Starbucks reports fiscal Q1 net earnings of US$382.1M, up 10% from year-ago period as coffee company added stores, customers, new products; revenue up 16% to US$3.44B

Nevin Barich

SEATTLE , January 26, 2012 (press release) – Starbucks Corporation (NASDAQ:SBUX) today reported financial results for its 13-week fiscal first quarter ended January 1, 2012. Results are presented under the new reporting segments, which were effective with the beginning of fiscal 2012.

Fiscal First Quarter 2012 Highlights:

* Total net revenues increased 16% to a record $3.4 billion
* Global comparable store sales increased 9%, driven by a 7% increase in traffic and a 2% increase in average ticket
* Starbucks opened 241 net new stores globally, reaching 500 stores in both mainland China and Latin America
* CPG revenue increased 72%, driven by the launch of Starbucks- and Tazo-branded K-Cup® packs and the impact of the Q2 FY11 transition of packaged coffee and tea to the direct distribution model
o Over 100 million Starbucks- and Tazo-branded K-Cup® packs shipped in Q1 following the November 1st launch
* EPS increased 11% to a record $0.50 per share, compared to $0.45 per share in Q1 FY11

"Starbucks continues to expand our global footprint and accelerate the innovation and momentum in our CPG business,” said Howard Schultz, Starbucks chairman, president and ceo. “Our first quarter performance represents the highest quarterly earnings in the history of the company, and is a testament to the hard work and commitment of our 200,000 partners (employees) around the world. Starbucks is firing on all cylinders and taking full advantage of the many global opportunities that lie ahead," Schultz added.

"Our first quarter results demonstrate the fundamental strength of the Starbucks business and the powerful momentum we carried into fiscal 2012,” commented Troy Alstead, cfo. “A very successful holiday season drove strong global same store sales, which, combined with continued operational efficiencies, delivered record results despite continued commodity cost pressures. We are well positioned to continue to drive strong revenue and profit growth throughout this year, and in years to come.”

Consolidated net revenues reached a record $3.4 billion in Q1 FY12, an increase of 16% over Q1 FY11. The increase was primarily due to a 9% increase in global comparable stores sales, and 72% growth in the CPG segment. The 9% increase in comparable store sales was comprised of a 7% increase in the number of transactions and a 2% increase in average ticket. Additionally, licensed store revenue growth of 21% contributed to overall consolidated net revenues.

Consolidated operating income increased to $556.0 million in Q1 FY12, compared to $501.9 million for the same period a year ago. Operating margin decreased 80 basis points to 16.2% in Q1 FY12 compared to 17.0% in the prior-year period. This margin contraction was due to higher commodity costs. The increase in commodity costs, primarily coffee, negatively impacted Q1 FY12 operating income and operating margin by approximately $105 million and 300 basis points, respectively, compared to the same period in the prior year.

Net revenues for the Americas segment were $2.6 billion in Q1 FY12, an increase of 11% over Q1 FY11. The increase was primarily due to a 9% increase in comparable store sales, driven by strong sales performance in the U.S. Additionally, licensed store revenue growth of approximately 25% contributed to the Americas segment results. Comparable store sales growth in the U.S. of 9% was comprised of an 8% increase in the number of transactions and a 2% increase in average ticket.

Operating income increased to $563.2 million in Q1 FY12, compared to $527.0 million for the same period a year ago. Operating margin decreased 80 basis points to 21.8% in Q1 FY12 compared to 22.6% in the prior-year period. The margin contraction was due to higher commodity costs.

Net revenues for the EMEA segment were $303.0 million in Q1 FY12, an increase of 17% over Q1 FY11. The increase was due to an increase in company-operated store revenues, primarily driven by incremental revenues from the consolidation of the Switzerland and Austria markets.

Operating income decreased to $19.8 million in Q1 FY12, compared to $25.2 million for the same period a year ago. Operating margin was 6.5% in Q1 FY12 compared to 9.7% in the prior-year period. The margin contraction was primarily driven by higher distribution costs related to the transition to a consolidated distribution center in the UK.

Net revenues for the China/Asia-Pacific segment were $166.9 million in Q1 FY12, an increase of 38% over Q1 FY11. The increase was due to incremental revenues from 85 net new company-operated store openings over the last 12 months, and a 20% increase in comparable store sales. The 20% increase in comparable stores sales was the result of a 15% increase in the number of transactions and a 5% increase in average ticket.

