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Starbucks Reports Record Q3 Fiscal 2018 Revenues and EPS

Q3: 07-12-18 Earnings Summary
 
EPS of $0.62 beats by $0.01
Revenue of $6.31B (+ 11.5% Y/Y) beats by $60M
 

Consolidated Net Revenues Up 11% to a Record $6.3 Billion; Comparable Store Sales Up 1% Globally and in the U.S.

GAAP EPS of $0.61; Non-GAAP EPS of $0.62, Up 13% Year-Over-Year

Active Starbucks (SBUX) RewardsTM Membership in the U.S. Increases 14% Year-Over-Year to 15.1 Million

Cash Returned to Shareholders Exceeds $5 Billion Fiscal Year-To-Date

SEATTLE--(BUSINESS WIRE)-- Starbucks Corporation today reported financial results for its 13-week fiscal third quarter ended July 1, 2018. GAAP results in fiscal 2018 and fiscal 2017 include items which are excluded from non-GAAP results. Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release for more information.

Q3 Fiscal 2018 Highlights

  • Global comparable store sales increased 1%, driven by a 3% increase in average ticket
    • Americas and U.S. comparable store sales increased 1%
    • CAP comparable store sales decreased 1%
      • China comparable store sales decreased 2%
  • Consolidated net revenues of $6.3 billion, up 11% over the prior year including:
    • 3% net benefit from consolidation of the acquired East China business and other streamline-driven activities, including Teavana mall store closures, the Tazo divestiture, and the conversion of certain international retail operations from company-owned to licensed models
    • 1% benefit from foreign currency translation
  • GAAP operating margin, inclusive of restructuring and impairment charges, declined 190 basis points year-over-year to 16.5%
    • Non-GAAP operating margin of 18.5% declined 230 basis points compared to the prior year
  • GAAP Earnings Per Share of $0.61, up 30% over the prior year
    • Non-GAAP EPS of $0.62, up 13% over the prior year
    • GAAP and non-GAAP EPS include $0.02 of unfavorability associated with May 29th anti-bias training
  • Starbucks RewardsTM loyalty program added 1.9 million active members in the U.S., up 14% year-over-year; total member spend now represents 40% of U.S. company-operated sales
  • Mobile Order and Pay represented 13% of U.S. company-operated transactions
  • The company opened 511 net new stores in Q3 and now operates 28,720 stores across 77 markets
  • The company returned $1.3 billion to shareholders through a combination of dividends and share repurchases

“Starbucks record performance in Q3 reflects successful execution against our strategic growth priorities and our commitment to deliver predictable, sustainable growth at scale - and meaningful increases in long-term value - for our shareholders,” said Kevin Johnson, Starbucks ceo and president. “We remain confident in our global growth strategies, in the sustainability of our leadership position around all things coffee and tea and in our leadership teams around the world to navigate our next phase of growth.”

“Starbucks record Q3 revenues and profits once again reflect the underlying strength of the Starbucks business and brand all around the world,” said Scott Maw, cfo. “We continue to grow share in virtually every market and channel in which we operate at the same time that our streamline initiatives are enabling us to sharpen our focus - and leverage our resources - against our highest value, long-term growth opportunities.”

Consolidated net revenues grew 11% over Q3 FY17 to $6.3 billion in Q3 FY18, primarily driven by incremental revenues from the impact of our ownership change in East China, incremental revenues from 2,015 net new Starbucks store openings over the past 12 months, favorable foreign currency translation, and 1% growth in global comparable store sales.

Consolidated operating income declined 1% to $1,038.2 million in Q3 FY18, down from $1,044.2 million in Q3 FY17. Consolidated operating margin declined 190 basis points to 16.5%, primarily due to higher investments in our store partners (employees), product mix shift, largely food related, and the impact of our ownership change in East China, partially offset by lower restructuring and impairment costs.

Net revenues for the Americas segment grew 6% over Q3 FY17 to $4.2 billion in Q3 FY18, primarily driven by incremental revenues from 902 net new store openings over the past 12 months and 1% growth in comparable store sales, partially offset by the absence of revenue related to the sale of our Brazil retail operations to a licensed partner in Q2 FY18.

