Results Reflect Challenged Customer Experience;
Management is Developing a Plan to Get Back to Starbucks and Will
Provide Insights into Its Plan during the Q4 and Full Fiscal Year
2024 Earnings Call
Starbucks Corporation (NASDAQ: SBUX) today reported preliminary
financial results for its 13-week fiscal fourth quarter and 52-week
fiscal year ended September 29, 2024. GAAP results in fiscal 2024
and fiscal 2023 include items that are excluded from non-GAAP
results. Please refer to the reconciliation of GAAP measures to
non-GAAP measures at the end of this release for more
information.
For the fourth quarter of fiscal year 2024, global comparable
store sales declined 7%, and consolidated net revenues declined 3%
to $9.1 billion, or a 3% decline on a constant currency basis. GAAP
earnings per share is $0.80, down 25% over prior year. Non-GAAP
earnings per share is also $0.80, declining 24% on a constant
currency basis.
The company’s results were primarily driven by softness in North
America’s revenues in the quarter, specifically a 6% decline in
U.S. comparable store sales, driven by a 10% decline in comparable
transactions, partially offset by a 4% increase in average ticket.
The accelerated investments in an expanded range of product
offerings coupled with more frequent in-app promotions and
integrated marketing to entice frequency across the customer base
did not improve customer behaviors, specifically traffic across
both Starbucks Rewards and non-SR customer segments, resulting in
lower-than-expected performance. Additionally, China comparable
store sales declined 14%, driven by an 8% decline in average ticket
compounded by a 6% decline in comparable transactions, weighed down
by intensified competition and a soft macro environment that
impacted consumer spending.
For the full fiscal year 2024, global comparable store sales
declined 2%, and consolidated net revenues increased 1% to $36.2
billion, also a 1% increase on a constant currency basis. GAAP
earnings per share is $3.31, down 8% over prior year. Non-GAAP
earnings per share is also $3.31, declining 6% on a constant
currency basis. The lower-than-expected performance for the full
fiscal year was a result of pronounced traffic decline, including a
cautious consumer environment, and our targeted and accelerated
investments not improving customer behaviors, as well as the macro
and competitive environment in China pressuring our results
further.
Given the company’s ceo transition coupled with the current
state of the business, guidance will be suspended for the full
fiscal year 2025. This will allow ample opportunity to complete an
assessment of the business and solidify key strategies, while
stabilizing and positioning the business for long-term growth.
With a strategic reset underway, the company remains committed
to creating shareholder value and is announcing that its Board of
Directors approved an increase in the quarterly cash dividend from
$0.57 to $0.61 per share of outstanding common stock. The dividend
and related increase demonstrates the company’s confidence in the
long-term growth.
“Despite our heightened investments, we were unable to change
the trajectory of our traffic decline, resulting in pressures in
both our top-line and bottom-line. While our efficiency efforts
continued to produce according to plan, they were not enough to
outpace the impact of the decline in traffic,” commented Rachel
Ruggeri, chief financial officer. “We are developing a plan to turn
around our business, but it will take time. We want to amplify our
confidence in the business, and provide some certainty as we drive
our turnaround. For that reason, we have increased our dividend,”
Ruggeri added.
“Our fourth quarter performance makes it clear that we need to
fundamentally change our strategy so we can get back to growth and
that's exactly what we are doing with our ‘Back to Starbucks’
plan,” commented Brian Niccol, chairman and chief executive
officer. “I’ve spent my first several weeks in stores engaging with
and listening to feedback from our partners and customers. It’s
clear that Starbucks is a much-loved brand. We need to focus on
what has always set us apart — a welcoming coffeehouse where people
gather and where we serve the finest coffee, handcrafted by our
skilled baristas. We are energized and the team is already moving
quickly. I’ll share more details at our upcoming earnings call, but
invite you to listen to my initial thoughts on our investor
relations website,” Niccol concluded.
Starbucks released a video of prepared remarks by Brian Niccol,
chairman and chief executive officer. The video is available at
https://investor.starbucks.com/ and the video will be available on
the company’s website until the end of day, Thursday, December 5,
2024. The company uses its website as a tool to disclose important
information about the company and comply with its disclosure
obligations under Regulation Fair Disclosure. A transcript of the
video accompanies this Release.
