What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-27 compared with 2021-01-26 · 162 added, 107 removed, 236 unchanged (53% of the section changed)

32 unchanged sentences

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

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

As of March 28, 2021, Starbucks had over 32,900 company-operated and licensed stores, an increase of 3% 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 December 27, 2020, our global comparable store sales declined 5%, including the negative impacts of COVID-19.

During the quarter ended March 28, 2021, our global comparable store sales grew 15%, a reflection of our recovery from the significant adverse impacts from the pandemic in the prior year period.

We have three reportable operating segments:

5 unchanged sentences

COVID-19 Update

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.

Starbucks results for the second quarter of fiscal 2021 reflect continued momentum in the recovery of our business from the effects of the COVID-19 pandemic.

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

Consolidated net revenues increased 11% to $6.7 billion in the second quarter of fiscal 2021 compared to $6.0 billion in the second quarter of fiscal 2020, driven primarily by lapping lost sales resulting from the COVID-19 outbreak in the prior year and strength in the U.S.

business in the current year.

For both the Americas segment and the U.S., comparable store sales increased 9% for the second quarter of fiscal 2021 compared to a decline of 3% in the second quarter of fiscal 2020.

market also had a 6% increase in two-year comparable store sales (1) , demonstrating our sales in the U.S.

had fully recovered from the adverse impacts from the pandemic.

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

1 unchanged sentence

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.

During the second quarter of fiscal 2021, we closed approximately 300 stores in the U.S.

and Canada, and expect to close an additional 200 stores 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.

For the International segment, comparable store sales increased 35% for the second quarter of fiscal 2021 compared to a decline of 31% in the second quarter of fiscal 2020.

Comparable store sales for our China market increased 91%, inclusive of value-added tax (“VAT”) favorability of approximately 9% which was reinstated for the second quarter of fiscal 2021.

Key markets in the International segment continued to experience pandemic-related restrictions that significantly impacted customer mobility during the quarter.

Although nearly all company-operated stores in these markets remained open, the modified operating protocols had an adverse impact to comparable store sales and results.

Most of our International licensed stores were also open with modified operations at the end of the second quarter of fiscal 2021.

Net revenues for our Channel Development segment declined $150 million, or 29%, when compared with the second 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.

As we lap the adverse impacts of the pandemic in fiscal 2020, we expect the momentum in our business recovery to continue for the remainder of the fiscal year.

Absent significant and prolonged 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 are confident in the strength of our brand and the durability of our long-term growth model.

(1) Two-year comparable store sales metric is calculated as ((1 + % change in comparable store sales in FY20) * (1 + % change in comparable store sales in FY21)) - 1.

Two-year comparable store sales for the U.S.

of 6% = ((1 + (-3%)) * (1 + 9%)) - 1.

Comparable Store Sales

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

Quarter Ended Dec 27, 2020

Change in Comparable Store Sales Change in

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

Quarter Ended Mar 28, 2021 Two Quarters Ended Mar 28, 2021

Comparable Store Sales Change in

Transactions Change in

Consolidated 15% (4)% 19% 4% (12)% 18%

1 unchanged sentence

International 35% 26% 7% 13% 4% 8%

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.

The above comparable store sales for the quarter ended March 28, 2021 reflect continued recovery from the pandemic, which had a significant adverse impact to our results during the same quarter in the prior year.

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

Quarter Ended Two Quarters Ended

Company-operated stores $ 5,653.1 $ 4,766.0 $ 887.1 18.6 % $ 11,379.6 $ 10,546.6 $ 833.0 7.9 %

2 unchanged sentences

Total net revenues $ 6,668.0 $ 5,995.7 $ 672.3 11.2 % $ 13,417.5 $ 13,092.8 $ 324.7 2.5 %

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).

For the quarter ended March 28, 2021 compared with the quarter ended March 29, 2020

Total net revenues for the second quarter of fiscal 2021 increased $672 million, primarily due to higher revenues from company-operated stores ($887 million).

The growth of company-operated stores revenues was driven by a 15% increase in comparable store sales ($670 million) attributed to a 19% increase in average ticket, partially offset by a 4% decrease in transactions.

