What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-01 compared with 2023-05-02 · 133 added, 172 removed, 223 unchanged (58% of the section changed)

3 unchanged sentences

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.

our environmental, social and governance efforts;

our partners;

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

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;

the success of our licensing relationship with Nestlé, of our consumer packaged goods and foodservice business and its effects on our Channel Development segment results;

business opportunities, expansions and new initiatives, including Starbucks Odyssey;

strategic acquisitions;

our dividends programs;

commodity costs and our mitigation strategies;

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 or other public health events on our financial results;

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.

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

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;

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

fluctuations in U.S.

and international economies and currencies;

By their nature, forward-looking statements involve risks, uncertainties, and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections.

Our forward-looking statements, and the risks and uncertainties related thereto, include, but are not limited to, those described under the “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” sections of the company’s most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings with the SEC, as well as:

• our ability to preserve, grow and leverage our brands;

the ability of our business partners and third-party providers to fulfill their responsibilities and commitments;

potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling;

potential negative effects of material breaches of our information technology systems to the extent we experience a material breach;

material failures of our information technology systems;

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;

the acceptance of the Company’s products by our customers, evolving consumer preferences and tastes and changes in consumer spending behavior;

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 or successfully transition executives;

significant increased logistics costs;

inflationary pressures;

the impact of competition;

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;

the effect of legal proceedings;

and the effects of changes in tax laws and related guidance and regulations that may be implemented, including the Inflation Reduction Act of 2022 and other risks detailed in our filings with the SEC, including in the "Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” sections of the company’s most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings.

• the acceptance of the company’s products and changes in consumer preferences, consumption, or spending behavior and our ability to anticipate or react to them;

shifts in demographic or health and wellness trends;

or unfavorable consumer reaction to new products, platforms, reformulations, or other innovations;

• the costs associated with, and the successful execution and effects of, our existing and any future business opportunities, expansions, initiatives, strategies, investments and plans, including our Reinvention Plan;

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

• the ability of our business partners, suppliers and third-party providers to fulfill their responsibilities and commitments;

• higher costs, lower quality, or unavailability of coffee, dairy, energy, water, raw materials, or product ingredients;

• the impact of significant increases in logistics costs;

• unfavorable global or regional economic conditions and related economic slowdowns or recessions, low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, or deflation;

• inherent risks of operating a global business including geopolitical considerations related to our business in China and any potential negative effects stemming from the Russian invasion of Ukraine;

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

• the potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling;

• negative publicity related to our company, products, brands, marketing, executive leadership, partners, board of directors, founder, operations, business performance, or prospects;

• potential negative effects of a material breach, failure, or corruption of our information technology systems or those of our direct and indirect business partners, suppliers or third-party providers, or failure to comply with personal data protection laws;

• our environmental, social and governance (“ESG”) efforts and any reaction related thereto such as the rise in opposition to ESG and inclusion and diversity efforts;

• risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs or impairment in recorded value;

• the impact of foreign currency translation, particularly a stronger U.S.

• the impact of substantial competition from new entrants, consolidations by competitors, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets;

• the impact of changes in U.S.

tax law and related guidance and regulations that may be implemented, including on tax rates and the Inflation Reduction Act of 2022;

• the impact of health epidemics, pandemics or other public health events on our business and financial results, and the risk of negative economic impacts and related regulatory measures or voluntary actions that may be put in place, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions;

• failure to comply with anti-corruption laws, trade sanctions and restrictions or similar laws or regulations;

• the impact of significant legal disputes and proceedings, or government investigations.

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 86 markets.

As of April 2, 2023, Starbucks had more than 36,600 company-operated and licensed stores, an increase of 6% from the prior year.

As of July 2, 2023, Starbucks had more than 37,200 company-operated and licensed stores, an increase of 7% 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.

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

Fiscal 2023 and 2022 included 52 weeks.

Fiscal 2023 and 2022 include 52 weeks.

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 2023 demonstrate the overall strength of our brand.

Consolidated net revenues increased 14% to $8.7 billion in the second quarter of fiscal 2023 compared to $7.6 billion in the second quarter of fiscal 2022, primarily driven by strength in our U.S.

business and growth in our international licensed markets and the beginning of a recovery from COVID-19 pandemic-related business interruptions in China.

During the quarter ended April 2, 2023, our global comparable store sales grew 11%, primarily driven by 12% growth in the U.S.

market and 7% growth internationally, as evidenced by the strength of the Starbucks brand in global markets.

Consolidated operating margin increased 280 basis points from the prior year to 15.2%, primarily driven by sales leverage, pricing, productivity improvement and the gain from sale of our Seattle's Best Coffee brand.

