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Item 7. Management’s Discussion and Analysis

2023-11-17 compared with 2022-11-18 · 137 added, 157 removed, 286 unchanged (51% of the section changed)

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

Fiscal year 2022 included 52 weeks.

Fiscal year 2021 included 53 weeks, with the 53rd week falling in the fourth fiscal quarter, and fiscal year 2020 included 52 weeks;

comparable store sale percentages below are calculated excluding the 53rd week.

The discussion of our financial condition and results of operations for the fiscal year ended September 27, 2020, included in Item 7.

Fiscal years 2023 and 2022 included 52 weeks.

Fiscal year 2021 included 53 weeks, with the 53rd week falling in the fourth fiscal quarter.

The discussion of our financial condition and results of operations for the fiscal year ended October 3, 2021, included in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) can be found in the Annual Report on Form 10-K for the fiscal year ended October 2, 2022.

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1) North America, which is inclusive of the U.S.

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

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

and 3) Channel Development.

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• Operating margin

Starbucks results for fiscal 2022 demonstrate the resiliency and strength of our brand.

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

Consolidated revenues increased 12% to $36.0 billion in fiscal 2023 compared to $32.3 billion in fiscal 2022, primarily driven by strength in our U.S.

business and growth in our International segment excluding China, partially offset by the impact of the extra week in fiscal 2021 ($496 million) and unfavorable foreign currency translation.

business and growth in our International segment, partially offset by the impact of unfavorable foreign currency translation.

For both the North America segment and U.S.

market, comparable store sales increased 12% for fiscal 2022 compared to an increase of 22% and 21% for the North America segment and the U.S.

market, respectively, in fiscal 2021.

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

market grew 7% and 8%, respectively, primarily driven by strategic pricing and increased demand for food items in our U.S.

The segment also experienced higher costs, primarily related to investments and growth in labor including enhanced store partner wages as well as increased spend on new partner training.

Also contributing were inflationary pressures on commodities and our supply chain.

market, comparable store sales increased 9% for fiscal 2023 compared to an increase of 12% in fiscal 2022.

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

market grew 6%, primarily driven by pricing in our U.S.

The segment also experienced higher costs, primarily related to previously-committed investments in store partner wages and benefits and increased spend on partner training, as well as inflationary pressures on commodities and our supply chain.

In fiscal 2022, we announced our Reinvention Plan in the U.S.

market to increase efficiency while elevating the partner and customer experience.

We believe the investments in partner wages and training will increase retention and productivity while the acceleration of purpose-built store concepts and innovations in technologies will provide additional convenience and connection with our customers.

For the International segment, comparable store sales decreased by 9% for fiscal 2022 compared to an increase of 16% in fiscal 2021, driven by comparable store sales decline of 24% in our China market.

During the third and fourth quarters of fiscal 2022, our China market experienced COVID-19 pandemic related restrictions in multiple cities that severely impacted customer mobility.

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

Revenue for our Channel Development segment increased $250 million, or 16%, when compared with fiscal 2021, driven by higher product sales to and royalty revenue from the Global Coffee Alliance and growth in our global ready-to-drink business.

Operating margin decreased 520 basis points to 44.3%, primarily due to a decline in our North American Coffee Partnership joint venture income due to inflationary pressures and supply chain constraints as well as business mix shift.

Despite 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.

We expect inflationary pressures on commodities and supply chain to continue to a lesser extent in fiscal 2023, relative to the impact on our business and financial metrics, including operating margin, as compared to fiscal 2022.

We anticipate that these should be offset by benefits from pricing decisions as well as from increased sales leverage and higher productivity driven by our Reinvention Plan.

Absent significant and prolonged COVID-19 relapses or global economic disruptions, and based on the current trend of our business operations and our focused efforts on the Reinvention Plan, we are confident in the strength of our brand and strategy for sustainable, profitable growth over the long-term.

We believe the investments in partner wages and training have increased retention and in-store operational efficiencies while the acceleration of purpose-built store concepts and innovations in technologies have provided additional convenience and connection with our customers.

For the International segment, despite COVID-19 pandemic-related headwinds in China in the first half of the year, revenue grew 8% in fiscal 2023 compared to fiscal 2022, primarily driven by net new company-operated store openings and higher product sales to and royalty revenues from our licensees.

Also contributing to the increase was a 5% increase in comparable store sales, driven by customer transactions, compared to a decrease of 9% in fiscal 2022.

These increases were partially offset by the impact of unfavorable foreign currency translation.

