What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2022-02-01 · 188 added, 103 removed, 213 unchanged (58% of the section changed)

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Generally, these statements can be identified by the use of words such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “project,” “seek,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These statements include statements relating to trends in or expectations relating to the effects of our existing and any future initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, the anticipated timing and effects of recovery of our business, the conversion of several market operations to fully licensed models, our plans for streamlining our operations, including store openings, closures and changes in store formats and models, expanding our licensing to Nestlé of our consumer packaged goods and Foodservice businesses and its effects on our Channel Development segment results, tax rates, business opportunities and expansion, strategic acquisitions, our future relationship with Starbucks Coffee Korea Co., Ltd., expenses, dividends, share repurchases, commodity costs and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, investments, borrowing capacity and use of proceeds, continuing compliance with our covenants under our credit facilities and commercial paper program, repatriation of cash to the U.S., the likelihood of the issuance of additional debt and the applicable interest rate, the continuing impact of the COVID-19 pandemic on our financial results, future availability of governmental subsidies for COVID-19 or other public health events, the expected effects of new accounting pronouncements and the estimated impact of changes in U.S.

tax law, including on tax rates, investments funded by these changes and potential outcomes and effects of legal proceedings.

These statements include statements relating to trends in or expectations relating to the effects of our existing and any future initiatives, strategies, investments and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers;

our operations in the U.S.

our environmental, social and governance efforts;

our partners;

economic and consumer trends, including the impact of inflationary pressures;

the conversion of several market operations to fully licensed models;

our plans for streamlining our operations, including store openings, closures and changes in store formats and models;

expanding our licensing to Nestlé of our consumer packaged goods and Foodservice businesses and its effects on our Channel Development segment results;

business opportunities and expansion;

strategic acquisitions;

our dividends programs;

commodity costs and our mitgation strategy;

our liquidity, cash flow from operations, investments, borrowing capacity and use of proceeds;

continuing compliance with our covenants under our credit facilities and commercial paper program;

repatriation of cash to the U.S.;

the likelihood of the issuance of additional debt and the applicable interest rate;

the continuing impact of the COVID-19 pandemic on our financial results and future availability of governmental subsidies for COVID-19 or other public health events;

our ceo transition;

our share repurchase program;

our use of cash and cash requirements;

the expected effects of new accounting pronouncements and the estimated impact of changes in U.S.

tax law, including on tax rates, investments funded by these changes and potential outcomes;

and effects of legal proceedings.

Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties.

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regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions;

the potential for a resurgence of COVID-19 infections and the circulation of novel variants of COVID-19 in a given geographic region after it has hit its “peak”;

the resurgence of COVID-19 infections and the circulation of novel variants of COVID-19;

fluctuations in U.S.

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material failures of our information technology systems;

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;

costs associated with, and the successful execution of, the Company’s initiatives and plans;

new initiatives and plans or revisions to existing initiatives or plans;

our ability to obtain financing on acceptable terms;

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partner investments, changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts;

failure to attract or retain key executive or employee talent;

significant increased logistics costs;

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the impact of competition;

inherent risks of operating a global business;

inherent risks of operating a global business including any potential negative effects stemming from the Russian invasion of Ukraine;

the prices and availability of coffee, dairy and other raw materials;

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Introduction and Overview

Starbucks is the premier coffee roaster and retailer of specialty coffee with operations in 84 markets around the world.

As of January 2, 2022, Starbucks had over 34,300 company-operated and licensed stores, an increase of 4% from the prior year.

Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 84 markets.

As of April 3, 2022, Starbucks had more than 34,600 company-operated and licensed stores, an increase of 5% from the prior year.

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

During the quarter ended January 2, 2022, our global comparable store sales grew 13%, demonstrating powerful momentum beyond recovery from the significant adverse impacts from the pandemic in the prior year period.

During the quarter ended April 3, 2022, our global comparable store sales grew 7%, primarily driven by 12% growth in the U.S.

market, partially offset by COVID-19 related restrictions in China, leading to a 23% decrease in China comparable store sales.

We have three reportable operating segments:

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

Additionally, we monitor our two-year comparable sales metric based on a multiplicative basis (1) to better analyze our performance due to the adverse impacts from the pandemic.

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

Our fiscal 2022 year includes 52 weeks while our fiscal 2021 year included 53 weeks.

Our fiscal 2022 year includes 52 weeks while our fiscal 2021 year included 53 weeks, with the 53rd week falling in the fourth quarter of fiscal 2021.

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

Starbucks results for the first quarter of fiscal 2022 demonstrate the overall strength and resilience of our brand.

