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Starbucks reports 4Q revenue up 7% to $6.75 bil, net income up 6.2% to $802.9 bil

Starbucks Delivers

MILAN – Starbucks on Wednesday reported quarterly revenue that topped analysts’ expectations as cafes in the U.S. and China attracted more customers. the coffee chain’s loyalty program and new delivery options also boosted demand and helped it fend off competition.

Sales at restaurants open for at least 13 months rose 5% in the fourth quarter ended Sept. 29. Total net revenue rose 7% to $6.75 billion, beating the average analyst estimate of $6.68 billion

The coffee chain reported fiscal fourth-quarter net income of $802.9 million, or 67 cents per share, up from $755.8 million, or 56 cents per share, a year earlier.

Excluding the sale of the Tazo brand, Nestle-related transaction costs and other items, Starbucks earned 70 cents per share, in line with estimates from analysts surveyed by Refinitiv.

Net sales rose 7% to $6.75 billion, topping expectations of $6.68 billion.

“I’m very pleased with our strong finish to fiscal 2019, as we sustained positive momentum across each of our business segments,” said Kevin Johnson, president and ceo. “Our U.S. business delivered 6% comparable store sales growth in the fourth quarter, while China grew comparable store sales by 5% and total transactions by 13%. Our strong performance throughout fiscal 2019 gives us confidence in a robust operating outlook for fiscal 2020.”

“We are making meaningful progress against our strategic priorities while streamlining the company, bringing more focus and discipline to everything we do. The investments we are making for the long term—in our partners, our stores, beverage innovation and digital—are collectively delivering an elevated Starbucks Experience, as evidenced by all-time-high customer connection scores in the fourth quarter. This long-term focus is instrumental to how we are building an enduring company,” concluded Johnson.

Q4 Fiscal 2019 Highlights

  • Global comparable store sales up 5%, driven by a 3% increase in average ticket and a 2% increase in comparable transactions
    • Americas and U.S. comparable store sales up 6%, both driven by a 3% increase in average ticket and a 3% increase in comparable transactions
    • International comparable store sales up 3%, driven by a 3% increase in average ticket and a 1% increase in transactions; China comparable store sales increased 5%, with comparable transactions up 2%
  • The company opened 630 net new stores in Q4, yielding 31,256 stores at the end of the quarter, a 7% increase over the prior year
  • Consolidated net revenues of $6.7 billion grew 7% over the prior year
    • Consolidated net revenues grew 10% over the prior year adjusted for unfavorable impacts of approximately 3% from Streamline-driven activities
    • Streamline-driven activities include the licensing of our CPG and Foodservice businesses to Nestlé following the close of the transaction on August 26, 2018, and the conversion of certain international retail operations from company-operated to licensed models
  • GAAP operating margin expanded 90 basis points year-over-year to 16.1%, primarily due to sales leverage, cost savings initiatives, lapping prior-year Nestlé transaction-related costs and lower restructuring and impairment charges, partially offset by growth in wages and benefits, increased investments in labor hours and the 2019 Starbucks Leadership Experience
    • Non-GAAP operating margin of 17.2% declined 90 basis points compared to the prior year. Excluding a 30-basis point unfavorable impact from Streamline-driven activities, non-GAAP operating margin declined by approximately 60 basis points compared to the prior year
  • GAAP Earnings Per Share of $0.67, up 20% over the prior year
    • Non-GAAP EPS of $0.70, up 13% over the prior year, inclusive of a 4% benefit from income tax rate favorability
  • The company returned $2.7 billion to shareholders through a combination of share repurchases and dividends
  • Starbucks® Rewards loyalty program grew to 17.6 million active members in the U.S., up 15% year-over-year

