Starbucks Reports Q4 and Full Fiscal Year 2024 Results

Business Wire 30-Oct-2024 4:05 PM

Results Reflect Challenged Customer Experience; Management is Developing a Plan to Get Back to Starbucks Q4 Consolidated Net Revenues Down 3% to $9.1 Billion; Frequency Declined Across Customer Segments Q4 GAAP and Non-GAAP EPS of $0.80; Traffic Focused Investments Further Pressured Results Q4 Active U.S. Starbucks^® Rewards Membership Totals 33.8 Million, Up 4% Over Prior Year

Starbucks Corporation (NASDAQ:SBUX) today reported 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.

Q4 Fiscal Year 2024 Highlights

• Global comparable store sales declined 7%, driven by an 8% decline in comparable transactions, partially offset by a 2% increase in average ticket
  • North America and U.S. comparable store sales declined 6%, driven by a 10% decline in comparable transactions, partially offset by a 4% increase in average ticket
  • International comparable store sales declined 9%, driven by a 5% decline in average ticket and a 4% decline in comparable transactions; China comparable store sales declined 14%, driven by an 8% decline in average ticket and a 6% decline in comparable transactions
• The company opened 722 net new stores in Q4, ending the period with 40,199 stores: 52% company-operated and 48% licensed
  • At the end of Q4, stores in the U.S. and China comprised 61% of the company's global portfolio, with 16,941 and 7,596 stores in the U.S. and China, respectively
• Consolidated net revenues declined 3%, including on a constant currency basis, to $9.1 billion
• GAAP operating margin contracted 380 basis points year-over-year to 14.4%, primarily driven by deleverage, investments in store partner wages and benefits, and increased promotional activity. This contraction was partially offset by pricing and in-store operational efficiencies.
  • Non-GAAP operating margin contracted 380 basis points year-over-year to 14.4%, or contracted 370 basis points on a constant currency basis
• GAAP earnings per share of $0.80 declined 25% over prior year
  • Non-GAAP earnings per share of $0.80 declined 25% over prior year, or declined 24% on a constant currency basis
• Starbucks Rewards loyalty program 90-day active members in the U.S. totaled 33.8 million, up 4% year-over-year and flat quarter-over-quarter

Full Fiscal Year 2024 Highlights

• Global comparable store sales declined 2%, driven by a 4% decline in comparable transactions, partially offset by a 2% increase in average ticket
  • North America and U.S. comparable store sales declined 2%, driven by a 5% decline in comparable transactions, partially offset by a 4% increase in average ticket
  • International comparable store sales declined 4%, driven by a 4% decline in average ticket; China comparable store sales declined 8%, driven by an 8% decline in average ticket
• Consolidated net revenues increased 1%, including on a constant currency basis, to $36.2 billion
• GAAP operating margin contracted 130 basis points year-over-year to 15.0%, primarily driven by investments in store partner wages and benefits, deleverage, and increased promotional activity. This contraction was partially offset by pricing and in-store operational efficiencies.
  • Non-GAAP operating margin contracted 110 basis points year-over-year, including on a constant currency basis, to 15.0%
• GAAP earnings per share of $3.31 declined 8% over prior year
  • Non-GAAP earnings per share of $3.31 declined 6% over prior year, including on a constant currency basis

"As shared in our Press Release last week, our results do not reflect the strength of our brand," commented Rachel Ruggeri, chief financial officer. "I have seen what Starbucks is capable of when we focus on what we do best. I have confidence in our ability to turn around our business and expect we will return to long-term growth," Ruggeri added.

"It is clear we need to fundamentally change our strategy to win back customers. ‘Back to Starbucks' is that fundamental change," commented Brian Niccol, chairman and chief executive officer. "My experience tells me that when we get back to our core identity and consistently deliver a great experience, our customers will come back. We have a clear plan and are moving quickly to return Starbucks to growth," Niccol added.

Q4 North America Segment Results

Net revenues for the North America segment decreased 3% over Q4 FY23 to $6.7 billion in Q4 FY24, primarily due to a 6% decline in comparable store sales, driven by a 10% decline in comparable transactions, partially offset by a 4% increase in average ticket, as well as a decline in our licensed store business. This decrease was partially offset by net new company-operated store growth of 5% over the past 12 months.

Operating income decreased to $1.3 billion in Q4 FY24 compared to $1.6 billion in Q4 FY23. Operating margin of 18.7% contracted from 23.2% in the prior year, primarily driven by deleverage, investments in store partner wages and benefits, and increased promotional activity. This contraction was partially offset by pricing, and in-store operational efficiencies.

Q4 International Segment Results

Net revenues for the International segment declined 4% over Q4 FY23 to $1.9 billion in Q4 FY24, primarily due to a 9% decline in comparable store sales, driven by a 5% decline in average ticket and a 4% decline in comparable transactions, as well as a decline in our licensed store business. Another factor was an approximate 1% unfavorable impact from foreign currency translation. This decline was partially offset by net new company-operated store growth of 10% over the past 12 months.

Operating income decreased to $282.9 million in Q4 FY24 compared to $301.3 million in Q4 FY23. Operating margin of 14.9% contracted from 15.2% in the prior year, primarily driven by increased promotional activity and investments in store partner wages and benefits. This contraction was partially offset by in-store operational efficiencies and pricing.

Q4 Channel Development Segment Results

Net revenues for the Channel Development segment declined 4% over Q4 FY23 to $465.4 million in Q4 FY24, primarily due to a decline in revenue in the Global Coffee Alliance from SKU optimization. This decline was partially offset by an increase in global ready-to-drink revenue.