These were partially offset by previously-committed investments in labor, including enhancements in retail store partner wages and benefits, increased general and administrative costs related to our Reinvention Plan and higher supply chain costs driven by inflationary pressures.

We anticipate continued recovery in China, coupled with sales leverage, pricing and productivity gains from the Reinvention Plan, will position us to meet our expected financial results in the remainder of the fiscal year.

Absent significant and prolonged COVID-19 relapses or global economic disruptions, we believe our strategy will result in sustainable and profitable growth over the long-term.

Starbucks results for the third quarter of fiscal 2023 demonstrate the overall strength of our brand.

Consolidated net revenues increased 12% to $9.2 billion in the third quarter of fiscal 2023 compared to $8.2 billion in the third quarter of fiscal 2022, primarily driven by strength in our U.S.

business and international licensed markets as well as continued recovery from COVID-19 pandemic-related business interruptions in China.

During the quarter ended July 2, 2023, our global comparable store sales grew 10%, primarily driven by 7% growth in the U.S.

market and 24% growth internationally, demonstrating the strength of the Starbucks brand globally.

Consolidated operating margin increased 140 basis points from the prior year to 17.3%, primarily driven by sales leverage, pricing and productivity improvement from increased efficiency in our U.S.

These were partially offset by previously-committed investments in labor, including enhancements in retail store partner wages and benefits as well as increased general and administrative costs related to our Reinvention Plan.

Results of Operations (in millions)

Quarter Ended Two Quarters Ended

Quarter Ended Three Quarters Ended

Company-operated stores $ 7,556.7 $ 6,675.5 $ 881.2 13.2 % $ 21,782.4 $ 19,674.7 $ 2,107.7 10.7 %

2 unchanged sentences

Total net revenues $ 9,168.3 $ 8,150.1 $ 1,018.2 12.5 % $ 26,602.0 $ 23,836.1 $ 2,765.9 11.6 %

For the quarter ended April 2, 2023 compared with the quarter ended April 3, 2022

Total net revenues for the second quarter of fiscal 2023 increased $1.1 billion, primarily due to higher revenues from company-operated stores ($866 million).

The growth of company-operated stores revenue was driven by an 11% increase in comparable store sales ($669 million), attributable to a 6% increase in comparable transactions and a 4% increase in average ticket.

For the quarter ended July 2, 2023 compared with the quarter ended July 3, 2022

Total net revenues for the third quarter of fiscal 2023 increased $1.0 billion, primarily due to higher revenues from company-operated stores ($881 million).

The growth of company-operated stores revenue was driven by a 10% increase in comparable store sales ($632 million), attributable to a 5% increase in comparable transactions and a 4% increase in average ticket.

Also contributing was incremental revenues from 1,265 net new Starbucks ® company-operated stores, or a 7% increase, over the past 12 months ($336 million).

1 unchanged sentence

Licensed stores revenue increased $179 million contributing to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($185 million).

Partially offsetting this increase was unfavorable foreign currency translation ($21 million).

For the two quarters ended April 2, 2023 compared with the two quarters ended April 3, 2022

Total net revenues for the first two quarters of fiscal 2023 increased $1.7 billion, primarily due to higher revenues from company-operated stores ($1.2 billion).

Other revenues decreased $42 million, primarily due to a decline in revenue in the Global Coffee Alliance ($31 million) and the absence of revenues from the Evolution Fresh business following its sale in the fourth quarter of fiscal 2022 ($18 million).

For the three quarters ended July 2, 2023 compared with the three quarters ended July 3, 2022

Total net revenues for the first three quarters of fiscal 2023 increased $2.8 billion, primarily due to higher revenues from company-operated stores ($2.1 billion).

The growth of company-operated stores revenue was driven by a 9% increase in comparable store sales ($1.6 billion) attributed to a 5% increase in average ticket and a 3% increase in transactions.

3 unchanged sentences

Partially offsetting this increase was unfavorable foreign currency translation ($66 million).

Other revenues increased $33 million, primarily due to higher product sales and royalty revenue in the Global Coffee Alliance ($63 million), partially offset by the absence of revenues from the Evolution Fresh business following its sale in the fourth quarter of fiscal 2022 ($37 million).

Other revenues decreased $10 million, primarily due to the absence of revenues from the Evolution Fresh business following its sale in the fourth quarter of fiscal 2022 ($55 million), partially offset by an increase in revenue in the Global Coffee Alliance ($32 million).

