may also
lead to significant decreases of customer traffic to our stores in
those markets. Increased competition globally in packaged coffee
and tea and single-serve and ready-to-drink coffee beverage
markets, including from new and large entrants to this market,
could adversely affect the profitability of the Channel Development
segment. In addition, not all of our competitors may seek to
establish environmental or sustainability goals at a comparable
level to ours, which could result in lower supply chain or
operating costs for our competitors. We may incur increased costs
associated with reducing carbon dioxide and other greenhouse gas
emissions, reducing the use of plastic or imposing performance
obligations on our suppliers that could increase financial
obligations for us and our business partners and could affect our
profitability. Additionally, if we are unable to respond to
consumer demand for healthy beverages and foods, or our competitors
respond more effectively, this could have a negative effect on our
business. Furthermore, declines in general consumer demand for
specialty coffee products for any reason, including due to consumer
preference for other products, flattening demand for our products,
changed customer daily routines or traffic to stores as a result of
the COVID-19 pandemic, or changed customer spending behaviors due
to challenging economic conditions, could have a negative effect on
our business.
Risks Related to Operating a Global Business
We are highly dependent on the financial performance of our North
America operating segment.
Our financial performance is highly dependent on our North America
operating segment, which comprised approximately 72% of
consolidated total net revenues in fiscal 2022. If the North
America operating segment revenue trends slow or decline,
especially in our U.S. market, our other segments may be unable to
make up any significant shortfall and our business and financial
results could be adversely affected. And because the North America
segment is relatively mature and produces the
large majority of our operating cash flows, such a slowdown or
decline could result in reduced cash flows for funding the
expansion of our international businesses and other initiatives and
for returning cash to shareholders.
•We
are increasingly dependent on the success of certain international
markets in order to achieve our growth targets.
Our future growth increasingly depends on the growth and sustained
profitability of certain international markets. Some or all of our
international market business units (“MBUs”), which we generally
define by the countries in which they operate, may not be
successful in their operations or in achieving expected growth,
which ultimately requires achieving consistent, stable net revenues
and earnings. The performance of these international operations may
be adversely affected by economic downturns in one or more of the
countries in which our large MBUs operate. A decline in performance
of one or more of our significant international MBUs could have a
material adverse impact on our consolidated results.
The International segment is a significant profit center driving
our global returns, along with our North America segment. In
particular, our China MBU contributes meaningfully to both
consolidated and International net revenues and operating income.
China is currently our fastest growing market, our second largest
market overall and 100% company-owned. Due to the significance of
our China market for our profit and growth, we are exposed to risks
in China, including the risks mentioned elsewhere and the
following:
•the
effects of current U.S.-China relations, including rounds of tariff
increases and retaliations and increasing restrictive regulations,
potential boycotts and increasing anti-Americanism;
•escalating
U.S.-China tension and increasing political sensitivities in
China;
•the
effects of the COVID-19 pandemic and related governmental
regulations and restrictions on our operations in China, including
China's “zero COVID” policy;
•entry
of new competitors to the specialty coffee market in
China;
•changes
in economic conditions in China and potential negative effects to
the growth of its middle class, wages, labor, inflation,
discretionary spending and real estate and supply chain
costs;
•ongoing
government regulatory reform, including relating to public health,
food safety, tariffs and tax, sustainability and responses to
climate change, which result in regulatory uncertainty as well as
potential significant increases in compliance costs;
and
•food-safety
related matters, including compliance with food-safety regulations
and ability to ensure product quality and safety.
Additionally, some factors that will be critical to the success of
our international operations overall are different than those
affecting our U.S. stores and licensees. Tastes naturally vary by
region, and consumers in some MBUs may not embrace our products to
the same extent as consumers in the U.S. or other international
markets. Occupancy costs and store operating expenses can be higher
internationally than in the U.S. due to higher rents for prime
store locations or costs of compliance with country-specific
regulatory requirements. Because many of our international
operations are in an early phase of development, operating expenses
as a percentage of related revenues are often higher compared to
more developed operations.
•We
face risks as a global business that could adversely affect our
financial performance.
We operate in 83 markets globally. Our international operations are
also subject to additional inherent risks of conducting business
abroad, such as:
•foreign
currency exchange rate fluctuations, or requirements to transact in
specific currencies;
•changes
or uncertainties in economic, legal, regulatory, social and
political conditions in our markets, as well as negative effects on
U.S. businesses due to increasing anti-American sentiment in
certain markets;
•interpretation
and application of laws and regulations, including tax, tariffs,
labor, merchandise, anti-bribery and privacy laws and
regulations;
•restrictive
actions of foreign or U.S. governmental authorities affecting trade
and foreign investment, especially during periods of heightened
tension between the U.S. and such foreign governmental authorities,
including protective measures such as export and customs duties and
tariffs, government intervention favoring local competitors and
restrictions on the level of foreign ownership;
•import
or other business licensing requirements;
•the
enforceability of intellectual property and contract
rights;
•limitations
on the repatriation of funds and foreign currency exchange
restrictions due to current or new U.S. and international
regulations;
•in
developing economies, the growth rate in the portion of the
population achieving sufficient levels of disposable income may not
be as fast as we forecast;
•difficulty
in staffing, developing and managing foreign operations and supply
chain logistics, including ensuring the consistency of product
quality and service, due to governmental actions affecting supply
chain logistics, distance, language and cultural differences, as
well as challenges in recruiting and retaining high-quality
employees in local markets;
•local
laws that make it more expensive and complex to negotiate with,
retain or terminate employees;
•local
regulations, health guidelines and safety protocols related to the
COVID-19 pandemic affecting our operations; and
•delays
in store openings for reasons beyond our control, competition with
locally relevant competitors or a lack of desirable real estate
locations available for lease at reasonable rates, any of which
could keep us from meeting annual store opening targets and, in
turn, negatively impact net revenues, operating income and earnings
per share.
Moreover, many of the foregoing risks are particularly acute in
developing countries, which are important to our long-term growth
prospects.
Risks Related to Governmental and Regulatory Changes
•Failure
to comply with applicable laws and changing legal and regulatory
requirements could harm our business and financial
results.
Our policies and procedures are designed to comply with all
applicable laws, accounting and reporting requirements, tax rules
and other regulations and requirements, including those imposed by
the SEC, Nasdaq and foreign countries, as well as applicable trade,
labor, healthcare, food and beverage, sanitation, safety,
environmental, labeling, anti-bribery and corruption and
merchandise laws. Such laws and regulations are complex and often
subject to differing interpretations, which can lead to
unintentional or unknown instances of non-compliance. Changes in
applicable environmental laws and regulations, including increased
or additional regulations and associated costs to limit carbon
dioxide and other greenhouse gas emissions, to discourage the use
of plastic or to limit or impose additional costs on commercial
water use, may result in increased compliance costs, capital
expenditures, incremental investments and other financial
obligations for us and our business partners, which could affect
our profitability. Furthermore, due to the COVID‑19 pandemic, we
are subject to additional domestic and foreign governmental
regulations and health guidelines, as well as any other voluntary
safety protocols.
In addition, our business is subject to complex and rapidly
evolving U.S. and international laws and regulations regarding data
privacy and data protection, and companies are under increased
regulatory scrutiny relating to these matters. The Federal Trade
Commission and many state attorneys general are also interpreting
federal and state consumer protection laws to impose standards for
the online collection, use, dissemination and security of data. The
interpretation and application of existing laws and regulations
regarding data privacy and data protection are in flux and
authorities around the world are considering a number of additional
legislative and regulatory proposals in this area. Current and
future data privacy and data protection laws and regulations
(including the GDPR and the CCPA, discussed in more detail in this
risk factors section, and other applicable international and U.S.
privacy laws), or new interpretations of existing laws and
regulations, may limit our ability to collect and use data, require
us to otherwise modify our data processing practices and policies
or result in the possibility of fines, litigation or orders, which
may have an adverse effect on our business and results of
operations. The burdens imposed by these and other laws and
regulations that may be enacted, or new interpretations of existing
and future laws and regulations, may also require us to incur
substantial costs in reaching compliance in a manner adverse to our
business.
The complexity of the regulatory environment in which we operate
and the related costs of compliance are both increasing due to
additional or changing legal and regulatory requirements, our
ongoing expansion into new markets and new channels and the fact
that foreign laws occasionally conflict with domestic laws. In
addition to potential damage to our reputation and brand, failure
by us or our business partners to comply with the various
applicable laws and regulations, as well as changes in laws and
regulations or the manner in which they are interpreted or applied,
may result in litigation, civil and criminal liability, damages,
fines and penalties, increased cost of regulatory compliance and
restatements of our financial statements and have an adverse impact
on our business and financial results.
Item 1B.
Unresolved Staff Comments
None.
Item 2.Properties
The material properties used by Starbucks in connection with its
roasting, manufacturing, warehousing, distribution and corporate
administrative operations, serving all segments, are as
follows:
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Location |
Approximate Size in Square Feet |
|
Purpose |
York, PA |
1,957,000 |
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|
Roasting, warehousing and distribution |
Seattle, WA |
1,145,000 |
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|
Corporate administrative |
Minden, NV (Carson Valley) |
1,080,000 |
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|
Roasting, warehousing and distribution |
Lebanon, TN |
680,000 |
|
|
Warehousing and distribution |
Kent, WA |
510,000 |
|
|
Roasting and distribution |
Auburn, WA |
491,000 |
|
|
Warehousing and distribution |
Shanghai, China |
225,000 |
|
|
Corporate administrative |
We own most of our roasting facilities and lease the majority of
our warehousing and distribution locations. As of October 2,
2022, Starbucks had
18,253 company-operated stores,
almost all of which are leased. We also lease space in various
locations worldwide for regional, district and other administrative
offices, training facilities and storage.