Revenue for our Channel Development segment increased 3% in fiscal 2023 compared with fiscal 2022, primarily driven by higher Global Coffee Alliance product sales and royalty revenue and growth in our global ready-to-drink business.

In fiscal 2023, we sold the assets associated with the Seattle's Best Coffee brand to Nestlé, which resulted in a pre-tax gain of $91.3 million.

We have seen the strength and resilience of our brand as well as strong customer demand across our portfolio, with revenue and operating margin growth in fiscal 2023.

We expect to continue our trend of global new store growth in fiscal 2024, driven by a dynamic portfolio of store formats in the U.S.

and leveraging the strength of our brand internationally.

We anticipate continued benefits from increased sales leverage and pricing decisions as well as in-store operational efficiencies driven by our Reinvention Plan.

We expect the inflationary pressures on commodities and supply chain that impacted fiscal 2023 to moderate in fiscal 2024, relative to the impact on our business and financial metrics, including operating margin.

Absent global economic disruptions, and based on the current trend of our business operations and our focused efforts on the Reinvention Plan, we are confident in the strength of our brand and strategy for sustainable, profitable growth over the long-term.

Financial Highlights

• Total net revenues increased 11% to $32.3 billion in fiscal 2022 compared to $29.1 billion in fiscal 2021, inclusive of $576 million attributable to the extra week in fiscal 2021.

• Consolidated operating income decreased to $4.6 billion in fiscal 2022 compared to $4.9 billion in fiscal 2021.

• Total net revenues increased 12% to $36.0 billion in fiscal 2023 compared to $32.3 billion in fiscal 2022.

• Consolidated operating income increased to $5.9 billion in fiscal 2023 compared to $4.6 billion in fiscal 2022.

Fiscal 2023 operating margin was 16.3% compared to 14.3% in fiscal 2022.

Operating margin contraction of 250 basis points was primarily due to investments and growth in labor, including enhanced retail store partner wages (approximately 290 basis points) as well as increased spend on new partner training and support costs (approximately 80 basis points).

Also contributing were inflationary pressures on commodities and our supply chain (approximately 270 basis points), sales deleverage related to COVID-19 pandemic related impacts in our China market (approximately 110 basis points), business mix shift (approximately 60 basis points) and lower government subsidies (approximately 60 basis points).

These increases were partially offset by sales leverage across markets outside of China (approximately 390 basis points) and strategic pricing, primarily in North America (approximately 320 basis points).

• Diluted earnings per share (“EPS”) for fiscal 2022 decreased to $2.83, compared to EPS of $3.54 in fiscal 2021.

The decrease was primarily driven by lapping the prior year $0.56 gain, net of estimated taxes, on the divestiture of our South Korea joint venture and $0.10 related to the extra week in fiscal 2021.

Also contributing were investments in labor and inflationary pressures on commodities and our supply chain, partially offset by growth in comparable store sales and lower restructuring costs.

Operating margin expansion of 200 basis points was primarily due to pricing (approximately 250 basis points), sales leverage (approximately 240 basis points) and in-store operational efficiencies (approximately 160 basis points).

These increases were partially offset by previously-committed investments in store partner wages (approximately 250 basis points) and higher general and administrative expenses, primarily in support of our Reinvention Plan (approximately 130 basis points).

• Diluted earnings per share (“EPS”) for fiscal 2023 increased to $3.58, compared to EPS of $2.83 in fiscal 2022.

The increase was primarily driven by sales growth and in-store operational efficiencies.

This increase was partially offset by previously-committed investments in store partner wages and higher general and administrative expenses, primarily in support of our Reinvention Plan.

• Capital expenditures were $2.3 billion in fiscal 2023 and $1.8 billion in fiscal 2022.

• We returned $3.4 billion to our shareholders in fiscal 2023 through share repurchases and dividends.

We returned $2.1 billion in fiscal 2021 through dividends.

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

We resumed our share repurchase program in the first quarter of fiscal 2023.

We returned $6.3 billion in fiscal 2022 through share repurchases and dividends.

Acquisitions and Divestitures

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Also contributing were the incremental revenues from 1,339 net new Starbucks company-operated store openings, or a 7% increase, over the past 12 months ($1.2 billion).

Partially offsetting these increases was the impact of the extra week in fiscal 2021 ($496 million) and unfavorable foreign currency translation ($368 million).

Licensed stores revenue increased $972 million, primarily driven by higher product and equipment sales to and royalty revenues from our licensees ($922 million) and the conversion of our Korea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($187 million).