Operating Expenses

Quarter Ended Two Quarters Ended

Change Apr 2,

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Change Jul 2,

Total Net Revenues As a % of

8 unchanged sentences

Income from equity investees 69.7 54.1 15.6 0.8 0.7 179.0 143.5 35.5 0.7 0.6

Gain from sale of assets 91.3 — 91.3 1.0 nm 91.3 — 91.3 0.5 nm

Gain from sale of assets — — — — — 91.3 — 91.3 0.3 —

Operating income $ 1,583.9 $ 1,295.5 $ 288.4 17.3 % 15.9 % $ 4,164.6 $ 3,422.3 $ 742.3 15.7 % 14.4 %

Store operating expenses as a % of company-operated stores revenue 48.9 % 49.5 % 50.5 % 50.9 %

For the quarter ended April 2, 2023 compared with the quarter ended April 3, 2022

Product and distribution costs as a percentage of total net revenues decreased 20 basis points for the second quarter of fiscal 2023, primarily due to pricing (approximately 120 basis points), partially offset by higher supply chain costs driven by inflationary pressures (approximately 100 basis points).

Store operating expenses as a percentage of total net revenues decreased 170 basis points for the second quarter of fiscal 2023.

Store operating expenses as a percentage of company-operated stores revenue decreased 190 basis points, primarily due to sales leverage (approximately 260 basis points), pricing (approximately 160 basis points) and productivity improvement (approximately 160 basis points).

These were partially offset by previously-committed investments in labor, including enhancements in retail store partner wages and benefits (approximately 340 basis points).

Other operating expenses increased $25 million for the second quarter of fiscal 2023, primarily due to higher support costs for our growing licensed markets ($9 million) and strategic investments in technology and other initiatives ($6 million).

For the quarter ended July 2, 2023 compared with the quarter ended July 3, 2022

Product and distribution costs as a percentage of total net revenues decreased 90 basis points for the third quarter of fiscal 2023, primarily due to pricing.

Store operating expenses as a percentage of total net revenues decreased 20 basis points for the third quarter of fiscal 2023.

Store operating expenses as a percentage of company-operated stores revenue decreased 60 basis points, primarily due to sales leverage (approximately 250 basis points) and productivity improvement (approximately 190 basis points).

These were partially offset by previously-committed investments in labor, including enhancements in retail store partner wages and benefits (approximately 340 basis points) and increased spend on partner training (approximately 50 basis points).

Depreciation and amortization expenses as a percentage of total net revenues decreased 70 basis points, primarily due to lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized.

General and administrative expenses increased $139 million, primarily due to incremental investments in technology ($36 million), higher performance-based compensation ($30 million), increased support costs of strategic initiatives including the Reinvention Plan ($18 million), a donation to the Starbucks Foundation ($15 million) and higher partner wages and benefits ($13 million).

Gain from sale of assets includes the sale of our Seattle's Best Coffee brand to Nestlé in the second quarter of fiscal 2023.

The combination of these changes resulted in an overall increase in operating margin of 280 basis points for the second quarter of fiscal 2023.

For the two quarters ended April 2, 2023 compared with the two quarters ended April 3, 2022

Product and distribution costs as a percentage of total net revenues increased 40 basis points for the first two quarters of fiscal 2023, primarily due to higher supply chain costs driven by inflationary pressures (approximately 130 basis points) and business mix shift (approximately 60 basis points), partially offset by pricing (approximately 160 basis points).

Store operating expenses as a percentage of total net revenues decreased 90 basis points for the first two quarters of fiscal 2023.

General and administrative expenses increased $118 million, primarily due to incremental investments in technology ($38 million), increased support costs of strategic initiatives including the Reinvention Plan ($27 million), higher performance-based compensation ($20 million) and a donation to the Starbucks Foundation ($15 million).

Income from equity investees increased $16 million, primarily due to higher income from our North American Coffee Partnership joint venture.

The combination of these changes resulted in an overall increase in operating margin of 140 basis points for the third quarter of fiscal 2023.

For the three quarters ended July 2, 2023 compared with the three quarters ended July 3, 2022

Store operating expenses as a percentage of total net revenues decreased 70 basis points for the first three quarters of fiscal 2023.

Store operating expenses as a percentage of company-operated stores revenue decreased 40 basis points, primarily due to pricing (approximately 180 basis points), sales leverage (approximately 160 basis points) and productivity improvement (approximately 130 basis points).

These were partially offset by previously-committed investments in labor, including enhancements in retail store partner wages and benefits (approximately 340 basis points).

Other operating expenses increased $52 million for the first two quarters of fiscal 2023, primarily due to higher support costs for our growing licensed markets ($17 million) and strategic investments in technology and other initiatives ($13 million).

Other operating expenses increased $56 million for the first three quarters of fiscal 2023, primarily due to higher strategic investments in technology and other initiatives ($21 million) and support costs for our growing licensed markets ($21 million).

Depreciation and amortization expenses as a percentage of total net revenues decreased 80 basis points, primarily due to lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized.

