Starbucks Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended October 1, 2023 (52 weeks), compared with fiscal 2022, also 52 weeks. This is an annual filing, not a standalone fourth-quarter report. Starbucks operates in 86 markets through company-operated and licensed stores and its Channel Development business.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net revenues | $35.98 billion | $32.25 billion |
| Operating income / margin | $5.87 billion / 16.3% | $4.62 billion / 14.3% |
| Net earnings attributable to Starbucks | $4.12 billion | $3.28 billion |
| Diluted earnings per share | $3.58 | $2.83 |
| Cash provided by operating activities | $6.01 billion | $4.40 billion |
| Capital expenditures | $2.33 billion | $1.84 billion |
Revenue rose 11.6%, driven mainly by company-operated store growth and comparable sales gains. Comparable sales increased 8% companywide, from a 5% increase in average ticket and 3% in transactions. North America revenue grew 14% and operating margin reached 20.7%; International revenue grew 7.9% and margin reached 16.4%. Channel Development revenue increased 3% and reported a 51.1% operating margin.
Consolidated operating margin expanded 200 basis points. Pricing, sales leverage and in-store efficiencies more than offset partner wage and training investments and higher corporate costs. Net earnings increased about 26%; reported results also included a $91.3 million pretax gain from selling the Seattle’s Best Coffee brand.
At year-end, cash and cash equivalents were $3.55 billion, short-term investments $402 million, and total current assets $7.30 billion versus current liabilities of $9.35 billion. Total debt carrying value was approximately $15.37 billion, including $1.82 billion current; operating lease liabilities totaled approximately $9.20 billion. Shareholders’ deficit was $7.99 billion. Starbucks reported $6.0 billion of cash and investments overall, including long-term investments, and approximately $2.5 billion was held in foreign subsidiaries. Its $3.0 billion revolving facility was undrawn, and it reported covenant compliance.
Cash used in financing was $2.99 billion. Starbucks returned $3.4 billion to shareholders through dividends and repurchases, including $2.4 billion in dividends and approximately $1.0 billion in share repurchases.
Material changes versus FY2022
- Net revenue rose $3.73 billion, or 11.6%; company-operated store revenue increased 10.9% and licensed-store revenue 23.4%.
- Operating income increased 27% and operating margin expanded from 14.3% to 16.3%. Management attributed margin expansion chiefly to pricing, leverage and store efficiencies, partly offset by labor investments and higher general and administrative spending.
- Operating cash flow increased by $1.61 billion, reflecting higher earnings and a favorable change in operating assets and liabilities, including lower inventory purchases.
- Capital expenditures increased about $492 million. Share repurchases fell from $4.0 billion to $1.0 billion; dividends paid rose from $2.3 billion to $2.4 billion.
- International performance improved from FY2022’s pandemic-related China headwinds; International comparable sales increased 5%, versus a 9% decrease in FY2022. Foreign-currency translation remained a revenue headwind.
Outlook, commentary, risks and unusual items
- Management expects global store growth to continue in FY2024 and anticipates further benefits from sales leverage, pricing and Reinvention Plan efficiencies. It expects commodity and supply-chain inflation pressures to moderate relative to FY2023. No specific FY2024 revenue, earnings or margin guidance is provided in the supplied filing text.
- FY2024 capital expenditures are expected to be approximately $3.0 billion. Management says operating cash flow, existing cash and investments, and borrowing capacity should fund business needs and shareholder distributions for at least 12 months.
- Principal risks include dependence on North America (74% of FY2023 revenue), China and other international-market performance, competition, consumer spending and preferences, wage and labor costs and union activity, coffee and other commodity prices, supply-chain and climate-related disruption, foreign exchange, and cybersecurity, privacy and regulatory exposure. Approximately 3.6% of U.S. company-operated store partners were union-represented.
- Material contractual cash requirements totaled approximately $33.9 billion, including $10.6 billion of operating lease obligations, $15.5 billion of debt principal and $6.4 billion of debt interest. Green coffee commitments accounted for 92% of purchase obligations.
- The filing identifies various ordinary-course legal matters, including employment cases, but management did not believe any current proceeding would materially adversely affect consolidated financial position, results or cash flows. The auditor highlighted management’s foreign-earnings reinvestment assertion: a $2.5 billion taxable temporary difference could entail up to approximately $250 million of unrecognized tax liability. Up to approximately $54 million of gross unrecognized tax benefits may be recognized by the end of FY2024.
- The Seattle’s Best Coffee asset sale generated the $91.3 million pretax gain. FY2023 also included approximately $22 million of Reinvention Plan restructuring and impairment costs. Deloitte issued unqualified opinions on the financial statements and internal controls; its critical audit matter concerned indefinite reinvestment of foreign earnings.
Important facts for investors to verify
- Whether comparable-sales growth, especially U.S. transaction trends and China recovery, sustains as prior-year growth comparisons become more demanding.
- Whether projected margin benefits and moderating input-cost inflation offset ongoing wage, training, technology and Reinvention Plan investments.
- How the planned $3.0 billion FY2024 capital program and continued dividends or repurchases affect cash, debt and liquidity.
- Debt maturities, lease commitments and the company’s negative working capital and shareholders’ deficit in assessing financial flexibility.
- Potential tax effects if foreign earnings are repatriated, and developments in tax examinations and unrecognized tax benefits.
- Progress and costs related to union negotiations, labor actions, coffee sourcing and other supply-chain, climate, cybersecurity and privacy risks.