What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-01-26 compared with 2020-07-28 · 141 added, 211 removed, 202 unchanged (64% of the section changed)

17 unchanged sentences

material failures of our information technology systems;

costs associated with, and the successful execution of, the Company’s initiatives and plans, including the integration of the East China business and the successful expansion of our Global Coffee Alliance with Nestlé;

costs associated with, and the successful execution of, the Company’s initiatives and plans, including the successful expansion of our Global Coffee Alliance with Nestlé;

our ability to obtain financing on acceptable terms;

5 unchanged sentences

the effect of legal proceedings;

the effects of changes in tax laws and related guidance and regulations that may be implemented and other risks detailed in our filings with the SEC, including in Part I Item IA “ Risk Factors ” in the 10-K and in the 10-Q filed April 28, 2020.

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.

4 unchanged sentences

Starbucks is the premier coffee roaster and retailer of specialty coffee with operations in 83 markets around the world.

As of June 28, 2020, Starbucks had over 32,000 company-operated and licensed stores, an increase of 5% from the prior year.

As of December 27, 2020, Starbucks had over 32,900 company-operated and licensed stores, an increase of 4% from the prior year.

Additionally, we sell a variety of consumer-packaged goods, or CPG, primarily through the Global Coffee Alliance established with Nestlé and other partnerships and joint ventures.

2 unchanged sentences

Stores that are temporarily closed or operating at reduced hours due to the COVID-19 outbreak remain in comparable store sales while stores identified for permanent closure have been removed.

During the quarter ended June 28, 2020, our global comparable store sales declined 40%, including the negative impacts of COVID-19.

During the quarter ended December 27, 2020, our global comparable store sales declined 5%, including the negative impacts of COVID-19.

We have three reportable operating segments:

2 unchanged sentences

Our fiscal year ends on the Sunday closest to September 30.

Our 2021 fiscal year includes 53 weeks, with the 53rd week falling in the fourth fiscal quarter, while fiscal year 2020 included 52 weeks.

All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted.

COVID-19 Update

The novel coronavirus, known as the global pandemic COVID-19, was first identified in December 2019.

In response to the outbreak, we temporarily closed a significant number of our company-operated stores and modified the operation and business hours for stores that remained open in the second quarter of fiscal 2020.

By prioritizing the health and safety of our partners and customers, we gradually re-opened stores in China in late second fiscal quarter and in other markets during the third fiscal quarter under modified operations to meet public health guidelines and evolving customer behaviors and expectations.

Comparable store sales for the Americas segment declined by 41% during the third quarter of fiscal 2020, due to temporary store closures, reduced customer traffic and limitations of modified operations.

Most stores were re-opened beginning in early May for this segment, with approximately 96% of the company-operated stores and over 80% of licensed stores open as of June 28, 2020.

We achieved notable improvements in comparable store sales as the quarter progressed.

To help protect our partners’ health and welfare, we paid all of our U.S.

and Canada company-operated store partners who were either unable or uncomfortable working in a retail environment through early May.

Partners who were able to work during this period received a temporary wage increase as a recognition of their service.

The incremental salaries and wages incurred were partially offset by qualified tax credits provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Canada Emergency Wage Subsidy (“CEWS”).

As we began re-opening stores, we realigned labor schedules and hours due to reduced customer traffic and demand, which required a portion of our retail store partners to be furloughed or separated from the Company and resulted in additional benefit payments to impacted partners.

Due to the extended store closures and changing customer behaviors, the Company accelerated plans to optimize our store portfolio in U.S.

urban markets and restructure our company-operated business in Canada, announcing the expected closure of up to 400 incremental stores in the U.S.

over the next 18 months and up to 200 incremental stores in Canada over the next two years.

Costs incurred related to the restructuring efforts are recorded as restructuring and impairments on our consolidated statement of earnings, which will continue in future quarters in accordance with the anticipated timeline of store closures.

Our licensed business in the Americas segment was also impacted by the outbreak during the fiscal quarter with many stores closed temporarily during the quarter, although most licensed stores have since been re-opened.

For the International segment, comparable store sales declined 37% during the third quarter of fiscal 2020, reflecting the temporary closures and modifications of operations at our company-operated international markets.

Due to the early onset of the virus and subsequent control of the outbreak in China, we began re-opening stores during the latter part of fiscal second quarter while our company-operated markets in Japan and EMEA began re-opening stores during the middle of fiscal third quarter.

As of June 28, 2020, nearly all company-operated stores were open in these markets.

Most of our International licensed stores have also re-opened.

To support our international licensees, we extended more flexible development and financial terms, including waiving royalty payments during the fiscal third quarter.

The Channel Development segment was not materially impacted by COVID-19 during the fiscal third quarter as a result of at-home coffee offerings offsetting softness in the Foodservice channel.

The revenue decline when compared with the same quarter in the prior year was largely due to lapping Global Coffee Alliance transition-related activities, including higher inventory sales in the prior year as Nestlé prepared to fulfill customer orders.

Based on the current trend of our retail business recovery and our focused efforts to expand contactless customer experiences, digital capabilities and beverage innovation, we expect continued improvement in comparable store sales and operating margin in our fiscal fourth quarter.

Absent significant COVID-19 relapses, we expect to return to profitability in the fourth quarter.

Starbucks results for the first quarter of fiscal 2021 reflect continued recovery from the effects of the COVID-19 pandemic.

The sequential improvements in our quarterly results demonstrate the resilience of our business model and the strength of our brand.

Consolidated net revenues declined 5% to $6.7 billion in first quarter of fiscal 2021 compared to $7.1 billion in the first quarter of fiscal 2020, driven primarily by reduced customer traffic, modified business operations, reduced store operating hours and temporary closures of our company-operated and licensed stores.

As of December 27, 2020, nearly all of our company-operated and licensed stores were re-opened;

however, many were operating at less than full capacity.

For the Americas segment, comparable store sales declined by 6% for the first quarter of fiscal 2021, primarily due to reduced customer traffic, temporary store closures and modified store operations.