Partially offsetting these increases were unfavorable foreign currency translation ($81 million) and the impact of the extra week in fiscal 2021 ($57 million).

Other revenues increased $249 million, primarily due to higher product sales and royalty revenue in the Global Coffee Alliance ($216 million) and growth in our ready-to-drink business ($44 million).

Partially offsetting these increases was the impact of the extra week in fiscal 2021 ($23 million).

These increases were partially offset by the impact of unfavorable foreign currency translation ($555 million).

Licensed stores revenue increased $857 million, primarily driven by higher product and equipment sales to and royalty revenues from our licensees ($898 million), largely due to revenue growth from existing stores and the opening of 988 net new Starbucks licensed stores over the past 12 months, partially offset by the impact of unfavorable foreign currency translation ($64 million).

Other revenues decreased $18 million, primarily due to the absence of revenues from the Evolution Fresh business following its sale in the fourth quarter of fiscal 2022 ($60 million), partially offset by an increase in revenue in the Global Coffee Alliance ($37 million).

Operating Expenses

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Income from equity investees 298.4 234.1 0.8 0.7

Gain from sale of assets 91.3 — 0.3 —

Operating income $ 5,870.8 $ 4,617.8 16.3 % 14.3 %

Store operating expenses as a % of related revenues 50.0 % 51.0 %

Product and distribution costs as a percentage of total net revenues increased 190 basis points, primarily due to higher supply chain costs due to inflationary pressures.

Store operating expenses as a percentage of total net revenues increased 100 basis points.

Store operating expenses as a percentage of company-operated store revenues increased 250 basis points, primarily due to investments and growth in labor, including enhanced retail store partner wages (approximately 320 basis points) as well as increased spend on new partner training and support costs (approximately 90 basis points).

Also contributing were lower temporary government subsidies (approximately 70 basis points).

These increases were partially offset by sales leverage.

Other operating expenses increased $102 million, primarily due to lapping a change in estimate relating to a transaction cost accrual ($23 million), higher support costs for our growing North America and International licensed stores ($22 million), transaction costs associated with our Russia market exit ($20 million) and strategic investments in technology and other initiatives ($15 million).

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

General and administrative expenses increased $99 million, primarily due to incremental investments in technology ($92 million), increased partner wages and benefits ($59 million) and higher support costs to address labor market conditions ($36 million).

These increases were partially offset by lower performance-based compensation ($95 million).

Restructuring and impairment expense s decreased $124 million, primarily due to lower costs incurred related to our Reinvention Plan in the current year compared to prior year's North America store portfolio optimization, including lower accelerated lease right-of-use asset amortization costs ($84 million) and asset impairment charges ($68 million), partially offset by higher professional fees and higher severance costs ($27 million).

Income from equity investees decreased $151 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 ($140 million) and lower income from our North American Coffee Partnership joint venture ($18 million).

The combination of these changes resulted in an overall decrease in operating margin of 250 basis points in fiscal 2022 when compared to fiscal 2021.

Product and distribution costs as a percentage of total net revenues decreased 30 basis points, primarily due to pricing (approximately 120 basis points), partially offset by inflationary pressures on commodities and our supply chain (approximately 80 basis points).

Store operating expenses as a percentage of total net revenues decreased 120 basis points.

Store operating expenses as a percentage of company-operated store revenues decreased 100 basis points, primarily due to in-store operational efficiencies (approximately 160 basis points), sales leverage (approximately 160 basis points) and pricing (approximately 160 basis points).

These were partially offset by previously-committed investments in store partner wages and benefits (approximately 290 basis points) and increased spend on partner training (approximately 30 basis points).

Other operating expenses increased $78 million, primarily due to higher strategic investments in technology and other initiatives ($32 million) and support costs for our growing licensed markets ($25 million).

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 $409.3 million, primarily due to incremental investments in technology ($140 million), increased support costs of strategic initiatives including the Reinvention Plan ($86 million), higher performance-based compensation ($74 million) and other labor and leadership support costs ($31 million).

Income from equity investees increased $64 million, primarily due to higher income from our North American Coffee Partnership joint venture ($64 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 200 basis points in fiscal 2023 when compared to fiscal 2022.

Other Income and Expenses

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Operating income $ 5,870.8 $ 4,617.8 16.3 % 14.3 %

Net gain resulting from divestiture of certain operations — 864.5 — 3.0

Interest income and other, net 81.2 97.0 0.2 0.3

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Effective tax rate including noncontrolling interests 23.6 % 22.4 %

Net gain resulting from divestiture of certain operations decreased $865 million due to lapping the sale of our ownership interest in our South Korea joint venture in the prior year.