Starbucks plans to release its actual fourth quarter and full
fiscal year 2024 financial results after market close on Wednesday,
October 30, 2024, with a conference call to follow at 2:00 p.m.
Pacific Time. The conference call will be webcast, including closed
captioning, and can be accessed on the company’s website at
https://investor.starbucks.com/. A replay of the webcast will be
available on the company’s website until the end of day, Friday,
December 13, 2024.
About Starbucks
Since 1971, Starbucks Coffee Company has been committed to
ethically sourcing and roasting high-quality arabica coffee. Today,
with more than 40,000 stores worldwide, 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 stories.starbucks.com or
www.starbucks.com.
Forward-Looking
Statements
Certain statements contained herein and in the prepared remarks
from our chairman and ceo are “forward-looking” statements within
the meaning of applicable securities laws and regulations.
Generally, these statements can be identified by the use of words
such as “aim,” “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “feel,” “forecast,” “intend,” “may,”
“outlook,” “plan,” “potential,” “predict,” “project,” “seek,”
“should,” “will,” “would,” and similar expressions intended to
identify forward-looking statements, although not all
forward-looking statements contain these identifying words. By
their nature, forward-looking statements involve risks,
uncertainties, and other factors (many beyond our control) that
could cause our actual results to differ materially from our
historical experience or from our current expectations or
projections. Our forward-looking statements, and the risks and
uncertainties related thereto, include, but are not limited to,
those described under the “Risk Factors” and “Management's
Discussion and Analysis of Financial Condition and Results of
Operations” sections of the company’s most recently filed periodic
reports on Form 10-K and Form 10-Q and in other filings with the
SEC, as well as:
- our ability to preserve, grow, and leverage our brands,
including the risk of negative responses by consumers (such as
boycotts or negative publicity campaigns) or governmental actors
(such as retaliatory legislative treatment) who object to certain
actions taken or not taken by the Company, which responses could
adversely affect our brand value;
- the acceptance of the company’s products and changes in
consumer preferences, consumption, or spending behavior and our
ability to anticipate or react to them; shifts in demographic or
health and wellness trends; or unfavorable consumer reaction to new
products, platforms, reformulations, or other innovations;
- our anticipated operating expenses, including our anticipated
total capital expenditures;
- the costs associated with, and the successful execution and
effects of, our existing and any future business opportunities,
expansions, initiatives, strategies, investments, and plans,
including our Back to Starbucks plan;
- the impacts of partner investments and changes in the
availability and cost of labor including any union organizing
efforts and our responses to such efforts;
- the ability of our business partners, suppliers and third-party
providers to fulfill their responsibilities and commitments;
- higher costs, lower quality, or unavailability of coffee,
dairy, cocoa, energy, water, raw materials, or product
ingredients;
- the impact of adverse weather conditions or natural
disasters;
- the impact of significant increases in logistics costs;
- a worsening in the terms and conditions upon which we engage
with our manufacturers and source suppliers, whether resulting from
broader local or global conditions, or dynamics specific to our
relationships with such parties;
- unfavorable global or regional economic conditions and related
economic slowdowns or recessions, low consumer confidence, high
unemployment, weak credit or capital markets, budget deficits,
burdensome government debt, austerity measures, higher interest
rates, higher taxes, political instability, higher inflation, or
deflation;
- inherent risks of operating a global business including
geopolitical instability, local labor policies and conditions,
including labor strikes and work stoppages, protectionist trade
policies, or economic or trade sanctions, and compliance with local
trade practices and other regulations;
- failure to attract or retain key executive or partner talent or
successfully transition executives;
- the potential negative effects of incidents involving food or
beverage-borne illnesses, tampering, adulteration, contamination or
mislabeling;
- negative publicity related to our company, products, brands,
marketing, executive leadership, partners, board of directors,
founder, operations, business performance, expansions, initiatives,
strategies, investments, plans, or prospects;
- potential negative effects of a material breach, failure, or
corruption of our information technology systems or those of our
direct and indirect business partners, suppliers or third-party
providers, or failure to comply with data protection laws;
- our environmental, community, and farmer promises and any