Also contributing to the increase were incremental revenues from 469 net new Starbucks ® company-operated stores, or a 3% increase, over the past 12 months ($124 million) and favorable foreign currency translation ($94 million).

Licensed stores revenue decreased $95 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.

Other revenues decreased $120 million, primarily due to the transition of certain single-serve product activities to Nestlé and the lapping of product sales to Nestlé as part of the Foodservice order fulfillment transition.

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

For the two quarters ended March 28, 2021 compared with the two quarters ended March 29, 2020

Total net revenues for the first two quarters of fiscal 2021 increased $325 million, primarily due to higher revenues from company-operated stores ($833 million).

The growth of company-operated stores revenues was driven by a 4% increase in comparable store sales ($392 million) attributed to an 18% increase in average ticket, partially offset by a 12% decrease in transactions.

Also contributing to the increase were incremental revenues from 469 net new Starbucks ® company-operated stores, or a 3% increase, over the past 12 months ($286 million) and favorable foreign currency translation ($171 million).

Licensed stores revenue decreased $273 million, primarily driven by lower product and equipment sales to and royalty revenues from our licensees.

Other revenues decreased $235 million, primarily due to the transition of certain single-serve product activities to Nestlé and the lapping of higher transition activities related to the Global Coffee Alliance.

Also contributing were lower Global Coffee Alliance revenues, 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 businesses.

Operating Expenses

Quarter Ended

Quarter Ended Two Quarters Ended

Change Mar 28,

As a % of Total

Product and distribution costs $ 1,992.4 $ 1,997.7 $ (5.3) 29.9 % 33.3 % $ 4,041.5 $ 4,234.2 $ (192.7) 30.1 % 32.3 %

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Store operating expenses as a % of company-operated store revenues 49.9 % 57.1 % 50.0 % 52.6 %

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).

For the quarter ended March 28, 2021 compared with the quarter ended March 29, 2020

Product and distribution costs as a percentage of total net revenues decreased 340 basis points for the second quarter of fiscal 2021, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year.

Also contributing were the lapping of inventory write-offs and product waste in the prior year (approximately 90 basis points).

Store operating expenses as a percentage of total net revenues decreased 310 basis points for the second quarter of fiscal 2021.

Store operating expenses as a percentage of company-operated store revenues decreased 720 basis points, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year and higher benefits in the current year provided by temporary subsidies from the U.S.

and certain foreign governments (approximately 130 basis points).

These were partially offset by additional investments and growth in retail store partners wages and benefits (approximately 300 basis points).

Other operating expenses decreased $7 million for the second quarter of fiscal 2021, 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 decreased 40 basis points, primarily due to sales leverage.

General and administrative expenses increased $58 million, primarily due to incremental strategic investments in technology ($25 million) and higher performance-based compensation, recognizing the better than expected business recovery ($25 million).

Restructuring and impairment expenses increased $24 million, primarily due to accelerated amortization of right-of-use lease assets associated with the closure of certain company-operated stores ($14 million) and higher asset impairment ($8 million) related to store portfolio optimization.

Income from equity investees increased $9 million, primarily due to higher income from our North American Coffee Partnership joint venture.

The combination of these changes resulted in an overall increase in operating margin of 670 basis points for the second quarter of fiscal 2021.

For the two quarters ended March 28, 2021 compared with the two quarters ended March 29, 2020

Product and distribution costs as a percentage of total net revenues decreased 220 basis points for the first two quarters of fiscal 2021, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year.

Also contributing were the lapping of inventory write-offs and product waste in the prior year (approximately 30 basis points).

Store operating expenses as a percentage of total net revenues increased 10 basis points for the first two quarters of fiscal 2021.

Store operating expenses as a percentage of company-operated store revenues decreased 260 basis points, primarily due to labor efficiencies (approximately 170 basis points), benefits provided by temporary subsidies from the U.S.

and certain foreign governments (approximately 80 basis points) and sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year.

These were partially offset by additional investments and growth in retail store partners wages and benefits (approximately 230 basis points).

Other operating expenses decreased $17 million for the first two quarters of fiscal 2021, due to lapping prior year incremental costs to develop and grow the Global Coffee Alliance.

General and administrative expenses increased $96 million, primarily due to incremental strategic investments in technology ($53 million) and higher performance-based compensation, recognizing the better than expected business recovery ($43 million).