Operating income increased to $57.8 million in Q1 FY12, compared to $46.0 million for the same period a year ago. Operating margin was 34.6% in Q1 FY12 compared to 38.1% in the prior-year period. The margin contraction was primarily driven by higher performance-based compensation, higher operating expenses in support of the continued expansion of the region and higher commodity costs.

CPG net revenues were $335.8 million in Q1 FY12, an increase of 72% over Q1 FY11. The increase was primarily due to sales of Starbucks- and Tazo-branded K-Cup® portion packs, and the benefit of recognizing the full revenue from packaged coffee and tea sales under the direct distribution model.

CPG operating income was $79.7 million in Q1 FY12 compared to $71.1 million for the same period a year ago. Operating margin was 23.7% in Q1 FY12 compared to 36.4% in the prior-year period. The margin contraction was primarily due to higher coffee costs.

Fiscal 2012 Targets

* Starbucks continues to target the opening of approximately 800 net new stores globally.
o Approximately 400 net new stores in the Americas, with licensed stores comprising approximately one-half of the new additions.
o Approximately 300 net new stores in China and Asia Pacific, with licensed stores comprising approximately two-thirds of the new additions. One-half of the China and Asia Pacific new stores are planned for China.
o Approximately 100 net new stores in EMEA (Europe, Middle East, Russia and Africa), with licensed stores comprising approximately two-thirds of the new stores.
* The company continues to target approximately 10% revenue growth, driven by mid-single-digit comparable store sales growth, 800 net new store openings, and strong growth in the CPG business.
* Starbucks is maintaining its full-year operating margin improvement target of 50 to 100 basis points over FY11 non-GAAP results on a consolidated basis.
* The company continues to expect commodity costs will add approximately $230 million of cost pressure to FY12, with the majority expected to impact the first half of the year.
* Given the strong Q1 FY12 results, the company has raised its expectation for earnings per share to a range of $1.78 to $1.82, representing 17% to 20% growth over the $1.52 EPS in FY11, excluding the non-routine gains. EPS growth is expected to be approximately 10% in the first half of FY12 and approximately 25% in the second half of FY12, reflecting the expected distribution of unfavorable commodity cost impact throughout the year.

Company Updates

* On January 10, Starbucks introduced Starbucks® Blonde Roast, a lighter roast coffee, to meet the needs of over 50 million U.S. coffee drinkers who prefer a lighter roast flavor profile. Starbucks® Blonde Roast is available in the U.S. as a brewed and packaged coffee option in Starbucks stores and where customers buy groceries.
* On November 10, Starbucks acquired Evolution Fresh, Inc., a super-premium juice company, as its entry point into the $1.6 billion super-premium juice segment, which represents a significant step for the company into the larger $50 billion health and wellness sector
* In December, Starbucks entered two new international markets – Morocco and Curacao
* In December, Starbucks announced that Clara Shih, Chief Executive Officer of Hearsay Social, was elected to the Starbucks Board of Directors
* The Board of Directors declared a cash dividend of $0.17 per share, payable on February 24, 2012, to shareholders of record as of February 8, 2012

Conference Call

Starbucks will be holding a conference call today at 2:00 p.m. Pacific Time, which will be hosted by Howard Schultz, chairman, president and ceo, Troy Alstead, cfo, Cliff Burrows, president – Starbucks Coffee Americas and U.S., and Jeff Hansberry, president – Channel Development and president - Seattle’s Best Coffee. The call will be broadcast live over the Internet and can be accessed at the company’s web site address of http://investor.starbucks.com. A replay of the call will be available via telephone through 9:00 p.m. Pacific Time on Friday, January 27, 2012 by calling 1-855-859-2056, reservation number 17847240. A replay of the call will also be available via the Investor Relations page on Starbucks.com through approximately 5:00 p.m. Pacific Time on Friday, February 24, 2012 at the following URL: http://investor.starbucks.com.

The company’s consolidated statements of earnings, operating segment results, and other additional information have been provided on the following pages in accordance with current year classifications. This information should be reviewed in conjunction with this press release. Please refer to the company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2011 for additional information.

About Starbucks

Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting the highest quality arabica coffee in the world. 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 www.starbucks.com.

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