Starbucks Corporation — Q2 FY2024 Form 10-Q
Reporting period: Quarter ended March 31, 2024; year-to-date figures cover the first two fiscal quarters. Amounts are in U.S. dollars unless stated otherwise.
Business context and results
Starbucks operated in 86 markets and had 38,951 company-operated and licensed stores at quarter-end, up 6% year over year. It reports North America, International, and Channel Development segments.
| Metric | Q2 FY2024 | Prior-year quarter | First two quarters FY2024 | Prior-year period |
|---|---|---|---|---|
| Net revenue | $8.56B | $8.72B | $17.99B | $17.43B |
| Operating income | $1.10B | $1.33B | $2.58B | $2.58B |
| Operating margin | 12.8% | 15.2% | 14.4% | 14.8% |
| Net earnings attributable to Starbucks | $772M | $908M | $1.80B | $1.76B |
| Diluted EPS | $0.68 | $0.79 | $1.58 | $1.53 |
| Operating cash flow | Not separately stated | Not separately stated | $2.89B | $2.36B |
Q2 global comparable store sales fell 4%: U.S. sales declined 3% and international sales declined 6%. The global decline reflected lower transactions; company-operated store average ticket rose 2%. For the first two quarters, comparable sales increased 1%, with ticket up 2% and transactions down 1%.
Financial position, liquidity, and cash flows
- Cash and cash equivalents were $2.76B and total cash and investments were $3.4B at March 31, versus $4.2B at October 1, 2023. Approximately $2.0B of cash and short-term investments were held in foreign subsidiaries.
- Long-term debt was $15.55B; short-term debt was $42M. No commercial paper or revolving-facility borrowings were outstanding. The company reported $3.0B of available general-purpose borrowing capacity and compliance with applicable debt covenants.
- Current assets were $6.47B versus current liabilities of $7.53B. Total liabilities were $37.81B, and shareholders’ deficit was $8.45B. Operating lease liabilities totaled about $9.59B.
- Year-to-date investing cash use was $1.26B, including $1.26B of capital expenditures. Financing cash use was $2.42B, including $1.29B of dividends and $1.27B of share repurchases. Cash declined $787M over the period.
Material changes versus the prior period
- Q2 revenue decreased 1.8%, and operating margin contracted 240 basis points. Management cited weaker comparable sales, unfavorable currency effects, store-cost deleverage, wage and benefit investments, higher promotions, and increased corporate costs.
- Q2 North America revenue was nearly flat; International revenue declined 5%, including adverse currency effects and lower comparable sales. Channel Development revenue fell 13%, mainly reflecting the prior-year sale of Seattle’s Best Coffee to Nestlé and product assortment optimization.
- Year-to-date revenue rose 3.2%, primarily from new company-operated store openings and first-half comparable sales growth. Year-to-date operating income was broadly flat; the prior-year period included a $91M gain on the Seattle’s Best Coffee sale.
- Operating cash flow increased year over year to $2.89B. Capital expenditures and share repurchases were higher than in the prior-year period.
Outlook, risks, and unusual items
- Management said the challenging global environment, softening consumer sentiment, inflation, and disruptions from international conflicts may continue to affect the balance of FY2024. It highlighted brand strength, new-store performance, product innovation, and Reinvention-related operating efficiencies.
- FY2024 capital expenditures are expected to be approximately $3.0B. Management said available cash, future operating cash flows, and borrowing capacity should fund operating needs and shareholder distributions for at least the next 12 months. The filing does not provide specific revenue, earnings, or comparable-sales guidance.
- Q2 margin was affected by increased partner wages and benefits, promotions, deleverage, and higher G&A, partly offset by pricing and in-store efficiencies. G&A included $30M of proxy solicitation and advisory costs and $22M of technology investment.
- The Q2 effective tax rate was 22.2%, versus 24.9%, partly due to a tax benefit from an alternative approach in a foreign jurisdiction. Year-to-date rate was 24.2%, also affected by foreign withholding-tax accruals.
- Management identified coffee and dairy prices and availability, foreign exchange, labor costs and union activity, consumer demand, competition, geopolitical conditions, and brand risks as factors that could affect results. It reported ordinary-course litigation, including labor-related matters, but did not believe any current proceeding was likely to have a material adverse financial effect; management assessed related contingent-loss risk as remote.
Important facts for investors to verify
- Whether comparable-sales and transaction trends improve, particularly in the U.S. and International markets, and how currency movements affect reported results.
- Whether pricing, promotions, labor investment, and Reinvention efficiencies stabilize operating margins.
- How cash balances, debt issuance and maturities, capital spending, dividends, and repurchases evolve; review liquidity alongside the shareholders’ deficit and lease obligations.
- Whether commodity costs, international conflicts, labor developments, and legal or brand-related risks change materially from management’s assessment.