What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-01-30 compared with 2023-08-01 · 105 added, 158 removed, 198 unchanged (57% of the section changed)

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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;

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 our most recently filed 10-K and 10-Q and in other filings with the SEC, as well as:

• our ability to preserve, grow, and leverage our brands, including the risk of negative responses by consumers (such as boycotts or negative publicity campaigns) or governmental actors (such as retaliatory legislative treatment) who object to certain actions taken or not taken by the Company, which responses could adversely affect our brand value;

• 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;

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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;

• our anticipated operating expenses, including our anticipated total capital expenditures;

• 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;

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• the impact of significant increases in logistics costs;

• a worsening in the terms and conditions upon which we engage with our manufacturers and source suppliers, whether resulting from broader local or global conditions, or dynamics specific to our relationships with such parties;

• 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;

• inherent risks of operating a global business including geopolitical instability;

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

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• 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;

tax law and related guidance and regulations that may be implemented, including on tax rates;

• 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;

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

In addition, many of the foregoing risks and uncertainties are, or could be, exacerbated by any worsening of the global business and economic environment.

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.

You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report.

You should not place undue reliance on the forward-

looking statements, which speak only as of the date of this report.

We are under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise.

This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contained in the 10-K filed with the SEC on November 18, 2022.

This information should be read in conjunction with the unaudited consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contained in the 10-K filed with the SEC on November 17, 2023.

Introduction and Overview

Starbucks is the premier roaster, marketer, and retailer of specialty coffee in the world, operating in 86 markets.

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

As of December 31, 2023, Starbucks had more than 38,500 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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1) North America, which is inclusive of the U.S.

and Canada, 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, Africa, Latin America, and the Caribbean;

and 3) Channel Development.

Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.

Unallocated corporate expenses are reported within Corporate and Other.

We believe our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales growth, and operating margin management, underpinned by disciplined capital allocation.

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• Operating margin

Comparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for 13 months or longer and exclude the impact of foreign currency translation.

We analyze comparable store sales growth on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements.

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

Stores that are temporarily closed or operating at reduced hours remain in comparable store sales while stores identified for permanent closure have been removed.

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

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

Starbucks results for the 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.

Starbucks results for the first quarter of fiscal 2024 continue to demonstrate the overall strength of our brand and efficiencies realized from Reinvention, despite certain headwinds.

Consolidated net revenues increased 8% to $9.4 billion in the first quarter of fiscal 2024 compared to $8.7 billion in the first quarter of fiscal 2023, primarily driven by growth in our North America business and our International segment, largely related to lapping prior year COVID-19 pandemic-related business disruptions in China.

During the quarter ended December 31, 2023, our global comparable store sales grew 5%, primarily driven by 5% growth in the U.S.

market and 7% growth internationally, demonstrating the endurance of the Starbucks brand globally.

Consolidated operating margin increased 140 basis points from the prior year to 15.8%, primarily driven by sales leverage and in-store operational efficiencies.

These increases were partially offset by increased investments in store partner wages and benefits, as well as higher general and administrative expenses, primarily in support of Reinvention.

We anticipate these headwinds experienced in the first quarter of fiscal 2024, although transitory, may continue to impact the balance of our fiscal year.

Despite these transitory headwinds, we remain confident in our long-term growth and durable business model, as our Triple Shot Reinvention is unlocking multiple levers to drive balanced earnings growth, as evidenced in our first quarter of fiscal 2024 results.

Results of Operations (in millions)

Quarter Ended Three Quarters Ended

Quarter Ended

Company-operated stores $ 7,755.2 $ 7,083.5 $ 671.7 9.5 %

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Total net revenues $ 9,425.3 $ 8,713.9 $ 711.4 8.2 %

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).

For the quarter ended December 31, 2023 compared with the quarter ended January 1, 2023

Total net revenues for the first quarter of fiscal 2024 increased $711 million, primarily due to higher revenues from company-operated stores ($672 million).

The growth of company-operated stores revenue was driven by a 5% increase in comparable store sales ($369 million), attributable to a 3% increase in comparable transactions and a 2% 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).