Restructuring and impairment expenses increased $90 million, primarily due to higher asset impairment ($50 million) and accelerated amortization of right-of-use lease assets associated with the closure of certain company-operated stores ($40 million), related to store portfolio optimization.

Income from equity investees increased $18 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.

The combination of these changes resulted in an overall increase in operating margin of 120 basis points for the first two quarters of fiscal 2021.

Other Income and Expenses

Quarter Ended

Quarter Ended Two Quarters Ended

Change Mar 28,

As a % of Total

Operating income $ 987.6 $ 487.4 $ 500.2 14.8 % 8.1 % $ 1,901.2 $ 1,707.2 $ 194.0 14.2 % 13.0 %

7 unchanged sentences

Effective tax rate including noncontrolling interests 25.9 % 16.8 % 24.5 % 21.1 %

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

For the quarter ended March 28, 2021 compared with the quarter ended March 29, 2020

Interest income and other, net increased $15 million, primarily due to additional gains from certain investments and net favorable fair value adjustments from derivatives used to manage our risk of commodity risk price fluctuations.

Interest expense increased $16 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 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).

The effective tax rate for the quarter ended March 28, 2021 was 25.9% compared to 16.8% for the same quarter in fiscal 2020.

The increase was primarily due to higher earnings, including the foreign rate differential on our jurisdictional mix of earnings, partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year.

For the two quarters ended March 28, 2021 compared with the two quarters ended March 29, 2020

Interest expense increased $45 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 two quarters ended March 28, 2021 was 24.5% compared to 21.1% for the same period in fiscal 2020.

Segment Information

Results of operations by segment (in millions) :

Quarter Ended

Quarter Ended Two Quarters Ended

Change Mar 28,

As a % of Americas

Total Net Revenues

As a % of Americas

Total Net Revenues

Net revenues:

12 unchanged sentences

Store operating expenses as a % of company-operated store revenues 51.6 % 55.9 % 51.9 % 52.5 %

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.

For the quarter ended March 28, 2021 compared with the quarter ended March 29, 2020

Americas total net revenues for the second quarter of fiscal 2021 increased $335 million, or 8%, primarily due to a 9% increase in comparable store sales ($349 million) driven by a 22% increase in average ticket, partially offset by a 10% decrease in transactions and the opening of new company-operated stores ($45 million).

These increases were partially offset by lower product and equipment sales to and royalty revenues from our licensees ($70 million), primarily due to the impact of the COVID-19 pandemic.

Operating Margin

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).

Americas operating income for the second quarter of fiscal 2021 increased 46% to $905 million, compared to $621 million in the second quarter of fiscal 2020.

Operating margin increased 510 basis points to 19.4%, primarily due to the lapping of COVID-19 related costs, mostly catastrophe and service pay for store partners (approximately 140 basis points) and inventory write-offs (approximately 110 basis points), sales leverage from business recovery, and pricing (approximately 120 basis points).

Temporary subsidies provided by the CARES Act and CEWS (approximately 70 basis points) and benefits from closure of lower-performing stores (approximately 70 basis points) also contributed.

These increases were partially offset by additional growth and investments in retail store partners wages and benefits (approximately 320 basis points) and higher restructuring expenses relating to our Americas portfolio optimization (approximately 50 basis points).

For the two quarters ended March 28, 2021 compared with the two quarters ended March 29, 2020

Americas total net revenues for the first two quarters of fiscal 2021 increased $27 million, primarily due to a 1% increase in comparable store sales ($107 million) driven by a 21% increase in average ticket, partially offset by a 16% decrease in transactions and the opening of new company-operated stores ($106 million).

These increases were partially offset by lower product and equipment sales to and royalty revenues from our licensees ($190 million), primarily due to the impact of the COVID-19 pandemic.

Operating Margin

Americas operating income for the first two quarters of fiscal 2021 was relatively flat at $1.7 billion, compared to the second quarter of fiscal 2020.

Operating margin decreased 10 basis points to 18.3%, primarily due to additional growth and investments in retail store partners wages and benefits (approximately 250 basis points).

Higher restructuring expenses relating to our Americas portfolio optimization (approximately 90 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).