In addition to the locations listed above, we hold inventory at
various locations managed by third-party warehouses. We believe our
existing facilities, both owned and leased, are in good condition
and suitable for the conduct of our business.
Item 3.Legal
Proceedings
See
Note
16,
Commitments and Contingencies, to the consolidated financial
statements included in Item 8 of Part II of this 10-K for
information regarding certain legal proceedings in which we are
involved.
Item 4.Mine
Safety Disclosures
Not applicable.
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities
SHAREHOLDER INFORMATION
MARKET INFORMATION AND DIVIDEND POLICY
Starbucks common stock is traded on Nasdaq, under the symbol
“SBUX.”
As of November 11, 2022, we had approximately
18,000 shareholders of record. This does not include persons
whose stock is in nominee or “street name” accounts through
brokers.
Future decisions to pay comparable cash dividends continue to be at
the discretion of the Board and will be dependent on our operating
performance, financial condition, capital expenditure requirements
and other factors that the Board considers relevant.
ISSUER PURCHASES OF EQUITY SECURITIES
Shares under our ongoing share repurchase program may be
repurchased in open market transactions, including pursuant to a
trading plan adopted in accordance with Rule 10b5-1 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) or
through privately negotiated transactions. The timing, manner,
price and amount of repurchases will be determined at our
discretion, and the share repurchase program may be suspended,
terminated or modified at any time for any reason. On April, 4,
2022, we announced a temporary suspension of our share repurchase
program to allow us to augment investments in our stores and
partners. During the fourth fiscal quarter ended October 2,
2022, there was no share repurchase activity. As of October 2,
2022, 52.6 million shares remained available for repurchase under
current authorizations. We have resumed our share repurchase
program in the first quarter of fiscal 2023.
Performance Comparison Graph
The following graph depicts the total return to shareholders from
October 1, 2017, through October 2, 2022, relative to the
performance of the Standard & Poor’s 500 Index, the Nasdaq
Composite Index and the Standard & Poor’s 500 Consumer
Discretionary Sector, a peer group that includes Starbucks. All
indices shown in the graph have been reset to a base of 100 as of
October 1, 2017, and assume an investment of $100 on that date
and the reinvestment of dividends paid since that date. The stock
price performance shown in the graph is not necessarily indicative
of future price performance.
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Oct 1, 2017 |
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Sep 30, 2018 |
|
Sep 29, 2019 |
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Sep 27, 2020 |
|
Oct 3, 2021 |
|
Oct 2, 2022 |
Starbucks Corporation |
$ |
100.00 |
|
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$ |
108.29 |
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$ |
171.58 |
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$ |
167.04 |
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$ |
227.59 |
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$ |
173.61 |
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S&P 500 |
100.00 |
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117.91 |
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122.93 |
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141.55 |
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184.02 |
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155.55 |
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Nasdaq Composite |
100.00 |
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125.17 |
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125.82 |
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177.36 |
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231.03 |
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170.38 |
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S&P Consumer Discretionary |
100.00 |
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132.54 |
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135.66 |
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174.86 |
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208.34 |
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164.81 |
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Item 6. [Reserved]
Item 7.Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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 related store closures, unless
otherwise noted. Fiscal year 2022 included 52 weeks. Fiscal year
2021 included 53 weeks, with the 53rd week falling in the fourth
fiscal quarter, and fiscal year 2020 included 52 weeks; comparable
store sale percentages below are calculated excluding the 53rd
week.
The discussion of our financial condition and results of operations
for the fiscal year ended September 27, 2020, included in Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) can be found in the Annual
Report on Form 10-K for the fiscal year ended October 3,
2021.
Overview
We have three reportable operating segments: 1) North America,
which is inclusive of the U.S. and Canada; 2) International, which
is inclusive of China, Japan, Asia Pacific, Europe, Middle East,
Africa, Latin America and the Caribbean; and 3) Channel
Development. Non-reportable operating segments and unallocated
corporate expenses are reported within Corporate and
Other.
Our financial results and long-term growth model will continue to
be driven by new store openings, comparable store sales and margin
management. We believe these key operating metrics are useful to
investors because management uses these metrics to assess the
growth of our business and the effectiveness of our marketing and
operational strategies. Throughout this MD&A, we commonly
discuss the following key operating metrics:
•New
store openings and store count
•Comparable
store sales
•Operating
margin
Starbucks results for fiscal 2022 demonstrate the resiliency and
strength of our brand. Consolidated revenues increased 11% to $32.3
billion in fiscal 2022 compared to $29.1 billion in fiscal 2021,
primarily driven by strength in our U.S. business and growth in our
International segment excluding China, partially offset by the
impact of the extra week in fiscal 2021 ($496 million) and
unfavorable foreign currency translation.
For both the North America segment and U.S. market, comparable
store sales increased 12% for fiscal 2022 compared to an increase
of 22% and 21% for the North America segment and the U.S. market,
respectively, in fiscal 2021. Average ticket for the North America
segment and the U.S. market grew 7% and 8%, respectively, primarily
driven by strategic pricing and increased demand for food items in
our U.S. market. The segment also experienced higher costs,
primarily related to investments and growth in labor including
enhanced store partner wages as well as increased spend on new
partner training. Also contributing were inflationary pressures on
commodities and our supply chain. In fiscal 2022, we announced our
Reinvention Plan in the U.S. market to increase efficiency while
elevating the partner and customer experience. We believe the
investments in partner wages and training will increase retention
and productivity while the acceleration of purpose-built store
concepts and innovations in technologies will provide additional
convenience and connection with our customers.
For the International segment, comparable store sales decreased by
9% for fiscal 2022 compared to an increase of 16% in fiscal 2021,
driven by comparable store sales decline of 24% in our China
market. During the third and fourth quarters of fiscal 2022, our
China market experienced COVID-19 pandemic related restrictions in
multiple cities that severely impacted customer mobility. Outside
of China, strong growth in our major International markets, driven
by product innovation and increasing digital capabilities,
partially offset the unfavorability in our China
market.
Revenue for our Channel Development segment increased $250 million,
or 16%, when compared with fiscal 2021, driven by higher product
sales to and royalty revenue from the Global Coffee Alliance and
growth in our global ready-to-drink business. Operating margin
decreased 520 basis points to 44.3%, primarily due to a decline in
our North American Coffee Partnership joint venture income due to
inflationary pressures and supply chain constraints as well as
business mix shift.
Despite COVID-19 induced business interruptions, especially in our
China market, we have seen the strength and resilience of our brand
as well as strong customer demand across our portfolio. We expect
inflationary pressures on commodities and supply chain to continue
to a lesser extent in fiscal 2023, relative to the impact on our
business and financial metrics, including operating margin, as
compared to fiscal 2022. We anticipate that these should be offset
by benefits from pricing decisions as well as from increased sales
leverage and higher productivity driven by our Reinvention Plan.
Absent significant and prolonged COVID-19 relapses or global
economic disruptions, and based on the current trend of our
business operations and our focused efforts on the Reinvention
Plan, we are confident in the strength of our brand and strategy
for sustainable, profitable growth over the long-term.
Financial Highlights
•Total
net revenues increased 11% to $32.3 billion in fiscal 2022 compared
to $29.1 billion in fiscal 2021, inclusive of $576 million
attributable to the extra week in fiscal 2021.
•Consolidated
operating income decreased to $4.6 billion in fiscal 2022 compared
to $4.9 billion in fiscal 2021. Fiscal 2022 operating margin was
14.3% compared to 16.8% in fiscal 2021. Operating margin
contraction of 250 basis points was primarily due to investments
and growth in labor, including enhanced retail store partner wages
(approximately 290 basis points) as well as increased spend on new
partner training and support costs (approximately 80 basis points).
Also contributing were inflationary pressures on commodities and
our supply chain (approximately 270 basis points), sales deleverage
related to COVID-19 pandemic related impacts in our China market
(approximately 110 basis points), business mix shift (approximately
60 basis points) and lower government subsidies (approximately 60
basis points). These increases were partially offset by sales
leverage across markets outside of China (approximately 390 basis
points) and strategic pricing, primarily in North America
(approximately 320 basis points).
•Diluted
earnings per share (“EPS”) for fiscal 2022 decreased to $2.83,
compared to EPS of $3.54 in fiscal 2021. The decrease was primarily
driven by lapping the prior year $0.56 gain, net of estimated
taxes, on the divestiture of our South Korea joint venture and
$0.10 related to the extra week in fiscal 2021. Also contributing
were investments in labor and inflationary pressures on commodities
and our supply chain, partially offset by growth in comparable
store sales and lower restructuring costs.
•Capital
expenditures were $1.8 billion in fiscal 2022 and $1.5 billion in
fiscal 2021.
•We
returned $6.3 billion to our shareholders in fiscal 2022 through
share repurchases and dividends. We returned $2.1 billion in fiscal
2021 through dividends. In April 2022, we announced a temporary
suspension of our share repurchase program to allow us to augment
investments in our stores and partners. We resumed our share
repurchase program in the first quarter of fiscal
2023.
Acquisitions and Divestitures
See
Note
2,
Acquisitions, Divestitures and Strategic Alliance, to the
consolidated financial statements included in Item 8 of Part II of
this 10-K for information regarding acquisitions and
divestitures.