Consolidated net revenues increased 19% to $8.1 billion in the first quarter of fiscal 2022 compared to $6.7 billion in the first quarter of fiscal 2021, primarily driven by strength in our U.S.

business attributable to strong holiday performance, partially offset by continued COVID-19 related disruptions in certain North America and International markets.

Consolidated operating margin expanded 110 basis points from the prior year to 14.6%, primarily due to sales leverage from business recovery, pricing in North America and lower restructuring costs, partially offset by investments in store partner wages and benefits as well as inflation.

For the North America segment, comparable store sales increased 18% for the first quarter of fiscal 2022 compared to a decline of 6% in the first quarter of fiscal 2021.

Comparable store sales for our U.S.

market increased 18% for the first quarter of fiscal 2022 compared to a decline of 5% in the first quarter of fiscal 2021.

market also had a 12% increase in two-year comparable store sales, despite modified store operations related to the COVID-19 pandemic, which have been ongoing, whether intermittently or concentrated, since the COVID-19 pandemic began, The segment also experienced higher than anticipated costs, primarily related to enhancements in retail store partner wages, increased supply chain costs due to inflationary pressures and increased spend on new partner training and support costs to address labor market conditions.

Starbucks results for the second quarter of fiscal 2022 demonstrate the overall strength and resilience of our brand, despite continued COVID-19 related disruptions in certain international markets, especially China.

Consolidated net revenues increased 15% to $7.6 billion in the second quarter of fiscal 2022 compared to $6.7 billion in the second quarter of fiscal 2021, primarily driven by strength in our U.S.

business, incremental revenues from new store openings and growth in our licensed stores, partially offset by continued COVID-19 pandemic related disruptions in China restricting customer mobility.

Consolidated operating margin decreased 240 basis points from the prior year to 12.4%, primarily driven by inflationary pressures on commodities and our supply chain as well as investments and growth in retail store partner wages and benefits, partially offset by pricing and lower restructuring expenses in North America.

For both the North America segment and the U.S., comparable store sales increased 12% for the second quarter of fiscal 2022 compared to an increase of 9% in the second quarter of fiscal 2021.

Average ticket for both the North America segment and the U.S.

grew 7%, primarily driven by pricing and increased demand for food items in our U.S.

The segment also experienced higher costs, primarily related to increased supply chain costs due to inflationary pressures, enhancements in retail store partner wages and increased spend on new partner training and support costs to address labor market conditions, partially offset by pricing and lapping restructuring expenses in the prior period.

For the International segment, comparable store sales declined 8%, inclusive of a 3% adverse impact from lapping the prior-year value-added tax benefit.

Comparable store sales for our China market declined 14% for the first quarter of fiscal 2022, inclusive of a 4% adverse impact from lapping the prior-year value-added tax benefit.

Our China market continued to experience pandemic-related restrictions that significantly impacted customer mobility during the quarter, while our other International markets were not as severely impacted.

Net revenues for our Channel Development segment increased $46 million, or 12%, when compared with the first quarter of fiscal 2021.

Comparable store sales for our China market declined 23% for the second quarter of fiscal 2022, inclusive of a 4% adverse impact from lapping the prior-year value-added tax benefit.

Our China market experienced unprecedented COVID-19 pandemic related restrictions in multiple cities that severely impacted customer mobility;

approximately one third of our stores in China remain temporarily closed or offer mobile ordering channels only.

Strong business recovery in other international markets partially offset the unfavorability in our China market.

Net revenues for our Channel Development segment increased $93 million, or 25%, when compared with the second quarter of fiscal 2021.

This was largely due to higher product sales to and royalty revenue from the Global Coffee Alliance and growth in our international ready-to-drink business.

Absent significant COVID-19 relapses or global economic disruptions, and based on the current trend of our retail business operations 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.

However, our business is experiencing, and expects to continue to experience, operating margin pressures such as accelerated inflation, increased spend due to labor market conditions and extended COVID-19 related pay and benefits for our partners.

We believe we have plans to effectively mitigate these pressures, such as improving retail store operations and potential adjustments to pricing.

However, if our mitigation plans are not effective, these pressures and other factors could have an adverse impact on our business.

(1) Two-year comparable store sales metric is calculated as ((1 + % change in comparable store sales in FY21) * (1 + % change in comparable store sales in FY22)) - 1.

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

of 12% = ((1 + (-5%)) * (1 + 18%)) - 1.

Despite continued COVID-19 induced business interruptions, especially in our China market, we have seen the strength and resilience of our brand as well as strong customer demand across our portfolio.

However, COVID-19 related mobility restrictions remain in place in China.

Additionally, our business expects the weights from inflationary pressures and increased spend due to labor market conditions to continue as well as incremental investments in our partners, technology and digital capabilities.

While we anticipate these will have an adverse impact on our operating margin for the remainder of the fiscal year, we are confident that our strategy will elevate both the partner and customer experience, accelerating growth over the long-term.

