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Starbucks Reports Q1 Fiscal 2019 Results

January 24, 2019

SEATTLE--(BUSINESS WIRE)--Jan 24, 2019--Starbucks Corporation (NASDAQ: SBUX) today reported financial results for its 13-week fiscal first quarter ended December 30, 2018. GAAP results in fiscal 2019 and fiscal 2018 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.

“Starbucks delivered solid operating results in the first quarter, demonstrating continued momentum in our business, as we drive our growth-at-scale agenda with focus and discipline,” said Kevin Johnson, president and ceo. “We are particularly pleased with the sequential improvement in quarterly comparable store transactions in the U.S., underpinned by our digital initiatives and improved execution of our in-store experience. With this solid start to the fiscal year, we are on track to deliver on our full-year commitments.”

“Comprehensive efforts to streamline our business have allowed us to focus on three key strategic initiatives that position Starbucks for long-term success: accelerating growth in our targeted markets of the U.S. and China, expanding the global reach of the Starbucks brand through our Global Coffee Alliance with Nestlé, and increasing shareholder returns. Combined with our efforts to build and amplify the Starbucks brand, we expect these initiatives will position the company to drive predictable, sustainable growth and shareholder returns for years to come,” concluded Johnson.

Q1 Fiscal 2019 Highlights

Global comparable store sales increased 4%, driven by a 3% increase in average ticket Americas and U.S. comparable store sales increased 4%, with transactions flatCAP comparable store sales increased 3%, including 1% transaction growth; China comparable store sales increased 1%, with transactions down 2% The company opened 541 net new stores in Q1, yielding 29,865 stores at the end of the quarter, a 7% increase over the prior year. Over two-thirds of the net new store openings were outside the U.S.; approximately 50% were licensed Consolidated net revenues of $6.6 billion grew 9% over the prior year including a net benefit of approximately 1% from Streamline-driven activities and unfavorable foreign currency translation of nearly 1% Streamline-driven activities include the consolidation of the acquired East China business, partially offset by licensing our CPG and foodservice businesses to Nestlé following the close of the deal on August 26, 2018 and the sale of the Tazo brand GAAP operating margin, inclusive of restructuring and impairment charges, declined 310 basis points year-over-year to 15.3% primarily due to Streamline-driven activities and partner (employee) investments Non-GAAP operating margin of 17.4% declined 180 basis points compared to the prior year GAAP Earnings Per Share of $0.61, down 61% over the prior year Non-GAAP EPS of $0.75, up 15% over the prior year, included a $0.07 benefit from discrete income tax items The company returned $5.5 billion to shareholders through a combination of share repurchases and dividends Starbucks Rewards TM loyalty program grew to 16.3 million active members in the U.S., up 14% year-over-year

Net revenues for the Americas segment grew 8% over Q1 FY18 to $4.6 billion in Q1 FY19, primarily driven by 807 net new store openings, or 5% store growth, over the past 12 months and 4% growth in comparable store sales.

Operating income grew 3% to $1.0 billion in Q1 FY19, up from $977.7 million in Q1 FY18. Operating margin of 22.0% declined 100 basis points, primarily due to higher wage and benefit-related investments in our store partners (employees), product-related mix shifts, and higher restructuring costs and asset impairments, partially offset by sales leverage.

Net revenues for the China/Asia Pacific segment grew 45% over Q1 FY18 to $1.2 billion in Q1 FY19, primarily driven by the ownership change in East China at the end of Q1 FY18, 1,010 net new store openings, or 13% store growth, over the past 12 months, and a 3% increase in comparable store sales.

Q1 FY19 operating income of $221.5 million grew 13% over Q1 FY18 operating income of $196.8 million. Operating margin declined 530 basis points to 18.0%, primarily due to the impact of our ownership change in East China at the end of Q1 FY18.

Q1 EMEA Segment Results

Net revenues for the EMEA segment declined 1% from Q1 FY18 to $266.3 million in Q1 FY19 due to unfavorable foreign currency translation, partially offset by the opening of 324 net new store openings, or 10% store growth, over the past 12 months.

Operating income of $27.0 million in Q1 FY19 declined 17% versus operating income of $32.4 million in Q1 FY18. Operating margin declined 200 basis points to 10.1%, primarily due to restructuring costs and asset impairments.

Net revenues for the Channel Development segment of $504.6 million in Q1 FY19 decreased 20% versus the prior year quarter primarily due to licensing our CPG and foodservice businesses to Nestlé following the close of the deal on August 26, 2018 and sale of the Tazo brand.

Operating income of $175.7 million in Q1 FY19 declined 35% compared to Q1 FY18. Operating margin declined 810 basis points to 34.8%, primarily due to licensing our CPG and foodservice businesses to Nestlé, sale of the Tazo brand and support costs related to the Global Coffee Alliance.