As of December 27, 2020, approximately 40% of our U.S.

company-operated stores offered limited seating.

Our business in the U.S.

continued its steady recovery, with a 5% decline in comparable store sales for the first quarter of fiscal 2021 compared to declines of 9% and 40% for the fourth and third fiscal quarters of 2020, respectively.

We continued to incur incremental costs attributable to COVID-19, including catastrophe pay programs for company-operated store partners (employees).

These were partially offset by qualified tax credits provided by the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and the Canada Emergency Wage Subsidy (“CEWS”).

In fiscal year 2020, we announced a plan to optimize our Americas store portfolio, primarily in dense, metropolitan markets, by blending store formats to better cater to changing customer tastes and preferences.

During the first quarter of fiscal 2021, we closed approximately 170 stores in the U.S.

and Canada, and we expect to close an additional 500 stores in those markets primarily over the next 9 to 12 months to complete our restructuring efforts.

Costs incurred related to the restructuring efforts are recorded as restructuring and impairments on our consolidated statement of earnings and will continue to be recorded as stores are identified for closure and are eventually closed.

For the International segment, comparable store sales declined 3% for the first quarter of fiscal 2021, primarily due to modifications of store operations in our our company-operated international markets.

Our business in China has substantially recovered.

Comparable store sales increased 5%, inclusive of a nearly 5% benefit from the temporary VAT exemption ending in December 2020.

The China market continued to demonstrate upward momentum in sales and profitability.

As of December 27, 2020, nearly all company-operated stores within the International segment were open.

Most of our International licensed stores were also open at the end of the first quarter of fiscal 2021.

Net revenues for our Channel Development segment declined $123 million, or 25%, when compared with the first quarter of fiscal 2020.

This was largely due to the transition of certain single-serve product activities to Nestlé beginning in the fourth quarter of fiscal 2020 and lapping Global Coffee Alliance transition-related activities.

Also contributing were lower Global Coffee Alliance revenues, primarily driven by the Foodservice business, which experienced softening due to COVID-19.

Our Channel Development segment continues to grow category share as customers adjust to their at-home routines.

We continue to invest in technologies and innovations to elevate the customer and partner experience and to drive long-term growth.

Absent significant COVID-19 relapses or global economic disruptions, and based on the current trend of our retail business recovery and our focused efforts to expand contactless customer experiences, enhance digital capabilities and drive beverage innovation, we believe we are well positioned to regain the positive business momentum we had demonstrated prior to the pandemic.

Comparable Store Sales

Starbucks comparable store sales for the third quarter of fiscal 2020:

Quarter Ended Jun 28, 2020 Three Quarters Ended Jun 28, 2020

Growth Change in

Transactions Change in

Starbucks comparable store sales for the first quarter of fiscal 2021:

Quarter Ended Dec 27, 2020

Change in Comparable Store Sales Change in

Consolidated (5)% (19)% 17%

1 unchanged sentence

International (3)% (10)% 8%

The above comparable store sales for the quarter and three quarters ended June 28, 2020 decreased due to temporary store closures and stores with modified operations and business hours as a result of COVID-19.

The above comparable store sales for the quarter ended December 27, 2020 decreased primarily due to reduced customer traffic, temporary store closures and stores with modified operations and business hours as a result of COVID-19.

Refer to our Quarterly Store Data , also included in Item 2 of Part I of this 10-Q, for additional information on our company operated and licensed store portfolio.

Results of Operations (in millions)

Quarter Ended Three Quarters Ended

Quarter Ended

Company-operated stores $ 5,726.5 $ 5,780.7 $ (54.2) (0.9) %

2 unchanged sentences

Total net revenues $ 6,749.4 $ 7,097.1 $ (347.7) (4.9) %

Quarter ended June 28, 2020 compared with quarter ended June 30, 2019

Total net revenues for the third quarter of fiscal 2020 decreased $2,601 million, primarily due to decreased revenues from company-operated stores ($2,091 million).

The decline in company-operated stores revenues was due to a 40% decrease in comparable store sales ($2,122 million), primarily driven by a 51% decrease in transactions.

Also contributing to the decrease was the conversion of our retail business in Thailand to a fully licensed market during fiscal 2019 ($37 million).

Partially offsetting these decreases were the incremental revenues from 770 net new Starbucks ® company-operated store openings, or a 5% increase, over the past 12 months ($128 million).

Licensed stores revenue decreased $425 million driven by lower product and equipment sales to and royalty revenues from our licensees ($420 million).

Other revenues decreased $86 million, primarily due to lapping of higher product sales to Nestlé in prior year related to transitioning activities of the Global Coffee Alliance.

Three quarters ended June 28, 2020 compared with three quarters ended June 30, 2019

Total net revenues for the first three quarters of fiscal 2020 decreased $2,447 million, primarily due to decreased revenues from company-operated stores ($2,073 million).

The decline in company-operated store revenues was due to a 15% decrease in comparable store sales ($2,350 million), primarily driven by a 21% decrease in transactions.

Also contributing to the decrease were the conversions of our retail businesses in Thailand, France and the Netherlands to fully licensed markets during fiscal 2019 ($204 million).

Partially offsetting these decreases were the incremental revenues from 770 net new Starbucks ® company-operated store openings, or a 5% increase, over the past 12 months ($526 million).

Licensed stores revenue decline also contributed to the decrease in total net revenues ($358 million), driven by lower product and royalty revenues from our licensees ($351 million).

The decrease was partially offset by the conversions of our retail businesses in Thailand, France and the Netherlands to fully licensed markets ($25 million).

Other revenues decreased $16 million, primarily due to lapping prior year product sales related to transitioning activities of the Global Coffee Alliance and the Tazo brand transition agreement, partially offset by the expansion of the Global Coffee Alliance, including the benefit related to the transfer of certain single-serve product activities to Nestlé beginning in the second quarter of fiscal 2020.

For the quarter ended December 27, 2020 compared with the quarter ended December 29, 2019

Total net revenues for the first quarter of fiscal 2021 decreased $348 million.