General and administrative expenses increased $194 million, primarily due to incremental investments in technology ($64 million), increased support costs to address labor market conditions and leadership training ($28 million), higher performance-based compensation ($24 million), increased support costs of strategic initiatives including the Reinvention Plan ($24 million) and higher partner wages and benefits ($20 million).

General and administrative expenses increased $312 million, primarily due to incremental investments in technology ($103 million), increased support costs of strategic initiatives including the Reinvention Plan ($57 million), higher performance-based compensation ($45 million), donations to the Starbucks Foundation ($30 million) and other labor and leadership support costs ($26 million).

Income from equity investees increased $36 million, primarily due to higher income from our North American Coffee Partnership joint venture.

Gain from sale of assets includes the sale of our Seattle's Best Coffee brand to Nestlé in the second quarter of fiscal 2023.

The combination of these changes resulted in an overall increase in operating margin of 120 basis points for the first two quarters of fiscal 2023.

The combination of these changes resulted in an overall increase in operating margin of 130 basis points for the first three quarters of fiscal 2023.

Other Income and Expenses

Quarter Ended Two Quarters Ended

Change Apr 2,

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Change Jul 2,

As a % of Total

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Effective tax rate including noncontrolling interests 22.0 % 23.4 % 23.7 % 23.2 %

For the quarter ended April 2, 2023 compared with the quarter ended April 3, 2022

Interest income and other, net decreased $28 million, primarily due to lapping higher investment gains in the prior year.

Interest expense increased $17 million, primarily due to additional interest incurred on floating rate debt.

The effective tax rate for the quarter ended April 2, 2023 was 24.9% compared to 23.0% for the same period in fiscal 2022.

The increase was primarily due to lapping a beneficial return-to-provision adjustment recorded related to the divestiture of certain joint venture operations (approximately 260 basis points).

For the two quarters ended April 2, 2023 compared with the two quarters ended April 3, 2022

For the quarter ended July 2, 2023 compared with the quarter ended July 3, 2022

Interest expense increased $18 million, primarily due to higher debt balances and a rising interest rate environment.

The effective tax rate for the quarter ended July 2, 2023 was 22.0% compared to 23.4% for the same period in fiscal 2022.

The decrease was primarily due to the release of valuation allowances recorded against certain deferred tax assets of an international jurisdiction (approximately 300 basis points), partially offset by lapping beneficial valuation allowance activity from the prior year.

For the three quarters ended July 2, 2023 compared with the three quarters ended July 3, 2022

Interest income and other, net decreased $15 million, primarily due to lapping higher investment gains in the prior year.

Interest expense increased $32 million, primarily due to additional interest incurred on floating rate debt.

The effective tax rate for the first two quarters ended April 2, 2023 was 24.8% compared to 23.1% for the same period in fiscal 2022.

Interest expense increased $49 million, primarily due to higher debt balances and a rising interest rate environment.

The effective tax rate for the first three quarters ended July 2, 2023 was 23.7% compared to 23.2% for the same period in fiscal 2022.

The increase was primarily due to lapping a beneficial return-to-provision adjustment recorded related to the divestiture of certain joint venture operations (approximately 70 basis points) and a decrease in stock-based compensation excess tax benefits (approximately 50 basis points), offset by the release of valuation allowances recorded against certain deferred tax assets of an international jurisdiction (approximately 120 basis points).

Segment Information

1 unchanged sentence

North America

Quarter Ended Two Quarters Ended

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Change Jul 2,

As a % of North America

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Store operating expenses as a % of company-operated stores revenue 49.2 % 48.4 % 50.7 % 51.1 %

For the quarter ended April 2, 2023 compared with the quarter ended April 3, 2022

North America total net revenues for the second quarter of fiscal 2023 increased $935 million, or 17%, primarily due to a 12% increase in comparable store sales ($584 million) driven by a 6% increase in transactions and a 5% increase in average ticket.

For the quarter ended July 2, 2023 compared with the quarter ended July 3, 2022

North America total net revenues for the third quarter of fiscal 2023 increased $679 million, or 11%, primarily due to a 7% increase in comparable store sales ($379 million) driven by a 6% 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 ($206 million) and higher product and equipment sales to and royalty revenues from our licensees ($108 million).

Operating Margin

North America operating income for the second quarter of fiscal 2023 increased 31% to $1.2 billion, compared to $0.9 billion in the second quarter of fiscal 2022.

Operating margin increased 200 basis points to 19.1%, primarily due to pricing (approximately 320 basis points) and sales leverage (approximately 270 basis points).

Also contributing were productivity improvement (approximately 170 basis points) and lower COVID-19 pandemic related catastrophe pay for store partners (approximately 120 basis points).