Partially offsetting these increases was unfavorable foreign currency translation ($96 million).

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).

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.

Also contributing to the increase were incremental revenues from 1,265 net new Starbucks company-operated stores, or a 7% increase, over the past 12 months ($907 million).

Also contributing to company-operated stores revenue were incremental revenues from 1,475 net new Starbucks company-operated

stores, or an 8% increase, over the past 12 months ($326 million).

Partially offsetting these increases was unfavorable foreign currency translation ($30 million).

Licensed stores revenue increased $668 million contributing to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($716 million).

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

Licensed stores revenue increased $73 million contributing to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($64 million), primarily driven by revenues from 942 net new licensed store openings, or a 5% increase, over the past 12 months.

Other revenues decreased $33 million, primarily due to a decline in revenue in the Global Coffee Alliance following the sale of our Seattle’s Best Coffee brand to Nestlé in the second quarter of fiscal 2023 ($19 million) and lower revenue in our global ready-to-drink business ($11 million).

Operating Expenses

Quarter Ended Three Quarters Ended

Change Jul 2,

Total Net Revenues As a % of

Quarter Ended

Total Net Revenues

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Income from equity investees 55.9 57.8 (1.9) 0.6 0.7

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

Operating income $ 1,485.4 $ 1,253.1 $ 232.3 15.8 % 14.4 %

Store operating expenses as a % of company-operated stores revenue 49.7 % 51.7 %

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 $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).

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 $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 130 basis points for the first three quarters of fiscal 2023.

For the quarter ended December 31, 2023 compared with the quarter ended January 1, 2023

Product and distribution costs as a percentage of total net revenues decreased 60 basis points for the first quarter of fiscal 2024, primarily due to the impact of increased sales from pricing.

Store operating expenses as a percentage of total net revenues decreased 120 basis points for the first quarter of fiscal 2024.

Store operating expenses as a percentage of company-operated stores revenue decreased 200 basis points, primarily due to in-store operational efficiencies (approximately 210 basis points), and sales leverage (approximately 160 basis points).

These were partially offset by increased investments in store partner wages and benefits (approximately 130 basis points).

Other operating expenses increased $21 million, primarily due to support costs in wages and benefits and marketing for our growing licensed markets.

Depreciation and amortization expenses as a percentage of total net revenues increased 10 basis points, primarily due to higher capital investments in support of our retail stores.

General and administrative expenses increased $67 million, primarily due to investments in partner wages and benefits ($33 million) and incremental investments in technology in support of our Reinvention ($32 million).

The combination of these changes resulted in an overall increase in operating margin of 140 basis points for the first quarter of fiscal 2024.

Other Income and Expenses

Quarter Ended Three Quarters Ended

Change Jul 2,

Quarter Ended

As a % of Total

Net Revenues As a % of Total

Operating income $ 1,485.4 $ 1,253.1 $ 232.3 15.8 % 14.4 %

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Effective tax rate including noncontrolling interests 25.7 % 24.6 %

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 $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).

For the quarter ended December 31, 2023 compared with the quarter ended January 1, 2023

Interest income and other, net increased $22 million and interest expense increased $10 million, both primarily due to higher interest rates in the current year.

The effective tax rate for the quarter ended December 31, 2023 was 25.7% compared to 24.6% for the same period in fiscal 2023.

The increase was primarily due to the accrual of foreign withholding taxes related to the current-year earnings of certain foreign subsidiaries (approximately 80 basis points).

Segment Information

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North America

Quarter Ended Three Quarters Ended

Change Jul 2,

Quarter Ended

As a % of North America

Total Net Revenues As a % of North America

Total Net Revenues

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Store operating expenses as a % of company-operated stores revenue 49.3 % 51.6 %

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 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).

For the quarter ended December 31, 2023 compared with the quarter ended January 1, 2023

North America total net revenues for the first quarter of fiscal 2024 increased $569 million, or 9%, primarily due to a 5% increase in comparable store sales ($288 million) driven by a 4% increase in average ticket, primarily due to annualization of pricing, and a 1% increase in comparable transactions.