Company-operated stores revenue declined $54 million, reflecting a 5% decrease in comparable store sales ($279 million) attributed to a 19% decrease in transactions partially offset by a 17% increase in average ticket.

This decrease was partially offset by 667 net new Starbucks ® company-operated stores, or a 4% increase, over the past 12 months ($170 million) and favorable foreign currency translation ($69 million).

Licensed stores revenue decreased $178 million, primarily driven by lower product and equipment sales to and royalty revenues from our licensees.

Other revenues decreased $115 million, primarily due to the transition of certain single-serve product activities to Nestlé and lapping of transition activities related to the Global Coffee Alliance in the prior year.

Also contributing were lower Global Coffee Alliance revenues, mainly driven by the Foodservice business, which experienced softening due to COVID-19.

Operating Expenses

Quarter Ended Three Quarters Ended

Change Jun 28,

As a % of Total

Quarter Ended

As a % of Total

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Income from equity investees 82.7 73.9 8.8 1.2 1.0

Operating income/(loss) $ (703.9) $ 1,121.3 $ (1,825.2) (16.7) % 16.4 % $ 1,003.4 $ 2,994.6 $ (1,991.2) 5.8 % 15.2 %

Operating income $ 913.5 $ 1,219.8 $ (306.3) 13.5 % 17.2 %

Store operating expenses as a % of company-operated store revenues 50.1 % 48.8 %

Quarter ended June 28, 2020 compared with quarter ended June 30, 2019

Product and distribution costs as a percentage of total net revenues increased 290 basis points for the third quarter of fiscal 2020, primarily due to sales deleverage attributable to COVID-19 impacts, which included manufacturing deleverage due to lower production volume (approximately 390 basis points).

The sales deleverage was partially offset by supply chain efficiencies (approximately 30 basis points).

Store operating expenses as a percentage of total net revenues increased 2,140 basis points for the third quarter of fiscal 2020.

Store operating expenses as a percentage of company-operated store revenues increased 2,590 basis points, primarily due to sales deleverage attributable to COVID-19 impacts, which included catastrophe pay and enhanced pay programs for retail partners, net of benefits provided by temporary subsidies from the U.S.

and certain foreign governments (approximately 470 basis points).

Other operating expenses increased $39 million for the third quarter of fiscal 2020, primarily due to incremental costs to develop and grow the Global Coffee Alliance ($35 million).

General and administrative expenses decreased $60 million, primarily due to lower performance-based compensation ($45 million), and lapping the 2018 U.S stock award granted in the third quarter of fiscal 2018 ($14 million), which was funded by savings from the Tax Act and vested in the third quarter of fiscal 2019, partially offset by incremental strategic investments in technology.

Restructuring and impairment expenses increased $40 million, primarily due to higher asset impairment related to store portfolio optimization ($35 million) and intangible asset impairment related to changes in our branding and marketing strategies ($22 million), partially offset by lower severance costs ($8 million).

Income from equity investees decreased $8 million, primarily due to lower royalty income, temporary store closures and reduced operating hours in our South Korea and India joint ventures.

The combination of these changes resulted in an overall decrease in operating margin of 3,310 basis points for the third quarter of fiscal 2020.

Three quarters ended June 28, 2020 compared with three quarters ended June 30, 2019

Product and distribution costs as a percentage of total net revenues increased 70 basis points for the first three quarters of fiscal 2020, primarily due to sales deleverage attributable to COVID-19 impacts, which included inventory write-offs and product waste (approximately 10 basis points), partially offset by supply chain efficiencies (approximately 70 basis points).

Store operating expenses as a percentage of total net revenues increased 730 basis points for the first three quarters of fiscal 2020.

Store operating expenses as a percentage of company-operated store revenues increased 930 basis points, primarily due to sales deleverage attributable to COVID-19 impacts, which included catastrophe pay and enhanced pay programs for retail partners, net of benefits provided by temporary subsidies from the U.S.

and certain foreign governments (approximately 210 basis points).

Other operating expenses increased $51 million for the first three quarters of fiscal 2020, primarily due to incremental costs to develop and grow the Global Coffee Alliance.

General and administrative expenses decreased $125 million, primarily due to lower performance-based compensation ($64 million) and the lapping of the 2018 U.S stock award granted in the third quarter of fiscal 2018, which was funded by savings from the Tax Act and vested in the third quarter of fiscal 2019 ($61 million), partially offset by incremental strategic investments in technology.

Restructuring and impairment expenses decreased $40 million, primarily due to lower severance costs ($41 million), lower exit costs associated with the closure of certain company-operated stores ($29 million) and lapping the impairment related to our Switzerland retail market ($10 million).

Partially offsetting these decreases were higher asset impairment related to store portfolio optimization ($27 million) and intangible asset impairment related to changes in our branding and marketing strategies ($22 million).

Income from equity investees increased $4 million, primarily due to growth in our South Korea joint venture and higher income from our North American Coffee Partnership joint venture.

The combination of these changes resulted in an overall decrease in operating margin of 940 basis points for the first three quarters of fiscal 2020.

For the quarter ended December 27, 2020 compared with the quarter ended December 29, 2019

Product and distribution costs as a percentage of total net revenues decreased 110 basis points for the first quarter of fiscal 2021, primarily due to the transfer of certain single-serve products to Nestlé beginning in the fourth quarter of fiscal 2020 (approximately 90 basis points) and pricing in Americas.

Store operating expenses as a percentage of total net revenues increased 270 basis points for the first quarter of fiscal 2021.

Store operating expenses as a percentage of company-operated store revenues increased 130 basis points, primarily due to sales deleverage attributable to COVID-19 impacts, as well as catastrophe pay programs for retail partners, net of benefits provided by temporary subsidies from the U.S.

and certain foreign governments (approximately 50 basis points), and growth in wages and benefits (approximately 180 basis points).

These were partially offset by labor efficiencies (approximately 250 basis points).

Other operating expenses decreased $10 million for the first quarter of fiscal 2021, primarily due to lapping prior year incremental costs to develop and grow the Global Coffee Alliance.

