Starbucks reports fiscal Q4 net earnings of US$359M, up from earnings of US$358.5M in year-ago period, as revenue rises 11% to US$3.36B

SEATTLE , November 1, 2012 (press release) – Starbucks Corporation (NASDAQ:SBUX) today reported financial results for its 13-week fiscal fourth quarter and 52-week fiscal year ended September 30, 2012. When comparing with prior year results, note that fiscal 2011 included non-routine gains related to the sale of corporate real estate and the acquisition of the company’s joint venture operations in Switzerland and Austria. A reconciliation of select FY11 GAAP measures to non-GAAP measures is included at the end of this document.

Fiscal Fourth Quarter 2012 Highlights:

Total net revenues increased 11% to a fourth-quarter record of $3.4 billion

Global comparable store sales increased 6% driven by a 5% increase in traffic and a 1% increase in average ticket

Americas comparable store sales increased 7% driven by 5% growth in traffic and 2% growth in average ticket

Operating margin expanded 60 basis points to 15.4% over the prior year’s operating margin of 14.8%, which included a 100 basis point benefit from a non-routine gain in Q4 FY11

Operating margin expanded 160 basis points when compared to prior year non-GAAP operating margin of 13.8% after excluding the non-routine gain in Q4 FY11

EPS was $0.46 per share compared to the prior year EPS of $0.47 per share, which included $0.10 relating to non-routine gains in Q4 FY11

Fourth quarter EPS of $0.46 grew 24% over Q4 FY11 non-GAAP EPS of $0.37 per share, which excluded the non-routine gains in Q4 FY11

EPS includes charges of $0.02 per share related to store portfolio optimization initiatives in Europe

The Board of Directors declared a cash dividend of $0.21 per share, a 24% increase from $0.17 per share

Fiscal Year 2012 Highlights:

Total net revenues increased 14% reaching a record $13.3 billion

Global comparable store sales increased 7% driven by a 6% increase in traffic and a 1% increase in average ticket

Americas comparable store sales increased 8% driven by a 6% increase in traffic and a 2% increase in average ticket

Channel Development revenue grew 50% to $1.3 billion

The company opened 1,063 net new stores globally

Operating margin improved 20 basis points to 15.0% over the prior year’s operating margin of 14.8%, which included a non-routine gain in FY11, despite 160 basis points of impact due to higher commodity costs in FY12

Operating margin expanded 50 basis points when compared to prior year non-GAAP operating margin of 14.5% after excluding the non-routine gain from FY11

EPS increased 10% to $1.79 per share compared to the prior year EPS of $1.62 per share, which included $0.10 relating to non-routine gains in FY11

EPS of $1.79 grew 18% over the prior year non-GAAP EPS of $1.52, excluding the non-routine gains in FY11

Operating cash flow totaled $1.7 billion

Starbucks returned approximately $1.1 billion to shareholders through share repurchases and dividend payments

“Our Q4 and overall 2012 fiscal year performance demonstrates the strength of our business and brand,” said Howard Schultz, chairman, president and chief executive officer, Starbucks Coffee Company. “The resiliency and relevance of our U.S. retail business, acceleration of the Channel Development business and expansion in Asia all contributed significantly to our strong results. I am incredibly proud of our 200,000 Starbucks partners around the world who have contributed to the success of the company and I am optimistic about achieving our aspirations for the future. “

“Our excellent fourth quarter and full fiscal year results reflect the strength of our business and the solid execution by our partners, specifically illustrated in the fourth quarter by strong traffic growth, continued momentum in Channel Development, and rapid earnings growth,” stated Troy Alstead, chief financial officer. “By delivering relevant innovation to our customers while increasing focus on execution and operating efficiencies, we drove sales growth and expanded profit margins. On the strength of our business in fiscal 2012 and the momentum we carry into the new fiscal year, we remain confident in our fiscal 2013 outlook of continued strong profitable growth on a global scale.”

Consolidated net revenues reached a fourth-quarter record $3.4 billion in Q4 FY12, an increase of 11% over Q4 FY11. The increase was primarily due to a 6% increase in global comparable stores sales, 32% revenue growth in Channel Development and 14% revenue growth in licensed stores. The 6% increase in comparable store sales was comprised of a 5% increase in the number of transactions and a 1% increase in average ticket.

Consolidated operating income increased 16% to a record $519.6 million, compared to $448.3 million for the same period a year ago. Operating margin expanded 60 basis points to a record 15.4% this quarter, compared to 14.8% in the same period last year. Operating margin expanded 160 basis points from 13.8% after excluding the non-routine gain in the prior year. Increased sales leverage was the primary driver of margin expansion.

Net revenues for the Americas segment were $2.5 billion in Q4 FY12, an increase of 9% over Q4 FY11. The increase was primarily due to a 7% increase in comparable store sales, comprised of a 5% increase in the number of transactions and a 2% increase in average ticket. Also contributing to the increase were incremental revenues from 504 net new store openings over the past 12 months.

Operating income increased to $536.3 million in Q4 FY12, compared to $444.2 million for the same period a year ago. Operating margin increased 210 basis points to 21.4% in Q4 FY12 primarily due to increased sales leverage.

Net revenues for the EMEA segment were $283.7 million in Q4 FY12, a decrease of 2% over Q4 FY11 primarily driven by unfavorable foreign currency exchange and partially offset by 29% revenue growth in licensed stores.