Interest expense increased $13 million primarily due to additional interest incurred on long-term debt issued in February 2022.

The effective tax rate for fiscal 2022 was 22.4% compared to 21.6% for fiscal 2021.

The increase was due to lapping a prior year remeasurement of deferred tax assets due to an enacted foreign corporate rate change (approximately 130 basis points) and lapping the release of income tax reserves upon expiration of statute of limitations (approximately 70 basis points), partially offset by the release of valuation allowances recorded against deferred tax assets of a certain international jurisdiction (approximately 120 basis points).

Interest income and other, net decreased $16 million, primarily due to lapping higher investment gains in the prior year.

Interest expense increased $67 million primarily due to higher debt balances and higher interest rates.

The effective tax rate for fiscal 2023 was 23.6% compared to 22.4% for fiscal 2022.The increase was due to lapping a beneficial return-to-provision adjustment related to the divestiture of certain joint venture operations (approximately 50 basis points) and a year-over-year decrease in beneficial valuation allowance activity related to international jurisdictions (approximately 40 basis points).

See Note 14 , Income Taxes, for further discussion.

The Inflation Reduction Act was enacted on August 16, 2022, and includes a new 15% minimum tax on “adjusted financial statement income” beginning with the Company’s fiscal year 2024, and a new 1% excise tax on stock repurchases after December 31, 2022.

While these tax law changes have no immediate effect and are not expected to have a material impact on our future financial results, we will continue to evaluate its impact as further information becomes available.

Segment Information

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Operating income $ 5,495.7 $ 4,486.5 20.7 % 19.2 %

North America total net revenues for fiscal 2022 increased $2.9 billion, or 14%, primarily due to a 12% increase in comparable store sales ($2.2 billion) driven by a 7% increase in average ticket and a 5% increase in transaction.

Also contributing to these increases were the performance of net new company-operated store openings over the past 12 months ($628 million) and higher product and equipment sales to and royalty revenues from our licensees ($487 million), primarily due to business recovery from the impact of the COVID-19 pandemic.

These increases were partially offset by the impact of the extra week in fiscal 2021 ($427 million).

Store operating expenses as a % of related revenues 50.0 % 51.2 %

North America total net revenues for fiscal 2023 increased $3.2 billion, or 14%, primarily due to a 9% increase in comparable store sales ($1.9 billion) driven by a 6% increase in average ticket and a 3% increase in comparable transactions.

Also contributing to the increase were the performance of net new company-operated store openings over the past 12 months ($813 million) and higher product and equipment sales to and royalty revenues from our licensees ($487 million).

Operating Margin

North America operating income for fiscal 2023 increased 22% to $5.5 billion, compared to $4.5 billion in fiscal 2022.

Operating margin decreased 160 basis points to 19.2%, primarily due to investments and growth in labor, including enhanced retail store partner wages (approximately 350 basis points) as well as increased spend on new partner training and support costs (approximately 120 basis points).

Also contributing were inflationary pressures on commodities and our supply chain (approximately 350 basis points).

These were partially offset by strategic pricing (approximately 400 basis points) and sales leverage.

Operating margin expanded 150 basis points to 20.7%, primarily due to pricing (approximately 300 basis points), in-store operational efficiencies (approximately 230 basis points) and sales leverage.

These were partially offset by previously-committed investments in store partner wages and benefits (approximately 300 basis points) and increased spend on partner training (approximately 40 basis points), as well as inflationary pressures on commodities and our supply chain (approximately 80 basis points).

International

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Operating income $ 1,230.9 $ 833.2 16.4 % 12.0 %

International total net revenues for fiscal 2022 increased $19 million, or 0.3%, primarily due to higher product sales to and royalty revenues from our licensees ($435 million), mainly due to continuing business improvement from the COVID-19 pandemic.

Additionally, there were 765 net new Starbucks company-operated stores, or a 11% increase over the past 12 months ($406 million).

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 ($187 million).

These were partially offset by a 9% decline in comparable store sales ($459 million), driven by a 5% 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, unfavorable foreign currency translation ($436 million) and the impact of the extra week in fiscal 2021 ($127 million).

Store operating expenses as a % of related revenues 49.7 % 50.4 %

International total net revenues for fiscal 2023 increased $548 million, or 7.9%, primarily due to 927 net new Starbucks company-operated stores, or a 12% increase over the past 12 months ($421 million), as well as higher product sales to and royalty revenues from our licensees ($411 million).

