Starbucks Corporation — Q1 Fiscal 2024 Form 10-Q
Reporting period: Quarter ended December 31, 2023; comparable quarter ended January 1, 2023. Starbucks operated in 86 markets and had 38,587 company-operated and licensed stores at quarter-end, up 7% year over year.
Financial and operating performance
| Metric | Q1 FY2024 | Comparable period | Change |
|---|---|---|---|
| Net revenue | $9.43 billion | $8.71 billion | +8.2% |
| Operating income | $1.49 billion | $1.25 billion | +18.5% |
| Operating margin | 15.8% | 14.4% | +140 basis points |
| Net earnings attributable to Starbucks | $1.02 billion | $855 million | +19.8% |
| Diluted EPS | $0.90 | $0.74 | +21.6% |
| Operating cash flow | $2.38 billion | $1.59 billion | +$791 million |
| Capital expenditures | $596 million | $517 million | +$79 million |
Operating cash flow less capital expenditures was approximately $1.79 billion, versus $1.08 billion a year earlier. Cash and cash equivalents were $3.00 billion at December 31, compared with $3.55 billion at fiscal year-end; cash plus short- and long-term investments totaled approximately $3.62 billion. Total debt carrying value was approximately $15.02 billion, including $14.67 billion of long-term debt and $350 million of short-term debt. The company also reported $9.45 billion of operating lease liabilities. Shareholders’ deficit was $8.62 billion.
Material changes and segment results
- Global comparable store sales rose 5%: U.S. sales increased 5% and international sales increased 7%. The consolidated result reflected 3% growth in comparable transactions and 2% growth in average ticket.
- Revenue growth was led by company-operated stores, up 9.5%, supported by comparable sales and net new store openings. Licensed-store revenue rose 6.5%; other revenue fell 6.4%, partly reflecting the prior-year sale of Seattle’s Best Coffee and lower ready-to-drink revenue.
- North America revenue increased 9% and operating margin expanded 290 basis points to 21.4%. International revenue rose 10%, but margin declined 120 basis points to 13.1%; management cited wage and strategic investments and a shift toward company-operated stores, partly offset by sales leverage.
- Channel Development revenue decreased 6% and operating margin declined 50 basis points to 46.8%. Corporate and Other operating loss widened to $487 million from $426 million, principally due to higher technology and partner-wage investments.
- Consolidated margin improvement reflected sales leverage and in-store efficiencies, partly offset by partner compensation investments and higher general and administrative costs. Product and distribution costs declined as a share of revenue; store operating costs also declined as a share of revenue.
Liquidity, capital allocation, outlook, and risks
Operating activities provided $2.38 billion; investing activities used $569 million and financing activities used $2.41 billion. Financing outflows included $1.27 billion of share repurchases, $648 million of dividends, and $750 million of long-term debt repayments, partly offset by commercial-paper issuance. Starbucks repurchased 12.8 million shares at an average $97.83 per share. A quarterly dividend of $0.57 per share was declared for payment in February 2024.
Management expects fiscal 2024 capital expenditures of approximately $3.0 billion and stated that available cash, future operating cash flow, and borrowing capacity should fund business needs and shareholder distributions for at least the next 12 months. The $3.0 billion revolving credit facility had no borrowings outstanding; $300 million was outstanding under the commercial-paper program. Total available contractual borrowing capacity for general corporate purposes was $2.7 billion. The company reported compliance with applicable debt covenants.
Management said first-quarter headwinds were expected to be transitory but could continue through the balance of fiscal 2024; it gave no specific full-year earnings or revenue guidance in the supplied filing text. It cited the Reinvention plan and its long-term growth model as strategic priorities. Risks include coffee and dairy price or supply volatility, labor costs and union activity, consumer demand and competitive pressures, foreign exchange, economic conditions, geopolitical events, and execution of strategic initiatives. Management said it did not believe the disclosed legal proceedings, including labor-related matters, posed a material contingent-loss risk; no material changes to previously disclosed risk factors were reported. Results may be affected by seasonality, and management cautioned that a quarter is not necessarily indicative of the full year.
Important facts for investors to verify
- Whether comparable-sales growth and China’s post-COVID recovery remain durable as prior-year comparisons normalize.
- Whether operational efficiencies and sales leverage can continue to offset wages, strategic spending, and other cost pressures, particularly in International.
- How coffee and dairy costs, committed coffee purchases, and foreign-currency movements affect future margins.
- Whether planned capital expenditures, dividends, and discretionary repurchases remain supportable alongside debt maturities and lease obligations.
- Developments in labor relations and legal matters, and any updates to the company’s stated expectation that liquidity will be sufficient for at least 12 months.