What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 144 added, 134 removed, 267 unchanged (51% of the section changed)

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CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements herein are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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, investments and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers;

Certain statements contained herein are “forward-looking” statements within the meaning of applicable securities laws and regulations.

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

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, including our reinvention plan, as well as trends in or expectations regarding our financial results and long-term growth model and drivers;

our operations in the U.S.

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

the conversion of several market operations to fully licensed models;

impact of foreign currency translation;

strategic pricing actions;

the conversion of certain market operations to fully licensed models;

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

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our dividends programs;

commodity costs and our mitgation strategy;

commodity costs and our mitigation strategies;

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

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Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to:

further spread of COVID-19 and related disruptions to our business;

the continuing impact of COVID-19 on our business;

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;

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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;

failure to attract or retain key executive or employee talent or successfully transition executives;

significant increased logistics costs;

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the effect of legal proceedings;

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

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

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur.

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Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 83 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.

As of July 3, 2022, Starbucks had more than 34,900 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 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.

During the quarter ended July 3, 2022, our global comparable store sales grew 3%, primarily driven by 9% growth in the U.S.

market, partially offset by COVID-19 pandemic related restrictions in China, leading to a 44% decrease in China comparable store sales.

We have three reportable operating segments:

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and Canada, 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, Africa, Latin America and the Caribbean;

and 3) Channel

and 3) Channel Development.

Non-reportable operating segments such as Evolution Fresh and unallocated corporate expenses are reported within Corporate and Other.

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

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.

Starbucks results for the third quarter of fiscal 2022 demonstrate the overall strength and resilience of our brand, despite continued COVID-19 pandemic related disruptions in our China market and global inflation.

Consolidated net revenues increased 9% to $8.2 billion in the third quarter of fiscal 2022 compared to $7.5 billion in the third quarter of fiscal 2021, primarily driven by strength in our U.S.

business and growth in our International segment excluding China, partially offset by COVID-19 pandemic related disruptions in China restricting customer mobility.

Consolidated operating margin decreased 400 basis points from the prior year to 15.9%, primarily driven by inflationary pressures, investments and growth in retail store partner wages as well as sales deleverage related to COVID-19 pandemic related impacts in our China market.

These decreases were partially offset by strategic pricing in North America and sales leverage across markets outside of China.

For both the North America segment and our U.S.

market, comparable store sales increased 9% for the third quarter of fiscal 2022 compared to an increase of 84% and 83% for the North America segment and the U.S.

market, respectively, in the third 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 23% for the second quarter of fiscal 2022, inclusive of a 4% adverse impact from lapping the prior-year value-added tax benefit.

market grew 8%, primarily driven by strategic pricing and increased demand for food items in our U.S.

For the International segment, comparable store sales declined 18% for the third quarter of fiscal 2022, driven by comparable store sales decline of 44% in our China market.

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.

Outside of China, strong growth in our major International markets continued in the third quarter driven by product innovation and increasing digital capabilities, partially offsetting the unfavorability in our China market.

Net revenues for our Channel Development segment increased $66 million, or 16%, when compared with the third quarter of fiscal 2021.

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

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.

However, given the prolonged COVID-19 pandemic related lockdowns in China that limited customer mobility during the third quarter and slowed recovery of the market, as well as increasing COVID-19 cases globally, we expect continued impacts on our business.

Additionally, our business expects the weights from inflationary pressures to continue as well as increased spend due to labor market conditions and 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 strategies, including our reinvention plan in the U.S.

market will elevate both the partner and customer experience, accelerating growth over the long-term.

Results of Operations (in millions)

Quarter Ended Two Quarters Ended

Quarter Ended Three Quarters Ended

Company-operated stores $ 6,675.5 $ 6,363.1 $ 312.4 4.9 % $ 19,674.7 $ 17,742.8 $ 1,931.9 10.9 %

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Total net revenues $ 8,150.1 $ 7,496.5 $ 653.6 8.7 % $ 23,836.1 $ 20,913.9 $ 2,922.2 14.0 %

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).

For the quarter ended July 3, 2022 compared with the quarter ended June 27, 2021

Total net revenues for the third quarter of fiscal 2022 increased $654 million, primarily due to higher revenues from company-operated stores ($312 million).