RESULTS OF OPERATIONS — FISCAL 2022 COMPARED TO FISCAL
2021
Consolidated results of operations
(in millions):
Revenues
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|
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Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
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%
Change
|
Net revenues: |
|
|
|
|
|
Company-operated stores |
$ |
26,576.1 |
|
|
$ |
24,607.0 |
|
|
8.0 |
% |
Licensed stores |
3,655.5 |
|
|
2,683.6 |
|
|
36.2 |
|
Other |
2,018.7 |
|
|
1,770.0 |
|
|
14.1 |
|
Total net revenues |
$ |
32,250.3 |
|
|
$ |
29,060.6 |
|
|
11.0 |
% |
Total net revenues increased $3.2 billion, or 11%, over fiscal
2021, primarily due to higher revenues from company-operated stores
($2.0 billion). The growth in company-operated store revenue was
driven by an 8% increase in comparable store sales ($1.8 billion)
attributed to a 5% increase in average ticket and 2% increase in
comparable transactions. Also contributing were the incremental
revenues from 1,120 net new Starbucks company-operated store
openings, or a 7% increase, over the past 12 months ($1.0 billion).
Partially offsetting these increases was the impact of the extra
week in fiscal 2021 ($496 million) and unfavorable foreign currency
translation ($368 million).
Licensed stores revenue increased
$972 million, primarily driven by higher product and equipment
sales to and royalty revenues from our licensees ($922 million) and
the conversion of our Korea market from a joint venture to a fully
licensed market in the fourth quarter of fiscal 2021 ($187
million). Partially offsetting these increases were unfavorable
foreign currency translation ($81 million) and the impact of the
extra week in fiscal 2021 ($57 million).
Other revenues
increased $249 million, primarily due to higher product sales and
royalty revenue in the Global Coffee Alliance ($216 million) and
growth in our ready-to-drink business ($44 million). Partially
offsetting these increases was the impact of the extra week in
fiscal 2021 ($23 million).
Operating Expenses
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Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Oct 2,
2022 |
|
Oct 3,
2021 |
|
|
|
|
|
As a % of Total
Net Revenues
|
Product and distribution costs |
$ |
10,317.4 |
|
|
$ |
8,738.7 |
|
|
32.0 |
% |
|
30.1 |
% |
Store operating expenses |
13,561.8 |
|
|
11,930.9 |
|
|
42.1 |
|
|
41.1 |
|
Other operating expenses |
461.5 |
|
|
359.5 |
|
|
1.4 |
|
|
1.2 |
|
Depreciation and amortization expenses |
1,447.9 |
|
|
1,441.7 |
|
|
4.5 |
|
|
5.0 |
|
General and administrative expenses |
2,032.0 |
|
|
1,932.6 |
|
|
6.3 |
|
|
6.7 |
|
Restructuring and impairments |
46.0 |
|
|
170.4 |
|
|
0.1 |
|
|
0.6 |
|
|
|
|
|
|
|
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|
Total operating expenses |
27,866.6 |
|
|
24,573.8 |
|
|
86.4 |
|
|
84.6 |
|
Income from equity investees |
234.1 |
|
|
385.3 |
|
|
0.7 |
|
|
1.3 |
|
Operating income |
$ |
4,617.8 |
|
|
$ |
4,872.1 |
|
|
14.3 |
% |
|
16.8 |
% |
Store operating expenses as a % of related revenues |
|
|
|
|
51.0 |
% |
|
48.5 |
% |
Product and distribution costs as a percentage of total net
revenues increased 190 basis points, primarily due to higher supply
chain costs due to inflationary pressures.
Store operating expenses as a percentage of total net revenues
increased 100 basis points. Store operating expenses as a
percentage of company-operated store revenues increased 250 basis
points, primarily due to investments and growth in labor, including
enhanced retail store partner wages (approximately 320 basis
points) as well as increased spend on new partner training and
support costs (approximately 90 basis points). Also contributing
were lower temporary government subsidies (approximately 70 basis
points). These increases were partially offset by sales
leverage.
Other operating expenses increased $102 million, primarily due to
lapping a change in estimate relating to a transaction cost accrual
($23 million), higher support costs for our growing North America
and International licensed stores ($22 million), transaction costs
associated with our Russia market exit ($20 million) and strategic
investments in technology and other initiatives ($15
million).
Depreciation and amortization expenses as a percentage of total net
revenues decreased 50 basis points, primarily due to sales
leverage.
General and administrative expenses
increased $99 million, primarily due to incremental investments in
technology ($92 million), increased partner wages and benefits ($59
million) and higher support costs to address labor market
conditions ($36 million). These increases were partially offset by
lower performance-based compensation ($95 million).
Restructuring and impairment expenses
decreased $124 million, primarily due to lower costs incurred
related to our Reinvention Plan in the current year compared to
prior year's North America store portfolio optimization, including
lower accelerated lease right-of-use asset amortization costs ($84
million) and asset impairment charges ($68 million), partially
offset by higher professional fees and higher severance costs ($27
million).
Income from equity investees decreased $151 million, primarily due
to the conversion of our Korea market from a joint venture to a
fully licensed market in the fourth quarter of fiscal 2021 ($140
million) and lower income from our North American Coffee
Partnership joint venture ($18 million).
The combination of these changes resulted in an overall decrease in
operating margin of 250 basis points in fiscal 2022 when compared
to fiscal 2021.
Other Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Oct 2,
2022 |
|
Oct 3,
2021 |
|
|
|
|
|
As a % of Total
Net Revenues
|
Operating income |
$ |
4,617.8 |
|
|
$ |
4,872.1 |
|
|
14.3 |
% |
|
16.8 |
% |
Net gain resulting from divestiture of certain
operations |
— |
|
|
864.5 |
|
|
— |
|
|
3.0 |
|
Interest income and other, net |
97.0 |
|
|
90.1 |
|
|
0.3 |
|
|
0.3 |
|
Interest expense |
(482.9) |
|
|
(469.8) |
|
|
(1.5) |
|
|
(1.6) |
|
Earnings before income taxes |
4,231.9 |
|
|
5,356.9 |
|
|
13.1 |
|
|
18.4 |
|
Income tax expense |
948.5 |
|
|
1,156.6 |
|
|
2.9 |
|
|
4.0 |
|
Net earnings including noncontrolling interests |
3,283.4 |
|
|
4,200.3 |
|
|
10.2 |
|
|
14.5 |
|
Net earnings/(loss) attributable to noncontrolling
interests |
1.8 |
|
|
1.0 |
|
|
0.0 |
|
|
0.0 |
|
Net earnings attributable to Starbucks |
$ |
3,281.6 |
|
|
$ |
4,199.3 |
|
|
10.2 |
% |
|
14.5 |
% |
Effective tax rate including noncontrolling interests |
|
|
|
|
22.4 |
% |
|
21.6 |
% |
Net gain resulting from divestiture of certain operations decreased
$865 million due to lapping the sale of our ownership interest in
our South Korea joint venture in the prior year.
Interest expense
increased $13 million primarily due to additional interest incurred
on long-term debt issued in February 2022.
The effective tax rate for fiscal 2022 was 22.4% compared to 21.6%
for fiscal 2021. The increase was due to lapping a prior year
remeasurement of deferred tax assets due to an enacted foreign
corporate rate change (approximately 130 basis points) and lapping
the release of income tax reserves upon expiration of statute of
limitations (approximately 70 basis points), partially offset by
the release of valuation allowances recorded against deferred tax
assets of a certain international jurisdiction (approximately 120
basis points). See
Note
14,
Income Taxes, for further discussion.
The Inflation Reduction Act was enacted on August 16, 2022, and
includes a new 15% minimum tax on “adjusted financial statement
income” beginning with the Company’s fiscal year 2024, and a new 1%
excise tax on stock repurchases after December 31, 2022. While
these tax law changes have no immediate effect and are not expected
to have a material impact on our future financial results, we will
continue to evaluate its impact as further information becomes
available.
Segment Information
Results of operations by segment
(in millions):
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Oct 2,
2022 |
|
Oct 3,
2021 |
|
|
|
|
|
As a % of North America
Total Net Revenues |
Net revenues: |
|
|
|
|
|
|
|
Company-operated stores |
$ |
21,214.2 |
|
|
$ |
18,737.3 |
|
|
90.8 |
% |
|
91.6 |
% |
Licensed stores |
2,150.5 |
|
|
1,702.2 |
|
|
9.2 |
|
|
8.3 |
|
Other |
6.1 |
|
|
8.4 |
|
|
0.0 |
|
|
0.0 |
|
Total net revenues |
23,370.8 |
|
|
20,447.9 |
|
|
100.0 |
|
|
100.0 |
|
Product and distribution costs |
6,677.2 |
|
|
5,453.8 |
|
|
28.6 |
|
|
26.7 |
|
Store operating expenses |
10,860.0 |
|
|
9,359.5 |
|
|
46.5 |
|
|
45.8 |
|
Other operating expenses |
202.1 |
|
|
166.0 |
|
|
0.9 |
|
|
0.8 |
|
Depreciation and amortization expenses |
808.4 |
|
|
753.9 |
|
|
3.5 |
|
|
3.7 |
|
General and administrative expenses |
303.3 |
|
|
300.0 |
|
|
1.3 |
|
|
1.5 |
|
Restructuring and impairments |
33.3 |
|
|
155.4 |
|
|
0.1 |
|
|
0.8 |
|
Total operating expenses |
18,884.3 |
|
|
16,188.6 |
|
|
80.8 |
|
|
79.2 |
|
|
|
|
|
|
|
|
|
Operating income |
$ |
4,486.5 |
|
|
$ |
4,259.3 |
|
|
19.2 |
% |
|
20.8 |
% |
|
|
|
|
|
|
|
|
Revenues
North America total net revenues for
fiscal 2022 increased $2.9 billion, or 14%,
primarily due to a 12% increase in comparable store sales ($2.2
billion) driven by a 7% increase in average ticket and a 5%
increase in transaction. Also contributing to these increases were
the performance of net new company-operated store openings over the
past 12 months ($628 million) and higher product and equipment
sales to and royalty revenues from our licensees ($487 million),
primarily due to business recovery from the impact of the COVID-19
pandemic. These increases were partially offset by the impact of
the extra week in fiscal 2021 ($427 million).