Also contributing to the increase was a 5% increase in comparable store sales ($233 million), primarily driven by customer transactions.

These were partially offset by the impact of unfavorable foreign currency translation ($543 million).

Operating Margin

International operating income for fiscal 2022 decreased 33% to $833.2 million, compared to $1.2 billion in fiscal 2021.

Operating margin decreased 600 basis points to 12.0%, primarily due to sales deleverage related to COVID-19 pandemic impacts in our China market (approximately 460 basis points), investments and growth in retail store partner wages and benefits (approximately 140 basis points), lower temporary government subsidies (approximately 100 basis points), higher commodity and supply chain costs due to inflationary pressures (approximately 90 basis points) and strategic initiatives (approximately 90 basis points).

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

International operating income for fiscal 2023 increased 48% to $1.2 billion, compared to $833.2 million in fiscal 2022.

Operating margin increased 440 basis points to 16.4%, primarily due to sales leverage (approximately 270 basis points) and lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized (approximately 240 basis points).

Channel Development

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Income from equity investees 295.7 231.8 15.6 12.6

Gain from sale of assets 91.3 — 4.8 —

Operating income $ 967.6 $ 817.3 51.1 % 44.3 %

Channel Development total net revenues for fiscal 2023 increased $50 million, or 3%, compared to fiscal 2022, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($37 million) and growth in our ready-to-drink business ($22 million).

These increases were partially offset by the impact of the extra week in fiscal 2021 ($21 million).

Operating Margin

Channel Development operating income for fiscal 2023 increased 18% to $968 million, compared to $817 million in fiscal 2022.

Operating margin increased 680 basis points to 51.1%, primarily due to the gain from sale of our Seattle's Best Coffee brand (approximately 480 basis points) and growth in our North American Coffee Partnership joint venture income (approximately 300 basis points), partially offset by impairment charges against certain manufacturing assets (approximately 100 basis points).

Corporate and Other

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Operating loss $ (1,823.4) $ (1,519.2) 20.0 %

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

Corporate and Other primarily consists of our unallocated corporate expenses and Evolution Fresh, prior to its sale in the fourth quarter of fiscal 2022.

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.

In the fourth quarter of fiscal 2022, we sold our Evolution Fresh brand and business.

Corporate and Other operating loss increased to $1.8 billion for fiscal 2023, or 20%, compared to $1.5 billion in fiscal 2022.

This increase was primarily driven by incremental investments in technology ($84 million), increased support costs to address labor market conditions ($36 million) and increased partner wages and benefits ($31 million).

These increases were partially offset by lower performance-based compensation ($62 million).

This increase was primarily driven by incremental investments in technology ($131 million), increased support costs of strategic initiatives including the Reinvention Plan ($86 million) and higher performance-based compensation ($56 million).

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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Our cash and investments were $4.2 billion and $3.5 billion as of October 1, 2023 and October 2, 2022, respectively.

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.

We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, fund 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 (domestic and foreign) and commercial paper as well as principal-protected structured deposits.

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Credit Facilities and Commercial Paper

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

Revolving Lines of Credit

Our $3.0 billion unsecured 5-year revolving credit facility (the “2021 credit facility”), of which $150 million may be used for issuances of letters of credit, is currently set to mature on September 16, 2026.

Revolving Credit Facility

Our $3.0 billion unsecured five-year revolving credit facility (the “2021 credit facility”), of which $150.0 million may be used for issuances of letters of credit, is currently set to mature on September 16, 2026.

The 2021 credit facility is available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases.

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 credit facility will bear interest at a variable rate based on LIBOR, 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.

The applicable margin is based on the Company’s long-term credit ratings assigned by 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” of interest is the highest of (i) the Federal Funds Rate plus 0.500%, (ii) Bank of America’s prime rate, and (iii) the Eurocurrency Rate (as defined in the credit facility) plus 1.000%.

As of October 2, 2022, we had no borrowings under the 2021 credit facility.

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 “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) Term SOFR plus 1.000%.

Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.

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 October 1, 2023, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of October 1, 2023 or October 2, 2022.

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

Commercial Paper

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

Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under the

2021 credit facility discussed above.

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

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 October 2, 2022, we had $175.0 million outstanding under our commercial paper program.

As of October 1, 2023, we had no amounts outstanding under our commercial paper program.

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

Credit Facilities in Japan

Additionally, we hold Japanese yen-denominated credit facilities which are available for working capital needs and capital expenditures within our Japanese market.