These increases were partially offset by previously-committed investments in labor, including enhancements in retail store partner wages and benefits (approximately 360 basis points) and inflationary pressures on commodities and our supply chain (approximately 120 basis points).

For the two quarters ended April 2, 2023 compared with the two quarters ended April 3, 2022

North America total net revenues for the first two quarters of fiscal 2023 increased $1.8 billion, or 16%, primarily due to a 11% increase in comparable store sales ($1.1 billion) driven by a 7% increase in average ticket and a 4% increase in transactions.

North America operating income for the third quarter of fiscal 2023 increased 10% to $1.5 billion, compared to $1.3 billion in the third quarter of fiscal 2022.

Operating margin decreased 30 basis points to 21.7%, primarily due to previously-committed investments in labor, including enhancements in retail store partner wages and benefits (approximately 360 basis points) and increased spend on partner training (approximately 50 basis points), partially offset by pricing (approximately 220 basis points), labor productivity (approximately 210 basis points) and sales leverage.

For the three quarters ended July 2, 2023 compared with the three quarters ended July 3, 2022

North America total net revenues for the first three quarters of fiscal 2023 increased $2.4 billion, or 14%, primarily due to a 10% increase in comparable store sales ($1.5 billion) driven by a 7% increase in average ticket and a 3% increase in transactions.

Also contributing to these increases were net new company-operated store openings over the past 12 months ($593 million) and higher product and equipment sales to and royalty revenues from our licensees ($390 million).

Operating Margin

North America operating income for the first two quarters of fiscal 2023 increased 21% to $2.4 billion, compared to $2.0 billion for the same period in fiscal 2022.

Operating margin increased 80 basis points to 18.8%, primarily due to pricing (approximately 420 basis points) and sales leverage (approximately 230 basis points).

Also contributing was productivity improvement (approximately 120 basis points).

These increases were partially offset by previously-committed investments in labor, including enhancements in retail store partner wages and benefits (approximately 380 basis points) and inflationary pressures on commodities and our supply chain (approximately 170 basis points).

North America operating income for the first three quarters of fiscal 2023 increased 16% to $3.9 billion, compared to $3.3 billion for the same period in fiscal 2022.

Operating margin increased 40 basis points to 19.8%, primarily due to pricing (approximately 350 basis points), labor productivity (approximately 150 basis points) and sales leverage.

These increases were partially offset by previously-committed investments in labor, including enhancements in retail store partner wages and benefits (approximately 370 basis points) and increased spend on partner training (approximately 50 basis points) as well as inflationary pressures on commodities and our supply chain (approximately 100 basis points).

International

Quarter Ended Two Quarters Ended

Quarter Ended Three Quarters Ended

As a % of International

15 unchanged sentences

Store operating expenses as a % of company-operated stores revenue 47.9 % 54.4 % 49.5 % 50.3 %

For the quarter ended April 2, 2023 compared with the quarter ended April 3, 2022

International total net revenues for the second quarter of fiscal 2023 increased $152 million, or 9%, primarily due to higher product and equipment sales to and royalty revenues from our licensees ($111 million), 721 net new company-operated store openings, or a 10% increase, over the past 12 months ($107 million).

Also contributing was a 7% increase in comparable store sales ($85 million), driven by a 7% increase in customer transactions, primarily attributable to business recovery from COVID-19 pandemic related disruptions in China.

For the quarter ended July 2, 2023 compared with the quarter ended July 3, 2022

International total net revenues for the third quarter of fiscal 2023 increased $388 million, or 24%, primarily due to a 24% increase in comparable store sales ($253 million) driven by a 21% increase in customer transactions, primarily attributable to business recovery from COVID-19 pandemic related disruptions in China.

Also contributing were 863 net new company-operated store openings, or an 11% increase, over the past 12 months ($131 million) and higher product and equipment sales to and royalty revenues from our licensees ($77 million).

These increases were partially offset by unfavorable foreign currency translation ($86 million).

Operating Margin

International operating income for the second quarter of fiscal 2023 increased 74% to $315 million, compared to $181 million in the second quarter of fiscal 2022.

Operating margin increased 640 basis points to 17.0%, primarily due to sales leverage (approximately 470 basis points) and lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized (approximately 250 basis points).

These decreases were partially offset by higher partner wages and benefits (approximately 100 basis points).

For the two quarters ended April 2, 2023 compared with the two quarters ended April 3, 2022

International total net revenues for the first two quarters of fiscal 2023 decreased $44 million, or 1%, primarily due to unfavorable foreign currency translation ($399 million), as well as a 3% decline in comparable store sales ($85 million), driven by a 3% decrease in customer transactions primarily due to COVID-19 pandemic related disruptions in China during the first quarter of fiscal 2023.