Operating Margin
North America operating income for fiscal 2022 increased 5% to $4.5
billion, compared to $4.3 billion in fiscal 2021. Operating margin
decreased 160 basis points to 19.2%, primarily due to investments
and growth in labor, including enhanced retail store partner wages
(approximately 350 basis points) as well as increased spend on new
partner training and support costs (approximately 120 basis
points). Also contributing were inflationary pressures on
commodities and our supply chain (approximately 350 basis points).
These were partially offset by strategic pricing (approximately 400
basis points) and sales leverage.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Oct 2,
2022 |
|
Oct 3,
2021 |
|
|
|
|
|
|
|
As a % of International
Total Net Revenues
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
Company-operated stores |
$ |
5,361.9 |
|
|
$ |
5,869.7 |
|
|
77.3 |
% |
|
84.8 |
% |
|
|
Licensed stores |
1,505.0 |
|
|
981.4 |
|
|
21.7 |
|
|
14.2 |
|
|
|
Other |
73.2 |
|
|
70.5 |
|
|
1.1 |
|
|
1.0 |
|
|
|
Total net revenues |
6,940.1 |
|
|
6,921.6 |
|
|
100.0 |
|
|
100.0 |
|
|
|
Product and distribution costs |
2,357.7 |
|
|
2,187.3 |
|
|
34.0 |
|
|
31.6 |
|
|
|
Store operating expenses |
2,701.8 |
|
|
2,571.4 |
|
|
38.9 |
|
|
37.2 |
|
|
|
Other operating expenses |
191.4 |
|
|
147.3 |
|
|
2.8 |
|
|
2.1 |
|
|
|
Depreciation and amortization expenses |
513.0 |
|
|
544.7 |
|
|
7.4 |
|
|
7.9 |
|
|
|
General and administrative expenses |
345.3 |
|
|
360.5 |
|
|
5.0 |
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
6,109.2 |
|
|
5,811.2 |
|
|
88.0 |
|
|
84.0 |
|
|
|
Income from equity investees |
2.3 |
|
|
135.3 |
|
|
0.0 |
|
|
2.0 |
|
|
|
Operating income |
$ |
833.2 |
|
|
$ |
1,245.7 |
|
|
12.0 |
% |
|
18.0 |
% |
|
|
Revenues
International total net revenues for fiscal
2022 increased $19 million, or 0.3%, primarily due
to higher product sales to and royalty revenues from our licensees
($435 million), mainly due to continuing business improvement from
the COVID-19 pandemic. Additionally, there were 765 net new
Starbucks company-operated stores, or a 11% increase over the past
12 months ($406 million). Also contributing to the increase was the
conversion of our Korea market from a joint venture to a fully
licensed market in the fourth quarter of fiscal 2021 ($187
million). These were partially offset by a 9% decline in comparable
store sales ($459 million), driven by a 5% decrease in customer
transactions and a 4% decrease in average ticket, primarily
attributable to COVID-19 related restrictions in China and lapping
the prior-year value-added-tax benefit in China, unfavorable
foreign currency translation ($436 million) and the impact of the
extra week in fiscal 2021 ($127 million).
Operating Margin
International operating income for fiscal 2022 decreased 33% to
$833.2 million, compared to $1.2 billion in fiscal 2021. Operating
margin decreased 600 basis points to 12.0%, primarily due to sales
deleverage related to COVID-19 pandemic impacts in our China market
(approximately 460 basis points), investments and growth in retail
store partner wages and benefits (approximately 140 basis points),
lower temporary government subsidies (approximately 100 basis
points), higher commodity and supply chain costs due to
inflationary pressures (approximately 90 basis points) and
strategic initiatives (approximately 90 basis points). These
decreases were partially offset by sales leverage across markets
outside of China.
Channel Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Oct 2,
2022 |
|
Oct 3,
2021 |
|
|
|
|
|
|
|
As a % of Channel Development
Total Net Revenues |
|
|
Net revenues |
$ |
1,843.6 |
|
|
$ |
1,593.6 |
|
|
|
|
|
|
|
Product and distribution costs |
1,194.2 |
|
|
1,011.2 |
|
|
64.8 |
% |
|
63.5 |
% |
|
|
Other operating expenses |
51.6 |
|
|
31.3 |
|
|
2.8 |
|
|
2.0 |
|
|
|
Depreciation and amortization expenses |
0.1 |
|
|
1.2 |
|
|
0.0 |
|
|
0.1 |
|
|
|
General and administrative expenses |
12.2 |
|
|
10.8 |
|
|
0.7 |
|
|
0.7 |
|
|
|
Total operating expenses |
1,258.1 |
|
|
1,054.5 |
|
|
68.2 |
|
|
66.2 |
|
|
|
Income from equity investees |
231.8 |
|
|
250.0 |
|
|
12.6 |
|
|
15.7 |
|
|
|
Operating income |
$ |
817.3 |
|
|
$ |
789.1 |
|
|
44.3 |
% |
|
49.5 |
% |
|
|
Revenues
Channel Development total net revenues for fiscal 2022 increased
$250 million, or 16%, compared to fiscal 2021, primarily due to
higher Global Coffee Alliance product sales and royalty revenue
($216 million) and growth in our ready-to-drink business ($44
million). These increases were partially offset by the impact of
the extra week in fiscal 2021 ($21 million).
Operating Margin
Channel Development operating income for fiscal 2022 increased 4%
to $817 million, compared to $789 million in fiscal 2021. Operating
margin decreased 520 basis points to 44.3%, primarily due to a
decline in our North American Coffee Partnership joint venture
income due to inflationary pressures and supply chain constraints
(approximately 340 basis points) and business mix shift
(approximately 170 basis points).
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
%
Change |
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
$ |
95.8 |
|
|
$ |
97.5 |
|
|
(1.7) |
% |
Total net revenues |
95.8 |
|
|
97.5 |
|
|
(1.7) |
|
Product and distribution costs |
88.3 |
|
|
86.4 |
|
|
2.2 |
|
|
|
|
|
|
|
Other operating expenses |
16.4 |
|
|
14.9 |
|
|
10.1 |
|
Depreciation and amortization expenses |
126.4 |
|
|
141.9 |
|
|
(10.9) |
|
General and administrative expenses |
1,371.2 |
|
|
1,261.3 |
|
|
8.7 |
|
Restructuring and impairments |
12.7 |
|
|
15.0 |
|
|
(15.3) |
|
Total operating expenses |
1,615.0 |
|
|
1,519.5 |
|
|
6.3 |
|
|
|
|
|
|
|
Operating loss |
$ |
(1,519.2) |
|
|
$ |
(1,422.0) |
|
|
6.8 |
% |
Corporate and Other primarily consists of our unallocated corporate
expenses and Evolution Fresh. Unallocated corporate expenses
include corporate administrative functions that support the
operating segments but are not specifically attributable to or
managed by any segment and are not included in the reported
financial results of the operating segments. In the fourth quarter
of fiscal 2022, we sold our Evolution Fresh brand and
business.
Corporate and Other operating loss increased to $1.5 billion for
fiscal 2022, or 7%, compared to $1.4 billion in fiscal 2021. This
increase was primarily driven by incremental investments in
technology ($84 million), increased support costs to address labor
market conditions ($36 million) and increased partner wages and
benefits ($31 million). These increases were partially offset by
lower performance-based compensation ($62 million).
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and Investment Overview
Our cash and investments were $3.5 billion and $6.9 billion as of
October 2, 2022 and October 3, 2021, respectively. 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 (domestic and foreign)
and commercial paper as well as principal-protected structured
deposits. As of October 2, 2022, approximately $2.7 billion of
cash and short-term investments were held in foreign
subsidiaries.
Borrowing capacity
Credit Facilities and Commercial Paper
Our total contractual borrowing capacity for general corporate
purposes was $2.8 billion as of the end of fiscal
2022.
Revolving Lines of Credit
Our $3.0 billion unsecured 5-year revolving credit facility (the
“2021 credit facility”), of which $150 million may be used for
issuances of letters of credit, is currently set to mature on
September 16, 2026. The 2021 credit facility is available for
working capital, capital expenditures and other corporate purposes,
including acquisitions and share repurchases. We have the option,
subject to negotiation and agreement with the related banks, to
increase the maximum commitment amount by an additional $1.0
billion. 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 Company’s long-term credit
ratings assigned by Moody’s and Standard & Poor’s rating
agencies. The 2021 credit facility contains alternative interest
rate provisions specifying rate calculations to be used at such
time LIBOR ceases to be available as a benchmark due to reference
rate reform. The “Base Rate” of interest is the highest of (i) the
Federal Funds Rate plus 0.500%, (ii) Bank of America’s prime rate,
and (iii) the Eurocurrency Rate (as defined in the credit facility)
plus 1.000%. As of October 2, 2022, we had no borrowings under
the 2021 credit facility.
Commercial Paper
Under our commercial paper program, we may issue unsecured
commercial paper notes up to a maximum aggregate amount outstanding
at any time of $3.0 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 the
2021 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
October 2, 2022, we had $175.0 million outstanding under our
commercial paper program.
Credit Facilities in Japan
Additionally, we hold Japanese yen-denominated credit facilities
which are available for working capital needs and capital
expenditures within our Japanese market.