The growth of company-operated stores revenue was driven by incremental revenues from 894 net new Starbucks ® company-operated stores, or a 5% increase, over the past 12 months ($258 million).

Also contributing to the higher revenue was a 3% increase in comparable store sales ($183 million), attributable to a 6% increase in average ticket offset by a 3% decrease in comparable transactions.

Partially offsetting these increases was unfavorable foreign currency translation ($136 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 $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.

Licensed stores revenue increased $277 million contributing to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($237 million) and the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($64 million).

Partially offsetting these increases was unfavorable foreign currency translation ($27 million).

Other revenues increased $65 million, primarily due to higher product sales and royalty revenue in the Global Coffee Alliance and growth in our ready-to-drink business.

For the three quarters ended July 3, 2022 compared with the three quarters ended June 27, 2021

Total net revenues for the first three quarters of fiscal 2022 increased $2.9 billion, primarily due to higher revenues from company-operated stores ($1.9 billion).

The growth of company-operated stores revenue was driven by a 8% increase in comparable store sales ($1.3 billion) attributed to a 4% increase in average ticket and 3% increase in comparable transactions.

Also contributing to the increase were incremental revenues from 894 net new Starbucks ® company-operated stores, or a 5% increase, over the past 12 months ($761 million).

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Licensed stores revenue increased $768 million, primarily driven by higher product and equipment sales to and royalty revenues from our licensees ($671 million) and the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($143 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.

Partially offsetting these increases was unfavorable foreign currency translation ($46 million).

Other revenues increased $222 million, primarily due to higher product sales and royalty revenue in the Global Coffee Alliance and growth in our ready-to-drink business.

Operating Expenses

Quarter Ended Two Quarters Ended

Change Apr 3,

Quarter Ended Three Quarters Ended

Change Jul 3,

As a % of Total

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Store operating expenses as a % of company-operated stores revenue 49.5 % 46.6 % 50.9 % 48.8 %

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).

For the quarter ended July 3, 2022 compared with the quarter ended June 27, 2021

Product and distribution costs as a percentage of total net revenues increased 270 basis points for the third quarter of fiscal 2022, primarily due to higher supply chain costs driven by inflationary pressures.

Store operating expenses as a percentage of total net revenues increased 90 basis points for the third 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.

Other operating expenses increased $64 million for the third quarter of fiscal 2022, primarily due to lapping a change in estimate relating to a transaction cost accrual ($23 million), transaction costs associated with our Russia market exit ($20 million) and higher support costs for our North America licensed stores ($4 million).

Depreciation and amortization expenses as a percentage of total net revenues decreased 30 basis points, primarily due to sales leverage.

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).

General and administrative expenses decreased $8 million, primarily due to lower performance-based compensation ($47 million) which was partially offset by increased partner wages ($22 million) and incremental investments in technology ($15 million).

Restructuring and impairment expenses decreased $6 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 ($11 million) and lower asset impairment charges ($4 million), partially offset by lapping prior year beneficial adjustment to severance expense ($9 million).

Income from equity investees decreased $51 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 ($45 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).

The combination of these changes resulted in an overall decrease in operating margin of 400 basis points for the third quarter of fiscal 2022.

For the three quarters ended July 3, 2022 compared with the three quarters ended June 27, 2021

Product and distribution costs as a percentage of total net revenues increased 200 basis points for the first three quarters of fiscal 2022, primarily due to higher supply chain costs due to inflationary pressures.

Store operating expenses as a percentage of total net revenues increased 60 basis points for the first three quarters of fiscal 2022.

Store operating expenses as a percentage of company-operated stores revenue increased 210 basis points, primarily due to enhancements in retail store partner wages and benefits (approximately 280 basis points), increased spend on new partner training and support costs (approximately 80 basis points) and lower temporary government subsidies in the prior year (approximately 80 basis points), partially offset by sales leverage.

Other operating expenses increased $88 million for the first three quarters of fiscal 2022, primarily due to lapping a change in estimate relating to a transaction cost accrual ($23 million), transaction costs associated with our Russia market exit ($20 million), higher support costs for our growing North America and International licensed stores ($18 million) and strategic investments in technology and other initiatives ($7 million).

Depreciation and amortization expenses as a percentage of total net revenues decreased 60 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).