Results of Operations (in millions)

Quarter Ended

Quarter Ended Two Quarters Ended

Company-operated stores $ 6,276.7 $ 5,653.1 $ 623.6 11.0 % $ 12,999.1 $ 11,379.6 $ 1,619.5 14.2 %

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Total net revenues $ 7,635.6 $ 6,668.0 $ 967.6 14.5 % $ 15,686.0 $ 13,417.5 $ 2,268.5 16.9 %

For the quarter ended January 2, 2022 compared with the quarter ended December 27, 2020

Total net revenues for the first quarter of fiscal 2022 increased $1.3 billion, primarily due to higher revenues from company-operated stores ($1.0 billion).

The growth of company-operated stores revenue was driven by a 13% increase in comparable store sales ($719 million), attributable to a 10% increase in comparable transactions and a 3% increase in average ticket.

For the quarter ended April 3, 2022 compared with the quarter ended March 28, 2021

Total net revenues for the second quarter of fiscal 2022 increased $968 million, primarily due to higher revenues from company-operated stores ($624 million).

The growth of company-operated stores revenue was driven by a 7% increase in comparable store sales ($402 million), attributable to a 4% increase in average ticket and a 3% increase in comparable transactions.

Also contributing to the increase were incremental revenues from 885 net new Starbucks ® company-operated stores, or a 5% increase, over the past 12 months ($250 million).

Partially offsetting these increases was unfavorable foreign currency translation ($55 million).

Licensed stores revenue increased $255 million also contributed to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($228 million) and the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($40 million).

Other revenues increased $68 million, primarily due to higher product sales and royalty revenue in the Global Coffee Alliance and growth in our international ready-to-drink business.

Other revenues increased $90 million, primarily due to higher product sales and royalty revenue in the Global Coffee Alliance and volume growth in our international ready-to-drink business.

For the two quarters ended April 3, 2022 compared with the two quarters ended March 28, 2021

Total net revenues for the first two quarters of fiscal 2022 increased $2.3 billion, primarily due to higher revenues from company-operated stores ($1.6 billion).

The growth of company-operated stores revenue was driven by a 10% increase in comparable store sales ($1.1 billion) attributed to a 6% increase in comparable transactions and a 3% increase in average ticket.

Also contributing to the increase were incremental revenues from 885 net new Starbucks ® company-operated stores, or a 5% increase, over the past 12 months ($503 million).

Partially offsetting these increases was unfavorable foreign currency translation ($61 million).

Licensed stores revenue increased $492 million, primarily driven by higher product and equipment sales to and royalty revenues from our licensees ($434 million) and the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($79 million).

Other revenues increased $158 million, primarily due to higher product sales and royalty revenue in the Global Coffee Alliance and volume growth in our international ready-to-drink business.

Operating Expenses

Quarter Ended

Quarter Ended Two Quarters Ended

Change Apr 3,

As a % of Total

Net Revenues As a % of Total

Product and distribution costs $ 2,465.8 $ 1,992.4 $ 473.4 32.3 % 29.9 % $ 4,992.7 $ 4,041.5 $ 951.2 31.8 % 30.1 %

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Store operating expenses as a % of company-operated stores revenue 52.8 % 49.9 % 51.7 % 50.0 %

For the quarter ended January 2, 2022 compared with the quarter ended December 27, 2020

Product and distribution costs as a percentage of total net revenues increased 100 basis points for the first quarter of fiscal 2022, primarily due to supply chain costs due to inflationary pressures (approximately 180 basis points) and product mix changes (approximately 40 basis points), partially offset by pricing in North America (approximately 150 basis points).

Store operating expenses as a percentage of total net revenues decreased 30 basis points for the first quarter of fiscal 2022.

Store operating expenses as a percentage of company-operated stores revenue increased 50 basis points, primarily due to enhancements in retail store partner wages and benefits (approximately 180 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 110 basis points), partially offset by sales leverage from business recovery.

For the quarter ended April 3, 2022 compared with the quarter ended March 28, 2021

Product and distribution costs as a percentage of total net revenues increased 240 basis points for the second quarter of fiscal 2022, primarily due to supply chain costs due to inflationary pressures.

Store operating expenses as a percentage of total net revenues increased 110 basis points for the second quarter of fiscal 2022.

Store operating expenses as a percentage of company-operated stores revenue increased 290 basis points, primarily due to enhancements in retail store partner wages and benefits (approximately 260 basis points), lapping of higher temporary government subsidies in the prior year (approximately 150 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 80 basis points), partially offset by sales leverage.

Other operating expenses increased $14 million for the second quarter of fiscal 2022, primarily due to higher support costs for our growing licensed markets ($4 million) and strategic investments in technology and other initiatives ($3 million).