•A
¥5 billion, or $34.6 million, facility is currently set to mature
on December 31, 2022. Borrowings under the credit facility are
subject to terms defined within the facility and will bear interest
at a variable rate based on TIBOR plus an applicable margin of
0.400%.
•A
¥10 billion, or $69.2 million, facility is currently set to mature
on March 27, 2023. Borrowings under the credit facility are
subject to terms defined within the facility and will bear interest
at a variable rate based on TIBOR plus 0.350%.
As of October 2, 2022, we had no borrowings outstanding under
these credit facilities.
See
Note
9,
Debt, to the consolidated financial statements included in Item 8
of Part II of this 10-K for details of the components of our
long-term debt.
Our ability to incur new liens and conduct sale and leaseback
transactions on certain material properties is subject to
compliance with terms of the indentures under which the long-term
notes were issued. As of October 2, 2022, we were in
compliance with all applicable covenants.
Use of Cash
We expect to use our available cash and investments, including, but
not limited to, additional potential future borrowings under the
credit facilities, commercial paper program and the issuance of
debt to support and invest in our core businesses, including
investing in new ways to serve our customers and supporting our
store partners, repaying maturing debts, as well as returning cash
to shareholders through common stock cash dividend payments and
discretionary share repurchases and investing in new business
opportunities related to our core and developing businesses.
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. 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 net future cash flows generated from operations and
existing cash and investments both domestically and
internationally, combined with our ability to leverage our balance
sheet through the issuance of debt, will be sufficient to finance
capital requirements for our core businesses as well as shareholder
distributions for at least the next 12 months. We are currently not
aware of any trends or demands, commitments, events or
uncertainties that will result in, or that are reasonably likely to
result in, our liquidity increasing or decreasing in any material
way that will impact our capital needs during or beyond the next 12
months.
We regularly review our cash positions and our determination of
partial indefinite reinvestment of foreign earnings. In the event
we determine that all or another portion of such foreign earnings
are no longer indefinitely reinvested, we may be subject to
additional foreign withholding taxes and U.S. state income taxes,
which could be material. We currently do not anticipate the need
for repatriated funds to the U.S. to satisfy domestic liquidity
needs. See
Note
14,
Income Taxes, for further discussion.
During each of the first three quarters of fiscal 2021, we declared
a cash dividend to shareholders of $0.45 per share. During the
fourth quarter of fiscal 2021, and for each of the first three
quarters of fiscal 2022, we declared a cash dividend of $0.49 per
share. Dividends are generally paid in the quarter following the
declaration date. Cash returned to shareholders through dividends
in fiscal 2022 and 2021 totaled $2.3 billion and $2.1 billion,
respectively. During the fourth quarter of fiscal 2022, we declared
a cash dividend of $0.53 per share to be paid on November 25,
2022, with an expected payout of approximately $608.3
million.
During the first quarter of fiscal 2022, we resumed our share
repurchase program which had been temporarily suspended in March
2020. During the fiscal year ended October 2, 2022, we
repurchased 36.3 million shares of common stock for $4.0 billion on
the open market. On March 15, 2022, we announced that our Board
authorized the repurchase of up to an additional 40 million shares
under our ongoing share repurchase program. On April 4, 2022, we
announced a temporary suspension of our share repurchase program to
allow us to augment investments in our stores and partners.
Repurchases pursuant to this program were last made on April 1,
2022. As of October 2, 2022, 52.6 million shares remained
available for repurchase under current authorizations. We have
resumed our share repurchase program in the first quarter of fiscal
2023.
Other than operating expenses, cash requirements for fiscal 2023
are expected to consist primarily of capital expenditures for
investments in our new and existing stores, our supply chain and
corporate facilities. Total capital expenditures for fiscal 2023
are expected to be approximately $2.5 billion.
The following table summarizes current and long-term material cash
requirements as of October 2, 2022, which we expect to fund
primarily with operating cash flows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material Cash Requirements |
|
Total |
|
Less than 1
Year
|
|
1 - 3
Years
|
|
3 - 5
Years
|
|
More than
5 Years
|
Operating lease obligations(1)
|
$ |
9,863.7 |
|
|
$ |
1,473.5 |
|
|
$ |
2,729.2 |
|
|
$ |
2,121.4 |
|
|
$ |
3,539.6 |
|
|
|
|
|
|
|
|
|
|
|
Debt obligations |
|
|
|
|
|
|
|
|
|
Principal payments |
15,038.4 |
|
|
1,000.0 |
|
|
3,088.4 |
|
|
1,000.0 |
|
|
9,950.0 |
|
Interest payments |
6,499.8 |
|
|
487.3 |
|
|
865.2 |
|
|
725.3 |
|
|
4,422.0 |
|
Purchase obligations(2)
|
1,354.5 |
|
|
1,030.1 |
|
|
324.4 |
|
|
— |
|
|
— |
|
Other obligations(3)
|
401.6 |
|
|
125.0 |
|
|
118.7 |
|
|
84.6 |
|
|
73.3 |
|
Total |
$ |
33,158.0 |
|
|
$ |
4,115.9 |
|
|
$ |
7,125.9 |
|
|
$ |
3,931.3 |
|
|
$ |
17,984.9 |
|
(1)Amounts
include direct lease obligations, excluding any taxes, insurance
and other related expenses.
(2)Purchase
obligations include agreements to purchase goods or services that
are enforceable and legally binding on Starbucks and that specify
all significant terms. Green coffee purchase commitments comprise
99% of total purchase obligations.
(3)Other
obligations include other long-term liabilities primarily
consisting of long-term income taxes payable, asset retirement
obligations and equity investment capital commitments.
Cash Flows
Cash provided by operating activities was $4.4 billion for fiscal
2022, compared to $6.0 billion for fiscal 2021. The change was
primarily due to lower net earnings and an increase in inventory
purchases and timing of income tax payments.
Cash used in investing activities totaled $2.1 billion for fiscal
2022, compared to $0.3 billion for fiscal 2021. The change was
primarily driven by lapping the net proceeds from the divestiture
of our ownership interest in our South Korea joint venture and an
increase in spend on capital expenditures.
Cash used in financing activities for fiscal 2022 totaled $5.6
billion, compared to cash provided by financing activities of $3.7
billion for fiscal 2021. The change was primarily due to resuming
our share repurchase program, partially offset by net proceeds from
issuance of long-term debt.
COMMODITY PRICES, AVAILABILITY AND GENERAL RISK
CONDITIONS
Commodity price risk represents Starbucks 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 impacts 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,
as well as Risk Factors in
Item 1A
of this 10-K.
FINANCIAL RISK MANAGEMENT
Market risk is defined as the risk of losses due to changes in
commodity prices, foreign currency exchange rates, equity security
prices and interest rates. We manage our exposure to various
market-based risks according to a market price risk management
policy. Under this policy, market-based risks are quantified and
evaluated for potential mitigation strategies, such as entering
into hedging transactions. The market price risk management policy
governs how hedging instruments may be used to mitigate risk. Risk
limits are set annually and speculative trading activities are
prohibited. We also monitor and limit the amount of associated
counterparty credit risk, which we consider to be low. We use
interest rate swap agreements and treasury locks to primarily hedge
against changes in benchmark interest rates related to anticipated
debt issuances. We also use cross-currency swaps and foreign
exchange debt instruments to hedge against changes in the fair
value of our fixed-rate debt and foreign exchange exposure of net
investments in Japan. Excluding interest rate hedging instruments,
cross currency swaps and foreign currency debt, hedging instruments
generally do not have maturities in excess of three years. Refer
to
Note
1,
Summary of Significant Accounting Policies and Estimates,
and
Note
3,
Derivative Financial Instruments, to the consolidated financial
statements included in Item 8 of Part II of this 10-K for further
discussion of our hedging instruments.
The sensitivity analyses disclosed below provide only a limited,
point-in-time view of the market risk of the financial instruments
discussed. The actual impact of the respective underlying rates and
price changes on the financial instruments may differ significantly
from those shown in the sensitivity analyses.
Commodity Price Risk
We purchase commodity inputs, primarily coffee, dairy products,
diesel, cocoa, sugar and other commodities, that are used in our
operations and are subject to price fluctuations that impact our
financial results. We use a combination of pricing features
embedded within supply contracts, such as fixed-price and
price-to-be-fixed contracts for coffee purchases, and financial
derivatives to manage our commodity price risk
exposure.
The following table summarizes the potential impact as of
October 2, 2022 to Starbucks future net earnings and other
comprehensive income (“OCI”) from changes in commodity prices. The
information provided below relates only to the hedging instruments
and does not represent the corresponding changes in the underlying
hedged items
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) to Net Earnings |
|
Increase/(Decrease) to OCI |
|
10% Increase in
Underlying Rate
|
|
10% Decrease in
Underlying Rate |
|
10% Increase in
Underlying Rate |
|
10% Decrease in
Underlying Rate |
Commodity hedges |
$ |
3.0 |
|
|
$ |
(3.0) |
|
|
$ |
74 |
|
|
$ |
(74) |
|
Foreign Currency Exchange Risk
The majority of our revenue, expense and capital purchasing
activities are transacted in U.S. dollars. However, because a
portion of our operations consists of activities outside of the
U.S., we have transactions in other currencies, primarily the
Chinese renminbi, Japanese yen, Canadian dollar, British pound,
South Korean won and euro. To reduce cash flow volatility from
foreign currency fluctuations, we enter into derivative instruments
to hedge portions of cash flows of anticipated intercompany royalty
payments, inventory purchases, intercompany borrowing and lending
activities and certain other transactions in currencies other than
the functional currency of the entity that enters into the
arrangements, as well as the translation risk of certain balance
sheet items. The volatility in the foreign exchange market may lead
to significant fluctuation in foreign currency exchange rates and
adversely impact our financial results in the case of weakening
foreign currencies relative to the U.S. dollar.
