Starbucks Corporation (10-K) — Fiscal 2022
Reporting period: Fiscal year ended October 2, 2022; 52 weeks. The comparison year, ended October 3, 2021, included 53 weeks, so reported year-over-year comparisons are affected by the extra week. Starbucks operated in 83 markets and had 35,711 stores at year-end.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net revenue | $32.25 billion | $29.06 billion |
| Operating income / margin | $4.62 billion / 14.3% | $4.87 billion / 16.8% |
| Net earnings attributable to Starbucks | $3.28 billion | $4.20 billion |
| Diluted EPS | $2.83 | $3.54 |
| Cash from operating activities | $4.40 billion | $5.99 billion |
| Capital expenditures | $1.84 billion | $1.47 billion |
Revenue increased 11%, while operating income declined about 5% and operating margin contracted 250 basis points. Diluted EPS fell 20%. The prior year included an $864.5 million pretax gain on the sale of Starbucks’ South Korea joint-venture interest; the company attributed $0.56 of prior-year EPS to that gain and $0.10 to the extra fiscal week. Higher labor investment, training and support costs, inflation in commodities and supply chain, China-related sales deleverage, business mix and lower government subsidies also weighed on margin. Pricing and sales leverage outside China partly offset these pressures. The filing does not present a single consolidated gross-margin figure.
Sales and segments: North America generated $23.37 billion of revenue and $4.49 billion of operating income; revenue rose 14% and operating margin fell to 19.2%. International revenue was $6.94 billion, essentially flat, while operating income declined 33% to $833 million and margin fell to 12.0%. China comparable-store sales declined 24%, contributing to a 9% decline for International. Channel Development revenue grew 16% to $1.84 billion; operating income rose 4% to $817 million, but margin declined to 44.3%. Consolidated comparable-store sales increased 8%; North America increased 12%.
Liquidity, debt and capital allocation
- Cash and investments totaled $3.5 billion at year-end, down from $6.9 billion; cash and cash equivalents alone were $2.82 billion. About $2.7 billion of cash and short-term investments were held in foreign subsidiaries.
- Current assets were $7.02 billion and current liabilities $9.15 billion. Shareholders’ deficit was $8.71 billion; total liabilities were $36.68 billion.
- Long-term debt had a $14.87 billion carrying value ($15.04 billion face value); commercial paper outstanding was $175 million. No borrowings were drawn on the $3.0 billion revolving credit facility, and the company reported compliance with applicable covenants.
- Operating cash flow declined to $4.40 billion, principally due to lower earnings, increased inventory purchases and the timing of tax payments. Investing activities used $2.15 billion; financing activities used $5.64 billion.
- Starbucks returned $6.3 billion to shareholders in FY2022, including $4.0 billion of repurchases and $2.3 billion of dividends. Repurchases were temporarily suspended in April 2022 to increase investment in stores and partners and resumed in fiscal 2023. A quarterly dividend of $0.53 per share was declared for payment in November 2022.
Outlook, commentary and risks
- Management expected commodity and supply-chain inflation to continue into fiscal 2023, but at a lesser relative impact than in FY2022, with pricing, sales leverage and productivity improvements from the U.S. Reinvention Plan expected to help offset it. Fiscal 2023 capital expenditures were expected to be approximately $2.5 billion. The filing provides no specific fiscal 2023 revenue or EPS guidance.
- Management expressed confidence in long-term profitable growth, conditional on no significant, prolonged COVID-19 relapse or global economic disruption. China restrictions severely constrained customer mobility during FY2022; further COVID-related disruption remains a risk.
- Other principal risks include inflation and labor costs, unionization activity, supply-chain and commodity availability, foreign-exchange movements, competition, execution of the Reinvention Plan, cybersecurity and privacy, climate impacts, and geopolitical and regulatory risks, particularly in China.
- In the fourth quarter, Starbucks sold its Evolution Fresh business; the transaction had no material financial-statement impact. The company recorded $46 million of restructuring and impairment costs in FY2022, primarily associated with the Reinvention Plan; future related costs were not expected to be material.
- The auditor issued unqualified opinions on the financial statements and internal controls. Its critical audit matter concerned management’s assertion of indefinite reinvestment of certain foreign earnings and related capital-expenditure forecasts. The company disclosed up to approximately $230 million of potential unrecognized tax liability associated with a $1.5 billion taxable temporary difference.
Important facts for investors to verify
- How much of FY2022 revenue growth reflects underlying demand versus pricing, new stores, currency effects and the prior-year extra week.
- Whether labor, training, commodity and supply-chain costs moderate as management expected, and whether pricing and the Reinvention Plan restore margins.
- China store traffic, comparable sales and operating performance as COVID-related restrictions change.
- Cash generation and liquidity trends relative to dividends, resumed repurchases, planned capital spending and debt maturities.
- Potential exposure from foreign tax positions and the assumptions supporting indefinite reinvestment of foreign earnings.