Revenue jumped 16% Y-o-Y to $5.7 billion from 2,042 net new stores over the past 12 months
Starbucks Corporation (NASDAQ: SBUX), the world’s largest coffee chain, announced its Q4 FY16 and full year FY16 financial results on November 3rd, 2016.
The Seattle, Washington-based company is the roaster, marketer and retailer of specialty coffee. The Company purchases and roasts coffees that it sells, along with coffee, tea and other beverages, and a range of fresh food items, through Company-operated stores. The Company also sells a range of coffee and tea products and licenses its trademarks through other channels, such as licensed stores, grocery and national foodservice accounts.
The Company operates through four segments: Americas, which includes the United States, Canada, and Latin America; Europe, Middle East, and Africa (EMEA); China/Asia Pacific (CAP), and Channel Development. In addition to its Starbucks Coffee brand, it also sells goods and services under brands including Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos. Read more about Starbucks’ financial results below.
Q4 FY16 financial highlights
During Q4 FY16, Starbucks’ consolidated net revenues jumped 16% Y-o-Y to $5.7 billion, primarily driven by the impact of an extra week in Q4 FY16, incremental revenues from 2,042 net new stores over the past 12 months, and a 4% increase in global comparable store sales.
U.S. comparable store sales increase of 4% was comprised of 6% increase in average ticket and 1% decrease in traffic. After adjusting for the estimated impact of order consolidation related to the new Starbucks Rewards loyalty program, average ticket grew 4% and traffic grew 1%.
Consolidated operating income grew 27% to $1,227.5 million in Q4 FY16, up from $969.4 million in Q4 FY15. Consolidated operating margin expanded 180 basis points to 21.5% primarily due to sales leverage, the impact of the 53rd week in Q4 FY16, and lower commodity costs, primarily coffee. These increases were partially offset by higher salaries and benefits and investments in our partners (employees) and digital platforms.
As a result, Starbucks’ net income jumped 22.8% to $801 million, or $0.54 per share, from $652.5 million, or $0.43 per share, a year ago. Excluding items, Starbucks earned $0.56 per share.
FY16 financial highlights
During FY16, Starbucks’ consolidated net revenues grew 11% Y-o-Y to $21.3 billion. Global comparable store sales grew 5%, comprised of a 6% rise in the Americas segment and a 3% increase in the China/Asia Pacific segment. Comparable store sales in the EMEA segment were flat. Consolidated operating income grew by a record 16% to $4.2 billion, while consolidated operating margin expanded 80 basis points to 19.6%. During the year, GAAP EPS increased 4% to $1.90 per share and included $0.06 related to the extra week in Q4 FY16. Non-GAAP EPS of $1.91 included $0.06 related to the extra week in Q4 FY16. Excluding the extra week, non-GAAP EPS of $1.85 grew 17% over FY15 non-GAAP EPS.
Americas: This segment’s Q4 FY16 net revenues jumped 17% Y-o-Y to $4 billion, driven by the impact of an extra week, a 5% increase in comparable store sales, and incremental revenues from 804 net new store openings over the past 12 months. During the reporting quarter, operating income soared 30% Y-o-Y to $1,096.9 million versus $840.6 million in the year-ago period. Operating margin of 27.6% expanded 280 basis points due to sales leverage, partially offset by increased investments in store partners.
China/Asia Pacific: This segment’s Q4 FY16 net revenues jumped 29% Y-o-Y to $839.2 million, driven by incremental revenues from 981 net new store openings over the past 12 months, the impact of the extra week, and favorable foreign currency translation. During the reporting quarter, operating income soared 48% Y-o-Y to $192.4 million. Operating margin expanded 300 basis points to 22.9% due to changes to business tax structures in certain markets, sales leverage, higher income from joint ventures, and the impact of the extra week in Q4 FY16. These positives were partially offset by the impact of foreign currency translation.
EMEA: This segment’s Q4 FY16 net revenues fell 12% Y-o-Y to $270.2 million, mainly due to the shift to more licensed stores in the region, the sale of Germany retail operations in Q3 FY16, and the conversion of certain stores to licensed. These negatives were partially offset by incremental revenues from the opening of 294 net new licensed stores over the past 12 months. During the reporting quarter, operating income fell 14% to $45.8 million from $53.1 million in Q4 FY15. Operating margin declined 20 basis points to 17.0%, primarily due to unfavorable foreign currency exchange and sales deleverage in certain company-operated stores.
Channel Development: This segment’s Q4 FY16 net revenues grew 14% Y-o-Y to $518.5 million, primarily driven by the impact of the extra week in Q4 FY16 and increased sales of premium single-serve products. During the reporting quarter, operating income jumped 24% Y-o-Y to $244.3 million. Operating margin increased 390 basis points to 47.1%, primarily driven by lower coffee costs and higher income from the North American Coffee Partnership.