reaction related thereto, such as the rise in opposition to “ESG”
and inclusion and diversity efforts;
- risks associated with acquisitions, dispositions, business
partnerships, or investments – such as acquisition integration,
termination difficulties or costs, or impairment in recorded
value;
- the impact of foreign currency translation, particularly a
stronger U.S. dollar;
- the impact of substantial competition from new entrants,
consolidations by competitors, and other competitive activities,
such as pricing actions (including price reductions, promotions,
discounting, couponing, or free goods), marketing, category
expansion, product introductions, or entry or expansion in our
geographic markets;
- the impact of changes in U.S. tax law and related guidance and
regulations that may be implemented, including on tax rates;
- the impact of health epidemics, pandemics, or other public
health events on our business and financial results, and the risk
of negative economic impacts and related regulatory measures or
voluntary actions that may be put in place, including restrictions
on business operations or social distancing requirements, and the
duration and efficacy of such restrictions;
- failure to comply with anti-corruption laws, trade sanctions
and restrictions, or similar laws or regulations; and
- the impact of significant legal disputes and proceedings, or
government investigations.
In addition, many of the foregoing risks and uncertainties are,
or could be, exacerbated by any worsening of the global business
and economic environment. A forward-looking statement is neither a
prediction nor a guarantee of future events or circumstances, and
those future events or circumstances may not occur. You should not
place undue reliance on the forward-looking statements, which speak
only as of the date of this report. We are under no obligation to
update or alter any forward-looking statements, whether as a result
of new information, future events, or otherwise.
Key Metrics
The company's financial results and long-term growth model will
continue to be driven by new store openings, comparable store sales
growth and operating margin management. We believe these key
operating metrics are useful to investors because management uses
these metrics to assess the growth of our business and the
effectiveness of our marketing and operational strategies.
Non-GAAP Disclosure
In addition to the GAAP results provided in this release, the
company provides certain non-GAAP financial measures that are not
in accordance with, or alternatives for, generally accepted
accounting principles in the United States (GAAP). When provided to
investors, our non-GAAP financial measures of non-GAAP general and
administrative expenses (G&A), non-GAAP operating income,
non-GAAP operating income growth (loss), non-GAAP operating margin,
non-GAAP effective tax rate and non-GAAP earnings per share exclude
the below-listed items and their related tax impacts, as management
does not believe they contribute to a meaningful evaluation of the
company’s future operating performance or comparisons to the
company's past operating performance. The GAAP measures most
directly comparable to non-GAAP G&A, non-GAAP operating income,
non-GAAP operating income growth (loss), non-GAAP operating margin,
non-GAAP effective tax rate and non-GAAP earnings per share are
G&A, operating income, operating income growth (loss),
operating margin, effective tax rate and diluted net earnings per
share, respectively.
Non-GAAP
Exclusion
Rationale
Restructuring and impairment costs
Management excludes restructuring and
impairment costs for reasons discussed above. These expenses are
anticipated to be completed within a finite period of time.
Transaction and integration-related
costs
Management excludes transaction and
integration costs for reasons discussed above. Additionally, we
incur certain costs associated with certain divestiture activities.
The majority of these costs will be recognized over a finite period
of time.
Gain on sale of assets
Management excludes the gain related to
the sale of assets to Nestlé, primarily consisting of intellectual
properties associated with the Seattle's Best Coffee brand, as
these items do not reflect future gains or tax impacts for reasons
discussed above.
The Company also presents constant currency information to
provide a framework for assessing how our underlying businesses
performed excluding the effect of foreign currency rate
fluctuations. To present the constant currency information, current
period results for entities reporting in currencies other than
United States dollars are converted into United States dollars
using the average monthly exchange rates from the comparative
period rather than the actual exchange rates in effect during the
respective periods, excluding related hedging activities. We
believe the presentation of results on a constant currency basis in
addition to GAAP results helps users better understand our
performance, because it excludes the effects of foreign currency
volatility that are not indicative of our underlying operating
results.