These were partially offset by higher product and equipment sales to and royalty revenues from our licensees ($250 million), as well as 721 net new company-operated store openings, or a 10% increase, over the past 12 months ($183 million).

International operating income for the third quarter of fiscal 2023 increased 177% to $375 million, compared to $135 million in the third quarter of fiscal 2022.

Operating margin increased 1,050 basis points to 19.0%, primarily due to sales leverage (approximately 860 basis points), including lapping prior year mobility restrictions in China.

Also contributing was lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized (approximately 260 basis points), partially offset by digital investments (approximately 110 basis points) and inflationary pressures (approximately 100 basis points).

For the three quarters ended July 2, 2023 compared with the three quarters ended July 3, 2022

International total net revenues for the first three quarters of fiscal 2023 increased $345 million, or 7%, primarily due to higher product and equipment sales to and royalty revenues from our licensees ($326 million) and 863 net new company-operated store openings, or an 11% increase, over the past 12 months ($314 million).

Also contributing was a 5% increase in comparable store sales ($168 million) driven by a 4% increase in customer transactions.

These increases were partially offset by unfavorable foreign currency translation ($485 million).

Operating Margin

International operating income for the first two quarters of fiscal 2023 increased 16% to $555 million, compared to $480 million for the same period in fiscal 2022.

Operating margin increased 230 basis points to 15.7%, primarily due to lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized (approximately 240 basis points) and sales leverage across markets outside of China (approximately 190 basis points).

These increases were partially offset by sales deleverage related to COVID-19 pandemic related impacts in our China market during the first quarter of fiscal 2023 (approximately 160 basis points) and higher partner wages and benefits (approximately 100 basis points).

International operating income for the first three quarters of fiscal 2023 increased 51% to $930 million, compared to $616 million for the same period in fiscal 2022.

Operating margin increased 500 basis points to 16.9%, primarily due to sales leverage (approximately 290 basis points) and lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized (approximately 250 basis points).

Channel Development

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Other operating expenses 14.8 13.6 1.2 3.3 2.8 40.6 35.7 4.9 2.9 2.6

Depreciation and amortization expenses 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.0

General and administrative expenses 1.9 2.3 (0.4) 0.4 0.5 6.2 8.1 (1.9) 0.4 0.6

1 unchanged sentence

Income from equity investees 68.9 53.7 15.2 15.4 11.2 177.0 141.9 35.1 12.6 10.4

Gain from sale of assets 91.3 — 91.3 19.0 nm 91.3 — 91.3 9.5 % nm

Gain from sale of assets — — — nm nm 91.3 — 91.3 6.5 % nm

Operating income $ 208.0 $ 191.7 $ 16.3 46.3 % 40.0 % $ 696.4 $ 572.7 $ 123.7 49.5 % 42.1 %

For the quarter ended April 2, 2023 compared with the quarter ended April 3, 2022

Channel Development total net revenues for the second quarter of fiscal 2023 increased $18 million, or 4%, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($20 million).

For the quarter ended July 2, 2023 compared with the quarter ended July 3, 2022

Channel Development total net revenues for the third quarter of fiscal 2023 decreased $31 million, or 6%, primarily due to a decline in revenue in the Global Coffee Alliance ($31 million).

Operating Margin

Channel Development operating income for the second quarter of fiscal 2023 increased 32% to $262 million, compared to $198 million in the second quarter of fiscal 2022.

Operating margin increased 1,180 basis points to 54.5%, primarily due to the gain from sale of our Seattle's Best Coffee brand (approximately 1,900 basis points), partially offset by impairment charges against certain manufacturing assets (approximately 360 basis points) .

For the two quarters ended April 2, 2023 compared with the two quarters ended April 3, 2022

Channel Development total net revenues for the first two quarters of fiscal 2023 increased $79 million, or 9%, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($63 million) and growth in our global ready-to-drink business ($27 million).

Channel Development operating income for the third quarter of fiscal 2023 increased 9% to $208 million, compared to $192 million in the third quarter of fiscal 2022.

Operating margin increased 630 basis points to 46.3%, primarily due to growth in our North American Coffee Partnership joint venture income (approximately 410 basis points) and mix shift (approximately 310 basis points).

For the three quarters ended July 2, 2023 compared with the three quarters ended July 3, 2022

Channel Development total net revenues for the first three quarters of fiscal 2023 increased $48 million, or 4%, primarily due to an increase in revenue in the Global Coffee Alliance ($32 million) and growth in our global ready-to-drink business ($27 million).

Operating Margin

Channel Development operating income for the first two quarters of fiscal 2023 increased 28% to $488 million, compared to $381 million for the same period in fiscal 2022.

