Starbucks Sees Signs of Improvement
Coffee retailer Starbucks Corporation, which financially struggled since reporting its first-ever
fiscal loss in August 2008 through
a disappointing Q2 2009, reported some
improved numbers for Q3 2009 (ended June 28, 2009). Selected financial highlights and analysis follow.
Comparable Store Sales Hit Net Revenues Again
Starbucks cited slumping comparable store sales for a 7.6% drop in consolidated net revenues in Q2 2009, and repeated the pattern in the third quarter. Consolidated net revenues were $2.4 billion, a 7.6% drop from $2.6 billion in Q3 2008. Comparable store sales during the quarter declined 5%, a sequential improvement from an 8% decline in Q2 2009.
Positive Developments in Operating Income and Margin
Unlike the previous quarter, when restructuring charges led to steep drops in operating income and margin, during Q3 2009 Starbucks reported improvements in both these areas. Operating income was $204 million, compared to an operating loss of $21.6 million, and operating margin was 8.6%, compared to -0.8%.
Net Earnings Also Get Positive
Starbucks also reversed a negative trend in the net earnings category. Q3 2009 net earnings were $151.5 million, compared to a net loss of $6.7 million in the same quarter a year earlier.
Cost Savings Beat Targets
Starbucks, which had targeted cost savings of $150 million for the quarter, managed to save $175 million. The savings came as part of a year-long cost savings initiative designed to save $500 million. Starbucks has saved about $370 million during fiscal 2009 and anticipates saving another $180 million in costs during the fourth quarter to produce a year-end total of $550 million in saved costs.
Store Closings Continue
Starbucks announced plans in
July 2008 and
January 2009 to close about 800 U.S. stores and 100 international stores, as well as restructure its Australian business. Since July 2008, Starbucks has closed 676 U.S. stores, 28 international stores outside of Australia, and 61 Australian stores. Starbucks expects to close the remaining U.S. stores by the end of fiscal 2009 on September 27, 2009, and close remaining international stores by mid-fiscal 2010. Store closures and lease exits resulted in $51.6 million of restructuring charges in Q3 2009. Starbucks operated 16,729 stores globally at the end of Q3 2009.
A Look Ahead
Starbucks expects to close net 465 company-owned stores in the U.S. and open 70 net company-owned stores internationally during fiscal 2009. The retailer also expects to open 55 net new licensed stores in the U.S. and 310 net new licensed stores internationally this fiscal year. During fiscal 2010, Starbucks expects a full-year U.S. gross margin improvement of 1.5-2% and international gross margin improvement of 2-2.5%.
Notable Quarterly Activity
In addition to store openings and closures, notable Starbucks activity during Q3 2009 included the launch of a new social networking
ad campaign incorporating the
Twitter and
YouTube online social networks Starbucks also revamped its
baked good recipes so that they no longer use high-fructose corn syrup, artificial flavors or dyes. The retailer will also use fewer preservatives. About 90% of Starbucks’ baked good menu items will be affected. Starbucks also added new healthy menu items such as salads.
