Starbucks Reports Record Q1 Results and Reaffirms FY14 Growth Targets

Starbucks Corporation (NASDAQ: SBUX) today reported financial results for its 13-week fiscal first quarter ended December 29, 2013.

Q1 Fiscal 2014 Highlights:

• Consolidated net revenues increased 12% to $4.2 billion
• Global comparable store sales grew 5%, driven by a 4% increase in traffic
  • Americas and U.S. comp growth of 5%, driven by a 4% increase in traffic
  • EMEA comp growth of 5%, the highest growth in 13 quarters, driven by a 3% increase in traffic
  • China/Asia Pacific comp growth of 8%, driven by a 7% increase in traffic

• Consolidated operating income increased 29% to $814 million
• Consolidated operating margin improved 260 basis points to 19.2%
• Earnings per share increased 25% to $0.71 per share
• Dollars loaded on Starbucks Cards globally reached $1.4 billion in the quarter; the My Starbucks Rewards program now has over 7 million active members in the U.S.
• Opened 417 net new stores globally - bringing total store count to 20,184 - including the 4,000th store in CAP and the 2,000th store in EMEA

“Holiday 2013 was the first in which many traditional brick and mortar retailers experienced in-store foot traffic give way to online shopping in a major way,” said Howard Schultz, chairman, president and ceo of Starbucks Coffee Company. “As our solid traffic growth and record Q1 results demonstrate, Starbucks unique combination of physical and digital assets positions us as one of the very few consumer brands with a national and global footprint to benefit from the seismic shift underway.”

“Starbucks strong Q1 results once again demonstrate the fundamental strength of the Starbucks business, particularly noteworthy given the continued economic challenges worldwide,” said Troy Alstead, cfo and group president. “Successful holiday sales around the globe drove healthy growth in comparable store sales which, combined with our best in class operations, drove another quarter of record operating results. Our continued ability to execute at this level gives us the confidence to reaffirm our aggressive growth targets for fiscal 2014.”

Consolidated net revenues were $4.2 billion in Q1 FY14, an increase of 12% over Q1 FY13, driven primarily by 5% growth in global comparable store sales and incremental revenues from 1,564 net new Starbucks store openings over the past 12 months.

Consolidated operating income increased 29% to $813.5 million, compared to $630.6 million for the same period a year ago. Operating margin expanded 260 basis points to 19.2%, primarily driven by the absence of non-routine expenses incurred in the Americas segment in the prior year quarter, lower commodity costs, and a $20.2 million non-recurring benefit which contributed $0.02 to EPS related to the Q4 FY13 litigation charge. Also contributing to margin expansion was sales leverage.

Net revenues for the Americas segment were $3.1 billion in Q1 FY14, an increase of 8% over Q1 FY13. The increase was driven by a 5% increase in comparable store sales and incremental revenues from 735 net new store openings over the past 12 months.

Operating income increased to $732.1 million in Q1 FY14, growth of 24% compared to $590.3 million for the same period a year ago. Operating margin expanded 300 basis points to 23.8% primarily due to the absence of non-routine expenses incurred in the prior year quarter related to the company's leadership conference, litigation charges and the impact from Superstorm Sandy. Also contributing to margin expansion were lower coffee costs and sales leverage.

Net revenues for the EMEA segment were $339.5 million in Q1 FY14, an increase of 11% over Q1 FY13. The increase was primarily due to incremental revenues from 157 net new store openings over the past 12 months and a 5% increase in comparable store sales.

Operating income increased to $33.5 million in Q1 FY14 from $22.3 million in the prior year quarter. Operating margin expanded 260 basis points to 9.9% primarily driven by the strategic acceleration of licensed store growth.

Net revenues for the China/Asia Pacific segment were $266.9 million in Q1 FY14, an increase of 25% over Q1 FY13. The increase was driven by incremental revenues from 672 net new store openings over the past 12 months. An 8% increase in comparable store sales also contributed to the net revenue growth.

Operating income of $81.1 million in Q1 FY14 increased 12% compared to the same period a year ago. Operating margin declined 330 basis points to 30.4% this quarter driven by a lower contribution from our Japan equity investee primarily due to the weakening of the Yen against the US dollar, as well as a shift in the composition of our store portfolio from licensed to company-operated stores. This was partially offset by strong operating performance throughout the rest of the region, particularly in China.

Net revenues for the Channel Development segment were $401.0 million in Q1 FY14, an increase of 7% over Q1 FY13, driven by increased sales of premium single serve products, partially offset by the packaged coffee price reductions implemented in Q3 of FY13.