General and administrative expenses increased $63 million, primarily due to incremental investments in technology ($67 million), increased partner wages ($59 million) and increased support costs to address labor market conditions ($23 million).

These increases were partially offset by lower performance-based compensation ($88 million).

Restructuring and impairment expenses decreased $104 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 ($63 million) and lower asset impairment charges ($51 million).

These decreases were partially offset by lower severance related charges for certain company-operated prior year store closures ($9 million).

Income from equity investees decreased $122 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 ($99 million) and lower income from our North American Coffee Partnership joint venture ($28 million).

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.

The combination of these changes resulted in an overall decrease in operating margin of 190 basis points for the first three quarters of fiscal 2022.

Other Income and Expenses

Quarter Ended Two Quarters Ended

Change Apr 3,

Quarter Ended Three Quarters Ended

Change Jul 3,

As a % of Total

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Effective tax rate including noncontrolling interests 23.4 % 18.2 % 23.2 % 21.7 %

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.

For the quarter ended July 3, 2022 compared with the quarter ended June 27, 2021

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

Interest expense increased $10 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.

The effective tax rate for the quarter ended July 3, 2022 was 23.4% compared to 18.2% for the same period in fiscal 2021.

The increase was primarily due to lapping a prior year remeasurement of deferred tax assets due to an enacted foreign corporate rate change (approximately 510 basis points).

For the three quarters ended July 3, 2022 compared with the three quarters ended June 27, 2021

Interest income and other, net decreased $3 million, primarily due to lower net gains from certain investments.

Interest expense increased $8 million, primarily due to additional interest incurred on long-term debt issued in February 2022.

The effective tax rate for the first three quarters ended July 3, 2022 was 23.2% compared to 21.7% for the same period in fiscal 2021.

The increase was primarily due to lapping a prior year remeasurement of deferred tax assets due to an enacted foreign corporate rate change (approximately 230 basis points).

Segment Information

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North America (1)

Quarter Ended Two Quarters Ended

Change Apr 3,

Quarter Ended Three Quarters Ended

Change Jul 3,

North America

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Store operating expenses as a % of company-operated stores revenue 48.4 % 47.6 % 51.1 % 50.4 %

(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).

(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 three quarters ended June 27, 2021, have been restated to conform with current period presentation.

For the quarter ended July 3, 2022 compared with the quarter ended June 27, 2021

North America total net revenues for the third quarter of fiscal 2022 increased $688 million, or 13%, primarily due to a 9% increase in comparable store sales ($421 million) driven by a 8% increase in average ticket and a 1% increase in transactions.

Also contributing to these increases were the performance of net new company-operated store openings over the past 12 months ($168 million) and higher product and equipment sales to and royalty revenues from our licensees ($103 million).

Operating Margin

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.

North America operating income for the third quarter of fiscal 2022 increased 2% to $1,330 million, compared to $1,304 million in the third quarter of fiscal 2021.

Operating margin decreased 230 basis points to 22.0%, primarily due to inflationary pressures on commodities and our supply chain (approximately 400 basis points), investments in labor including enhancements in retail store partner wages (approximately 220 basis points) as well as increased spend on new partner training and support costs (approximately 80 basis points).

These were partially offset by strategic pricing (approximately 450 basis points) and sales leverage.

For the three quarters ended July 3, 2022 compared with the three quarters ended June 27, 2021

North America total net revenues for the first three quarters of fiscal 2022 increased $2.6 billion, or 17% primarily due to a 13% increase in comparable store sales ($1.7 billion) driven by a 7% increase in average ticket and a 6% increase in transactions.

Also contributing to these increases were the performance of net new company-operated store openings over the past 12 months ($455 million) and higher product and equipment sales to and royalty revenues from our licensees ($372 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).

North America operating income for the first three quarters of fiscal 2022 increased 11% to $3.3 billion, compared to $3.0 billion for the same period in fiscal 2021.

Operating margin decreased 110 basis points to 19.4%, primarily due to investments in labor including enhancements in retail store partner wages (approximately 250 basis points) as well as increased spend on partner training and support costs (approximately 100 basis points), inflationary pressures on commodities and our supply chain (approximately 340 basis points) and lapping temporary subsidies provided by the CARES Act and CEWS (approximately 70 basis points).

These were partially offset by strategic pricing (approximately 350 basis points), lower restructuring activities (approximately 70 basis points) and sales leverage.