Depreciation and amortization expenses as a percentage of total net revenues increased 50 basis points, primarily due to sales deleverage.

General and administrative expenses increased $38 million, primarily due to incremental strategic investments in technology ($28 million) and higher performance-based compensation, recognizing the strength of the company's overall recovery from pandemic-related business impacts ($18 million).

Restructuring and impairment expenses increased $66 million, primarily due to higher asset impairment related to store portfolio optimization ($42 million) and accelerated amortization of right-of-use lease assets associated with the closure of certain company-operated stores ($26 million).

Income from equity investees increased $9 million, primarily due to higher income from our North American Coffee Partnership joint venture, partially offset by temporary store closures and reduced operating hours in our South Korea and India joint ventures.

The combination of these changes resulted in an overall decrease in operating margin of 370 basis points for the first quarter of fiscal 2021.

Other Income and Expenses

Quarter Ended Three Quarters Ended

Change Jun 28,

As a % of Total

Quarter Ended

As a % of Total

Operating income/(loss) $ (703.9) $ 1,121.3 $ (1,825.2) (16.7) % 16.4 % $ 1,003.4 $ 2,994.6 $ (1,991.2) 5.8 % 15.2 %

Net gain resulting from divestiture of certain operations — 601.8 (601.8) — 8.8 — 622.8 (622.8) — 3.2

Operating income $ 913.5 $ 1,219.8 $ (306.3) 13.5 % 17.2 %

Interest income and other, net 15.5 15.9 (0.4) 0.2 0.2

Interest expense (120.7) (91.9) (28.8) (1.8) (1.3)

Earnings/(loss) before income taxes (812.0) 1,676.9 (2,488.9) (19.2) 24.6 722.0 3,462.3 (2,740.3) 4.2 17.5

Income tax expense/(benefit) (133.9) 303.7 (437.6) (3.2) 4.5 190.0 670.1 (480.1) 1.1 3.4

Net earnings/(loss) including noncontrolling interests (678.1) 1,373.2 (2,051.3) (16.1) 20.1 532.0 2,792.2 (2,260.2) 3.1 14.1

Net earnings/(loss) attributable to noncontrolling interests 0.3 0.4 (0.1) — — (3.7) (4.2) 0.5 — —

Net earnings/(loss) attributable to Starbucks $ (678.4) $ 1,372.8 $ (2,051.2) (16.1) % 20.1 % $ 535.7 $ 2,796.4 $ (2,260.7) 3.1 % 14.2 %

Earnings before income taxes 808.3 1,143.8 (335.5) 12.0 16.1

Income tax expense 186.1 258.5 (72.4) 2.8 3.6

Net earnings including noncontrolling interests 622.2 885.3 (263.1) 9.2 12.5

Net loss attributable to noncontrolling interests — (0.4) 0.4 — —

Net earnings attributable to Starbucks $ 622.2 $ 885.7 $ (263.5) 9.2 % 12.5 %

Effective tax rate including noncontrolling interests 23.0 % 22.6 %

Quarter ended June 28, 2020 compared with quarter ended June 30, 2019

Net gain resulting from divestiture of certain operations decreased $602 million due to lapping the sale of our retail operation in Thailand in fiscal 2019.

Interest income and other, net decreased $28 million, primarily due to lapping the gain on the sale of a non-operating asset and lapping interest income earned last year on excess cash related to our Nestlé transaction.

Interest expense increased $34 million, primarily due to additional interest incurred on long-term debt issued in March 2020 and May 2020.

The effective tax rate for the quarter ended June 28, 2020 was 16.5% compared to 18.1% for the same quarter in fiscal 2019.

The decrease was primarily due to a change in the absolute pre-tax operating results when compared to the same period of the prior year and thereby changing the proportionate impact of discrete items, as well as the foreign rate differential on our jurisdictional mix of earnings.

This was partially offset by valuation allowances recorded against deferred tax assets of certain international jurisdictions.

Three quarters ended June 28, 2020 compared with three quarters ended June 30, 2019

Net gain resulting from divestiture of certain operations decreased $623 million due to lapping the sale of retail operations in Thailand, France, and the Netherlands in fiscal 2019.

Interest income and other, net decreased $50 million, primarily due to lapping interest income earned last year on excess cash related to our Nestlé transaction and lapping the gain on the sale of a non-operating asset.

For the quarter ended December 27, 2020 compared with the quarter ended December 29, 2019

Interest expense increased $29 million, primarily due to additional interest incurred on long-term debt issued in March 2020 and May 2020.

The effective tax rate for the first three quarters ended June 28, 2020 was 26.3% compared to 19.4% for the same period in fiscal 2019.

The increase was primarily due to the valuation allowances recorded against deferred tax assets of certain international jurisdictions (approximately 1,390 basis points).

This unfavorable impact was partially offset by the impact of changes in indefinite reinvestment assertions for certain foreign subsidiaries in the first quarter of fiscal 2019 (approximately 220 basis points), release of income tax reserves (approximately 210 basis points) and lower pre-tax earnings including the foreign rate differential on our jurisdictional mix of earnings.

The effective tax rate for the quarter ended December 27, 2020 was 23.0% compared to 22.6% for the same quarter in fiscal 2020.

The increase was primarily due to the effect of lower pre-tax earnings and the proportionate impacts from certain permanent differences and discrete items, as well as the foreign rate differential on our jurisdictional mix of earnings.

This was partially offset by an increase in stock-based compensation excess tax benefits (approximately 190 basis points).

Segment Information

Results of operations by segment (in millions) :

Quarter Ended Three Quarters Ended

Change Jun 28,

As a % of Americas

Total Net Revenues

Quarter Ended

As a % of Americas

12 unchanged sentences

Total operating expenses 3,889.7 3,912.1 (22.4) 82.7 78.1

Operating income/(loss) $ (404.9) $ 1,018.7 $ (1,423.6) (14.4) % 21.8 % $ 1,315.1 $ 2,843.8 $ (1,528.7) 10.8 % 20.9 %

Operating income $ 813.5 $ 1,098.8 $ (285.3) 17.3 % 21.9 %

Store operating expenses as a % of company-operated store revenues 52.2 % 49.5 %

Quarter ended June 28, 2020 compared with quarter ended June 30, 2019

Americas total net revenues for the third quarter of fiscal 2020 decreased $1,876 million, or 40%, primarily due to a 41% decrease in comparable store sales ($1,661 million), driven by a 53% decrease in transactions.

