Starbucks Corp. Reports 13 Percent Revenue Gain In Third Quarter

Starbucks Corp. reported financial results for its 13-week fiscal third quarter ended July 1, 2012.

Total net revenues increased 13 percent to $3.3 billion. U.S. comparable store sales increased 7 percent; Global comparable store sales increased 6 percent.

Channel development revenues increased 45 percent to $316 million.

Operating income increased 22 percent to $492 million; operating margin expanded 120 basis points to 14.9 percent. Earnings per share (EPS) increased 19 percent to $0.43 per share, compared to $0.36 per share in Q3 FY11.

Starbucks opened 231 net new stores globally, including its 600th store in mainland China, and its first stores in Finland and Costa Rica.

The company has introduced its initial FY13 revenue and EPS targets as follows:

Revenue growth of 10 percent to 13 percent.

1,200 net new stores, driven by acceleration in the U.S. and China.

Earnings per share of $2.04 to $2.14, representing growth of 15 percent to 20 percent.

“Starbucks record Q3 results demonstrate the continued strength of our global business and brand, the success of multiple, highly innovative consumer packaged goods initiatives and continued acceleration of our China and Asia-Pacific operations,” said Howard Schultz, chairman, president and CEO in a prepared statement. “Despite coming in short of our expectations I am pleased with the increasing operating leverage we are seeing, the fact that this was our 11th consecutive quarter of record results and the fact that we achieved the results in the face of high legacy commodity costs and challenging economic and consumer headwinds in key markets.

“I am confident that we are operating with the discipline, flexibility and customer centricity necessary to enable us to continue driving EPS growth in excess of revenue growth over the long run,” Schultz added.

“While still representing earnings growth of approximately 20 percent over last year’s fourth quarter, we have lowered our expectations for Q4 FY12 earnings per share to $0.44 to $0.45 to reflect the difficult economic environment all global retailers are confronting today,” commented Troy Alstead, CFO. “Nonetheless, we remain confident in the underlying strength of our business, in the strategies we have in place for driving sustained, profitable growth, and in our ability to again drive earnings growth in the range of 15 percent to 20 percent in fiscal 2013.”

Consolidated net revenues reached a third-quarter record $3.3 billion in Q3 FY12, an increase of 13 percent over Q3 FY11. The increase was primarily due to a 6 percent increase in global comparable stores sales and 45 percent revenue growth in channel development. The 6 percent increase in comparable store sales was comprised of a 5 percent increase in the number of transactions and a 2 percent increase in average ticket.

Consolidated operating income increased 22 percent to $491.6 million in Q3 FY12, compared to $402.2 million for the same period a year ago. Operating margin was 14.9 percent in Q3 FY12, compared to 13.7 percent in the same period last year. Sales leverage more than offset the increase in commodity costs, primarily coffee, which negatively impacted Q3 FY12 operating income and operating margin by approximately $38 million and 110 basis points, respectively, compared to the same period in the prior year.

Net revenues for the Americas segment were $2.5 billion in Q3 FY12, an increase of 9 percent over Q3 FY11. The increase was primarily due to a 7 percent increase in comparable store sales, including a 5 percent increase in the number of transactions and a 2 percent increase in average ticket. Additionally, licensed store revenue growth of approximately 24 percent contributed to the Americas segment results.

Operating income increased to $512.1 million in Q3 FY12, compared to $450.9 million for the same period a year ago. Operating margin increased 90 basis points to 20.7 percent in Q3 FY12. The margin expansion was due to increased sales leverage, partially offset by the increase in commodity costs, primarily coffee.

Channel development net revenues were $316.4 million in Q3 FY12, an increase of 45 percent over Q3 FY11. The increase was primarily due to sales of Starbucks®- and Tazo®-branded K-Cup® portion packs and growth in packaged coffee sales. The fiscal third quarter marks the first full year-over-year comparison period under the direct distribution model.

Channel development operating income was $86.5 million in Q3 FY12 compared to $69.3 million for the same period a year ago. Operating margin was 27.3 percent in Q3 FY12 compared to 31.7 percent in the prior-year period. The margin contraction was mainly due to higher commodity costs, primarily coffee, which negatively impacted Q3 FY12 operating income and operating margin by approximately $16 million and 500 basis points, respectively, compared to the same period in the prior year. 

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