Depreciation and amortization expenses as a percentage of total net revenues decreased 70 basis points, primarily due to sales leverage.

General and administrative expenses increased $54 million, primarily due to incremental investments in technology ($29 million) and increased partner wages and benefits ($19 million), partially offset by lower performance-based compensation ($8 million).

Restructuring and impairment expenses decreased $80 million, primarily due to lapping our North America store portfolio optimization in the prior year, specifically lower asset impairment charges ($41 million) and accelerated lease right-of-use asset amortization costs ($39 million).

General and administrative expenses increased $17 million, primarily due to incremental investments in technology ($24 million), increased partner wages and benefits ($19 million) and increased support costs to address labor market conditions ($10 million).

These increases were partially offset by lower performance-based compensation ($33 million).

Restructuring and impairment expenses decreased $19 million, primarily due to lower restructuring activities related to our North America store portfolio optimization in the prior year, specifically lower accelerated lease right-of-use asset amortization costs ($13 million) and lower asset impairment charges ($7 million).

Income from equity investees decreased $28 million, primarily due to the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($27 million).

The combination of these changes resulted in an overall decrease in operating margin of 240 basis points for the second quarter of fiscal 2022.

For the two quarters ended April 3, 2022 compared with the two quarters ended March 28, 2021

Product and distribution costs as a percentage of total net revenues increased 170 basis points for the first two quarters of fiscal 2022, primarily due to supply chain costs due to inflationary pressures.

Store operating expenses as a percentage of total net revenues increased 40 basis points for the first two quarters of fiscal 2022.

Store operating expenses as a percentage of company-operated stores revenue increased 170 basis points, primarily due to enhancements in retail store partner wages and benefits (approximately 280 basis points), lapping of higher temporary government subsidies in the prior year (approximately 80 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 100 basis points), partially offset by sales leverage.

Other operating expenses increased $24 million for the first two quarters of fiscal 2022, primarily due to higher support costs for our growing licensed markets ($11 million) and strategic investments in technology and other initiatives ($4 million).

Depreciation and amortization expenses as a percentage of total net revenues decreased 80 basis points, primarily due to sales leverage.

General and administrative expenses increased $71 million, primarily due to incremental investments in technology ($52 million), increased partner wages and benefits ($38 million) and increased support costs to address labor market conditions ($11 million).

These increases were partially offset by lower performance-based compensation ($41 million).

Restructuring and impairment expenses decreased $98 million, primarily due to lower restructuring activities related to our North America store portfolio optimization in the prior year, specifically lower accelerated lease right-of-use asset amortization costs ($52 million) and lower asset impairment charges ($48 million).

Income from equity investees decreased $70 million, primarily due to the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($54 million) and lower income from our North American Coffee Partnership joint venture ($19 million).

The combination of these changes resulted in an overall increase in operating margin of 110 basis points for the first quarter of fiscal 2022.

The combination of these changes resulted in an overall decrease in operating margin of 60 basis points for the first two quarters of fiscal 2022.

Other Income and Expenses

Quarter Ended

Quarter Ended Two Quarters Ended

Change Apr 3,

As a % of Total

Net Revenues As a % of Total

Operating income $ 948.9 $ 987.6 $ (38.7) 12.4 % 14.8 % $ 2,126.7 $ 1,901.2 $ 225.5 13.6 % 14.2 %

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Effective tax rate including noncontrolling interests 23.0 % 25.9 % 23.1 % 24.5 %

For the quarter ended January 2, 2022 compared with the quarter ended December 27, 2020

Interest income and other, net decreased $16 million, primarily due to higher net losses from certain investments.

Interest expense decreased $5 million, primarily due to lower debt balances attributed to repayments of short-term and current portion of long-term debt balances.

For the quarter ended April 3, 2022 compared with the quarter ended March 28, 2021

Interest income and other, net increased $29 million, primarily due to higher net gains from certain investments.

Interest expense increased $4 million, primarily due to additional interest incurred on long-term debt issued in February 2022.

The effective tax rate for the quarter ended April 3, 2022 was 23.0% compared to 25.9% for the same period in fiscal 2021.

The decrease was primarily due to a beneficial return-to-provision adjustment recorded related to the prior year divestiture of certain joint venture operations.

For the two quarters ended April 3, 2022 compared with the two quarters ended March 28, 2021

Interest income and other, net increased $14 million, primarily due to higher net gains from certain investments.

The effective tax rate for the first two quarters ended April 3, 2022 was 23.1% compared to 24.5% for the same period in fiscal 2021.

The decrease was primarily due to a beneficial return-to-provision adjustment recorded related to the prior year divestiture of certain joint venture operations.