Full Year Fiscal 2019 Highlights

  • Global comparable store sales up 5%, driven by a 3% increase in average ticket and a 1% increase in comparable transactions
    • Americas and U.S. comparable store sales up 5%, both driven by a 3% increase in average ticket and a 2% increase in comparable transactions
    • International comparable store sales up 3%, driven by a 2% increase in average ticket and a 1% increase in comparable transactions; China comparable store sales increased 4%, with comparable transactions flat
  • Consolidated net revenues of $26.5 billion grew 7% over the prior year
    • Consolidated net revenues grew 10% over the prior year adjusted for unfavorable impacts of approximately 2% from Streamline-driven activities and 1% from foreign currency translation
  • GAAP operating margin declined 30 basis points year-over-year to 15.4%
    • Non-GAAP operating margin of 17.2% declined 80 basis points compared to the prior year. Excluding a 70-basis point unfavorable impact from Streamline-driven activities, non-GAAP operating margin declined by approximately 10 basis points compared to the prior year
  • GAAP Earnings Per Share of $2.92, down 10% over the prior year
    • Non-GAAP EPS of $2.83, up 17% over the prior year, inclusive of a 7% benefit from income tax rate favorability
  • The company returned $12.0 billion to shareholders through a combination of share repurchases and dividends

Fiscal 2019 Re-segmentation

In the fourth quarter of fiscal 2019, the company realigned its operating segment reporting structure to better reflect the cumulative effect of its streamlining efforts. Specifically, the previous China/Asia Pacific (“CAP”) segment and Europe, Middle East, and Africa (“EMEA”) segment have been combined into one International segment.

The company will continue to provide supplemental information on its two lead growth markets, the U.S. and China, in its quarterly earnings news releases in accordance with its “Growth at Scale” agenda.

Concurrently, results of Siren Retail, a non-reportable operating segment consisting of Starbucks ReserveTM Roastery & Tasting Rooms, Starbucks Reserve brand and Princi operations, which was previously included within Corporate and Other, is now reported within the Americas and International segments based on the geographical location of the operations.

Further, to better support the review of its results, the company changed the classification of certain costs. The most significant change was the reclassification of company-operated store occupancy costs from cost of sales to store operating expenses. The company also made certain other immaterial changes. These reclassifications have been retrospectively applied.

There was no impact to consolidated net revenues, consolidated operating income, or net earnings per share as a result of these changes.

Concurrent with the change in reportable segments and reclassification of certain operating expenses noted above, the company revised its prior period financial information to be consistent with the current period presentation.

Restated GAAP and non-GAAP quarterly financial information for FY18 and FY19 (through fiscal Q3) can be found on the Supplemental Financial Data page of our Investor Relations website (http://investor.starbucks.com).

Fiscal 2020 Guidance

The company introduces the following fiscal year 2020 guidance (all growth targets are relative to fiscal year 2019 non-GAAP measures unless specified):

  • Global comparable store sales growth of 3% to 4%
  • Approximately 2,000 net new Starbucks stores globally
    • Americas approximately 600 net new stores (3% to 4% growth in the U.S.)
    • International approximately 1,400 net new stores (mid-teens growth in China)
  • Consolidated GAAP revenue growth of 6% to 8%
  • Consolidated operating income growth of 8% to 10%
  • Consolidated operating margin improving modestly
  • GAAP interest expense of approximately $415 to $425 million
  • GAAP and non-GAAP effective tax rate in the range of 22% to 24%
  • GAAP EPS in the range of $2.84 to $2.89
    • Non-GAAP EPS in the range of $3.00 to $3.05
  • Capital expenditures of approximately $1.8 billion

The company will provide additional information regarding its business outlook during its regularly scheduled quarterly earnings conference call; this information will also be available following the call on the company’s website at http://investor.starbucks.com.

Company Updates

1. In July, Starbucks opened its first Starbucks NowTM store in Beijing, China. The new express store format integrates Starbucks store environment with the company’s Mobile Order & Pay technology and Starbucks® Delivers into one seamless and convenient experience for customers.

2. In September, Starbucks hosted over 12,000 store managers and field operations leaders at its largest ever Leadership Experience. The three-day conference held in Chicago was designed to help strengthen leadership capabilities and solidify the foundation of an enduring company.

3. In September, Starbucks welcomed three new appointees to its Board of Directors: Richard E. Allison, Jr., Chief Executive Officer of Domino’s; Andrew Campion, Executive Vice President and Chief Financial Officer of Nike; and Isabel Ge Mahe, Apple’s Vice President and Managing Director of Greater China. These appointments increased Starbucks board of directors to 13 members.

4. The company repurchased 23.5 million shares of common stock in Q4 fiscal 2019; approximately 29.2 million shares remain available for purchase under the current authorization.

5. The Board of Directors declared a cash dividend of $0.41 per share, an increase of 14%, payable on November 29, 2019, to shareholders of record as of November 13, 2019.