Operating margin increased 760 basis points to 50.9%, primarily due to the gain from sale of our Seattle's Best Coffee brand (approximately 950 basis points) and growth in our North American Coffee Partnership joint venture income (approximately 110 basis points), partially offset by impairment charges against certain manufacturing assets (approximately 190 basis points) and business mix shift (approximately 160 basis points).

Channel Development operating income for the first three quarters of fiscal 2023 increased 22% to $696 million, compared to $573 million for the same period in fiscal 2022.

Operating margin increased 740 basis points to 49.5%, primarily due to the gain from sale of our Seattle's Best Coffee brand (approximately 650 basis points) and growth in our North American Coffee Partnership joint venture income (approximately 200 basis points), partially offset by impairment charges against certain manufacturing assets (approximately 120 basis points).

Corporate and Other

Quarter Ended Two Quarters Ended

Quarter Ended Three Quarters Ended

Net revenues:

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General and administrative expenses 432.3 326.1 106.2 32.6 1,267.9 1,008.7 259.2 25.7

Restructuring and impairments 0.3 — 0.3 nm 1.1 — 1.1 nm

Restructuring and impairments — 2.0 (2.0) nm 1.1 2.0 (0.9) (45.0) %

Total operating expenses 471.3 388.9 82.4 21.2 1,372.5 1,187.6 184.9 15.6

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

For the quarter ended April 2, 2023 compared with the quarter ended April 3, 2022

Corporate and Other operating loss increased by 29% to $467 million for the second quarter of fiscal 2023 compared to $361 million for the second quarter of fiscal 2022.

This increase was primarily driven by incremental investments in technology ($34 million), higher performance-based compensation ($25 million), increased support costs of strategic initiatives including the Reinvention Plan ($18 million) and a donation to the Starbucks Foundation ($15 million).

For the two quarters ended April 2, 2023 compared with the two quarters ended April 3, 2022

Corporate and Other operating loss increased by 19% to $893 million for the first two quarters of fiscal 2023 compared to $749 million for the same period in fiscal 2022.

This increase was primarily driven by incremental investments in technology ($62 million), increased support costs of strategic initiatives including the Reinvention Plan ($24 million), increased support costs to address labor market conditions ($16 million), higher performance-based compensation ($16 million) and a donation to the Starbucks Foundation ($15 million).

For the quarter ended July 2, 2023 compared with the quarter ended July 3, 2022

Corporate and Other operating loss increased by 28% to $463 million for the third quarter of fiscal 2023 compared to $362 million for the third quarter of fiscal 2022.

This increase was primarily driven by incremental investments in technology ($38 million), increased support costs of strategic initiatives including the Reinvention Plan ($27 million), higher performance-based compensation ($17 million) and a donation to the Starbucks Foundation ($15 million).

For the three quarters ended July 2, 2023 compared with the three quarters ended July 3, 2022

Corporate and Other operating loss increased by 22% to $1.4 billion for the first three quarters of fiscal 2023 compared to $1.1 billion for the same period in fiscal 2022.

This increase was primarily driven by incremental investments in technology ($100 million), increased support costs of strategic initiatives including the Reinvention Plan ($57 million), higher performance-based compensation ($33 million) and donations to the Starbucks Foundation ($30 million).

Quarterly Store Data

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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

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Cash and Investment Overview

Our cash and investments totaled $3.7 billion as of April 2, 2023 and $3.5 billion as of October 2, 2022.

Our cash and investments totaled $3.9 billion as of July 2, 2023 and $3.5 billion as of October 2, 2022.

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 well as principal-protected structured deposits.

As of April 2, 2023, approximately $2.6 billion of cash and short-term investment were held in foreign subsidiaries.

As of July 2, 2023, approximately $2.5 billion of cash and short-term investment were held in foreign subsidiaries.

Borrowing Capacity

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We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $1.0 billion.

Borrowings under the 2021 credit facility bear interest at a variable rate based on LIBOR, and, for U.S.

dollar-denominated loans under certain circumstances, a Base Rate (as defined in the 2021 credit facility), in each case plus an applicable margin.

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

The 2021 credit facility contains alternative interest rate provisions specifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform.

The “Base Rate” is the highest of (i) the Federal Funds Rate (as defined in the 2021 credit facility) plus 0.500%, (ii) Bank of America’s prime rate and (iii) the Eurocurrency Rate (as defined in the 2021 credit facility) plus 1.000%.

On April 17, 2023, Starbucks amended the 2021 credit facility to replace LIBOR with Term SOFR (Secured Overnight Financing Rate) as a successor rate.

All other material terms and conditions of the 2021 credit facility were unchanged.

Borrowings under the amended 2021 credit facility will bear interest at a variable rate based on Term SOFR, and, for U.S.