Partially offsetting these decreases were improved labor efficiencies (approximately 170 basis points), pricing (approximately 120 basis points) and temporary benefits provided by the CARES Act and CEWS (approximately 60 basis points).

International

Quarter Ended

Quarter Ended Two Quarters Ended

As a % of International

Total Net Revenues As a % of International

Total Net Revenues

12 unchanged sentences

Income from equity investees 26.8 24.8 2.0 1.7 2.2 53.0 55.8 (2.8) 1.6 2.1

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

Operating income/(loss) $ 251.5 $ (15.4) $ 266.9 15.6 % (1.4) % $ 526.3 $ 260.5 $ 265.8 16.1 % 9.6 %

Store operating expenses as a % of company-operated store revenues 44.8 % 62.4 % 44.2 % 52.9 %

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.

For the quarter ended March 28, 2021 compared with the quarter ended March 29, 2020

International total net revenues for the second quarter of fiscal 2021 increased $476 million, or 42%, primarily due to a 35% increase in comparable store sales ($322 million), driven by a 26% increase in transactions and a 7% increase in average ticket.

Also contributing were favorable foreign currency translation ($86 million) and 699 net new Starbucks ® company-operated stores, or an 11% increase, over the past 12 months ($79 million).

These were partially offset by lower product and equipment sales to and royalty revenues from our licensees ($32 million), primarily due to the impact of the COVID-19 pandemic.

Operating Margin

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).

International operating income for the second quarter of fiscal 2021 was $252 million, compared to the operating loss of $15 million in the second quarter of fiscal 2020.

Operating margin increased 1,700 basis points to 15.6%, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year, as well as temporary government subsidies (approximately 270 basis points).

For the two quarters ended March 28, 2021 compared with the two quarters ended March 29, 2020

International total net revenues for the first two quarters of fiscal 2021 increased $560 million, or 21%, primarily due to a 13% increase in comparable store sales ($285 million), driven by an 8% increase in average ticket and a 4% increase in transactions.

Also contributing were 699 net new Starbucks ® company-operated stores, or an 11% increase, over the past 12 months

($180 million) and favorable foreign currency translation ($164 million).

These were partially offset by lower product and equipment sales to and royalty revenues from our licensees ($93 million), primarily due to the impact of the COVID-19 pandemic.

Operating Margin

International operating income for the first two quarters of fiscal 2021 was $526 million, compared to $261 million for the same period in fiscal 2020.

Operating margin increased 650 basis points to 16.1%, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year, as well as temporary government subsidies (approximately 120 basis points).

Channel Development

Quarter Ended

Quarter Ended Two Quarters Ended

Change Mar 28,

As a % of Channel Development

Total Net Revenues As a % of Channel Development

Total Net Revenues

7 unchanged sentences

Operating income $ 172.6 $ 189.6 $ (17.0) 46.7 % 36.5 % $ 353.3 $ 365.1 $ (11.8) 47.7 % 36.0 %

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).

For the quarter ended March 28, 2021 compared with the quarter ended March 29, 2020

Channel Development total net revenues for the second quarter of fiscal 2021 decreased $149 million, or 29%, primarily due to the transition of certain single-serve product activities to Nestlé ($106 million), lapping of additional product sales to Nestlé to transition Foodservice order fulfillment ($39 million).

These were partially offset by growth in our ready-to-drink business.

We expect the impacts from the transition to be substantially completed by the end of fiscal 2021.

Operating Margin

Channel Development operating income for the second quarter of fiscal 2021 decreased 9% to $173 million, compared to $190 million in the second quarter of fiscal 2020.

Operating margin increased 1,020 basis points to 46.7%, primarily due to the transfer of certain single-serve products to Nestlé as part of the Global Coffee Alliance (approximately 480 basis points) and lapping Global Coffee Alliance transition-related activities (approximately 210 basis points).

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

For the two quarters ended March 28, 2021 compared with the two quarters ended March 29, 2020

Channel Development total net revenues for the first two quarters of fiscal 2021 decreased $273 million, or 27%, primarily due to the transition of certain single-serve product activities to Nestlé ($197 million) and the lapping of higher transition activities related to the Global Coffee Alliance ($73 million).

Also contributing were lower Global Coffee Alliance revenues ($27 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.

These were partially offset by growth in our ready-to-drink business.