Also contributing were lower product sales to and royalty revenues from our licensees ($244 million).

These decreases were partially offset by 159 net new Starbucks ® company-operated store openings, or a 2% increase, over the past 12 months ($75 million).

Operating Margin

Americas operating income for the third quarter of fiscal 2020 decreased 140% to a loss of $405 million, compared to an operating income of $1,019 million in the third quarter of fiscal 2019.

Operating margin decreased 3,620 basis points to (14.4)%, due to sales deleverage, primarily attributable to reduced labor productivity and fixed occupancy costs, as well as additional costs incurred attributable to COVID-19, mainly catastrophe pay and enhanced pay programs for retail store partners, net of benefits provided by the CARES Act and CEWS (approximately 530 basis points).

Higher restructuring expenses relating to our U.S.

portfolio optimization (approximately 170 basis points) also contributed to the decrease.

Three quarters ended June 28, 2020 compared with three quarters ended June 30, 2019

Americas total net revenues for the first three quarters of fiscal 2020 decreased $1,461 million, or 11%, primarily due to a 13% decrease in comparable store sales ($1,541 million), driven by a 20% decrease in transactions.

Also contributing were lower product sales to and royalty revenues from our licensees ($218 million).

These decreases were partially offset by 159 net new Starbucks ® company-operated store openings, or a 2% increase, over the past 12 months ($335 million).

For the quarter ended December 27, 2020 compared with the quarter ended December 29, 2019

Americas total net revenues for the first quarter of fiscal 2021 decreased $308 million, or 6%, primarily due to a 6% decrease in comparable store sales ($242 million) driven by a 21% decrease in transactions, partially offset by a 20% increase in average ticket.

These declines were slightly offset by the opening of new company-operated stores ($62 million).

Licensed stores revenues declined by $121.1 million, primarily due to lower product and equipment sales to and royalty revenues from our licensees.

Operating Margin

Americas operating income for the first three quarters of fiscal 2020 decreased 54% to $1.3 billion, compared to $2.8 billion for the same period in fiscal 2019.

Operating margin decreased 1,010 basis points to 10.8%, primarily due to sales deleverage attributed to reduced labor productivity and additional costs incurred attributable to COVID-19, mainly catastrophe pay and enhanced pay programs for retail store partners, net of benefits provided by the CARES Act and CEWS (approximately 210 basis points).

Partially offsetting these decreases was sales leverage realized during the first fiscal quarter, prior to the onset of COVID-19.

Americas operating income for the first quarter of fiscal 2021 decreased 26% to $814 million, compared to $1.1 billion in the first quarter of fiscal 2020.

Operating margin decreased 460 basis points to 17.3%, primarily due to sales deleverage attributed to COVID-19 impacts.

In addition, we also incurred additional costs, primarily catastrophe pay programs for retail store partners incurred, net of benefits provided by the CARES Act and CEWS (approximately 40 basis points), and growth in wages and benefits (approximately 200 basis points).

Higher restructuring expenses relating to our Americas portfolio optimization (approximately 140 basis points) also contributed to the decrease.

Partially offsetting these decreases were improved labor efficiencies (approximately 260 basis points) and pricing (approximately 110 basis points).

International

Quarter Ended Three Quarters Ended

Quarter Ended

As a % of International

Total Net Revenues As a % of International

Total Net Revenues

12 unchanged sentences

Income from equity investees 26.3 30.9 (4.6) 1.6 2.0

Operating income/(loss) $ (86.0) $ 270.2 $ (356.2) (9.1) % 17.0 % $ 174.5 $ 701.8 $ (527.3) 4.8 % 15.2 %

Operating income $ 274.8 $ 275.9 $ (1.1) 16.6 % 17.6 %

Store operating expenses as a % of company-operated store revenues 43.6 % 46.4 %

Quarter ended June 28, 2020 compared with quarter ended June 30, 2019

International total net revenues for the third quarter of fiscal 2020 decreased $636 million, or 40%, primarily due to a 37% decrease in comparable company-operated store sales ($461 million), driven by a 44% decrease in transactions.

Also contributing were lower product sales to and royalty revenues from our licensees ($158 million) and the conversion of our retail business in Thailand to a fully licensed market during 2019 ($37 million).

These decreases were partially offset by 611 net new Starbucks ® company-operated store openings, or an 11% increase, over the past 12 months ($53 million).

Operating Margin

International operating loss for the third quarter of fiscal 2020 was $86 million, compared to $270 million of operating income in the third quarter of fiscal 2019.

Operating margin decreased 2,610 basis points to (9.1)%, primarily due to sales deleverage attributable to COVID-19, including continued partner wages and benefits and occupancy costs.

Royalty relief provided to licensees (approximately 480 basis points) and catastrophe pay (approximately 170 basis points) also contributed to the decrease.

These were partially offset by temporary government subsidies (approximately 220 basis points) and rent concessions (approximately 140 basis points).

Three quarters ended June 28, 2020 compared with three quarters ended June 30, 2019

International total net revenues for the first three quarters of fiscal 2020 decreased $963 million, or 21%, due to a 23% decrease in comparable company-operated store sales ($809 million), driven by a 26% decrease in transactions.

Also contributing were the conversions of our retail businesses in Thailand, France and the Netherlands to fully licensed markets during 2019 ($179 million) and lower product sales to and royalty revenues from licensees ($133 million).

These decreases were partially offset by 611 net new Starbucks ® company-operated store openings, or an 11% increase, over the past 12 months ($191 million).

For the quarter ended December 27, 2020 compared with the quarter ended December 29, 2019

International total net revenues for the first quarter of fiscal 2021 increased $83 million, or 5%.