Scheduled opening of 4th Starbucks Reserve Roastery: Starbucks announced that it will open its fourth Starbucks Reserve Roastery and Tasting Room in Japan in 2018. In addition to Seattle, the Tokyo location will join Roasteries in Shanghai in 2017 and New York in 2018, and will be designed in collaboration with world-renowned architect Kengo Kuma.
Expansion of footprint: Starbucks expanded its footprint to the 75th country globally in Q4 FY16, with the opening of its first store in the country of Trinidad and Tobago in partnership with Prestige Holdings Ltd. The company also opened its 1,000 Starbucks store in Latin America in Q4 FY16, in the Colombian city of Medellin.
Starbucks China: Effective October 2016, Starbucks promoted Belinda Wong from president to CEO of Starbucks China. Wong has been instrumental in Starbucks unprecedented growth in China – from 400 stores in 2011 to over 2,400 stores today. In this role, Wong will oversee Starbucks plans to open and operate 5,000 stores in China by 2021.
New products: Starbucks recently became the largest retailer to offer Nitro Cold Brew, an innovative new cold coffee beverage infused with nitrogen to create an ultra-creamy texture that has been enthusiastically embraced by Starbucks customers. More than 500 Starbucks stores in coffee-forward markets across the U.S. are now including Starbucks Nitro Cold Brew on menus.
Share buyback and dividends: Starbucks repurchased 7.3 million shares of common stock in Q4 FY16; 118 million shares remain available for purchase under current authorizations. The Board of Directors declared a cash dividend of $0.25 per share, a 25% increase, payable on December 2nd, 2016 to shareholders of record as of November 17th, 2016. In FY16, Starbucks returned a record $3.2 billion to shareholders.
Store openings: Starbucks opened 690 net new stores in Q4 FY16, bringing the total number of stores to 25,085 in 75 countries worldwide. Mobile Order and Pay represented 6% of U.S. transactions in the reporting quarter, up from 5% in the prior quarter. The company opened 2,042 net new stores globally in FY16, including the first Starbucks stores in Cambodia, Kazakhstan, Luxembourg, Andorra, South Africa, Slovakia, and Trinidad and Tobago.
India-focused strategy: Starbucks announced in June 2016 that a small-lot Arabica coffee from the Tata Nullore Estates in Karnataka, India’s Coorg region will be sold only at Starbucks’ Reserve Roastery and Tasting Room in Seattle for a limited time in late 2016. Starbucks Reserve Tata Nullore Estates blend, making it the first coffee blend to be to be roasted and sold in countries outside India.
Health push: Starbucks announced on September 6th, 2016 that it is serving its first stevia-based, zero-calorie sweetener called Nature Sweet at select cafes in the U.S. and Canada. Starbucks’ health push comes in the wake of consumers shunning artificial sweeteners like sucralose and corn syrup in favor of natural sweeteners extracted from the stevia plant and monk fruit. Nature Sweet, sourced from Whole Earth Sweetener Company, will be available in nearly 9,000 Starbucks locations in the U.S. and Canada.
Starbucks also announced the introduction of a new product called Hippeas on August 8th, 2016. Hippeas are organic chickpea puffs that are gluten-free and vegan. With 100 calories per pack and 3 grams of protein, Hippeas are a good source of fiber.
Building on consumer ideas submitted on its My Starbucks Idea platform, the coffee retailer also introduced Starbucks Almondmilk as a non-dairy alternative in more than 4,600 stores, in addition to soymilk and coconutmilk, from September 6th, 2016. Starbucks’ Almondmilk, which comes without any added flavoring, has just 3 grams of sugar in an 8-ounce serving, compared with 12-13 grams of naturally occurring sugar in 2% dairy milk.
Coffee consumption trends: In the face of ongoing economic and geopolitical headwinds, Starbucks is facing stiff competition on both the selection and pricing fronts from McDonald’s Corp. (NYSE: MCD) and Dunkin’ Brands Group Inc. (NASDAQ: DNKN). On the brighter side, Americans are consuming roughly 400 million cups of coffee per day, with a growing number of those beverages being specialty drinks such as espressos and Frappuccinos, in which Starbucks is the market leader. The market of bottled iced coffee drinks has been growing steadily in the U.S., surging 8% in 2015, with an estimated value of $2.3 billion in sales. In 2016, this market is expected to grow by about 8%. To tap this opportunity, Dunkin Brands has teamed up with The Coca-Cola Company (NYSE: KO) to launch bottled coffee drinks in 2017.
Guidance for full year FY17
In FY17, Starbucks plans to open 2,100 new stores globally, which translates into an 8.4% growth over FY16. The coffee chain forecasts mid-single digit comparable store sales growth globally with consolidated revenue growth in the double digits. GAAP EPS is predicted in the range of $2.09 to $2.11 and non-GAAP EPS range of $2.12 to $2.14.
Starbucks’ stock stood at $54.59, gaining 0.68%, at the close on Tuesday, November 15th, 2016, having vacillated between an intraday high of $54.69 and a low of $53.90 during the session. The stock’s trading volume was at 9,332,056 for the day. The Company’s market cap was at $81.57 billion as of Tuesday’s close.