Operating income decreased to $264.7 million in Q4 FY24 compared to $271.2 million in Q4 FY23. Operating margin of 56.9% expanded from 55.8% in the prior year, primarily driven by sales mix shift and lower product costs related to the Global Coffee Alliance. This expansion was partially offset by the higher costs in our North American Coffee Partnership joint venture income.

Fiscal Year 2025 Financial Targets

As stated in our October 22, 2024 announcement, given the company's ceo transition coupled with the current state of the business, guidance is suspended for full fiscal year 2025. We believe 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. The company will provide initial information regarding its new strategies during its Q4 and full fiscal year 2024 earnings conference call starting today at 2:00 p.m. Pacific Time. Our October 22, 2024 announcement and accompanying prepared remarks from our chairman and ceo can be accessed on the company's Investor Relations website. 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.

Company Update

1. In August, the company announced that Brian Niccol had been appointed chief executive officer and chairman of the Starbucks Board of Directors (the "Board"), effective September 9, 2024. Mellody Hobson, former chairman of the Board, became the lead independent director of the Board. Laxman Narasimhan, former chief executive officer and member of the Board, stepped down from his position effective August 12, 2024, with the Board appointing Rachel Ruggeri, chief financial officer, as interim chief executive officer.
2. In September, Brian Niccol shared an open letter of his early observations and commitment to getting "Back to Starbucks," a welcoming coffeehouse where people gather and where we serve the finest coffee, handcrafted by our skilled baristas. Niccol also shared his initial four key areas of focus.
3. In September, the company announced Michael Conway, chief executive officer, North America, would retire from the company effective November 30, 2024.
4. In September, the company announced Molly Liu as executive vice president and chief executive officer of Starbucks China, and Belinda Wong as chairwoman of Starbucks China, each effective September 30, 2024.
5. In October, the company announced the addition of two new coffee innovation farms located in Guatemala and Costa Rica, with future farm investments in Africa and Asia. The expansion of its collaborative coffee innovation network further connects farmers from around the world with resources to protect the future of coffee for all.
6. On October 22, 2024, the company shared preliminary Q4 and full fiscal year 2024 results, reflecting a challenged customer experience and reiterating a fundamental change to our strategy.
7. The Board declared a cash dividend of $0.61 per share, payable on November 29, 2024, to shareholders of record on November 15, 2024. The company had 58 consecutive quarters of dividend payouts with CAGR of approximately 20% over that time period, demonstrating the company's commitment to consistent value creation for shareholders.

Conference Call

Starbucks will hold a conference call today at 2:00 p.m. Pacific Time, which will be hosted by Brian Niccol, chairman and ceo, and Rachel Ruggeri, cfo. The call will be webcast and can be accessed at http://investor.starbucks.com. A replay of the webcast will be available until 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 our investor conference call related to these results 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, among others:

• our ability to preserve, grow, and leverage our brands, including the risk of negative responses by consumers (such as boycotts or negative publicity campaigns), governmental actors (such as retaliatory legislative treatment), or other third parties who object to certain actions taken or not taken by the Company, which responses could adversely affect our brand value;
• the impact of our marketing strategies, promotional and advertising plans, pricing strategies, platforms, reformulations, innovations, or customer experience initiatives or investments;
• the costs and risks 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;
• changes in consumer preferences, demand, consumption, or spending behavior, including due to shifts in demographic or health and wellness trends, reduction in discretionary spending and price increases, and our ability to anticipate or react to these changes;
• the ability of our business partners, suppliers and third-party providers to fulfill their responsibilities and commitments;
• the potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling;
• our ability to open new stores and efficiently maintain the attractiveness of our existing stores;
• our dependence on the financial performance of our North America operating segment, and our increasing dependence on certain international markets;
• our anticipated operating expenses, including our anticipated total capital expenditures;
• inherent risks of operating a global business including changing conditions in our markets, local factors affecting store openings, protectionist trade or foreign investment policies, economic or trade sanctions, compliance with local laws and other regulations, and local labor policies and conditions, including labor strikes and work stoppages;
• higher costs, lower quality, or unavailability of coffee, dairy, cocoa, energy, water, raw materials, or product ingredients;
• the potential impact on our supply chain of adverse weather conditions, natural disasters, or significant increases in logistics costs;
• the ability of our supply chain to meet current or future business needs and our ability to scale and improve our forecasting, planning, production, and logistics management;
• 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;
• the impact of 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, international trade disputes, government restrictions, geopolitical instability, higher inflation, or deflation;
• failure to meet our announced guidance or market expectations and the impact thereof;
• failure to attract or retain key executive or partner talent or successfully transition executives;
• 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 impact of foreign currency translation, particularly a stronger U.S. dollar;
• the impact of, and our ability to respond to, 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;
• potential impacts of climate change;
• evolving corporate governance and public disclosure regulations and expectations;
• the potential impact of activist shareholder actions or tactics;
• failure to comply with applicable laws and changing legal and regulatory requirements;
• the impact or likelihood of significant legal disputes and proceedings, or government investigations;
• potential negative effects of, and our ability to respond to, a material failure, inadequacy or interruption of our information technology systems or those of our third-party business partners or service providers, or failure to comply with data protection laws; and
• our ability to adequately protect our intellectual property or adequately ensure that we are not infringing the intellectual property of others.

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

We believe 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.

Segment Results (in millions)

Supplemental Information

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

U.S. Supplemental Data