Business context and reporting period
Starbucks Corporation’s unaudited Form 10-Q covers the quarter and first two quarters of fiscal 2023 ended April 2, 2023, compared with periods ended April 3, 2022. Starbucks operated more than 36,600 company-operated and licensed stores in 84 markets. Its reportable segments are North America, International, and Channel Development.
Key financial results
| Metric | Quarter | Two quarters |
|---|---|---|
| Revenue | $8.72 billion, up 14.2% | $17.43 billion, up 11.1% |
| Operating income and margin | $1.33 billion; 15.2%, up 280 basis points | $2.58 billion; 14.8%, up 120 basis points |
| Net earnings attributable to Starbucks | $908 million, versus $675 million | $1.76 billion, versus $1.49 billion |
| Diluted EPS | $0.79, versus $0.58 | $1.53, versus $1.28 |
| Operating cash flow | Not separately reported in the provided filing text | $2.36 billion, versus $2.03 billion |
| Capital expenditures | Not separately reported in the provided filing text | $1.00 billion, versus $872 million |
Quarterly global comparable-store sales grew 11%: 12% in the U.S. and 7% internationally. Company-operated store revenue rose 13.8%, while licensed-store revenue rose 25.9%. For the first two quarters, North America revenue grew 16%; International revenue declined 1%, largely reflecting foreign-exchange effects and first-quarter China disruptions.
Liquidity, debt, and financial position
At April 2, 2023, cash and cash equivalents were $3.07 billion and short-term investments were $379 million. Cash and investments across maturities totaled $3.7 billion, including approximately $2.6 billion held in foreign subsidiaries. Current assets were $7.05 billion and current liabilities were $9.12 billion. Total liabilities were $37.11 billion; shareholders’ deficit was $8.51 billion.
Debt on the balance sheet included $52.8 million of short-term debt, $1.89 billion of current long-term debt, and $13.54 billion of long-term debt. Operating lease liabilities totaled approximately $9.02 billion. Starbucks had no borrowings under its $3.0 billion revolving credit facility, was in compliance with applicable covenants, and reported $3.0 billion of general-purpose borrowing capacity. The company expects operating cash flows, existing cash and investments, and borrowing capacity to fund operating needs and shareholder distributions for at least the next 12 months.
For the first two quarters, cash used in investing was $907 million and cash used in financing was $1.28 billion. Dividends paid were $1.22 billion; share repurchases were $495 million, substantially below the $4.00 billion repurchased in the prior-year period. Cash increased by $253 million from the fiscal-year opening balance.
Material changes, outlook, and risks
- Quarterly operating-margin improvement reflected sales leverage, pricing, productivity, and a $91.3 million pre-tax gain from selling Seattle’s Best Coffee assets to Nestlé. The gain was a notable, non-recurring contributor.
- Margin benefits were partly offset by committed investments in partner wages and benefits, inflation-related supply-chain costs, and higher general and administrative spending, including technology and Reinvention Plan costs.
- Management said China was beginning to recover from pandemic-related business interruptions and expected continued recovery, together with pricing and productivity gains, to support expected results for the remainder of fiscal 2023. The filing does not provide a specific full-year revenue or earnings forecast.
- Fiscal 2023 capital expenditures were expected to be approximately $2.5 billion. The company continued its $0.53-per-share quarterly dividend and had resumed share repurchases.
- Key stated risks include COVID-19 resurgence and its impact on China, inflation and labor costs, coffee and dairy prices and availability, foreign-exchange movements, competition, consumer spending and preferences, supply-chain disruptions, technology and cybersecurity risks, and legal and regulatory matters. Starbucks said risk factors were not materially changed from its fiscal 2022 Form 10-K.
- The California Proposition 65 coffee-acrylamide litigation concluded after the California Supreme Court denied review. Management said other ordinary-course proceedings were not expected to materially affect consolidated financial position, results, or cash flows.
Most important facts for investors to verify
- How much of the reported earnings and margin growth is sustainable excluding the Seattle’s Best asset-sale gain and the effects of pricing, currency, and lapping prior-year costs?
- Whether China’s recovery and international comparable-store sales continue, and how foreign-exchange effects affect reported results.
- Whether productivity and sales leverage can offset ongoing partner compensation, commodity, and supply-chain cost pressures.
- Whether cash generation can support planned capital spending, debt obligations, dividends, and discretionary share repurchases while the company reports a shareholders’ deficit.
- Execution and cost of the Reinvention Plan, including technology investment and store and partner initiatives.