Company-operated store revenues increased $132 million, primarily driven by 658 net new Starbucks ® company-operated stores, or an 11% increase, over the past 12 months ($108 million) and favorable foreign currency translation ($71 million).

These were partially offset by a 3% decline in comparable store sales ($37 million), driven by a 10% decrease in transactions, partially offset by an 8% increase in average ticket.

Licensed stores revenues declined by $57.1 million, primarily due to lower product and equipment sales to and royalty revenues from our licensees.

Operating Margin

International operating income for the first three quarters of fiscal 2020 decreased 75% to $175 million, compared to $702 million for the same period in fiscal 2019.

Operating margin decreased 1,040 basis points to 4.8%, primarily due to sales deleverage attributable to COVID-19, including continued partner wages and benefits and occupancy costs.

Royalty relief granted to licensees during the fiscal third quarter also contributed to the decrease (approximately 120 basis points).

International operating income for the first quarter of fiscal 2021 was $275 million, compared to $276 million in the first quarter of fiscal 2020.

Operating margin decreased 100 basis points to 16.6%, primarily due to sales deleverage attributable to COVID-19, as well as additional costs incurred to invest in partner wages and benefits (approximately 70 basis points).

These were partially offset by labor efficiencies (approximately 80 basis points).

Channel Development

Quarter Ended Three Quarters Ended

Change Jun 28,

Quarter Ended

As a % of Channel Development

Total Net Revenues As a % of Channel Development

Total Net Revenues

7 unchanged sentences

Operating income $ 180.8 $ 175.5 $ 5.3 48.7 % 35.5 %

Quarter ended June 28, 2020 compared with quarter ended June 30, 2019

Channel Development total net revenues for the third quarter of fiscal 2020 decreased $86 million, or 16%, primarily due to lapping of higher product sales to Nestlé in prior year related to transitioning activities of the Global Coffee Alliance ($85 million).

Operating Margin

Channel Development operating income for the third quarter of fiscal 2020 decreased 32% to $124 million, compared to $182 million for the same period in fiscal 2019.

Operating margin decreased 630 basis points to 27.8%, primarily driven by certain transition items related to the Global Coffee Alliance (approximately 750 basis points), partially offset by lapping the transfer of certain products to Nestlé as part of the Global Coffee Alliance in the prior year.

Three quarters ended June 28, 2020 compared with the three quarters ended June 30, 2019

Channel Development total net revenues for the first three quarters of fiscal 2020 decreased $24 million, or 2%, primarily due to the lapping of higher product sales in prior year related to transitioning order fulfillment of the Global Coffee Alliance ($40 million).

Also contributing was lapping prior year product sales to Unilever as a result of the sale and transition of the Tazo brand ($33 million).

These decreases were partially offset by the expansion of the Global Coffee Alliance, including the benefit related to the transfer of certain single-serve product activities to Nestlé beginning in the second quarter of fiscal 2020 ($50 million).

For the quarter ended December 27, 2020 compared with the quarter ended December 29, 2019

Channel Development total net revenues for the first quarter of fiscal 2021 decreased $123 million, or 25%, primarily due to the transition of certain single-serve product activities to Nestlé ($91 million) and lapping of transition activities related to the Global Coffee Alliance ($21 million).

Also contributing were lower Global Coffee Alliance revenues ($18 million), mainly driven by the Foodservice business, which experienced softening due to COVID-19.

These were partially offset by growth in at-home coffee and our ready-to-drink business.

Operating Margin

Channel Development operating income for the first three quarters of fiscal 2020 decreased 3% to $489 million, compared to $507 million for the same period in fiscal 2019.

Operating margin decreased 60 basis points to 33.5%, primarily driven by certain transition items related to the Global Coffee Alliance (approximately 250 basis points), partially offset by lapping the correction of amortization expense (approximately 80 basis points) in the prior year and the transfer of certain single-serve products to Nestlé as part of the Global Coffee Alliance.

Channel Development operating income for the first quarter of fiscal 2021 increased 3% to $181 million, compared to $176 million in the first quarter of fiscal 2020.

Operating margin increased 1,320 basis points to 48.7%, primarily due to the transfer of certain single-serve products to Nestlé as part of the Global Coffee Alliance (approximately 820 basis points).

Strong performance from our North American Coffee Partnership joint venture also contributed.

Corporate and Other

Quarter Ended Three Quarters Ended

Quarter Ended

Net revenues:

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General and administrative expenses 316.5 292.2 24.3 8.3

Restructuring and impairments 22.1 6.0 16.1 268.3 22.4 20.5 1.9 9.3

Restructuring and impairments — 0.3 (0.3) nm

Total operating expenses 376.1 350.9 25.2 7.2

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Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments.

The decreases for the quarter and three quarters ending June 28, 2020 were primarily driven by lower performance-based compensation and lapping of the 2018 stock award granted in the third quarter of fiscal 2018, partially offset by incremental strategic investments in technology.

Corporate and Other operating loss increased to $356 million for the first fiscal quarter of 2021, or 8%, compared to $330 million for the first fiscal quarter of 2020.

This increase was primarily driven by incremental strategic investments in technology and higher performance-based compensation recognizing the strength of the company's overall recovery from pandemic-related business impacts.

Quarterly Store Data

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transferred during the period

Quarter Ended Three Quarters Ended Stores open as of

Quarter Ended Stores open as of

Company-operated stores (80) 46 10,029 10,020

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Total International 324 403 14,630 13,592

Corporate and Other

Licensed stores — — — (12) — —

Total Corporate and Other — — — (12) — —

Total Company 278 539 32,938 31,795

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Investment Overview

Our cash and investments totaled $4.4 billion as of June 28, 2020 and $3.0 billion as of September 29, 2019.

Our cash and investments totaled $5.5 billion as of December 27, 2020 and $4.8 billion as of September 27, 2020.

We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, make acquisitions and return cash to shareholders through common stock cash dividend payments and share repurchases.

Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities, government treasury securities (foreign and domestic) and commercial paper.