Also contributing to revenue growth were the performance of net new company-operated store openings over the past 12 months ($222 million) and higher product and equipment sales to and royalty revenues from our licensees ($49 million).

Operating Margin

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).

North America operating income for the first quarter of fiscal 2024 increased 25% to $1.5 billion, compared to $1.2 billion in the first quarter of fiscal 2023.

Operating margin increased 290 basis points to 21.4%, primarily due to in-store operational efficiencies (approximately 240 basis points) and sales leverage (approximately 180 basis points), partially offset by increased investments in store partner wages and benefits (approximately 120 basis points).

International

Quarter Ended Three Quarters Ended

Quarter Ended

As a % of International

Total Net Revenues As a % of International

Total Net Revenues

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Store operating expenses as a % of company-operated stores revenue 51.2 % 52.3 %

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 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.

For the quarter ended December 31, 2023 compared with the quarter ended January 1, 2023

International total net revenues for the first quarter of fiscal 2024 increased $166 million, or 10%, primarily due to 1,016 net new Starbucks company-operated stores, or a 12% increase over the past 12 months ($104 million), as well as a 7% increase in comparable store sales ($81 million) driven by an 11% increase in customer transactions, primarily attributable to lapping prior-year impacts from COVID-19 pandemic related disruptions in China.

These increases were partially offset by unfavorable foreign currency translation ($30 million).

Also contributing to the increase in revenue was growth related to 851 net new licensed store openings, an 8% increase over the past 12 months, partially offset by unfavorable impacts related to certain headwinds.

Operating Margin

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).

International operating income for the first quarter of fiscal 2024 increased to $242 million, compared to $240 million in the first quarter of fiscal 2023.

Operating margin decreased 120 basis points to 13.1%, primarily due to investments in store partner wages and benefits (approximately 130 basis points), business mix shift toward company-operated stores (approximately 120 basis points), and strategic investments (approximately 100 basis points).

These decreases were partially offset by sales leverage (approximately 300 basis points).

Channel Development

Quarter Ended Three Quarters Ended

Change Jul 2,

Quarter Ended

As a % of Channel Development

Total Net Revenues As a % of Channel Development

Total Net Revenues

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Other operating expenses 12.8 13.0 (0.2) 2.9 2.7

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 2.2 2.0 0.2 0.5 0.4

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Income from equity investees 55.7 57.3 (1.6) 12.4 12.0

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

Operating income $ 209.7 $ 226.3 $ (16.6) 46.8 % 47.3 %

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 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).

For the quarter ended December 31, 2023 compared with the quarter ended January 1, 2023

Channel Development total net revenues for the first quarter of fiscal 2024 decreased $30 million, or 6%, primarily due to a decline in revenue in the Global Coffee Alliance following the sale of our Seattle’s Best Coffee brand to Nestlé in the second quarter of fiscal 2023 ($19 million) and lower revenue in our global ready-to-drink business ($11 million).

Operating Margin

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).

Channel Development operating income for the first quarter of fiscal 2024 decreased 7% to $210 million, compared to $226 million in the first quarter of fiscal 2023.

Operating margin decreased 50 basis points to 46.8%, primarily driven by product costs related to the Global Coffee Alliance (approximately 430 basis points), partially offset by business mix shift (approximately 370 basis points).

Corporate and Other

Quarter Ended Three Quarters Ended

Quarter Ended

Net revenues:

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Product and distribution costs 11.2 4.8 6.4 133.3

Other operating expenses 1.8 5.9 (4.1) (69.5) 1.8 13.2 (11.4) (86.4)

Other operating expenses 0.1 — 0.1 nm

Depreciation and amortization expenses 30.8 28.7 2.1 7.3

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Operating loss $ (486.6) $ (426.0) $ (60.6) 14.2 %

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

Corporate and Other primarily consists of our unallocated corporate expenses.

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 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).

For the quarter ended December 31, 2023 compared with the quarter ended January 1, 2023

Corporate and Other operating loss increased by 14% to $487 million for the first quarter of fiscal 2024 compared to $426 million for the first quarter of fiscal 2023.