• A ¥5 billion, or $34.6 million, facility is currently set to mature on December 31, 2022.

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

• A ¥10 billion, or $69.2 million, facility is currently set to mature on March 27, 2023.

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

Additionally, we hold the following Japanese yen-denominated credit facilities that are are available for working capital needs and capital expenditures within our Japanese market:

• A ¥5 billion, or $33.5 million, credit facility is currently set to mature on January 4, 2024.

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 0.400%.

• A ¥10 billion, or $67.0 million, credit facility is currently set to mature on March 27, 2024.

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 October 1, 2023 we had ¥5 billion, or $33.5 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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We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facilities, commercial paper program and the issuance of debt to support and invest in our core businesses, including investing in new ways to serve our customers and supporting our store partners, repaying maturing debts, as well as returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases and investing in new business opportunities related to our core and developing businesses.

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

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

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

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

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

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

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

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

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

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state income taxes, which could be material.

We currently do not anticipate the need for repatriated funds to the U.S.

to satisfy domestic liquidity needs.

While we do not anticipate the need for repatriated funds to the U.S.

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

See Note 14 , Income Taxes, for further discussion.

During each of the first three quarters of fiscal 2022, we declared a cash dividend to shareholders of $0.49 per share.

During the fourth quarter of fiscal 2021, and for each of the first three quarters of fiscal 2022, we declared a cash dividend of $0.49 per share.

During the fourth quarter of fiscal 2022, and for each of the first three quarters of fiscal 2023, we declared a cash dividend of $0.53 per

Dividends are generally paid in the quarter following the declaration date.

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During the fourth quarter of fiscal 2023, we declared a cash dividend of $0.57 per share to be paid on November 24, 2023, with an expected payout of approximately $651.2 million.

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

During the fiscal year ended October 2, 2022, we repurchased 36.3 million shares of common stock for $4.0 billion on the open market.

During the fiscal year ended October 1, 2023, we repurchased 10.0 million shares of common stock for $1.0 billion on the open market.

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

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

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

As of October 1, 2023, 42.6 million shares remained available for repurchase under current authorizations.

We have resumed our share repurchase program in the first quarter of fiscal 2023.

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

Other than normal operating expenses, cash requirements for fiscal 2024 are expected to consist primarily of capital expenditures for investments in our new and existing stores, our supply chain and corporate facilities.

Total capital expenditures for fiscal 2024 are expected to be approximately $3.0 billion.

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Green coffee purchase commitments comprise 92% of total purchase obligations.

(3) Other obligations include other long-term liabilities primarily consisting of long-term income taxes payable, asset retirement obligations and equity investment capital commitments.

(3) Other obligations include other long-term liabilities primarily consisting of long-term income taxes payable, asset retirement obligations, equity investment capital commitments and finance lease obligations.

Cash provided by operating activities was $6.0 billion for fiscal 2023, compared to $4.4 billion for fiscal 2022.

The change was primarily due to lower net earnings and an increase in inventory purchases and timing of income tax payments.

Cash used in investing activities totaled $2.1 billion for fiscal 2022, compared to $0.3 billion for fiscal 2021.

The change was primarily driven by lapping the net proceeds from the divestiture of our ownership interest in our South Korea joint venture and an increase in spend on capital expenditures.

Cash used in financing activities for fiscal 2022 totaled $5.6 billion, compared to cash provided by financing activities of $3.7 billion for fiscal 2021.

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

The change was primarily due to a decrease in net cash used by changes in operating assets and liabilities, including lower inventory purchases driven by reduced coffee commodity prices, and higher net earnings during the period.

Cash used in investing activities was $2.3 billion for fiscal 2023, compared to $2.1 billion for fiscal 2022.

The change was primarily due to an increase in spend on capital expenditures and increased purchases of investments in fiscal 2023, partially offset by increased maturities and calls of investments in fiscal 2023.

Cash used in financing activities was $3.0 billion for fiscal 2023, compared to $5.6 billion for fiscal 2022.

The change was primarily due to a decrease in share repurchase activities, partially offset by an increase in net payments of commercial paper.

COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS

Commodity price risk represents Starbucks primary market risk, generated by our purchases of green coffee and dairy products, among other items.

Commodity price risk represents our primary market risk, generated by our purchases of green coffee and dairy products, among other items.

We purchase, roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee.

In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores.

The price and availability of these commodities directly impacts our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations.

The price and availability of these commodities directly impact our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations.

For additional details see Product Supply in Item 1 , as well as Risk Factors in Item 1A of this 10-K.