International (1)

Quarter Ended Two Quarters Ended

Quarter Ended Three Quarters Ended

As a % of International

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Store operating expenses as a % of company-operated stores revenue 54.4 % 43.3 % 50.3 % 43.9 %

(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 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).

(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 three quarters ended June 27, 2021, have been restated to conform with current period presentation.

For the quarter ended July 3, 2022 compared with the quarter ended June 27, 2021

International total net revenues for the third quarter of fiscal 2022 decreased $103 million, or 6%, primarily due to an 18% decline in comparable store sales ($238 million), driven by a 15% decrease in customer transactions and a 4% decrease in average ticket, primarily attributable to COVID-19 related restrictions in China as well as unfavorable foreign currency translation ($148 million).

These decreases were partially offset by higher product sales to and royalty revenues from our licensees ($134 million), 704 net new company operated store openings, or 10% increase, over the past 12 months ($90 million) as well as the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($64 million).

Operating Margin

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).

International operating income for the third quarter of fiscal 2022 decreased 59% to $135 million, compared to $327 million in the third quarter of fiscal 2021.

Operating margin decreased 1,090 basis points to 8.5%, primarily due to sales deleverage related to COVID-19 pandemic related impacts in our China market (approximately 910 basis points), higher commodity and supply chain costs due to inflationary pressures (approximately 220 basis points), lower temporary government subsidies (approximately 170 basis points) and investments and growth in retail store partner wages and benefits (approximately 130 basis points).

These decreases were partially offset by sales leverage across markets outside of China.

For the three quarters ended July 3, 2022 compared with the three quarters ended June 27, 2021

International total net revenues for the first three quarters of fiscal 2022 increased $156 million, or 3%, primarily due to 704 net new Starbucks ® company-operated stores, or a 10% increase over the past 12 months ($307 million).

Additionally, there were higher product sales to and royalty revenues from our licensees ($274 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 ($143 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).

These increases were partially offset by a 10% decline in comparable store sales ($389 million), driven by a 6% decrease in customer transactions and a 4% decrease in average ticket, primarily attributable to COVID-19 related restrictions in China and lapping the prior-year value-added-tax benefit in China as well as unfavorable foreign currency translation ($218 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).

International operating income for the first three quarters of fiscal 2022 decreased 29% to $616 million, compared to $868 million for the same period in fiscal 2021.

Operating margin decreased 540 basis points to 11.9%, primarily due to sales deleverage related to COVID-19 pandemic impacts in our China market (approximately 450 basis points), investments and growth in retail store partner wages and benefits (approximately 130 basis points), higher commodity and supply chain costs due to inflationary pressures (approximately 110 basis points), strategic initiatives (approximately 100 basis points) and portfolio shift impacts (approximately 90 basis points).

These decreases were partially offset by sales leverage across markets outside of China.

Channel Development

Quarter Ended Two Quarters Ended

Change Apr 3,

Quarter Ended Three Quarters Ended

Change Jul 3,

As a % of Channel Development

9 unchanged sentences

Operating income $ 191.7 $ 216.0 $ (24.3) 40.0 % 52.2 % $ 572.7 $ 569.3 $ 3.4 42.1 % 49.3 %

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).

For the quarter ended July 3, 2022 compared with the quarter ended June 27, 2021

Channel Development total net revenues for the third quarter of fiscal 2022 increased $66 million, or 16%, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($54 million) and growth in our ready-to-drink business ($18 million).

Operating Margin

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).

Channel Development operating income for the third quarter of fiscal 2022 decreased 11% to $192 million, compared to $216 million in the third quarter of fiscal 2021.

Operating margin decreased 1,220 basis points to 40.0%, primarily due to lapping a change in estimate relating to a transaction cost accrual (approximately 550 basis points), a decline in our North American Coffee Partnership joint venture income due to inflationary pressures and supply chain constraints (approximately 430 basis points) and business mix shift (approximately 230 basis points).

For the three quarters ended July 3, 2022 compared with the three quarters ended June 27, 2021

Channel Development total net revenues for the first three quarters of fiscal 2022 increased $205 million, or 18%, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($161 million) and growth in our ready-to-drink business ($52 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.