The following table summarizes the potential impact as of
October 2, 2022 to Starbucks future net earnings and other
comprehensive income from changes in the fair value of these
derivative financial instruments due to a change in the value of
the U.S. dollar as compared to foreign exchange rates. The
information provided below relates only to the hedging instruments
and does not represent the corresponding changes in the underlying
hedged items (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) to Net Earnings |
|
Increase/(Decrease) to OCI |
|
10% Increase in
Underlying Rate |
|
10% Decrease in
Underlying Rate |
|
10% Increase in
Underlying Rate |
|
10% Decrease in
Underlying Rate |
Foreign currency hedges |
$ |
46 |
|
|
$ |
(46) |
|
|
$ |
155 |
|
|
$ |
(155) |
|
Equity Security Price Risk
We have minimal exposure to price fluctuations on equity mutual
funds and equity exchange-traded funds within our marketable equity
securities portfolio. Marketable equity securities are recorded at
fair value and approximates a portion of our liability under our
Management Deferred Compensation Plan (“MDCP”). Gains and losses
from the portfolio and the change in our MDCP liability are
recorded in our consolidated statements of earnings.
We performed a sensitivity analysis based on a 10% change in the
underlying equity prices of our investments as of October 2,
2022 and determined that such a change would not have a significant
impact on the fair value of these instruments.
Interest Rate Risk
Long-term Debt
We utilize short-term and long-term financing and may use interest
rate hedges to manage our overall interest expense related to our
existing fixed-rate debt, as well as to hedge the variability in
cash flows due to changes in benchmark interest rates related to
anticipated debt issuances. See
Note
3,
Derivative Financial Instruments and
Note
9,
Debt, to the consolidated financial statements included in Item 8
of Part II of this 10-K for further discussion of our interest rate
hedge agreements and details of the components of our long-term
debt, respectively, as of October 2, 2022.
The following table summarizes the impact of a change in interest
rates as of October 2, 2022 on the fair value of Starbucks
debt
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value |
|
Fair Value |
|
100 Basis Point Increase in
Underlying Rate
|
|
100 Basis Point Decrease in
Underlying Rate
|
|
|
Long-term debt(1)
|
$ |
13,052 |
|
|
$ |
1,100 |
|
|
$ |
(1,100) |
|
(1)Amount
disclosed is net of $28 million change in the fair value of our
designated interest rate swap. Refer to
Note
3,
Derivative Financial Instruments, for additional information on our
interest rate swap designated as a fair value hedge.
Available-for-Sale Debt Securities
Our available-for-sale securities comprise a diversified portfolio
consisting mainly of investment-grade debt securities. The primary
objective of these investments is to preserve capital and
liquidity. Available-for-sale securities are recorded on the
consolidated balance sheets at fair value with unrealized gains and
losses reported as a component of accumulated other comprehensive
income. We do not hedge the interest rate exposure on our
investments. We performed a sensitivity analysis based on a
100 basis point change in the underlying interest rate of our
available-for-sale securities as of October 2, 2022 and
determined that such a change would not have a significant impact
on the fair value of these instruments.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that management believes
are the most important to the portrayal of our financial condition
and results and require the most difficult, subjective or complex
judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain, especially in
light of the current economic environment due to the COVID-19
pandemic. Judgments and uncertainties may result in materially
different amounts being reported under different conditions or
using different assumptions.
Our significant accounting estimates are discussed in additional
detail in
Note 1,
Summary of Significant Accounting Policies and Estimates, to the
consolidated financial statements included in Item 8 of Part II of
this 10-K. We consider financial reporting and disclosure practices
and accounting policies quarterly to ensure that they provide
accurate and transparent information relative to the current
economic and business environment. During the past five fiscal
years, we have not made any material changes to the accounting
methodologies used to assess the areas discussed below, unless
noted otherwise. We believe that our significant accounting
estimates involve a higher degree of judgment and/or complexity for
the reasons discussed below:
Property, Plant and Equipment and Other Finite-Lived
Assets
We evaluate property, plant and equipment, operating lease
right-of-use (“ROU”) assets and other finite-lived assets for
impairment when facts and circumstances indicate that the carrying
values of such assets may not be recoverable. When evaluating for
impairment, we first compare the carrying value of the asset to the
asset’s estimated future undiscounted cash flows. If the estimated
undiscounted future cash flows are less than the carrying value of
the asset, we determine if we have an impairment loss by comparing
the carrying value of the asset to the asset's estimated fair value
and recognize an impairment charge when the asset’s carrying value
exceeds its estimated fair value. The adjusted carrying amount of
the asset becomes its new cost basis and is depreciated over the
asset's remaining useful life.
Long-lived assets are grouped with other assets and liabilities at
the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities. For
company-operated store assets, the impairment test is performed at
the individual store asset group level, which is inclusive of
property, plant and equipment and lease ROU assets. The fair value
of a store’s assets is estimated using a discounted cash flow
model. For other long-lived assets, fair value is determined using
an approach that is appropriate based on the relevant facts and
circumstances, which may include discounted cash flows, comparable
transactions or comparable company analyses.
Our impairment calculations contain uncertainties because they
require management to make assumptions and to apply judgment to
estimate future cash flows and asset fair values. Key assumptions
used in estimating future cash flows and asset fair values include
projected revenue growth and operating expenses, as well as
forecasting asset useful lives and selecting an appropriate
discount rate. For company-operated stores, estimates of revenue
growth and operating expenses are based on internal projections and
consider the store’s historical performance, the local market
economics and the business environment impacting the store’s
performance. The discount rate is selected based on what we believe
a buyer would assume when determining a purchase price for the
store. The fair value of a store’s ROU asset is estimated
considering what a market participant would pay to lease the asset
for its highest and best use. These estimates are subjective and
our ability to realize future cash flows and asset fair values is
affected by factors such as ongoing maintenance and improvement of
the assets, changes in economic conditions and changes in operating
performance.
In fiscal 2022, we announced our Reinvention Plan in the U.S.
market to increase efficiency while elevating the partner and
customer experience. As a result of the restructuring efforts in
connection with the Reinvention Plan, we recorded an immaterial
impairment charge on our consolidated statements of earnings during
the fiscal year ended October 2, 2022. Future impairment
charges attributed to our Reinvention Plan are not expected to be
material.
In fiscal 2021, we substantially completed our plan to reposition
our North America store portfolio, primarily in dense metropolitan
markets by pursuing strategic store closures and focusing on new
store formats that better cater to changing customer tastes and
preferences. During fiscal year 2021, we recorded approximately
$155.4 million to restructuring and impairments on our
consolidated statements of earnings. These totals included
$53.1 million related to disposal and impairment of
company-operated store assets and $89.5 million primarily
associated with accelerated amortization of ROU lease assets and
other lease costs due to store closures prior to the end of
contractual lease terms. As this restructuring plan was
substantially completed in fiscal 2021, we did not recognize any
material restructuring and impairment amounts related to this plan
during the fiscal year ended October 2, 2022.
Asset impairment charges are discussed in
Note 1,
Summary of Significant Accounting Policies and Estimates, to the
consolidated financial statements included in Item 8 of Part II of
this 10-K.
Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill and indefinite-lived intangible assets for
impairment annually during our third fiscal quarter, or more
frequently if an event occurs or circumstances change that would
indicate impairment may exist. When evaluating these assets for
impairment, we may first perform a qualitative assessment to
determine whether it is more likely than not that a reporting unit
is impaired. If we do not perform a qualitative assessment, or if
we determine that it is not more likely than not that the fair
value of the reporting unit exceeds its carrying amount, we
calculate the estimated fair value of the reporting unit using
discounted cash flows or a combination of discounted cash flow and
market approaches.
When assessing goodwill for impairment, our decision to perform a
qualitative impairment assessment for an individual reporting unit
is influenced by a number of factors, inclusive of the carrying
value of the reporting unit’s goodwill, the significance of the
excess of the reporting unit’s estimated fair value over carrying
value at the last quantitative assessment date, the amount of time
in between quantitative fair value assessments and the date of
acquisition. If we perform a quantitative assessment of an
individual reporting unit’s goodwill, our impairment calculations
contain uncertainties because they require management to make
assumptions and to apply judgment when estimating future cash flows
and asset fair values, including projected revenue growth and
operating expenses related to existing businesses, product
innovation and new store concepts, as well as utilizing valuation
multiples of similar publicly traded companies and selecting an
appropriate discount rate. Estimates of revenue growth and
operating expenses are based on internal projections considering
the reporting unit’s past performance
and forecasted growth, including assumptions regarding business
recovery post COVID-19, strategic initiatives, local market
economics and the local business environment impacting the
reporting unit’s performance. The discount rate is selected based
on the estimated cost of capital for a market participant to
operate the reporting unit in the region. These estimates, as well
as the selection of comparable companies and valuation multiples
used in the market approaches are highly subjective, and our
ability to realize the future cash flows used in our fair value
calculations is affected by factors such as the success of
strategic initiatives, changes in economic conditions, changes in
our operating performance and changes in our business strategies,
including retail initiatives and international expansion. Our
goodwill impairment assessments were not significantly altered as a
result of the COVID-19 pandemic. We continue to believe the fair
value of each of our reporting units is significantly in excess of
its carrying value, and absent a sustained multi-year global
decline in our business in key markets such as the U.S. and China,
we do not anticipate incurring significant goodwill impairment in
the next 12 months. Our fiscal 2022 annual goodwill impairment
testing, which was completed in the third fiscal quarter, resulted
in an estimated fair value of our reporting units where a
quantitative assessment was performed, was in excess of carrying
value of approximately $95 billion for the business units where a
quantitative analysis on impairment was performed. When assessing
indefinite-lived intangible assets for impairment, where we perform
a qualitative assessment, we evaluate if changes in events or
circumstances have occurred that indicate that impairment may
exist. If we do not perform a qualitative impairment assessment or
if changes in events and circumstances indicate that a quantitative
assessment should be performed, management is required to calculate
the fair value of the intangible asset group. The fair value
calculation includes estimates of revenue growth, which are based
on past performance and internal projections for the intangible
asset group’s forecasted growth, including assumptions regarding
business recovery post COVID-19, and royalty rates, which are
adjusted for our particular facts and circumstances. The discount
rate is selected based on the estimated cost of capital that
reflects the risk profile of the related business. These estimates
are highly subjective, and our ability to achieve the forecasted
cash flows used in our fair value calculations is affected by
factors such as the success of strategic initiatives, changes in
economic conditions, changes in our operating performance and
changes in our business strategies, including retail initiatives
and international expansion. We do not anticipate recording
significant impairment charges in the next 12 months.