Non-GAAP G&A, non-GAAP operating income, non-GAAP operating
income growth (loss), non-GAAP operating margin, non-GAAP effective
tax rate, non-GAAP earnings per share and constant currency may
have limitations as analytical tools. These measures should not be
considered in isolation or as a substitute for analysis of the
company’s results as reported under GAAP. Other companies may
calculate these non-GAAP financial measures differently than the
company does, limiting the usefulness of those measures for
comparative purposes.
STARBUCKS CORPORATION
NET REVENUE CONSTANT CURRENCY
RECONCILIATION
(unaudited, in millions)
Quarter Ended
Consolidated
Revenue for the quarter ended Oct 1, 2023
as reported (GAAP)
$
9,373.6
Revenue for the quarter ended Sep 29, 2024
as reported (GAAP)
$
9,074.0
Change (%)
(3.2
)%
Constant Currency Impact (%)
0.3
%
Change in Constant Currency (%)
(2.9
)%
Year Ended
Consolidated
Revenue for the year ended Oct 1, 2023 as
reported (GAAP)
$
35,975.6
Revenue for the year ended Sep 29, 2024 as
reported (GAAP)
$
36,176.2
Change (%)
0.6
%
Constant Currency Impact (%)
0.7
%
Change in Constant Currency (%)
1.3
%
STARBUCKS CORPORATION
RECONCILIATION OF SELECTED
GAAP MEASURES TO NON-GAAP MEASURES
(unaudited, in millions, except
per share data)
Quarter Ended
Consolidated
Sep 29,
2024
Oct 1,
2023
Change
Constant Currency
Impact
Change in Constant
Currency
Diluted net earnings per share, as
reported (GAAP)
$
0.80
$
1.06
(24.5)%
Non-GAAP EPS
$
0.80
$
1.06
(24.5)%
0.9%
(23.6)%
Year Ended
Consolidated
Sep 29,
2024
Oct 1,
2023
Change
Constant Currency
Impact
Change in Constant
Currency
Diluted net earnings per share, as
reported (GAAP)
$
3.31
$
3.58
(7.5)%
Restructuring and impairment costs (1)
—
0.02
Transaction and integration-related costs
(2)
—
0.00
Gain from sale of assets
—
(0.08
)
Income tax effect on Non-GAAP adjustments
(3)
—
0.02
Non-GAAP EPS
$
3.31
$
3.54
(6.5)%
0.9%
(5.6)%
(1)
Represents costs associated with our
restructuring efforts.
(2)
Fiscal 2023 includes transaction-related
expenses related to the sale of our Seattle's Best Coffee
brand.
(3)
Adjustments were determined based on the
nature of the underlying items and their relevant jurisdictional
tax rates.
Appendix
Transcript of Prepared Remarks by Brian Niccol, chairman and
chief executive officer
I think, as you know, last month I made a commitment that we
would get “Back to Starbucks.”
That means focusing on what has always set Starbucks apart — a
welcoming coffeehouse where people gather, and where we serve the
finest coffee, handcrafted by our skilled baristas. It’s our
enduring identity. And it’s why millions of customers around the
world visit Starbucks every single day.
People love Starbucks, but I’ve heard from some customers that
we've drifted from our core, that we’ve made it harder to be a
customer than it should be, and that we’ve stopped communicating
with them. As a result, some are visiting less often, and I think
today’s results tell that same story.
To welcome all our customers back and return to growth, we need
to fundamentally change our recent strategy.
“Back to Starbucks” is that fundamental change.
I believe that our problems are very fixable and that we have
significant strengths to build on. I’ve spent my career
understanding, stewarding and building brands, and it’s clear the
Starbucks brand is strong and enduring. When we stay true to our
core identity and focus on delivering a great partner and customer
experience, our customers come — and importantly, they come
back.
Since taking this role, I’ve been digging in to understand our
business. I’ve spent most of my time in stores talking with our
partners and customers. I’ve also met with support center teams. I
already have some learnings, and we’re applying those learnings to
stabilize the business in the near-term and to shape our go-forward
strategy. We have a clear plan, and we are already taking quick
action, regardless of any challenges in the consumer environment.