Channel Development operating income for the first three quarters of fiscal 2022 increased 1% to $573 million, compared to $569 million for the same period in fiscal 2021.

Operating margin decreased 720 basis points to 42.1%, primarily due to a decline in our North American Coffee Partnership joint venture income due to inflationary pressures and supply chain constraints (approximately 440 basis points), lapping a change in estimate relating to a transaction cost accrual (approximately 200 basis points), and business mix shift (approximately 160 basis points).

Corporate and Other (1)

Quarter Ended Two Quarters Ended

Quarter Ended Three Quarters Ended

Net revenues:

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General and administrative expenses 326.1 324.1 2.0 0.6 1,008.7 940.4 68.3 7.3

Restructuring and impairments 2.0 — 2.0 nm 2.0 — 2.0 nm

Total operating expenses 388.9 382.7 6.2 1.6 1,187.6 1,118.0 69.6 6.2

Operating loss $ (361.6) $ (358.9) $ (2.7) 0.8 % $ (1,110.9) $ (1,051.2) $ (59.7) 5.7 %

(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.

(1) Corporate and other general and administrative expenses, total operating expenses and operating loss for the quarter and three quarters ended June 27, 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 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.

In May 2022, the company announced entry into a definitive agreement to sell our Evolution Fresh brand and business.

The transaction closed on August 1st.

We do not expect a material impact to our future financial results.

For the quarter ended July 3, 2022 compared with the quarter ended June 27, 2021

Corporate and Other operating loss increased to $362 million for the third quarter of fiscal 2022, or 1%, compared to $359 million for the third quarter of fiscal 2021.

This increase was primarily driven by incremental investments in technology ($17 million), increased partner wages and benefits ($11 million) and increased support costs to address labor market conditions ($11 million).

These increases were partially offset by lower performance-based compensation ($31 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.

For the three quarters ended July 3, 2022 compared with the three quarters ended June 27, 2021

Corporate and Other operating loss increased to $1,111 million for the first three quarters of fiscal 2022, or 6%, compared to $1,051 million for the same period in fiscal 2021.

This increase was primarily driven by incremental investments in technology ($62 million), increased partner wages and benefits ($32 million) and increased support costs to address labor market conditions ($23 million).

3 unchanged sentences

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

Quarter Ended Two Quarters Ended Stores open as of

Quarter Ended Three Quarters Ended Stores open as of

North America

9 unchanged sentences

Total Company 318 352 1,115 635 34,948 33,295

(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.

(1) North America and International licensed stores as of June 27, 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 $4.3 billion as of April 3, 2022 and $6.9 billion as of October 3, 2021.

Our cash and investments totaled $3.5 billion as of July 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 and government treasury securities (foreign and domestic).

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

As of July 3, 2022, approximately $2.8 billion of cash was held in foreign subsidiaries.

Borrowing Capacity

9 unchanged sentences

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 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.

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

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

Commercial Paper

1 unchanged sentence

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 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.

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 July 3, 2022, we had $200 million of borrowings

outstanding under our commercial paper program.

As of October 3, 2021, we had no borrowings outstanding under this program.

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

Credit facilities in Japan

5 unchanged sentences

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 April 3, 2022 and October 3, 2021, we had no borrowings outstanding under these Japanese yen-denominated credit facilities.

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

As of July 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.

14 unchanged sentences

to satisfy domestic liquidity needs.

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 third quarter of fiscal 2022, our Board of Directors approved a quarterly cash dividend to shareholders of $0.49 per share to be paid on August 26, 2022 to shareholders of record as of the close of business on August 12, 2022.

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

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

During the three quarters ended July 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.

1 unchanged sentence

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.

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, our supply chain and corporate facilities as well as repayment of debt maturities due later this fiscal year.

As of July 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.

1 unchanged sentence

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.

Cash provided by operating activities was $3.3 billion for the first three quarters of fiscal 2022, compared to $4.5 billion for the same period in fiscal 2021.

The change was primarily due to an increase in inventory and net cash used by changes in other operating assets and liabilities.

Cash used in investing activities for the first three quarters of fiscal 2022 totaled $1.4 billion, compared to cash used in investing activities of $1.0 billion 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.

Cash used in financing activities for the first three quarters of fiscal 2022 totale d $5.1 billion compared to cash used in financing activities of $3.2 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.

16 unchanged sentences

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