This increase was primarily driven by incremental investments in technology in support of our Reinvention ($30 million) and higher partner wages and benefits ($17 million).

Quarterly Store Data

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

Quarter Ended Three Quarters Ended Stores open as of

Quarter Ended Stores open as of

North America

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Cash and Investment Overview

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

Our cash and investments were $3.6 billion as of December 31, 2023 and $4.2 billion as of October 1, 2023.

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.

As of December 31, 2023, approximately $2.4 billion of cash and short-term investments were held in foreign subsidiaries.

Borrowing Capacity

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

As of 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.

As of December 31, 2023, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of December 31, 2023 or October 1, 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 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.

As of December 31, 2023, we had $300.0 million in borrowings

outstanding under our commercial paper program.

As of October 1, 2023, we had no borrowings outstanding under this program.

Our total available contractual borrowing capacity for general corporate purposes was $2.7 billion as of the end of our first quarter of fiscal 2024.

Credit Facilities in Japan

Additionally, we hold Japanese yen-denominated credit facilities for the use of our Japan subsidiary.

These are available for working capital needs and capital expenditures within our Japanese market.

• A ¥5 billion, or $34.5 million, credit facility is currently set to mature on January 4, 2024.

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

• A ¥5.0 billion, or $35.4 million, credit facility is currently set to mature on December 30, 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%.

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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 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.

As of December 31, 2023, we had ¥7.0 billion, or $49.5 million, of borrowings outstanding under these credit facilities.

As of October 1, 2023, we had ¥5.0 billion, or $33.5 million, of borrowings outstanding under these credit facilities.

See Note 7, Debt, to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.

Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indentures under which the long-term notes were issued.

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.

As of December 31, 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, returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases, and investing in new business opportunities related to our core and developing businesses.

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

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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 as well as investing in new business opportunities.

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 indefinite reinvestment of foreign earnings.

In the event we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S.

state income taxes, which could be material.

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.

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 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.

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

In the event we determine that all or another portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes, which could be material.

Any foreign earnings that are not indefinitely reinvested may be repatriated at management’s discretion.

In anticipation of repatriation of current-year earnings of certain foreign subsidiaries, we accrued approximately $10 million for foreign withholding taxes during the first quarter of fiscal year 2024.

During the first quarter of fiscal 2024, our Board of Directors approved a quarterly cash dividend to shareholders of $0.57 per share to be paid on February 23, 2024 to shareholders of record as of the close of business on February 9, 2024.

During the quarter ended December 31, 2023, we repurchased 12.8 million shares of common stock for $1,250.1 million on the open market.

As of December 31, 2023, 29.8 million shares remained available for repurchase under current authorizations.

Other than normal operating expenses, cash requirements for the remainder of fiscal 2024 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 $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.

Net cash provided by operating activities was $2.4 billion for the first quarter of fiscal 2024, compared to $1.6 billion for the same period in fiscal 2023.

The change was primarily due to an increase in net cash provided by changes in operating assets and liabilities and higher net earnings during the period.

Net cash used in investing activities totaled $568.8 million for the first quarter of fiscal 2024, compared to $279.3 million for the same period in fiscal 2023.

The change was primarily due to an increase in purchases of investments and higher capital expenditures.

Net cash used in financing activities for the first quarter of fiscal 2024 totaled $2.4 billion, compared to $1.0 billion for the same period in fiscal 2023.

The change was primarily due to an increase in share repurchase activities and repayments of debt, partially offset by proceeds from issuance of commercial paper.

Commodity Prices, Availability and General Risk Conditions

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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 of the 10-K, as well as Risk Factors in Item 1A of the 10-K.

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

Seasonality and Quarterly Results

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

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.

However, since revenues from our stored value cards are recognized upon redemption and not when cash is loaded, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced.

Additionally, as Starbucks 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.

However, since revenues from Starbucks Cards are recognized upon redemption and not when cash is loaded onto the Starbucks Card, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced.

As a result of moderate seasonal fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full 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