Fiscal 2019 Guidance

The company reiterates the following fiscal year 2019 guidance (all growth targets are relative to fiscal year 2018 non-GAAP measures unless specified):

Approximately 2,100 net new Starbucks stores globally Americas over 600CAP ~1,100 (nearly 600 in China)EMEA ~400 (virtually all licensed) Consolidated GAAP revenue growth of 5% to 7% Includes approximately 2% net negative impact related to Streamline-driven activities Consolidated operating margin down moderately Americas operating margin down slightlyCAP operating margin roughly flatEMEA operating margin improving over the course of 2019Channel Development operating margin high 30% range Capital expenditures ~$2.0 billion GAAP EPS in the range of $2.32 to $2.37

The company updates the following fiscal year 2019 guidance to reflect the favorability related to certain discrete income tax items recognized in Q1 FY19:

GAAP tax rate in the range of 21% to 23% and non-GAAP tax rate in the range of 20% to 22% Non-GAAP EPS in the range of $2.68 to $2.73

The company also updates fiscal year 2019 global comparable store sales guidance to conform with its ongoing earnings growth model provided at its December 2018 Investor Day:

Global comparable store sales growth between 3% and 4%

Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release.

The company will provide additional information regarding its business outlook during its regularly scheduled quarterly earnings conference calls; this information will also be available following the call on the company’s website at http://investor.starbucks.com.

Company Updates

1. In October, Starbucks announced a new partner (employee) benefit with Care.com. Care@Work is an online service connecting families and caregivers. All Starbucks partners who work at U.S. company-owned stores will receive 10 subsidized backup care days a year for children and adults.

2. In October, the company participated in the Hire! Philly fair. The event was the beginning of efforts by the Hire! Philly Coalition, an employer-led coalition co-founded by Starbucks, Aramark, PECO, PNC Bank and Thomas Jefferson University and Jefferson Health. The coalition aims to engage local employers in bringing employment and opportunities to Philadelphia.

3. In October, Starbucks opened the nation’s first American Sign Language (ASL)-centric Starbucks® store in Washington, D.C. Separately, in November the company opened its 12 th Community Store in the Red Bird neighborhood of southern Dallas. Community stores are part of a Starbucks initiative to support youth and economic development in diverse, underserved areas of the country.

4. In October, Starbucks announced its commitment to strengthen the company’s efforts to create pathways out of poverty for coffee farming communities in China. By the end of 2023, Starbucks aims to build on the agronomy training efforts by the Starbucks China Farmer Support Center to train 50,000 farmers across the region, while improving the education and health of 6,000 children in 30 villages.

5. The company repurchased 72 million shares of common stock in Q1 FY19; approximately 96.8 million shares remain available for purchase under current authorizations.

6. The Board of Directors declared a cash dividend of $0.36 per share, payable on February 22, 2019, to shareholders of record as of February 7, 2019.

Conference Call

Starbucks will hold a conference call today at 2:00 p.m. Pacific Time, which will be hosted by Kevin Johnson, president and ceo, and Patrick Grismer, cfo. The call will be webcast and can be accessed at http://investor.starbucks.com. A replay of the webcast will be available until end of day Friday, February 22, 2019.

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

Certain statements contained herein are “forward-looking” statements within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as “anticipate,” “expect,” “believe,” “could,” “estimate,” “feel,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements include statements relating to certain company initiatives, strategies and plans, as well as trends in or expectations regarding our diversified business model, the strength, resilience, momentum, and potential of our business, operations, and brand, the impacts, benefits, goals and expectations of our streamline initiatives, the execution of our growth-at-scale agenda, with a focus on our long-term growth markets of the U.S. and China, expanding the global reach of the Starbucks brand through our Global Coffee Alliance with Nestlé, and increasing shareholder returns, being on track to deliver on our full-year commitments, driving predictable, sustainable growth and shareholder returns for years to come, 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, capital expenditures, tax rates and our fiscal 2019 financial targets. 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 and the East China business and successful execution of our Global Coffee Alliance with Nestlé, the acceptance of the company’s products by our customers, our ability to obtain financing on acceptable terms, the impact of competition, the prices and availability of coffee, dairy and other raw materials, 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 September 30, 2018. The company assumes no obligation to update any of these forward-looking statements.

Supplemental Information

The following supplemental information is provided for historical and comparative purposes.

Non-GAAP Disclosure

In addition to the GAAP results provided in this release, the company provides certain non-GAAP financial measures that are not in accordance with, or alternatives for, generally accepted accounting principles in the United States. Our non-GAAP financial measures of non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate and non-GAAP EPS exclude the below listed items and their related tax impacts, as they do not contribute to a meaningful evaluation of the company’s future operating performance or comparisons to the company’s past operating performance. The GAAP measures most directly comparable to non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate and non-GAAP EPS are operating income, operating margin, effective tax rate and diluted net earnings per share, respectively.

Non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate and non-GAAP EPS may have limitations as analytical tools. These measures should not be considered in isolation or as a substitute for analysis of the company’s results as reported under GAAP. Other companies may calculate these non-GAAP financial measures differently than the company does, limiting the usefulness of those measures for comparative purposes.

View source version on businesswire.com:https://www.businesswire.com/news/home/20190124005724/en/

CONTACT: Starbucks Contact, Investor Relations:

Durga Doraisamy

206-318-7118

investorrelations@starbucks.comStarbucks Contact, Media:

Reggie Borges

206-318-7100

press@starbucks.com

KEYWORD: UNITED STATES NORTH AMERICA WASHINGTON

INDUSTRY KEYWORD: RESTAURANT/BAR RETAIL FOOD/BEVERAGE

SOURCE: Starbucks Corporation

Copyright Business Wire 2019.

PUB: 01/24/2019 04:05 PM/DISC: 01/24/2019 04:05 PM

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