Operating income grew 23% to $118.8 million in Q1 FY14 compared to $96.8 million for the same period a year ago. Operating margin increased 370 basis points to 29.6% in Q1 FY14 primarily due to lower coffee costs.

Net revenues for All Other Segments were $159.2 million in Q1 FY14, an increase of 174% over Q1 FY13, primarily due to the addition of Teavana retail store revenues beginning in Q2 of FY13.

Q1 FY14 operating income increased to $13.6 million compared to a loss of $4.2 million for the same period a year ago driven by the acquisition of Teavana in Q2 FY13.

Fiscal 2014 Targets

The company reaffirms and updates the following fiscal 2014 targets:

• Revenue growth of 10% or greater
• Global comparable store sales growth in the mid single digits
• Consolidated operating margin improvement of approximately 150 to 200 basis points over FY13:
  • Americas: moderate improvement over FY13
  • EMEA: operating margin improving toward the high single digits
  • CAP: operating margin percentage moving toward the low 30's
  • Channel Development: moderate improvement over FY13
• Consolidated tax rate of approximately 34.5%
• Earnings per share now expected to be in the range of $2.59 to $2.67:
  • Q2 EPS in the range of $0.54 to $0.55
  • Q3 EPS in the range of $0.64 to $0.66
  • Q4 EPS in the range of $0.70 to $0.75
• Approximately 1,500 net new stores:
  • Americas: approximately 600
  • EMEA: approximately 150
  • CAP: approximately 750
• Capital expenditures of approximately $1.2 billion

Company Updates

• Starbucks continued to explore unique ways to connect with customers, such as its first Starbucks store on a train, opened in November in partnership with SBB in Switzerland, while also opening its first store in Monaco in early December. The company now operates in 63 countries worldwide.
• The company opened its second Teavana Fine Teas + Tea Bar in early December, bringing the elevated Tea Bar experience to Seattle’s University Village following the October opening of the first of this concept in New York City.
• Starbucks raised $750 million in proceeds in December from a public offering of $400 million of 0.875% Senior Notes due 2016 and $350 million of 2.000% Senior Notes due 2018. The proceeds were used to fund a portion of the payment required by the previously announced arbitration award in the Kraft litigation matter.
• Starbucks Cards were introduced at select locations in Mainland China in early January, marking an important expansion of the Starbucks Card program which launched 12 years ago and is now available in 28 countries worldwide.
• In early November the company announced a strategic commitment to develop a comprehensive hiring platform for veterans and active duty spouses. The multi-year strategy is expected to lead to the hiring of at least 10,000 veterans and spouses over the next 5 years.
• The Board of Directors declared a cash dividend of $0.26 per share, payable on February 21, 2014 to shareholders of record as of February 6, 2014.
• The company repurchased 0.6 million shares of common stock in Q1 FY14; approximately 26 million shares remain available for purchase under previous authorizations.

Conference Call

Starbucks will be holding a conference call today at 2:00 p.m. Pacific Time, which will be hosted by Howard Schultz, chairman, president and ceo, and Troy Alstead, cfo and group president, Global Business Services. The call will be webcast and can be accessed at http://investor.starbucks.com. A replay of the webcast will be available through approximately 9:00 p.m. Pacific Time on Friday, February 21, 2014.

The company’s consolidated statements of earnings, operating segment results, and other additional information have been provided on the following pages in accordance with current year classifications. This information should be reviewed in conjunction with this press release. Please refer to the company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2013 for additional information.

About Starbucks

Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup. To share in the experience, please visit us in our stores or online at www.starbucks.com.

Forward-Looking Statements

This release contains forward-looking statements relating to certain company initiatives, strategies and plans, as well as trends in or expectations regarding our diversified business model, the strength, health and potential of our business, operations and brand, business momentum, the benefits to our business from the shift to online shopping, growth and growth opportunities, earnings per share, revenues, operating margins, profits, capital expenditures, tax rates, comparable store sales and store openings and closings. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to a number of significant risks and uncertainties. Actual future results may differ materially depending on a variety of factors including, but not limited to, coffee, dairy and other raw material prices and availability, costs associated with, and the successful execution of, the company's initiatives, strategies and plans, the acceptance of the company's products by our customers, fluctuations in U.S. and international economies and currencies, the impact of competition, the effect of legal proceedings, and other risks detailed in the company filings with the Securities and Exchange Commission, including the “Risk Factors” section of Starbucks Annual Report on Form 10-K for the fiscal year ended September 29, 2013. The company assumes no obligation to update any of these forward-looking statements.

Supplemental Information

The following supplemental information is provided for historical and comparative purposes.