Starbucks Corporation — Q2 FY2021 Form 10-Q
Reporting period: Quarter and first two fiscal quarters ended March 28, 2021; comparisons are with the corresponding periods ended March 29, 2020. Amounts are in U.S. dollars.
Business context and reporting period
Starbucks operated 32,943 company-operated and licensed stores across 83 markets, up 3% year over year. Nearly all stores had reopened by quarter-end, though many remained below full capacity. Management described the business as recovering from COVID-19 disruptions; U.S. and China sales had returned to roughly pre-pandemic levels.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | First two quarters FY2021 | First two quarters FY2020 |
|---|---|---|---|---|
| Net revenue | $6.668 billion | $5.996 billion | $13.418 billion | $13.093 billion |
| Operating income | $987.6 million | $487.4 million | $1.901 billion | $1.707 billion |
| Operating margin | 14.8% | 8.1% | 14.2% | 13.0% |
| Net earnings attributable to Starbucks | $659.4 million | $328.4 million | $1.282 billion | $1.214 billion |
| Diluted EPS | $0.56 | $0.28 | $1.08 | $1.02 |
| Cash provided by operating activities | — | $2.720 billion | $474.8 million |
Q2 global comparable store sales rose 15%, with transactions down 4% and average ticket up 19%. Americas comps increased 9%; International comps increased 35%, including China growth of 91% (about 9 percentage points from VAT favorability). For the first two quarters, consolidated comps increased 4%, as transactions fell 12% and average ticket rose 18%.
Q2 revenue growth was led by company-operated stores, up 18.6%; licensed-store revenue declined 13.7% and other revenue declined 22.2%. Channel Development revenue fell 29%, primarily reflecting product activity transferred to Nestlé and the winding down of transition-related sales. Q2 operating income improved sharply against the prior-year pandemic-affected quarter. Margin improvement reflected sales leverage and lapping prior-year COVID costs, partly offset by partner wage investments and restructuring charges. First-half operating income grew 11.4%; diluted EPS increased from $1.02 to $1.08.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $3.881 billion at March 28, 2021, down from $4.351 billion at fiscal year-end; cash plus investments totaled approximately $4.3 billion.
- Current assets were $6.980 billion and current liabilities $6.505 billion. Total liabilities were $36.020 billion, including $14.630 billion of long-term debt. Shareholders’ deficit was $7.654 billion.
- Operating cash flow of $2.720 billion substantially exceeded the prior-year $474.8 million, primarily because of the timing of tax payments and refunds. Investing activities used $579 million; financing activities used $2.677 billion. Cash dividends paid were $1.058 billion.
- No commercial-paper or revolving-credit borrowings were outstanding. The company reported $6.0 billion of available general-purpose capacity across its commercial-paper program and credit facilities; Japan facilities had $18.3 million outstanding. Starbucks said it was in compliance with applicable covenants.
- The quarterly dividend was raised to $0.45 per share, payable May 28, 2021. Share repurchases remained suspended pending restoration of targeted leverage, which management expected in late FY2021.
Outlook, management commentary and risks
- Management expected recovery momentum to continue through the rest of FY2021, absent significant or prolonged COVID-19 relapses or global economic disruptions. The filing provides no specific full-year revenue or earnings guidance.
- Fiscal 2021 includes 53 weeks. Expected FY2021 capital expenditures were approximately $1.9 billion.
- The North America store-portfolio plan expected approximately 800 U.S. and Canada closures; 760 had been identified by quarter-end. Management expected another 200 closures, primarily over the next 9–12 months, and estimated $30–$40 million of future restructuring costs. First-half restructuring and impairment expense was $95.2 million.
- Temporary U.S., Canadian and other government payroll credits reduced store operating expense by $117.2 million in the first half. The company reported a $158.6 million government-subsidy receivable at quarter-end. These benefits are temporary and affected period comparisons.
- Key stated risks include pandemic-related restrictions and renewed outbreaks, consumer demand and mobility, labor availability and costs, competition, coffee and dairy prices and availability, foreign exchange, technology and cybersecurity, and legal proceedings. Management reported no material change to the risk factors in its FY2020 Form 10-K.
- In a California Proposition 65 coffee-warning case, a trial court granted Starbucks and other defendants summary judgment based on a coffee exemption regulation; the plaintiff appealed. Starbucks said a material loss was less than reasonably possible and recorded no contingency.
Most important facts for investors to verify
- Whether comparable-sales growth and margin gains persist after the prior-year pandemic disruption is fully lapped, particularly given lower transactions in the Americas.
- How much reported cash flow reflects sustainable operations versus timing of tax payments and refunds.
- Progress and final costs of the planned store closures, and the effects of wage investments and temporary subsidy expiration on margins.
- Whether debt, lease commitments and the shareholder dividend remain supportable alongside planned capital spending and the paused repurchase program.
- The contribution of VAT effects, foreign currency, and the Nestlé transition to reported sales and segment results.