Segment Information

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North America (1)

Quarter Ended

Quarter Ended Two Quarters Ended

Change Apr 3,

North America

Total Net Revenues As a % of North America

Total Net Revenues

13 unchanged sentences

Store operating expenses as a % of company-operated stores revenue 53.2 % 51.6 % 52.5 % 51.9 %

(1) North America licensed stores revenue, total net revenues, product and distribution costs, other operating expenses, total operating expenses and operating income for the quarter ended December 27, 2020, have been restated to conform with current period presentation.

For the quarter ended January 2, 2022 compared with the quarter ended December 27, 2020

North America total net revenues for the first quarter of fiscal 2022 increased $1.1 billion, or 23%, primarily due to an 18% increase in comparable store sales ($762 million) driven by a 12% increase in transactions and a 6% increase in average ticket.

Also contributing to these increases were the performance of new stores compared to the closure of underperforming stores in prior year including stores related to our restructuring plan ($140 million) and higher product and equipment sales to and royalty revenues from our licensees ($130 million) primarily due to business recovery from the COVID-19 pandemic.

(1) North America licensed stores revenue, total net revenues, product and distribution costs, other operating expenses, total operating expenses and operating income for the quarter and two quarters ended March 28, 2021, have been restated to conform with current period presentation.

For the quarter ended April 3, 2022 compared with the quarter ended March 28, 2021

North America total net revenues for the second quarter of fiscal 2022 increased $807 million, or 17%, primarily due to a 12% increase in comparable store sales ($510 million) driven by a 7% increase in average ticket and a 5% increase in transactions.

Also contributing to these increases were the performance of new stores compared to the closure of underperforming stores in prior year including stores related to our restructuring plan ($146 million) and higher product and equipment sales to and royalty revenues from our licensees ($139 million).

Operating Margin

North America operating income for the first quarter of fiscal 2022 increased 35% to $1.1 billion, compared to $803 million in the first quarter of fiscal 2021.

Operating margin increased 170 basis points to 18.9%, primarily due to sales leverage from business recovery.

Also contributing to the margin improvement was pricing (approximately 210 basis points), lower restructuring expenses (approximately 170 basis points), sourcing savings (approximately 70 basis points) and benefits from the closure of lower-performing stores (approximately 70 basis points).

These increases were partially offset by higher supply chain costs due to inflationary pressures (approximately 240 basis points), enhancements in retail store partner wages and benefits (approximately 190 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 130 basis points).

North America operating income for the second quarter of fiscal 2022 increased 4% to $932 million, compared to $896 million in the second quarter of fiscal 2021.

Operating margin decreased 220 basis points to 17.1%, primarily due to higher supply chain costs resulting from inflationary pressures (approximately 350 basis points), investments in labor including enhancements in retail store partner wages and benefits (approximately 280 basis points) and support costs to address labor market conditions (approximately 100 basis points) as well as lapping temporary subsidies provided by the CARES Act and CEWS (approximately 140 basis points).

These were partially offset by sales leverage as well as pricing (approximately 390 basis points), sourcing savings (approximately 80 basis points), lower restructuring activity expenses (approximately 40 basis points) and benefits from the closure of lower-performing stores (approximately 40 basis points).

For the two quarters ended April 3, 2022 compared with the two quarters ended March 28, 2021

North America total net revenues for the first two quarters of fiscal 2022 increased $1.9 billion, or 20% primarily due to a 15% increase in comparable store sales ($1.3 billion) driven by a 9% increase in transactions and a 6% increase in average ticket.

Also contributing to these increases were the performance of new stores compared to the closure of underperforming stores in prior year including stores related to our restructuring plan ($287 million) and higher product and equipment sales to and royalty revenues from our licensees ($268 million), primarily due to business recovery from impact of the COVID-19 pandemic.

Operating Margin

North America operating income for the first two quarters of fiscal 2022 increased 19% to $2.0 billion, compared to $1.7 billion for the same period in fiscal 2021.

Operating margin decreased 20 basis points to 18.0%, primarily due to investments in labor including enhancements in retail store partner wages and benefits (approximately 310 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 120 basis points), higher supply chain costs resulting from inflationary pressures (approximately 300 basis points) and lapping temporary subsidies provided by the CARES Act and CEWS (approximately 90 basis points).

These were partially offset by sales leverage as well as pricing (approximately 300 basis points), lower restructuring activity expenses (approximately 100 basis points), sourcing savings (approximately 80 basis points) and benefits from the closure of lower-performing stores (approximately 50 basis points).

International (1)

Quarter Ended

Quarter Ended Two Quarters Ended

As a % of International

Total Net Revenues As a % of International

Total Net Revenues

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Store operating expenses as a % of company-operated stores revenue 51.4 % 44.8 % 48.7 % 44.2 %

(1) International licensed stores revenue, total net revenues, product and distribution costs, other operating expenses, general and administrative expenses, total operating expenses and operating income for the quarter ended December 27, 2020, have been restated to conform with current period presentation.