As of June 28, 2020, approximately $1.7 billion of cash was held in foreign subsidiaries.

As of December 27, 2020, approximately $2.3 billion of cash was held in foreign subsidiaries.

Borrowing Capacity

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The applicable margin is based on the better of (i) the Company's long-term credit ratings assigned by Moody's and Standard & Poor's rating agencies and (ii) the Company's fixed charge coverage ratio, pursuant to a pricing grid set forth in the five-year credit agreement.

The current applicable margin is 0.910% for Eurocurrency Rate Loans and 0.000% (nil) for Base Rate Loans.

The current applicable margin is 1.100% for Eurocurrency Rate Loans and 0.100% for Base Rate Loans.

The 2018 credit facility is available for general corporate purposes.

As of June 28, 2020, we had no borrowings under the 2018 credit facility.

As of December 27, 2020, we had no borrowings under the 2018 credit facility.

The 364-day credit facility

Our $1.0 billion unsecured 364-day credit facility (the "364-day credit facility"), of which no amount may be used for issuances of letters of credit, is currently set to mature on October 21, 2020.

Our $1.0 billion unsecured 364-day credit facility (the "364-day credit facility"), of which no amount may be used for issuances of letters of credit, is currently set to mature on September 22, 2021.

We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $500 million.

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dollar-denominated loans under certain circumstances, a Base Rate, in each case plus an applicable margin.

The applicable margin is 0.920% for Eurocurrency Rate Loans and 0.000% (nil) for Base Rate Loans.

The applicable margin is 1.150% for Eurocurrency Rate Loans and 0.150% for Base Rate Loans.

The 364-day credit facility is available for general purposes.

As of June 28, 2020, we had no borrowings under the 364-day credit facility.

Due to the financial impacts from COVID-19, we have reached an agreement with our lenders to amend the fixed charge coverage ratio covenant for our combined $3 billion revolving lines of credit, through the fourth quarter of fiscal 2021.

The 2020 term-loan facility

Our $500 million unsecured 364-day term-loan facility ("the 2020 term-loan facility") is currently set to mature on March 19, 2021.

Borrowings under the term-loan facility are subject to terms defined within the 2020 term-loan facility and will bear interest depending on if the loan is a Eurocurrency Rate Loan or a Base Loan.

Eurocurrency Rate Loans will bear interest on the outstanding principal amount equal to the Eurocurrency Rate for such Interest Period plus the applicable margin.

Each Base Rate Loan will bear interest on the outstanding principal amount equal to the Base Rate plus the applicable margin.

The applicable margin is based on the Company's long-term credit ratings assigned by Moody's and Standard & Poor's rating agencies.

The current applicable margin is 1.000% for Eurocurrency Rate Loans and 0.00% (nil) for Base Rate Loans.

The 2020 term-loan facility is available for general corporate purposes.

As of June 28, 2020, we had $500.0 million borrowings outstanding under the 2020 term-loan facility and were in compliance with all applicable covenants related to our credit facilities.

As of December 27, 2020, we had no borrowings under the 364-day credit facility.

Due to the financial impacts from COVID-19, we reached an agreement with our lenders to amend the fixed charge coverage ratio covenant for our combined $3 billion revolving lines of credit, through the fourth quarter of fiscal 2021.

Commercial Paper

Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $3.0 billion, with individual maturities that may vary but not exceed 397 days from the date of issue.

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The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases.

As of June 28, 2020, we had borrowings of $296.5 million outstanding, net of unamortized discount, under our commercial paper program, of which a majority will mature during the second quarter of fiscal 2021.

As such, our total contractual borrowing capacity for general corporate purposes as of the end of our third quarter of fiscal 2020 was $2.7 billion when combining the unused commercial paper program and credit facilities, less outstanding borrowing.

As of December 27, 2020, we had borrowings of $299.7 million outstanding, net of unamortized discount, under our commercial paper program, of which a majority will mature during the second quarter of fiscal 2021.

As such, our total contractual borrowing capacity for general corporate purposes as of the end of our first quarter of fiscal 2021 was $2.7 billion when combining the unused commercial paper program and credit facilities, less outstanding borrowing.

Credit facilities in Japan

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These are available for working capital needs and capital expenditures within our Japanese market.

During the third quarter of fiscal 2020, we expanded our ¥1 billion unsecured credit facility to ¥5 billion, or $46.6 million, as of June 28, 2020.

This facility is currently set to mature on December 31, 2020.

Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300% or 0.400%, depending on the tranche borrowed.

Additionally during the third quarter, we expanded our ¥2 billion unsecured credit facility to ¥10 billion, or $93.4 million, as of June 28, 2020.

This facility is currently set to mature on March 26, 2021.

Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus 0.30%.

As of June 28, 2020, we had $140.0 million of borrowings outstanding under these credit facilities.

On May 7, 2020, we issued long-term debt in an underwritten registered public offering, which consisted of $500 million of 1.300% Senior Notes (the“2022 notes”) due May 2022, $1.25 billion of 2.550% Senior Notes (the “2030 notes”) due November 2030, and $1.25 billion of 3.500% Senior Notes (the “2050 notes”) due November 2050.

We are using the net proceeds from the offering for general corporate purposes, including the repayment of outstanding indebtedness.

Interest on the 2022 notes is payable semi-annually on May 7 and November 7, commencing on November 7, 2020.

Interest on the 2030 notes and the 2050 notes is payable semi-annually on May 15 and November 15, commencing on November 15, 2020.

• A ¥10 billion, or $96.5 million, facility is currently set to mature on March 26, 2021.

Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.

• A ¥10 billion, or $96.5 million, facility is currently set to mature on October 29, 2021.

Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.350%.

• A ¥5 billion, or $48.2 million, facility is currently set to mature on December 30, 2021.

Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%.

As of December 27, 2020, we had $192.9 million of borrowings outstanding under these credit facilities.

See Note 7, Debt, to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.

Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indentures under which the Senior Notes were issued.

As of June 28, 2020, we were in compliance with all applicable covenants.

We returned to positive cash flow during the latter part of the third quarter of fiscal 2020 and expect a return to profitability in the fiscal fourth quarter.