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Under this policy, market-based risks are quantified and evaluated for potential mitigation strategies, such as entering into hedging transactions.

The market price risk management policy governs how hedging instruments may be used to mitigate risk.

The market price risk management policy governs how hedging instruments may be used to mitigate

Risk limits are set annually and speculative trading activities are prohibited.

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We use interest rate swap agreements and treasury locks to primarily hedge against changes in benchmark interest rates related to anticipated debt issuances.

We also use cross-currency swaps and foreign exchange debt instruments to hedge against changes in the fair value of our fixed-rate debt and foreign exchange exposure of net investments in Japan.

We also use cross-currency swaps and foreign exchange debt instruments to hedge against changes in the fair value of our net investments in foreign operations.

Excluding interest rate hedging instruments, cross currency swaps and foreign currency debt, hedging instruments generally do not have maturities in excess of three years.

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We purchase commodity inputs, primarily coffee, dairy products, diesel, cocoa, sugar and other commodities, that are used in our operations and are subject to price fluctuations that impact our financial results.

We use a combination of pricing features embedded within supply contracts, such as fixed-price and price-to-be-fixed contracts for coffee purchases, and financial derivatives to manage our commodity price risk exposure.

We use a combination of pricing features embedded within supply contracts, such as fixed-price and price-to-be-fixed contracts and financial derivatives to manage our commodity price risk exposure.

The following table summarizes the potential impact as of October 1, 2023 to Starbucks future net earnings and other comprehensive income (“OCI”) from changes in commodity prices.

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The following table summarizes the impact of a change in interest rates as of October 1, 2023 on the fair value of Starbucks debt (in millions) :

Change in Fair Value

Fair Value 100 Basis Point Increase in

Underlying Rate

100 Basis Point Decrease in

Underlying Rate

Fair Value Decrease in Fair Value for a 100 Basis Point Increase in Underlying Rate

Long-term debt (1)(2)

$ 13,426 $ (820)

(1) Amount disclosed is net of $28 million change in the fair value of our designated interest rate swap.

(1) Amount disclosed is net of $16 million change in the fair value of our designated interest rate swaps.

Refer to Note 3 , Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.

(2) Includes $750 million in Senior Notes that matured on October 1, 2023 but remained in current portion of long-term debt on the consolidated balance sheet as the debt repayment was not made until the first day of fiscal 2024.

Available-for-Sale Debt Securities

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CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain, especially in light of the current economic environment due to the COVID-19 pandemic.

Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions.

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We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below:

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities.

Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse.

We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized.

In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of operations.

In projecting future taxable income, we consider historical results and incorporate assumptions about the amount of future state, federal and foreign pre-tax operating income adjusted for items that do not have tax consequences.

Our assumptions regarding future taxable income are consistent with the plans and estimates we use to manage our underlying businesses.

In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income/(loss).

In addition, our income tax returns are periodically audited by domestic and foreign tax authorities.

These audits include review of our tax filing positions, such as the timing and amount of deductions taken and the allocation of income between tax jurisdictions.

We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position.

The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

For uncertain tax positions that do not meet this threshold, we record a related liability.

We adjust our unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available.

As discussed in Note 14 , Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, there is a reasonable possibility that our unrecognized tax benefit liability will be adjusted within 12 months due to the expiration of a statute of limitations and/or resolution of examinations with taxing authorities.

We have generated income in certain foreign jurisdictions that may be subject to additional foreign withholding taxes and U.S.

state income taxes.

We regularly review our plans for reinvestment or repatriation of unremitted foreign earnings.

The possibility exists that foreign earnings declared as indefinitely reinvested may be repatriated as our plans are based on our estimated working and other capital needs in jurisdictions where our earnings are generated.

While we do not expect to repatriate cash to the U.S.

to satisfy domestic liquidity needs, if these amounts were distributed to the U.S., in the form of dividends or otherwise, we may be subject to additional foreign withholding taxes and U.S.

state income taxes, which could be material.

Our income tax expense, deferred tax assets and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid.

Deferred tax asset valuation allowances and our liabilities for unrecognized tax benefits require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results, including forecasted business performance, could differ, and we may be exposed to losses or gains that could be material.

To the extent we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected.

Property, Plant and Equipment and Other Finite-Lived Assets

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market to increase efficiency while elevating the partner and customer experience.

As a result of the restructuring efforts in connection with the Reinvention Plan, we recorded an immaterial impairment charge on our consolidated statements of earnings during the fiscal year ended October 2, 2022.