For the quarter ended January 2, 2022 compared with the quarter ended December 27, 2020

International total net revenues for the first quarter of fiscal 2022 increased $194 million, or 12%, primarily due to 774 net new Starbucks company-operated store openings, or a 12% increase over the past 12 months ($113 million).

Additionally, there were higher product and equipment sales to and royalty revenues from our licensees ($76 million) primarily due to lapping the impact of the COVID-19 pandemic in the prior year.

(1) International licensed stores revenue, total net revenues, product and distribution costs, other operating expenses, general and administrative expenses, total operating expenses and operating income for the quarter and two quarters ended March 28, 2021, have been restated to conform with current period presentation.

For the quarter ended April 3, 2022 compared with the quarter ended March 28, 2021

International total net revenues for the second quarter of fiscal 2022 increased $65 million, or 4%, primarily due to 751 net new Starbucks company-operated store openings, or an 11% increase over the past 12 months ($104 million).

Additionally, there were higher product sales to and royalty revenues from our licensees ($89 million), primarily due to continuing improvement of our licensees from the COVID-19 pandemic.

Also contributing to the increase was the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($40 million).

These increases were partially offset by a 3% decline in comparable store sales ($43 million), driven by a 5% decrease in average ticket, partially offset by a 2% increase in transactions, as well as unfavorable foreign currency translation ($17 million).

These increases were partially offset by an 8% decline in comparable store sales ($108 million), driven by a 5% decrease in average ticket and a 3% decrease in customer transactions, primarily attributable to COVID-19 related restrictions in China and lapping the prior-year VAT benefit as well as unfavorable foreign currency translation ($53 million).

Operating Margin

International operating income for the first quarter of fiscal 2022 increased 6% to $300 million, compared to $283 million in the first quarter of fiscal 2021.

Operating margin decreased 80 basis points to 16.0%, primarily due to investments and growth in retail store partner wages and benefits (approximately 150 basis points), strategic investments, largely in China (approximately 110 basis points) and product mix changes (approximately 90 basis points).

These decreases were partially offset by sales leverage outside of China driven by lapping the more severe impact of the COVID-19 pandemic in the prior year.

International operating income for the second quarter of fiscal 2022 decreased 30% to $181 million, compared to $258 million in the second quarter of fiscal 2021.

Operating margin decreased 520 basis points to 10.6%, primarily due to strategic initiatives, largely in China (approximately 180 basis points), an increase in product and distribution costs from a sales mix shift (approximately 160 basis points), investments and growth in retail store partner wages and benefits (approximately 130 basis points), lower temporary government subsidies (approximately 90 basis points) and increased supply chain costs due to inflationary pressures (approximately 50 basis points).

These decreases were partially offset by lower amortization expenses (approximately 80 basis points).

For the two quarters ended April 3, 2022 compared with the two quarters ended March 28, 2021

International total net revenues for the first two quarters of fiscal 2022 increased $259 million, or 8%, primarily due to 751 net new Starbucks ® company-operated stores, or an 11% increase over the past 12 months ($217 million).

Additionally, there were higher product sales to and royalty revenues from our licensees ($166 million), primarily due to continuing improvement of our licensees from the COVID-19 pandemic.

Also contributing to the increase was the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($79 million).

These increases were partially offset by a 6% decline in comparable store sales ($151 million), driven by a 5% decrease in average ticket primarily attributable to COVID-19 related restrictions in China and lapping the prior-year VAT benefit in China as well as unfavorable foreign currency translation ($70 million).

Operating Margin

International operating income for the first two quarters of fiscal 2022 decreased 11% to $480 million, compared to $541 million for the same period in fiscal 2021.

Operating margin decreased 290 basis points to 13.4%, primarily due to strategic initiatives, largely in China (approximately 140 basis points), investments and growth in retail store partner wages and benefits (approximately 130 basis points), an increase in product and distribution costs from a sales mix shift (approximately 120 basis points) and increased supply chain costs due to inflationary pressures (approximately 50 basis points).

These decreases were partially offset by lower amortization expenses (approximately 80 basis points).

Channel Development

Quarter Ended

Quarter Ended Two Quarters Ended

Change Apr 3,

As a % of Channel Development

Total Net Revenues As a % of Channel Development

Total Net Revenues

7 unchanged sentences

Operating income $ 197.9 $ 172.6 $ 25.3 42.7 % 46.7 % $ 381.1 $ 353.3 $ 27.8 43.3 % 47.7 %

For the quarter ended January 2, 2022 compared with the quarter ended December 27, 2020

Channel Development total net revenues for the first quarter of fiscal 2022 increased $46 million, or 12%, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($31 million) and volume growth in our ready-to-drink businesses ($16 million).