Operating income declined 7% to $908.7 million in Q3 FY18, down from $974.8 million in Q3 FY17. Operating margin of 21.5% declined 290 basis points, primarily due to higher investments in our store partners (employees), food-related mix shift, and the impact of the May 29th anti-bias training for U.S. partners.

Net revenues for the China/Asia Pacific segment grew 46% over Q3 FY17 to $1,229.0 million in Q3 FY18, primarily driven by incremental revenues from the impact of our ownership change in East China, incremental revenues from 746 net new store openings over the past 12 months, and favorable foreign currency translation, partially offset by the absence of revenue related to the sale of our Singapore retail operations to a licensed partner in Q4 FY17 and a 1% decrease in comparable store sales.

Q3 FY18 operating income of $234.1 million grew 5% over Q3 FY17 operating income of $223.8 million. Operating margin declined 760 basis points to 19.0%, primarily due to the impact of our ownership change in East China.

Net revenues for the EMEA segment grew 10% over Q3 FY17 to $275.4 million in Q3 FY18, primarily driven by incremental revenues from the opening of 375 net new licensed stores over the past 12 months and favorable foreign currency translation.

Operating income of $34.9 million in Q3 FY18 grew 256% versus operating income of $9.8 million in Q3 FY17. Operating margin expanded 880 basis points to 12.7%, primarily due to lapping the prior year partial impairment of goodwill related to our Switzerland retail business and favorable foreign currency impacts on cost of sales.

Net revenues for the Channel Development segment of $509.0 million in Q3 FY18 increased 6% versus the prior year quarter primarily driven by increased sales in packaged coffee, foodservice and international channels, and higher sales of premium single-serve products, partially offset by the absence of revenue from the sale of our Tazo brand in Q1 FY18.

Operating income of $212.8 million in Q3 FY18 grew 1% compared to Q3 FY17. Operating margin declined 210 basis points to 41.8%, primarily driven by the impact of streamline-driven activities and lower income from our North American Coffee Partnership joint venture.

All Other Segments primarily includes Seattle’s Best Coffee®, Starbucks ReserveTM Coffee and Roastery businesses, and Teavana-branded stores. The lower operating loss in Q3 FY18 as compared to the prior year was primarily due to fewer Teavana restructuring and other impairment costs.

About Starbucks

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

Forward-Looking Statements

This release contains forward-looking statements relating to certain company initiatives, strategies and plans, as well as trends in or expectations regarding our diversified business model, the strength, resilience, and potential of our business, operations, and brand, the impact of our food, beverage and digital innovation, operational improvements, actions to improve profitability and timing, our commitment to delivering predictable, sustainable growth at scale, our confidence in our global growth strategy, our leadership position around all things coffee and tea and our leadership teams around the world, our continuing growth in share in virtually every market and channel in which we operate, the effect of our streamline initiatives, strategic priorities and corresponding operational initiatives to accelerate growth and long-term shareholder value, statements regarding the estimated impact of the changes in U.S. tax law, net new stores, revenues, earnings per share, operating margins, comparable store sales and tax rates, our fiscal 2018 and long-term financial targets, and our strategic, operational, and digital initiatives, including the East China acquisition, our global coffee alliance with Nestlé, the closure of Teavana stores and other streamlining activities. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to a number of significant risks and uncertainties. Actual future results may differ materially depending on a variety of factors including, but not limited to, fluctuations in U.S. and international economies and currencies, our ability to preserve, grow and leverage our brands, potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling, potential negative effects of material breaches of our information technology systems to the extent we experience a material breach, material failures of our information technology systems, costs associated with, and the successful execution of, the company’s initiatives and plans, including the integration of Starbucks Japan, the purchase of the remaining 50% ownership of the East China market, the closing of our global coffee alliance with Nestlé and the closure of Teavana stores, the acceptance of the company’s products by our customers, our ability to obtain financing on acceptable terms, the impact of competition, coffee, dairy and other raw materials prices and availability, the effect of legal proceedings, the effects of changes in U.S. tax law and related guidance and regulations that may be implemented, and other risks detailed in the company filings with the Securities and Exchange Commission, including the “Risk Factors” section of Starbucks Annual Report on Form 10-K for the fiscal year ended October 1, 2017. The company assumes no obligation to update any of these forward-looking statements.

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