Operating Margin

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).

Channel Development operating income for the first two quarters of fiscal 2021 decreased 3% to $353 million, compared to $365 million for the same period in fiscal 2020.

Operating margin increased 1,170 basis points to 47.7%, primarily due to the transfer of certain single-serve products to Nestlé as part of the Global Coffee Alliance (approximately 650 basis points) and lapping Global Coffee Alliance transition-related activities (approximately 100 basis points).

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

Corporate and Other

Quarter Ended

Quarter Ended Two Quarters Ended

Net revenues:

5 unchanged sentences

General and administrative expenses 304.6 271.6 33.0 12.2 621.0 563.8 57.2 10.1

Restructuring and impairments — 0.3 (0.3) nm

Restructuring and impairments — — — nm — 0.3 (0.3) nm

Total operating expenses 364.4 320.0 44.4 13.9 740.2 670.9 69.3 10.3

2 unchanged sentences

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.

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.

For the quarter ended March 28, 2021 compared with the quarter ended March 29, 2020

Corporate and Other operating loss increased to $342 million for the second quarter of fiscal 2021, or 11%, compared to $308 million for the second quarter of fiscal 2020.

This increase was primarily driven by incremental strategic investments in technology and higher performance-based compensation, recognizing the better than expected business recovery.

For the two quarters ended March 28, 2021 compared with the two quarters ended March 29, 2020

Corporate and Other operating loss increased to $697 million for the first two quarters of fiscal 2021, or 9%, compared to $638 million for the same period in fiscal 2020.

This increase was primarily driven by incremental strategic investments in technology and higher performance-based compensation , recognizing the better than expected business recovery.

Quarterly Store Data

Our store data for the periods presented is as follows:

Net stores opened/(closed) and

transferred during the period

Quarter Ended Stores open as of

Net stores opened/(closed) and transferred during the period

Quarter Ended Two Quarters Ended Stores open as of

Company-operated stores (209) 31 (289) 77 9,820 10,051

8 unchanged sentences

Investment Overview

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

Our cash and investments totaled $4.3 billion as of March 28, 2021 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 December 27, 2020, approximately $2.3 billion of cash was held in foreign subsidiaries.

As of March 28, 2021, approximately $2.3 billion of cash was held in foreign subsidiaries.

Borrowing Capacity

7 unchanged sentences

The 2018 credit facility is available for general corporate purposes.

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

As of March 28, 2021, we had no borrowings under the 2018 credit facility.

The 364-day credit facility

6 unchanged sentences

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

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

As of March 28, 2021, 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.

recovery in our cash flows, we are currently in compliance with the covenant prior to the amendment and expect our continued compliance upon the amendment expiration at the end of fiscal 2021.

Commercial Paper

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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 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.

As of March 28, 2021, we had no borrowings outstanding under our commercial paper program.

As such, our total contractual borrowing capacity for general corporate purposes as of the end of our second quarter of fiscal 2021 was $6.0 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.

• 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 $45.8 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.

• A ¥10 billion, or $91.6 million, facility is currently set to mature on March 26, 2022.

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%.

As of March 28, 2021, we had $18.3 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 December 27, 2020, we were in compliance with all applicable covenants.

As of March 28, 2021, 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.

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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.

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.

During the second quarter of fiscal 2021, our Board of Directors approved a quarterly cash dividend to shareholders of $0.45 per share to be paid on May 28, 2021 to shareholders of record as of the close of business on May 13, 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.

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

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

As of March 28, 2021, 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.

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

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.

Cash provided by operating activities was $2.7 billion for the first two quarters of fiscal 2021, compared to $0.5 billion for the same period in fiscal 2020.

The increase was primarily due to the timing of tax payments and refunds.

Cash used in investing activities for the first two quarters of fiscal 2021 totaled $0.6 billion, compared to cash used in investing activities of $0.7 billion for the same period in fiscal 2020.

The change was primarily due to an increase in purchase of investments, partially offset by higher maturities and calls of investments and decrease in spend on capital expenditures.

Cash used in financing activities for the first two quarters of fiscal 2021 totaled $2.7 billion compared to cash provided by financing activities of $0.2 billion for the same period in fiscal 2020.

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

Contractual Obligations

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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