For the quarter ended April 3, 2022 compared with the quarter ended March 28, 2021

Channel Development total net revenues for the second quarter of fiscal 2022 increased $93 million, or 25%, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($77 million) and volume growth in our ready-to-drink businesses ($18 million).

Operating Margin

Channel Development operating income for the first quarter of fiscal 2022 increased 1% to $183 million, compared to $181 million in the first quarter of fiscal 2021.

Channel Development operating income for the second quarter of fiscal 2022 increased 15% to $198 million, compared to $173 million in the second quarter of fiscal 2021.

Operating margin decreased 400 basis points to 42.7%, primarily due to business mix shift driven by growth in the Global Coffee Alliance.

For the two quarters ended April 3, 2022 compared with the two quarters ended March 28, 2021

Channel Development total net revenues for the first two quarters of fiscal 2022 increased $139 million, or 19%, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($107 million) and volume growth in our ready-to-drink businesses ($34 million).

Operating Margin

Channel Development operating income for the first two quarters of fiscal 2022 increased 8% to $381 million, compared to $353 million for the same period in fiscal 2021.

Operating margin decreased 440 basis points to 43.3%, primarily due to a decline in our North American Coffee Partnership joint venture income due to supply chain constraints and inflationary pressures as well as a business mix shift.

Corporate and Other (1)

Quarter Ended

Quarter Ended Two Quarters Ended

Net revenues:

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Operating loss $ (361.2) $ (339.5) $ (21.7) 6.4 % $ (749.3) $ (692.4) $ (56.9) 8.2 %

(1) Corporate and other general and administrative expenses, total operating expenses and operating loss for the fiscal year ended December 27, 2020, have been restated to conform with current period presentation.

(1) Corporate and other general and administrative expenses, total operating expenses and operating loss for the quarter and two quarters ended March 28, 2021, have been restated to conform with current period presentation.

Corporate and Other primarily consists of our unallocated corporate expenses, as well as Evolution Fresh.

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.

For the quarter ended January 2, 2022 compared with the quarter ended December 27, 2020

Corporate and Other operating loss increased to $388 million for the first quarter of fiscal 2022, or 10%, compared to $353 million for the first quarter of fiscal 2021.

This increase was primarily driven by incremental investments in technology ($22 million) and increased partner wages and benefits ($9 million).

For the quarter ended April 3, 2022 compared with the quarter ended March 28, 2021

Corporate and Other operating loss increased to $361 million for the second quarter of fiscal 2022, or 6%, compared to $340 million for the second quarter of fiscal 2021.

This increase was primarily driven by incremental investments in technology ($22 million), increased partner wages and benefits ($12 million) and increased support costs to address labor market conditions ($10 million).

These increases were partially offset by lower performance-based compensation ($26 million).

For the two quarters ended April 3, 2022 compared with the two quarters ended March 28, 2021

Corporate and Other operating loss increased to $749 million for the first two quarters of fiscal 2022, or 8%, compared to $692 million for the same period in fiscal 2021.

This increase was primarily driven by incremental investments in technology ($45 million), increased partner wages and benefits ($21 million) and increased support costs to address labor market conditions ($11 million).

These increases were partially offset by lower performance-based compensation ($24 million).

Quarterly Store Data

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

Quarter Ended Stores open as of

Quarter Ended Two Quarters Ended Stores open as of

North America

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Total Company 313 5 797 283 34,630 32,943

(1) North America and International licensed stores as of December 27, 2020, have been recast as a result of our fiscal 2021 operating segment reporting structure realignment.

(1) North America and International licensed stores as of March 28, 2021, have been recast as a result of our fiscal 2021 operating segment reporting structure realignment.

Financial Condition, Liquidity and Capital Resources

Investment Overview

Our cash and investments totaled $4.4 billion as of January 2, 2022 and $6.9 billion as of October 3, 2021.

Our cash and investments totaled $4.3 billion as of April 3, 2022 and $6.9 billion as of October 3, 2021.

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 January 2, 2022, approximately $3.0 billion of cash was held in foreign subsidiaries.

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

As of April 3, 2022, approximately $2.9 billion of cash was held in foreign subsidiaries.

Borrowing Capacity

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The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses.

As of January 2, 2022, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of January 2, 2022 or October 3, 2021.

As of April 3, 2022, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of April 3, 2022 or October 3, 2021.

Commercial Paper

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Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under the 2021 credit facility discussed above.

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 January 2, 2022, we had $200.0 million

borrowings outstanding under our commercial paper program.