Borrowings under the 2021 credit facility, which was most recently amended in April 2023, will bear interest at a variable rate based on Term SOFR, and, for U.S.

dollar-denominated loans under certain circumstances, a Base Rate (as defined in the 2021 credit facility), in each case plus an applicable margin.

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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 April 2, 2023, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of April 2, 2023 or October 2, 2022.

As of July 2, 2023, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of July 2, 2023 or October 2, 2022.

Commercial Paper

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

As of April 2, 2023, we had no borrowings outstanding under our commercial paper program.

As of October 2, 2022, we had $175.0 million in borrowings outstanding under this program.

Our total contractual borrowing capacity for general corporate purposes was $3.0 billion as of the end of our second quarter of fiscal 2023.

As of July 2, 2023, we had no borrowings outstanding under our commercial paper program.

As of October 2, 2022, we had $175.0 million in borrowings outstanding under this

Our total contractual borrowing capacity for general corporate purposes was $3.0 billion as of the end of our third quarter of fiscal 2023.

Credit facilities in Japan

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

As of April 2, 2023, we had ¥7 billion, or $52.8 million, of borrowings outstanding under these credit facilities.

As of July 2, 2023, we had ¥5 billion, or $34.5 million, of borrowings outstanding under these credit facilities.

As of October 2, 2022, we had no borrowings outstanding under these credit facilities.

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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 2, 2023, we were in compliance with all applicable covenants.

As of July 2, 2023, we were in compliance with all applicable covenants.

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

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to satisfy domestic liquidity requirements, any foreign earnings which are not indefinitely reinvested may be repatriated at management’s discretion.

During the second quarter of fiscal 2023, our Board of Directors approved a quarterly cash dividend to shareholders of $0.53 per share to be paid on May 26, 2023 to shareholders of record as of the close of business on May 12, 2023.

During the third quarter of fiscal 2023, our Board of Directors approved a quarterly cash dividend to shareholders of $0.53 per share to be paid on August 25, 2023 to shareholders of record as of the close of business on August 11, 2023.

During the first quarter of fiscal 2023, we resumed our share repurchase program which was temporarily suspended in April 2022.

During the two quarters ended April 2, 2023, we repurchased 4.9 million shares of common stock for $495.3 million.

As of April 2, 2023, 47.7 million shares remained available for repurchase under current authorizations.

During the three quarters ended July 2, 2023, we repurchased 6.9 million shares of common stock for $699.3 million.

As of July 2, 2023, 45.7 million shares remained available for repurchase under current authorizations.

Other than normal operating expenses, cash requirements for the remainder of fiscal 2023 are expected to consist primarily of capital expenditures for investments in our new and existing stores, our supply chain and corporate facilities.

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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 $2.4 billion for the first two quarters of fiscal 2023, compared to $2.0 billion for the same period in fiscal 2022.

The change was primarily due to higher net earnings during the period and a decrease in net cash used by changes in other operating assets and liabilities.

Cash used in investing activities for the first two quarters of fiscal 2023 totaled $907 million, compared to cash used in investing activities of $881 million for the same period in fiscal 2022.

The change was primarily due to an increase in purchases of investments and higher spend on capital expenditures, partially offset by an increase in maturities and calls of investments and proceeds from the sale of assets.

Cash used in financing activities for the first two quarters of fiscal 2023 totaled $1.3 billion compared to cash used in financing activities of $3.7 billion for the same period in fiscal 2022.

The change is primarily due to a decrease in share repurchase activities, partially offset by higher repayments of long-term debt.

Cash provided by operating activities was $4.1 billion for the first three quarters of fiscal 2023, compared to $3.3 billion for the same period in fiscal 2022.

The change was primarily due to a decrease in net cash used by changes in operating assets and liabilities and higher net earnings during the period.

Cash used in investing activities totaled $1.4 billion for each of the first three quarters of fiscal 2023 and fiscal 2022, respectively.

Increased maturities and calls of investments in fiscal 2023 were offset by increased capital expenditures and higher investment purchases.

Cash used in financing activities for the first three quarters of fiscal 2023 totaled $2.1 billion compared to cash used in financing activities of $5.1 billion for the same period in fiscal 2022.

The change is primarily due to a decrease in share repurchase activities.

Commodity Prices, Availability and General Risk Conditions

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Our business is subject to moderate seasonal fluctuations, of which our fiscal second quarter typically experiences lower revenues and operating income.

However, the COVID-19 pandemic may have an impact on consumer behaviors and customer traffic that result in changes in the seasonal fluctuations of our business.

Additionally, as our stored value cards are issued to and loaded by customers during the holiday season, we tend to have higher cash flows from operations during the first quarter of the fiscal year.

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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