We know we must operate at our best every time we serve our
customers.
I look forward to sharing more and taking questions on next
week’s earnings call. But, today, I want to share some of what I’ve
seen and where we need to focus:
At Starbucks, coffee comes first.
No one matches our expertise. Our deep engagement with coffee
farmers, our skilled roasters, the premium equipment we use in our
coffeehouses, and the skill of our baristas are all unmatched. We
offer something for everyone: fresh brewed coffee from our Clover
Vertica, high-quality espresso for everything from Americanos to
Flat Whites, innovations in cold coffee with our reformulated iced
coffee, and the popular Iced Shaken Espresso platform. Through
product development, marketing, and in-store experience, we need to
remind everyone that we are, and always have been, Starbucks Coffee
Company.
From the very beginning, Starbucks has always been about our
green apron partners.
Everything we do starts and ends with them. We must ensure our
baristas have the time and tools they need to provide exceptional
customer service, and that they are supported by strong leaders and
managers across every store. Every person at Starbucks must work
harder to support our retail teams, moving faster to respond to
their feedback and get them what they need. Our green apron
partners want to provide exceptional service to our customers. And
as leaders, we need to remove those things that might stop them
from doing that.
We’ll also build on our legacy by making Starbucks the best job
in retail, offering our baristas meaningful career growth and
industry-leading benefits, like the opportunity for U.S. partners
to earn a free four-year college degree.
We need to offer a great experience to our customers every
single time, especially during the morning peak.
We are reorienting all our work to ensure we deliver a
high-quality handcrafted beverage, prepared quickly and with care,
and handed directly to the customer by our barista. This is the
moment of truth. This commitment will drive every decision we make.
To succeed, we need to address staffing in our stores, remove
bottlenecks, and simplify things for our baristas. We need to
refine mobile order and pay so it doesn’t overwhelm the café
experience. We know how to make these improvements, and when we do,
we know customers will visit more often.
We must reestablish ourselves as the community
coffeehouse.
Starbucks has always been a place where people come together. We
are revisiting our stores to make sure we’re offering the amenities
you’d expect in a community coffeehouse. Even if customers don’t
want to stay in the café each time they visit, we know they expect
our stores to look and feel like the community coffeehouse they
remember.
We have to reintroduce Starbucks to the world.
We’re fundamentally changing our marketing. We’ve been focusing
on Starbucks Rewards customers rather than talking to all our
customers. And we’re changing that quickly, as you likely have
already seen. We’re prioritizing our brand, highlighting the
handcrafted products customers expect, and showcasing the coffee
innovation that sets Starbucks apart. We will simplify our overly
complex menu, fix our pricing architecture, and ensure that every
customer feels Starbucks is worth it every single time they
visit.
As we do all this, we’re committed to innovating with discipline
and prioritizing investments that will improve the experience for
both our partners and customers.
As I said last month, my near-term focus is the U.S. It’s our
biggest business and we need to return it to growth. But we also
have significant opportunities around the world. Our team is
focused on how we return Starbucks China to growth and getting all
our international businesses performing again.
Throughout my career, I’ve learned and applied some powerful
lessons. If you stay true to your core identity, take care of
customers and your team, simplify the business, deliver
consistently high-quality products and experiences, and tell your
story effectively, you will be successful.
So we have a lot of work ahead of us, but I am confident we can
get all these things right at Starbucks. I’m convinced that if we
get back to Starbucks — with a focus on coffee and customers
combined with a welcoming coffeehouse experience created by our
green apron partners — we will remind people of why they love
Starbucks. They will visit more often, and we will return this
company to strong growth.
Getting “Back to Starbucks” is our plan, and we’ll share our
progress as we go.
Thank you for listening and I look forward to sharing the
progress with you in the future.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241022788428/en/
Starbucks Contact, Investor Relations: Tiffany Willis
investorrelations@starbucks.com
Starbucks Contact, Media: Emily Albright
press@starbucks.com
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