As a result of the restructuring efforts in connection with the Reinvention Plan, we recorded immaterial impairment charges on our consolidated statements of earnings during the fiscal years ended October 1, 2023 and October 2, 2022.

Future impairment charges attributed to our Reinvention Plan are not expected to be material.

In fiscal 2021, we substantially completed our plan to reposition our North America store portfolio, primarily in dense metropolitan markets by pursuing strategic store closures and focusing on new store formats that better cater to changing customer tastes and preferences.

During fiscal year 2021, we recorded approximately $155.4 million to restructuring and impairments on our consolidated statements of earnings.

These totals included $53.1 million related to disposal and impairment of company-operated store assets and $89.5 million primarily associated with accelerated amortization of ROU lease assets and other lease costs due to store closures prior to the end of contractual lease terms.

As this restructuring plan was substantially completed in fiscal 2021, we did not recognize any material restructuring and impairment amounts related to this plan during the fiscal year ended October 2, 2022.

Asset impairment charges are discussed in Note 1 , Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 8 of Part II of this 10-K.

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If we perform a quantitative assessment of an individual reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values, including projected revenue growth and operating expenses related to existing businesses, product innovation and new store concepts, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate.

Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance

and forecasted growth, including assumptions regarding business recovery post COVID-19, strategic initiatives, local market economics and the local business environment impacting the reporting unit’s performance.

Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, strategic initiatives, local market economics and the local business environment impacting the reporting unit’s performance.

The discount rate is selected based on the estimated cost of capital for a market participant to operate the reporting unit in the region.

These estimates, as well as the selection of comparable companies and valuation multiples used in the market approaches are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion.

Our goodwill impairment assessments were not significantly altered as a result of the COVID-19 pandemic.

We continue to believe the fair value of each of our reporting units is significantly in excess of its carrying value, and absent a sustained multi-year global decline in our business in key markets such as the U.S.

and China, we do not anticipate incurring significant goodwill impairment in the next 12 months.

Our fiscal 2022 annual goodwill impairment testing, which was completed in the third fiscal quarter, resulted in an estimated fair value of our reporting units where a quantitative assessment was performed, was in excess of carrying value of approximately $95 billion for the business units where a quantitative analysis on impairment was performed.

Our fiscal 2023 annual goodwill impairment testing was completed in the third fiscal quarter.

Where a quantitative assessment was performed, the estimated fair value of our reporting units exceeded carrying value by approximately $101 billion.

When assessing indefinite-lived intangible assets for impairment, where we perform a qualitative assessment, we evaluate if changes in events or circumstances have occurred that indicate that impairment may exist.

If we do not perform a qualitative impairment assessment or if changes in events and circumstances indicate that a quantitative assessment should be performed, management is required to calculate the fair value of the intangible asset group.

The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the intangible asset group’s forecasted growth, including assumptions regarding business recovery post COVID-19, and royalty rates, which are adjusted for our particular facts and circumstances.

The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the intangible asset group’s forecasted growth, and royalty rates, which are adjusted for our particular facts and circumstances.

The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business.

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Definite-lived intangible asset impairment charges are discussed in Note 8 , Other Intangible Assets and Goodwill, to the consolidated financial statements included in Item 8 of Part II of this 10-K.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities.

Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse.

Our assumptions regarding future taxable income are consistent with the plans and estimates we use to manage our underlying businesses.

In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income/(loss).

In addition, our income tax returns are periodically audited by domestic and foreign tax authorities.

These audits include review of our tax filing positions, such as the timing and amount of deductions taken and the allocation of income between tax jurisdictions.

For uncertain tax positions that do not meet this threshold, we record a related liability.

As discussed in Note 14 , Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, we do not expect a significant amount of the Company’s gross unrecognized tax benefits to be recognized by the end of fiscal 2023 for reasons such as a lapse of the statute of limitations or resolution of examinations with tax authorities .

We have generated income in certain foreign jurisdictions that may be subject to additional foreign withholding taxes and U.S.

state income taxes.

We regularly review our plans for reinvestment or repatriation of unremitted foreign earnings.

While we do not expect to

repatriate cash to the U.S.

to satisfy domestic liquidity needs, if these amounts were distributed to the U.S., in the form of dividends or otherwise, we may be subject to additional foreign withholding taxes and U.S.

state income taxes, which could be material.

Our income tax expense, deferred tax assets and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid.

RECENT ACCOUNTING PRONOUNCEMENTS

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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-K

Item 7. Management’s Discussion and Analysis