Definite-lived intangible asset impairment charges are discussed
in
Note
8,
Other Intangible Assets and Goodwill, to the consolidated financial
statements included in Item 8 of Part II of this 10-K.
Income Taxes
We recognize deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and
the respective tax bases of our assets and liabilities. Deferred
tax assets and liabilities are measured using current enacted tax
rates expected to apply to taxable income in the years in which we
expect the temporary differences to reverse. We routinely evaluate
the likelihood of realizing the benefit of our deferred tax assets
and may record a valuation allowance if, based on all available
evidence, we determine that some portion of the tax benefit will
not be realized.
In evaluating our ability to recover our deferred tax assets within
the jurisdiction from which they arise, we consider all available
positive and negative evidence, including scheduled reversals of
deferred tax liabilities, projected future taxable income,
tax-planning strategies and results of operations. In projecting
future taxable income, we consider historical results and
incorporate assumptions about the amount of future state, federal
and foreign pre-tax operating income adjusted for items that do not
have tax consequences. Our assumptions regarding future taxable
income are consistent with the plans and estimates we use to manage
our underlying businesses. In evaluating the objective evidence
that historical results provide, we consider three years of
cumulative operating income/(loss).
In addition, our income tax returns are periodically audited by
domestic and foreign tax authorities. These audits include review
of our tax filing positions, such as the timing and amount of
deductions taken and the allocation of income between tax
jurisdictions. We evaluate our exposures associated with our
various tax filing positions and recognize a tax benefit only if it
is more likely than not that the tax position will be sustained
upon examination by the relevant taxing authorities, including
resolutions of any related appeals or litigation processes, based
on the technical merits of our position. The tax benefits
recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. For
uncertain tax positions that do not meet this threshold, we record
a related liability. We adjust our unrecognized tax benefit
liability and income tax expense in the period in which the
uncertain tax position is effectively settled, the statute of
limitations expires for the relevant taxing authority to examine
the tax position or when new information becomes available. As
discussed in
Note
14,
Income Taxes, to the consolidated financial statements included in
Item 8 of Part II of this 10-K, we do not expect a significant
amount of the Company’s gross unrecognized tax benefits to be
recognized by the end of fiscal 2023 for reasons such as a lapse of
the statute of limitations or resolution of examinations with tax
authorities.
We have generated income in certain foreign jurisdictions that may
be subject to additional foreign withholding taxes and U.S. state
income taxes. We regularly review our plans for reinvestment or
repatriation of unremitted foreign earnings. The possibility exists
that foreign earnings declared as indefinitely reinvested may be
repatriated as our plans are based on our estimated working and
other capital needs in jurisdictions where our earnings are
generated. While we do not expect to
repatriate cash to the U.S. to satisfy domestic liquidity needs, if
these amounts were distributed to the U.S., in the form of
dividends or otherwise, we may be subject to additional foreign
withholding taxes and U.S. state income taxes, which could be
material.
Our income tax expense, deferred tax assets and liabilities for
unrecognized tax benefits reflect management’s best assessment of
estimated current and future taxes to be paid. Deferred tax asset
valuation allowances and our liabilities for unrecognized tax
benefits require significant management judgment regarding
applicable statutes and their related interpretation, the status of
various income tax audits and our particular facts and
circumstances. Although we believe that the judgments and estimates
discussed herein are reasonable, actual results, including
forecasted business performance, could differ, and we may be
exposed to losses or gains that could be material. To the extent we
prevail in matters for which a liability has been established or
are required to pay amounts in excess of our established liability,
our effective income tax rate in a given financial statement period
could be materially affected.
RECENT ACCOUNTING PRONOUNCEMENTS
See
Note
1,
Summary of Significant Accounting Policies and Estimates, to the
consolidated financial statements included in Item 8 of Part II of
this 10-K for a detailed description of recent accounting
pronouncements.
Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk
The information required by this item is incorporated by reference
to the section entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Commodity
Prices, Availability and General Risk Conditions” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Financial Risk Management” in Item 7 of this
Report.
Item 8.
Financial Statements and Supplementary Data
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Sep 27,
2020 |
Net revenues: |
|
|
|
|
|
Company-operated stores |
$ |
26,576.1 |
|
|
$ |
24,607.0 |
|
|
$ |
19,164.6 |
|
Licensed stores |
3,655.5 |
|
|
2,683.6 |
|
|
2,327.1 |
|
Other |
2,018.7 |
|
|
1,770.0 |
|
|
2,026.3 |
|
Total net revenues |
32,250.3 |
|
|
29,060.6 |
|
|
23,518.0 |
|
Product and distribution costs |
10,317.4 |
|
|
8,738.7 |
|
|
7,694.9 |
|
Store operating expenses |
13,561.8 |
|
|
11,930.9 |
|
|
10,764.0 |
|
Other operating expenses |
461.5 |
|
|
359.5 |
|
|
430.3 |
|
Depreciation and amortization expenses |
1,447.9 |
|
|
1,441.7 |
|
|
1,431.3 |
|
General and administrative expenses |
2,032.0 |
|
|
1,932.6 |
|
|
1,679.6 |
|
Restructuring and impairments |
46.0 |
|
|
170.4 |
|
|
278.7 |
|
Total operating expenses |
27,866.6 |
|
|
24,573.8 |
|
|
22,278.8 |
|
Income from equity investees |
234.1 |
|
|
385.3 |
|
|
322.5 |
|
Operating income |
4,617.8 |
|
|
4,872.1 |
|
|
1,561.7 |
|
|
|
|
|
|
|
Net gain resulting from divestiture of certain
operations |
— |
|
|
864.5 |
|
|
— |
|
|
|
|
|
|
|
Interest income and other, net |
97.0 |
|
|
90.1 |
|
|
39.7 |
|
Interest expense |
(482.9) |
|
|
(469.8) |
|
|
(437.0) |
|
Earnings before income taxes |
4,231.9 |
|
|
5,356.9 |
|
|
1,164.4 |
|
Income tax expense |
948.5 |
|
|
1,156.6 |
|
|
239.7 |
|
Net earnings including noncontrolling interests |
3,283.4 |
|
|
4,200.3 |
|
|
924.7 |
|
Net earnings/(loss) attributable to noncontrolling
interests |
1.8 |
|
|
1.0 |
|
|
(3.6) |
|
Net earnings attributable to Starbucks |
$ |
3,281.6 |
|
|
$ |
4,199.3 |
|
|
$ |
928.3 |
|
Earnings per share — basic |
$ |
2.85 |
|
|
$ |
3.57 |
|
|
$ |
0.79 |
|
Earnings per share — diluted |
$ |
2.83 |
|
|
$ |
3.54 |
|
|
$ |
0.79 |
|
Weighted average shares outstanding: |
|
|
|
|
|
Basic |
1,153.3 |
|
|
1,177.6 |
|
|
1,172.8 |
|
Diluted |
1,158.5 |
|
|
1,185.5 |
|
|
1,181.8 |
|
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Sep 27,
2020 |
Net earnings including noncontrolling interests |
$ |
3,283.4 |
|
|
$ |
4,200.3 |
|
|
$ |
924.7 |
|
Other comprehensive income/(loss), net of tax: |
|
|
|
|
|
Unrealized holding gains/(losses) on available-for-sale
securities |
(22.8) |
|
|
(3.4) |
|
|
8.3 |
|
Tax benefit/(expense) |
5.6 |
|
|
0.7 |
|
|