Our total contractual borrowing capacity for general corporate purposes was $2.8 billion as of the end of our first quarter of fiscal 2022.

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 April 3, 2022 and October 3, 2021, we had no borrowings outstanding under our commercial paper program.

Our total contractual borrowing capacity for general corporate purposes was $3 billion as of the end of our second quarter of fiscal 2022.

Credit facilities in Japan

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Borrowings under such 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 January 2, 2022, we had no borrowings outstanding under these Japanese yen-denominated credit facilities.

As of April 3, 2022 and October 3, 2021, we had no borrowings outstanding under these Japanese yen-denominated 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 long-term notes were issued.

As of January 2, 2022, we were in compliance with all applicable covenants.

As of April 3, 2022, 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.

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

We may also seek strategic acquisitions to leverage existing capabilities and further build our business in support of our “Growth at Scale” agenda.

We may also seek strategic acquisitions to leverage existing capabilities and further build our business.

Acquisitions may include increasing our ownership interests in our investees.

Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy.

We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with our ability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for the foreseeable future.

Significant new joint ventures, acquisitions and/or other new business opportunities may require additional outside funding.

We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months.

We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates;

however, additional borrowings would result in increased interest expense in the future.

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.

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

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to satisfy domestic liquidity needs.

During the first quarter of fiscal 2022, our Board of Directors approved a quarterly cash dividend to shareholders of $0.49 per share to be paid on February 25, 2022 to shareholders of record as of the close of business on February 11, 2022.

During the second quarter of fiscal 2022, our Board of Directors approved a quarterly cash dividend to shareholders of $0.49 per share to be paid on May 27, 2022 to shareholders of record as of the close of business on May 13, 2022.

During the first quarter of fiscal 2022, we resumed our share repurchase program which was temporarily suspended in March 2020.

During the quarter ended January 2, 2022, we repurchased 31.1 million shares of common stock for $3.5 billion.

As of January 2, 2022, 17.8 million shares remained available for repurchase under current authorizations.

Other than normal operating expenses, cash requirements for the remainder of fiscal 2022 are expected to consist primarily of capital expenditures for investments in our new and existing stores and our supply chain and corporate facilities.

During the two quarters ended April 3, 2022, we repurchased 36.3 million shares of common stock for $4.0 billion.

On March 15, 2022, we announced that our Board of Directors authorized the repurchase of up to an additional 40 million shares under our ongoing share repurchase program.

On April 4, 2022, we announced a temporary suspension of our share repurchase program to allow us to augment investments in our stores and partners.

Repurchases pursuant to this program were last made on April 1, 2022.

As of April 3, 2022, 52.6 million shares remained available for repurchase under current authorizations.

Total capital expenditures for fiscal 2022 are expected to be approximately $2 billion.

In Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K, we disclosed that we had $33.7 billion of current and long-term material cash requirements as of October 3, 2021.

There have been no

material changes to our material cash requirements during the period covered by this 10-Q outside of the normal course of our business.

Cash provided by operating activities was $1.9 billion for the first quarter of fiscal 2022, compared to $1.8 billion for the same period in fiscal 2021.

The increase was primarily due to higher net earnings, partially offset by lower losses on retirement and impairment of assets and increases in net cash used by changes in operating assets and liabilities.

Cash used in investing activities for the first quarter of fiscal 2022 totaled $401 million, compared to cash used in investing activities of $273 million for the same period in fiscal 2021.

The change was primarily due to a increase in spend on capital expenditures.

Cash used in financing activities for the first quarter of fiscal 2022 totaled $4.0 billion compared to cash used by financing activities of $1.0 billion for the same period in fiscal 2021.

The increase was primarily due to resuming our share repurchase program, partially offset by lower repayments of long-term debt .

In the MD&A included in the 10-K, we disclosed that we had $33.7 billion of current and long-term material cash requirements as of October 3, 2021.

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

Cash provided by operating activities was $2.0 billion for the first two quarters of fiscal 2022, compared to $2.7 billion for the same period in fiscal 2021.

The change was primarily due to net cash used by changes in operating assets and liabilities, partially offset by higher net earnings.

Cash used in investing activities for the first two quarters of fiscal 2022 totaled $881 million , compared to cash used in investing activities of $579 million for the same period in fiscal 2021.

The change was primarily due to an increase in spend on capital expenditures.

Cash used in financing activities for the first two quarters of fiscal 2022 totaled $3.7 billion compared to cash used by financing activities of $2.7 billion for the same period in fiscal 2021.

The increase was primarily due to resuming our share repurchase program, partially offset by net proceeds from issuance of long-term debt.

Commodity Prices, Availability and General Risk Conditions

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RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 , Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements.

See Note 1 , Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements.

Quantitative and Qualitative Disclosures About Market Risk

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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