The EMEA segment had an operating loss of $6.5 million in Q4 FY12, compared to operating income of $2.5 million for the same period a year ago. Operating margin decreased 320 basis points to -2.3% compared to 0.9% in the prior-year period. The margin contraction was driven by costs related to store portfolio optimization initiatives in Europe, which had 410 basis points of impact. Excluding these costs, operating margin expanded as a result of improved operational efficiencies.

Net revenues for the China/Asia Pacific segment were $198.0 million in Q4 FY12, an increase of 23% over Q4 FY11. The increase was primarily due to incremental revenues from 154 net new company-operated store openings over the last 12 months and a 10% increase in comparable store sales. The increase in comparable store sales was attributable to a 7% increase in number of transactions and a 2% increase in average ticket.

Operating income increased 11% to $65.2 million in Q4 FY12, compared to $58.5 million for the same period a year ago. Operating margin decreased 340 basis points to 32.9% in Q4 FY12 compared to 36.3% in the prior-year period. The margin decline was primarily due to increased spending to support accelerated store growth in China.

Channel Development net revenues were $318.5 million in Q4 FY12, an increase of 32% over Q4 FY11. The increase was primarily due to sales of Starbucks- and Tazo-branded K-Cup® portion packs.

Channel Development operating income was $100.8 million in Q4 FY12 compared to $80.3 million for the same period a year ago. Operating margin declined by 160 basis points to 31.6% in Q4 FY12 compared to 33.2% in the prior-year period. The margin contraction was mainly due to shifts in product mix and higher commodity costs, primarily coffee.

Consolidated net revenues reached a record $13.3 billion in FY12, an increase of 14% over FY11. The increase was primarily due to a 7% increase in global comparable stores sales, consisting of a 6% increase in the number of transactions and a 1% increase in average ticket, 50% revenue growth in Channel Development, and 20% growth in licensed stores revenue.

Consolidated operating income grew 16% to a record $2.0 billion in FY12, compared to $1.7 billion in FY11. Operating margin expanded 20 basis points to a record 15.0% in FY12 compared to 14.8% in FY11. The operating margin expansion was 50 basis points when excluding the non-routine gain in the prior year. This improvement was primarily due to increased sales leverage. Increased commodity costs, mainly coffee, negatively impacted operating income and operating margin in FY12 by approximately $214 million and 160 basis points, respectively.

Fiscal 2013 Targets

Starbucks has updated its fiscal 2013 targets as follows:

The company is further accelerating its store growth target through the opening of approximately 1,300 net new stores globally, representing 22% growth over fiscal 2012.
Maintaining its growth target of approximately 600 net new stores in the Americas, with the majority of those in the U.S. Of the approximately 600 stores, approximately half of the additions will be licensed stores.

Accelerating growth in China/Asia Pacific to approximately 600 net new stores, with licensed stores comprising approximately half of the new additions. Of the approximately 600 stores, slightly more than half will be in China.

Maintaining growth of approximately 100 net new stores in EMEA (Europe, Middle East, Russia and Africa), with licensed stores comprising more than two thirds of the new stores.
Starbucks continues to target approximately 10% - 13% revenue growth, driven by mid-single-digit comparable store sales growth, approximately 1,300 net new store openings, and continued strong growth in the Channel Development business.

The company now expects full-year consolidated operating margin improvement of approximately 100 basis points over FY12 results.

Reflecting the strength of its global business and the pipeline of profitable growth initiatives, Starbucks is raising its earnings per share target to a range of $2.06 to $2.15, representing growth in the range of 15% - 20%, and consistent with its long-term outlook.

Capital expenditures are now expected to be approximately $1.2 billion for the full year, reflecting the increase in new store growth and an increase in production capacity to support recently-announced initiatives.

Company Updates

Starbucks Coffee Company and its joint venture partner in India, Tata Global Beverages Limited, opened the first three Starbucks stores in India in October, located in Mumbai. Starbucks now operates retail stores in 61 countries around the world.

The company opened its 700th store in China as it continues to execute against its significant growth plans in the CAP region.

The Verismo™ System by Starbucks was introduced and is now available at more than 6,400 locations including participating Starbucks retail stores in the US, Canada and select international markets, Verismo.com, and specialty retailers in the US and Canada.

Starbucks announced a partnership with Square, Inc. to provide enhancements to its mobile payment platform.

In August, Starbucks announced plans to open a high-tech juicery that will significantly expand the production and distribution capacity of Evolution Fresh™ juices.

Evolution Fresh opened new retail locations in downtown Seattle and San Francisco. The San Francisco opening is the first outside of the Seattle area.

Starbucks announced a partnership with Umoe Restaurant Group to open stores in Scandinavia. The first high street locations are expected to open in 2013 in Sweden and Norway.

Starbucks hosted approximately 10,000 store managers in Houston on Oct 3-6 for its 2012 Global Leadership Conference.

The Board of Directors declared a cash dividend of $0.21 per share, an increase from $0.17 per share, payable on November 30, 2012, to shareholders of record as of November 15, 2012.

The company repurchased approximately 12 million shares of common stock in fiscal 2012; approximately 12 million shares remain available for purchase under previous authorizations.

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, Michelle Gass, president, Starbucks Coffee EMEA and Troy Alstead, cfo. 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, November 2, 2012 by calling 1-855-859-2056, reservation number 99153013. A replay of the webcast will also be available via the Investor Relations page on Starbucks.com through approximately 5:00 p.m. Pacific Time on Friday, November 30, 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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