(1.8) |
|
Unrealized gains/(losses) on cash flow hedging
instruments |
259.5 |
|
|
283.8 |
|
|
(126.3) |
|
Tax (expense)/benefit |
(52.8) |
|
|
(43.6) |
|
|
31.3 |
|
Unrealized gains/(losses) on net investment hedging
instruments |
229.0 |
|
|
63.1 |
|
|
38.7 |
|
Tax (expense) |
(57.9) |
|
|
(16.0) |
|
|
(9.8) |
|
Translation adjustment and other |
(794.7) |
|
|
188.2 |
|
|
206.9 |
|
Tax benefit |
— |
|
|
2.2 |
|
|
1.5 |
|
Reclassification adjustment for net (gains)/losses realized in net
earnings for available-for-sale securities, hedging instruments,
translation adjustment and other |
(210.5) |
|
|
41.8 |
|
|
(20.1) |
|
Tax expense/(benefit) |
34.2 |
|
|
(5.0) |
|
|
5.2 |
|
Other comprehensive income/(loss) |
(610.4) |
|
|
511.8 |
|
|
133.9 |
|
Comprehensive income including noncontrolling interests |
2,673.0 |
|
|
4,712.1 |
|
|
1,058.6 |
|
Comprehensive income/(loss) attributable to noncontrolling
interests |
1.8 |
|
|
1.0 |
|
|
(3.6) |
|
Comprehensive income attributable to Starbucks |
$ |
2,671.2 |
|
|
$ |
4,711.1 |
|
|
$ |
1,062.2 |
|
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 2,
2022 |
|
Oct 3,
2021 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
2,818.4 |
|
|
$ |
6,455.7 |
|
Short-term investments |
364.5 |
|
|
162.2 |
|
Accounts receivable, net |
1,175.5 |
|
|
940.0 |
|
Inventories |
2,176.6 |
|
|
1,603.9 |
|
Prepaid expenses and other current assets |
483.7 |
|
|
594.6 |
|
Total current assets |
7,018.7 |
|
|
9,756.4 |
|
Long-term investments |
279.1 |
|
|
281.7 |
|
Equity investments |
311.2 |
|
|
268.5 |
|
Property, plant and equipment, net |
6,560.5 |
|
|
6,369.5 |
|
Operating lease, right-of-use asset |
8,015.6 |
|
|
8,236.0 |
|
Deferred income taxes, net |
1,799.7 |
|
|
1,874.8 |
|
Other long-term assets |
554.2 |
|
|
578.5 |
|
Other intangible assets |
155.9 |
|
|
349.9 |
|
Goodwill |
3,283.5 |
|
|
3,677.3 |
|
TOTAL ASSETS |
$ |
27,978.4 |
|
|
$ |
31,392.6 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
1,441.4 |
|
|
$ |
1,211.6 |
|
Accrued liabilities |
2,137.1 |
|
|
2,321.2 |
|
Accrued payroll and benefits |
761.7 |
|
|
772.3 |
|
|
|
|
|
Current portion of operating lease liability |
1,245.7 |
|
|
1,251.3 |
|
Stored value card liability and current portion of deferred
revenue |
1,641.9 |
|
|
1,596.1 |
|
Short-term debt |
175.0 |
|
|
— |
|
Current portion of long-term debt |
1,749.0 |
|
|
998.9 |
|
Total current liabilities |
9,151.8 |
|
|
8,151.4 |
|
Long-term debt |
13,119.9 |
|
|
13,616.9 |
|
Operating lease liability |
7,515.2 |
|
|
7,738.0 |
|
Deferred revenue |
6,279.7 |
|
|
6,463.0 |
|
Other long-term liabilities |
610.5 |
|
|
737.8 |
|
Total liabilities |
36,677.1 |
|
|
36,707.1 |
|
Shareholders’ deficit: |
|
|
|
Common stock ($0.001 par value) — authorized,
2,400.0 shares; issued and outstanding, 1,147.9 and 1,180.0
shares, respectively
|
1.1 |
|
|
1.2 |
|
Additional paid-in capital |
205.3 |
|
|
846.1 |
|
Retained deficit |
(8,449.8) |
|
|
(6,315.7) |
|
Accumulated other comprehensive income/(loss) |
(463.2) |
|
|
147.2 |
|
Total shareholders’ deficit |
(8,706.6) |
|
|
(5,321.2) |
|
Noncontrolling interests |
7.9 |
|
|
6.7 |
|
Total deficit |
(8,698.7) |
|
|
(5,314.5) |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT)
|
$ |
27,978.4 |
|
|
$ |
31,392.6 |
|
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
Oct 2,
2022 |
|
Oct 3,
2021 |
|
Sep 27,
2020 |
OPERATING ACTIVITIES: |
|
|
|
|
|
Net earnings including noncontrolling interests |
$ |
3,283.4 |
|
|
$ |
4,200.3 |
|
|
$ |
924.7 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
|
Depreciation and amortization |
1,529.4 |
|
|
1,524.1 |
|
|
1,503.2 |
|
Deferred income taxes, net |
(37.8) |
|
|
(146.2) |
|
|
(25.8) |
|
Income earned from equity method investees |
(268.7) |
|
|
(347.3) |
|
|
(280.7) |
|
Distributions received from equity method investees |
231.2 |
|
|
336.0 |
|
|
227.7 |
|
|
|
|
|
|
|
Net gain resulting from divestiture of certain
operations |
— |
|
|
(864.5) |
|
|
— |
|
|
|
|
|
|
|
Stock-based compensation |
271.5 |
|
|
319.1 |
|
|
248.6 |
|
|
|
|
|
|
|
Non-cash lease cost |
1,497.7 |
|
|
1,248.6 |
|
|
1,197.6 |
|
Loss on retirement and impairment of assets |
91.4 |
|
|
226.2 |
|
|
454.4 |
|
Other |
(67.8) |
|
|
(6.0) |
|
|
24.5 |
|
Cash provided by/(used in) changes in operating assets and
liabilities: |
|
|
|
|
|
Accounts receivable |
(326.1) |
|
|
(43.0) |
|
|
(2.7) |
|
Inventories |
(641.0) |
|
|
(49.8) |
|
|
(10.9) |
|
|
|
|
|
|
|
Income taxes payable |
(149.6) |
|
|
286.1 |
|
|
(1,214.6) |
|
Accounts payable |
345.5 |
|
|
189.9 |
|
|
(210.8) |
|
|
|
|
|
|
|
Deferred revenue |
(75.8) |
|
|
(6.1) |
|
|
31.0 |
|
Operating lease liability |
(1,625.6) |
|
|
(1,488.1) |
|
|
(1,231.4) |
|
Other operating assets and liabilities |
339.6 |
|
|
609.8 |
|
|
(37.0) |
|
Net cash provided by operating activities |
4,397.3 |
|
|
5,989.1 |
|
|
1,597.8 |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
Purchases of investments |
(377.9) |
|
|
(432.0) |
|
|
(443.9) |
|
Sales of investments |
72.6 |
|
|
143.2 |
|
|
186.7 |
|
Maturities and calls of investments |
67.3 |
|
|
345.5 |
|
|
73.7 |
|
|
|
|
|
|
|
Additions to property, plant and equipment |
(1,841.3) |
|
|
(1,470.0) |
|
|
(1,483.6) |
|
Net proceeds from the divestiture of certain operations |
59.3 |
|
|
1,175.0 |
|
|
— |
|
Other |
(126.3) |
|
|
(81.2) |
|
|
(44.4) |
|
Net cash used in investing activities |
(2,146.3) |
|
|
(319.5) |
|
|
(1,711.5) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
Repayments of commercial paper |
175.0 |
|
|
(296.5) |
|
|
— |
|
Proceeds from issuance of short-term debt |
36.6 |
|
|
215.1 |
|
|
1,406.6 |
|
Repayments of short-term debt |
(36.6) |
|
|
(349.8) |
|
|
(967.7) |
|
Proceeds from issuance of long-term debt |
1,498.1 |
|
|
— |
|
|
4,727.6 |
|
Repayments of long-term debt |
(1,000.0) |
|
|
(1,250.0) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
101.6 |
|
|
246.2 |
|
|
298.8 |
|
|
|
|
|
|
|
Cash dividends paid |
(2,263.3) |
|
|
(2,119.0) |
|
|
(1,923.5) |
|
Repurchase of common stock |
(4,013.0) |
|
|
— |
|
|
(1,698.9) |
|
Minimum tax withholdings on share-based awards |
(127.2) |
|
|
(97.0) |
|
|
(91.9) |
|
Other |
(9.2) |
|
|
— |
|
|
(37.7) |
|
Net cash provided by/(used in) financing activities |
(5,638.0) |
|
|
(3,651.0) |
|
|
1,713.3 |
|
Effect of exchange rate changes on cash and cash
equivalents |
(250.3) |
|
|
86.2 |
|
|
64.7 |
|
Net increase/(decrease) in cash and cash equivalents |
(3,637.3) |
|
|
2,104.8 |
|
|
1,664.3 |
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
Beginning of period |
6,455.7 |
|
|
4,350.9 |
|
|
2,686.6 |
|
End of period |
$ |
2,818.4 |
|
|
$ |
6,455.7 |
|
|
$ |
4,350.9 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
Interest, net of capitalized interest |
$ |
474.7 |
|
|
$ |
501.1 |
|
|
$ |
396.9 |
|
Income taxes |
$ |
1,157.6 |
|
|
$ |
756.3 |
|
|
$ |
1,699.1 |
|
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional Paid-in Capital |
|
Retained
Earnings/(Deficit) |
|
Accumulated
Other
Comprehensive
Income/(Loss) |
|
Shareholders’
Equity/(Deficit) |
|
Noncontrolling
Interests |
|
Total |
|
Shares |
|
Amount |
|
Balance, September 29, 2019 |
1,184.6 |
|
|
$ |
1.2 |
|
|
$ |
41.1 |
|
|
$ |
(5,771.2) |
|
|
$ |
(503.3) |
|
|
$ |
(6,232.2) |
|
|
$ |
1.2 |
|
|
$ |
(6,231.0) |
|
Cumulative effect of adoption of new accounting
guidance |
— |
|
|
— |
|
|
— |
|
|
12.5 |
|
|
4.8 |
|
|
17.3 |
|
|
— |
|
|
17.3 |
|
Net earnings/(loss) |
— |
|
|
— |
|
|
— |
|
|
928.3 |
|
|
— |
|
|
928.3 |
|
|
(3.6) |
|
|
924.7 |
|
Other comprehensive income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
133.9 |
|
|
133.9 |
|
|