To further strengthen our liquidity, we expect to continue to curtail discretionary spending and suspend share repurchases.

If necessary, we may pursue additional sources of financing, including both short-term and long-term borrowings and debt issuances.

cash to shareholders through common stock cash dividend payments and discretionary share repurchases and investing in new business opportunities related to our core and developing businesses.

As of December 27, 2020, we were in compliance with all applicable covenants.

We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facilities, commercial paper program and the issuance of debt to support and invest in our core businesses, including investing in new ways to serve our customers and supporting our store partners, repaying maturing debts, as well as returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases and investing in new business opportunities related to our core and developing businesses.

Further, we may use our available cash resources to make proportionate capital contributions to our investees.

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In this regard, we may incur additional debt, within targeted levels, as part of our plans to fund our capital programs, including cash returns to shareholders through future dividends and discretionary share repurchases.

To further strengthen our liquidity in the near term, we currently expect the suspension of share repurchases to continue into late fiscal 2021.

If necessary, we may pursue additional sources of financing, including both short-term and long-term borrowings and debt issuances.

We regularly review our cash positions and our determination of indefinite reinvestment of foreign earnings.

In the event we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S.

In the event we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional

foreign withholding taxes and U.S.

state income taxes, which could be material.

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to satisfy domestic liquidity needs.

During the third quarter of fiscal 2020, our Board of Directors declared a quarterly cash dividend to shareholders of $0.41 per share to be paid on August 21, 2020 to shareholders of record as of the close of business on August 7, 2020.

In November 2020, our Board of Directors approved a quarterly cash dividend to shareholders of $0.45 per share to be paid on March 5, 2021 to shareholders of record as of the close of business on February 18, 2021.

As of the date of this report, we do not expect to reduce our quarterly dividend as a result of the COVID-19 pandemic.

We repurchased 20.3 million shares of common stock, or $1.7 billion, during the first three quarters of fiscal 2020 under our ongoing share repurchase program.

On April 8, 2020, we announced a temporary suspension of our share repurchase program.

Repurchases pursuant to this program were last made in mid-March 2020.

As of June 28, 2020, 48.9 million shares remained available for repurchase under current authorizations.

In addition to the suspension of our share repurchase program, to further enhance our financial flexibility, we have taken and may continue to take steps to defer capital expenditures and reduce discretionary spending.

The existing share repurchase program remains authorized by the Board of Directors, and we may resume share repurchases in the future at any time, depending upon market conditions, our capital needs and other factors.

As of December 27, 2020, 48.9 million shares remained available for repurchase under current authorizations.

The existing share repurchase program remains authorized by the Board of Directors, however, we have temporarily suspended our share repurchase program until we restore certain financial leverage targets, which we currently expect to occur in late fiscal 2021.

Other than normal operating expenses, cash requirements for the remainder of fiscal 2021 are expected to consist primarily of capital expenditures for investments in our new and existing stores and our supply chain and corporate facilities.

Total capital expenditures for fiscal 2021 are expected to be approximately $1.9 billion.

Cash provided by operating activities was $107.1 million for the first three quarters of fiscal 2020, compared to $3.9 billion for the same period in fiscal 2019.

The change was primarily due to material retail store closures resulting from the COVID-19 crisis, the U.S.

federal tax payment related to the Nestlé transaction and the timing of other tax payments and refunds.

Cash used in investing activities for the first three quarters of fiscal 2020 totaled $1.3 billion, compared to cash used in investing activities of $506.5 million for the same period in fiscal 2019.

The change was primarily driven by lapping proceeds from the divestiture of certain operations related to the conversions of our retail businesses in Thailand, France and the Netherlands to fully licensed markets during 2019 and lower sales of investments in fiscal 2020.

Cash provided by financing activities for the first three quarters of fiscal 2020 totaled $2.5 billion compared to cash used by financing activities of $7.4 billion for the first three quarters of fiscal 2019.

The change was primarily due to higher repurchases of our common stock under accelerated share repurchase agreements in fiscal 2019 and higher proceeds from issuance of long-term debt in fiscal 2020.

Cash provided by operating activities was $1.8 billion for the first quarter of fiscal 2021, compared to $1.8 billion for the same period in fiscal 2020.

Although our net earnings were negatively impacted by the COVID-19 pandemic, our cash flows from operations were flat when compared to the same period in fiscal 2020.

This is largely attributable to the non-cash loss on retirement and impairment of assets and improvements to our working capital.

Cash used in investing activities for the first quarter of fiscal 2021 totaled $0.3 billion, compared to cash used in investing activities of $0.4 billion for the same period in fiscal 2020.

The change was primarily due to lower existing and new store investments, partially offset by higher maturities and calls of investments.

Cash used in financing activities for the first quarter of fiscal 2021 totaled $1.0 billion compared to cash used in financing activities of $1.1 billion for the same period in fiscal 2020.

The change was primarily due to temporary suspension of our share repurchase program, partially offset by increased debt repayments and lower net proceeds from new debt issuances.

Contractual Obligations

In Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K, we disclosed that we had $35.4 billion in total contractual obligations as of September 27, 2020.

Other than our commercial paper and credit facilities borrowings, the issuance of our 2027 notes, our 2030 notes and our 2050 notes in the second quarter of fiscal 2020 and the issuance of our 2022 notes, our 2030 notes and our 2050 notes in the third quarter of fiscal 2020 as described in Note 8 , Debt, to the consolidated financial statements included in Item 1 of Part I of this 10-Q, there have been no material changes to our total obligations during the period covered by this 10-Q outside of the normal course of our business.

There have been no material changes to our total obligations during the period covered by this 10-Q outside of the normal course of our business.

Off-Balance Sheet Arrangements

Other than the addition of operating leases to the balance sheet in the first quarter of fiscal 2020 as described in Note 9 , Leases, there has been no material change in our off-balance sheet arrangements discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K.

There has been no material change in our off-balance sheet arrangements discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K.

Commodity Prices, Availability and General Risk Conditions

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis