STARBUCKS CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements contained herein are “forward-looking” statements within the meaning of applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. 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 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; shifts in demographic or health and wellness trends; or unfavorable consumer reaction to new products, platforms, reformulations, or other innovations; • our anticipated operating expenses, including our anticipated total capital expenditures; • 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 Triple Shot Reinvention with Two Pumps Plan (“Reinvention”); • the impacts of partner investments and changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts; • the ability of our business partners, suppliers, and third-party providers to fulfill their responsibilities and commitments; • higher costs, lower quality, or unavailability of coffee, dairy, cocoa, energy, water, raw materials, or product ingredients; • 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 instability; • failure to attract or retain key executive or partner talent or successfully transition executives; • the potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination, or mislabeling; • negative publicity related to our Company, products, brands, marketing, executive leadership, partners, Board of Directors, founder, operations, business performance, expansions, initiatives, strategies, investments, plans, or prospects; • potential negative effects of a material breach, failure, or corruption of our information technology systems or those of our direct and indirect business partners, suppliers, or third-party providers, or failure to comply with data protection laws; • our environmental, social, and governance (“ESG”) efforts and any reaction related thereto, such as the rise in opposition to ESG and inclusion and diversity efforts; • risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value; • the impact of foreign currency translation, particularly a stronger U.S. dollar; • the impact of substantial competition from new entrants, consolidations by competitors, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets; • the impact of changes in U.S. tax law and related guidance and regulations that may be implemented, including on tax rates; • the impact of health epidemics, pandemics, or other public health events on our business and financial results, and the risk of negative economic impacts and related regulatory measures or voluntary actions that may be put in place, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; • failure to comply with anti-corruption laws, trade sanctions, and restrictions, or similar laws or regulations; and • 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 28 Table of Contents 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. 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 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. 29 Table of Contents Introduction and Overview Starbucks is the premier roaster, marketer, and retailer of specialty coffee in the world, operating in 86 markets. As of March 31, 2024, Starbucks had more than 38,900 company-operated and licensed stores, an increase of 6% 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. We have three reportable operating segments: 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; and 3) Channel Development. 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. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies. Throughout this MD&A, we commonly discuss the following key operating metrics: • New store openings and store count • Comparable store sales growth • 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 excludes 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 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. Fiscal 2024 and 2023 include 52 weeks. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted. Starbucks results for the second quarter of fiscal 2024 reflect a complex operating environment globally, including softening consumer sentiment, a pervasive inflationary environment, and disruptions due to multiple international conflicts. However, efficiencies continue to be realized from the strategies underpinning Reinvention, leading to tangible financial benefits, which counterbalance broader headwinds. During the second quarter of fiscal 2024, consolidated net revenues decreased 2% to $8.6 billion compared to $8.7 billion in the second quarter of fiscal 2023, primarily driven by a decline in global comparable store sales and unfavorable foreign currency fluctuations, partially offset by incremental revenues from net new company-operated store openings over the past 12 months. During the quarter ended March 31, 2024, our global comparable store sales declined 4%, primarily driven by a 3% decline in the U.S. market and a 6% decline internationally. Consolidated operating margin decreased 240 basis points from the prior year to 12.8%, primarily driven by deleverage, increased investments in store partner wages and benefits, increased promotional activity, lapping the gain from the sale of our Seattle’s Best Coffee brand in the second quarter of fiscal 2023, and higher general and administrative expenses, primarily in support of Reinvention. These decreases were partially offset by strategic pricing and in-store operational efficiencies. We anticipate the complex global operating environment and the related headwinds we experienced in the first half of fiscal 2024 may continue to impact the balance of our fiscal year. Despite these challenges, we have many strengths to build upon, including our global brand, our loyal global customer base, strong new store performance, an innovative pipeline of products, and our continued execution against Reinvention-related operational efficiencies. Our Triple Shot Reinvention strategy is progressing, enhancing our capabilities and giving us continued confidence in our long-term growth and durable business model. Results of Operations (in millions) Revenues Quarter Ended Two Quarters Ended Mar 31, 2024 Apr 2, 2023 $ Change % Change Mar 31, 2024 Apr 2, 2023 $ Change % Change Company-operated stores $ 7,052.6 $ 7,142.3 $ (89.7) (1.3) % $ 14,807.9 $ 14,225.7 $ 582.2 4.1 % Licensed stores 1,054.5 1,069.5 (15.0) (1.4) 2,246.6 2,189.0 57.6 2.6 Other 455.9 508.0 (52.1) (10.3) 933.8 1,019.1 (85.3) (8.4) Total net revenues $ 8,563.0 $ 8,719.8 $ (156.8) (1.8) % $ 17,988.3 $ 17,433.8 $ 554.5 3.2 % For the quarter ended March 31, 2024 compared with the quarter ended April 2, 2023 30 Table of Contents Total net revenues for the second quarter of fiscal 2024 decreased $157 million, primarily due to lower revenues from company-operated stores ($90 million). The decrease in revenues from company-operated stores was driven by a 4% decrease in comparable store sales ($253 million), attributable to a 6% decrease in comparable transactions and a 2% increase in average ticket. Also contributing to company-operated stores revenue were unfavorable foreign currency translation impacts ($91 million). Partially offsetting these decreases were incremental revenues from 1,454 net new company-operated stores, or an 8% increase, over the past 12 months ($255 million). Licensed stores revenue decreased $15 million, primarily driven by lower product and equipment sales to and royalty revenues from our licensees ($11 million) and unfavorable foreign currency translation impacts ($7 million). Other revenues decreased $52 million, primarily due to a decline in revenue in the Global Coffee Alliance ($59 million) following the sale of our Seattle’s Best Coffee brand to Nestlé in the second quarter of fiscal 2023 as well as product SKU optimization. For the two quarters ended March 31, 2024 compared with the two quarters ended April 2, 2023 Total net revenues for the first two quarters of fiscal 2024 increased $555 million, primarily due to higher revenues from company-operated stores ($582 million). The growth of company-operated stores revenue was driven by incremental revenues from 1,454 net new company-operated stores, or an 8% increase, over the past 12 months ($582 million). Also contributing to the growth of company-operated stores revenue was a 1% increase in comparable store sales ($117 million), attributable to a 2% increase in average ticket, partially offset by a 1% decrease in comparable transactions. Partially offsetting these increases to company-operated stores revenue were unfavorable foreign currency translation impacts ($121 million). Licensed stores revenue increased $58 million, driven by higher product and equipment sales to, and royalty revenues from, our licensees ($51 million), primarily driven by revenues from 863 net new licensed store openings, or a 5% increase, over the past 12 months. Other revenues decreased $85 million, primarily due to a decline in revenue in the Global Coffee Alliance ($78 million) following the sale of our Seattle’s Best Coffee brand to Nestlé in the second quarter of fiscal 2023 as well as product SKU optimization. Operating Expenses Quarter Ended Two Quarters Ended Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 As a % of Total Net Revenues As a % of Total Net Revenues Product and distribution costs $ 2,648.7 $ 2,801.7 $ (153.0) 30.9 % 32.1 % $ 5,629.2 $ 5,611.9 $ 17.3 31.3 % 32.2 % Store operating expenses 3,724.1 3,636.0 88.1 43.5 41.7 7,575.6 7,301.3 274.3 42.1 41.9 Other operating expenses 132.8 126.2 6.6 1.6 1.4 283.2 255.4 27.8 1.6 1.5 Depreciation and amortization expenses 371.9 341.9 30.0 4.3 3.9 737.2 669.0 68.2 4.1 3.8 General and administrative expenses 654.6 620.4 34.2 7.6 7.1 1,302.6 1,201.3 101.3 7.2 6.9 Restructuring and impairments — 8.8 (8.8) — 0.1 — 14.7 (14.7) — 0.1 Total operating expenses 7,532.1 7,535.0 (2.9) 88.0 86.4 15,527.8 15,053.6 474.2 86.3 86.3 Income from equity investees 68.0 51.4 16.6 0.8 0.6 123.8 109.2 14.6 0.7 0.6 Gain from sale of assets — 91.3 (91.3) — 1.0 — 91.3 (91.3) — 0.5 Operating income $ 1,098.9 $ 1,327.5 $ (228.6) 12.8 % 15.2 % $ 2,584.3 $ 2,580.7 $ 3.6 14.4 % 14.8 % Store operating expenses as a % of company-operated stores revenue 52.8 % 50.9 % 51.2 % 51.3 % For the quarter ended March 31, 2024 compared with the quarter ended April 2, 2023 31 Table of Contents Product and distribution costs as a percentage of total net revenues decreased 120 basis points for the second quarter of fiscal 2024, primarily due to the impact of increased sales from pricing (approximately 60 basis points) and a reduction in supply chain costs (approximately 50 basis points). Store operating expenses as a percentage of total net revenues increased 180 basis points for the second quarter of fiscal 2024. Store operating expenses as a percentage of company-operated stores revenue increased 190 basis points, primarily due to increased investments in store partner wages and benefits (approximately 160 basis points), deleverage (approximately 110 basis points), and increased promotional activity (approximately 60 basis points). These increases were partially offset by in-store operational efficiencies (approximately 180 basis points). Other operating expenses increased $7 million, primarily due to support costs for our growing licensed markets. Depreciation and amortization expenses as a percentage of total net revenues increased 40 basis points, primarily due to deleverage. General and administrative expenses increased $34 million, primarily due to certain proxy solicitation and advisory services costs ($30 million) and incremental investments in technology ($22 million). These increases were partially offset by the lapping of a donation to the Starbucks Foundation made in the second quarter of fiscal 2023 ($15 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. Income from equity investees increased $17 million, primarily due to higher income from our North American Coffee Partnership joint venture. The combination of these changes resulted in an overall decrease in operating margin of 240 basis points for the second quarter of fiscal 2024. For the two quarters ended March 31, 2024 compared with the two quarters ended April 2, 2023 Product and distribution costs as a percentage of total net revenues decreased 90 basis points for the first two quarters of fiscal 2024, primarily due to the impact of increased sales from pricing (approximately 60 basis points). Store operating expenses as a percentage of total net revenues increased 20 basis points for the first two quarters of fiscal 2024. Store operating expenses as a percentage of company-operated stores revenue decreased 10 basis points, primarily due to in-store operational efficiencies (approximately 210 basis points), partially offset by increased investments in store partner wages and benefits (approximately 150 basis points), and increased promotional activity (approximately 50 basis points). Other operating expenses increased $28 million, primarily due to support costs for our growing licensed markets. Depreciation and amortization expenses as a percentage of total net revenues increased 30 basis points, primarily due to deleverage. General and administrative expenses increased $101 million, primarily due to incremental investments in technology ($52 million), investments in partner wages and benefits ($48 million), and certain proxy solicitation and advisory services costs ($30 million). These increases were partially offset by the lapping of a donation to the Starbucks Foundation made in the second quarter of fiscal 2023 ($15 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. Income from equity investees increased $15 million, primarily due to higher income from our North American Coffee Partnership joint venture. The combination of these changes resulted in an overall decrease in operating margin of 40 basis points for the first two quarters of fiscal 2024. 32 Table of Contents Other Income and Expenses Quarter Ended Two Quarters Ended Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 As a % of Total Net Revenues As a % of Total Net Revenues Operating income $ 1,098.9 $ 1,327.5 $ (228.6) 12.8 % 15.2 % $ 2,584.3 $ 2,580.7 $ 3.6 14.4 % 14.8 % Interest income and other, net 34.1 18.4 15.7 0.4 0.2 67.9 30.0 37.9 0.4 0.2 Interest expense (140.6) (136.3) (4.3) (1.6) (1.6) (280.7) (266.0) (14.7) (1.6) (1.5) Earnings before income taxes 992.4 1,209.6 (217.2) 11.6 13.9 2,371.5 2,344.7 26.8 13.2 13.4 Income tax expense 219.9 301.3 (81.4) 2.6 3.5 574.6 581.1 (6.5) 3.2 3.3 Net earnings including noncontrolling interests 772.5 908.3 (135.8) 9.0 10.4 1,796.9 1,763.6 33.3 10.0 10.1 Net earnings attributable to noncontrolling interests 0.1 — 0.1 0.0 — 0.1 — 0.1 0.0 — Net earnings attributable to Starbucks $ 772.4 $ 908.3 $ (135.9) 9.0 % 10.4 % $ 1,796.8 $ 1,763.6 $ 33.2 10.0 % 10.1 % Effective tax rate including noncontrolling interests 22.2 % 24.9 % 24.2 % 24.8 % For the quarter ended March 31, 2024 compared with the quarter ended April 2, 2023 Interest income and other, net increased $16 million and interest expense increased $4 million, both primarily due to higher interest rates in the current year. The effective tax rate for the quarter ended March 31, 2024 was 22.2% compared to 24.9% for the same period in fiscal 2023. The decrease was primarily due to electing an alternative tax approach in a certain foreign jurisdiction that resulted in a tax benefit in the second quarter of fiscal 2024 (approximately 300 basis points). For the two quarters ended March 31, 2024 compared with the two quarters ended April 2, 2023 Interest income and other, net increased $38 million and interest expense increased $15 million, both primarily due to higher interest rates in the current year. The effective tax rate for the first two quarters ended March 31, 2024 was 24.2% compared to 24.8% for the same period in fiscal 2023. The decrease was due to electing an alternative tax approach in a certain foreign jurisdiction that resulted in a tax benefit in the second quarter of fiscal 2024 (approximately 130 basis points), partially offset by the accrual of foreign withholding taxes related to the current year earnings of certain foreign subsidiaries (approximately 60 basis points). 33 Table of Contents Segment Information Results of operations by segment (in millions) : North America Quarter Ended Two Quarters Ended Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 As a % of North America Total Net Revenues As a % of North America Total Net Revenues Net revenues: Company-operated stores $ 5,724.5 $ 5,742.7 $ (18.2) 89.7 % 90.0 % $ 12,105.7 $ 11,613.2 $ 492.5 89.7 % 89.8 % Licensed stores 654.8 637.4 17.4 10.3 10.0 1,392.7 1,317.4 75.3 10.3 10.2 Other 0.7 0.5 0.2 0.0 0.0 2.3 1.2 1.1 0.0 0.0 Total net revenues 6,380.0 6,380.6 (0.6) 100.0 100.0 13,500.7 12,931.8 568.9 100.0 100.0 Product and distribution costs 1,767.7 1,821.7 (54.0) 27.7 28.6 3,791.6 3,739.3 52.3 28.1 28.9 Store operating expenses 3,037.4 2,951.6 85.8 47.6 46.3 6,185.1 5,983.0 202.1 45.8 46.3 Other operating expenses 67.1 63.4 3.7 1.1 1.0 144.5 128.9 15.6 1.1 1.0 Depreciation and amortization expenses 257.1 226.3 30.8 4.0 3.5 507.5 443.1 64.4 3.8 3.4 General and administrative expenses 102.4 91.2 11.2 1.6 1.4 202.9 193.5 9.4 1.5 1.5 Restructuring and impairments — 8.5 (8.5) — 0.1 — 13.6 (13.6) — 0.1 Total operating expenses 5,231.7 5,162.7 69.0 82.0 80.9 10,831.6 10,501.4 330.2 80.2 81.2 Operating income $ 1,148.3 $ 1,217.9 $ (69.6) 18.0 % 19.1 % $ 2,669.1 $ 2,430.4 $ 238.7 19.8 % 18.8 % Store operating expenses as a % of company-operated stores revenue 53.1 % 51.4 % 51.1 % 51.5 % For the quarter ended March 31, 2024 compared with the quarter ended April 2, 2023 Revenues North America total net revenues for the second quarter of fiscal 2024 were nearly flat when compared to the prior year period, primarily due to a 3% decrease in comparable store sales ($178 million) driven by a 7% decrease in comparable transactions, partially offset by a 4% increase in average ticket, primarily due to annualization of pricing and a mix shift to cold beverages. This comparable store sales decrease was partially offset by performance of net new company-operated store openings over the past 12 months ($160 million), as well as higher product and equipment sales to, and royalty revenues from, our licensees ($14 million). Operating Margin North America operating income for the second quarter of fiscal 2024 decreased 6% to $1.1 billion, compared to $1.2 billion in the second quarter of fiscal 2023. Operating margin decreased 110 basis points to 18.0%, primarily due to deleverage (approximately 190 basis points), increased investments in store partner wages and benefits (approximately 140 basis points), and increased promotional activity (approximately 90 basis points), partially offset by strategic pricing (approximately 200 basis points) and in-store operational efficiencies (approximately 180 basis points). 34 Table of Contents For the two quarters ended March 31, 2024 compared with the two quarters ended April 2, 2023 Revenues North America total net revenues for the first two quarters of fiscal 2024 increased $569 million, or 4%, primarily due to net new company-operated store openings over the past 12 months ($382 million) and a 1% increase in comparable store sales ($110 million) driven by a 4% increase in average ticket, primarily due to annualization of pricing. This was partially offset by a 3% decrease in comparable transactions. Also contributing to these increases were higher product and equipment sales to, and royalty revenues from, our licensees ($63 million). Operating Margin North America operating income for the first two quarters of fiscal 2024 increased 10% to $2.7 billion, compared to $2.4 billion in the first two quarters of fiscal 2023. Operating margin increased 100 basis points to 19.8%, primarily driven by in-store operational efficiencies (approximately 220 basis points) and strategic pricing (approximately 180 basis points), partially offset by increased investments in store partner wages and benefits (approximately 130 basis points) and increased promotional activity (approximately 70 basis points). International Quarter Ended Two Quarters Ended Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 As a % of International Total Net Revenues As a % of International Total Net Revenues Net revenues: Company-operated stores $ 1,328.1 $ 1,399.6 $ (71.5) 75.6 % 75.5 % $ 2,702.2 $ 2,612.5 $ 89.7 75.0 % 73.9 % Licensed stores 399.7 432.1 (32.4) 22.7 23.3 853.9 871.6 (17.7) 23.7 24.7 Other 29.5 23.1 6.4 1.7 1.2 47.5 50.8 (3.3) 1.3 1.4 Total net revenues 1,757.3 1,854.8 (97.5) 100.0 100.0 3,603.6 3,534.9 68.7 100.0 100.0 Product and distribution costs 619.8 632.9 (13.1) 35.3 34.1 1,286.4 1,226.5 59.9 35.7 34.7 Store operating expenses 686.7 684.4 2.3 39.1 36.9 1,390.5 1,318.3 72.2 38.6 37.3 Other operating expenses 50.0 49.9 0.1 2.8 2.7 110.1 100.6 9.5 3.1 2.8 Depreciation and amortization expenses 84.3 86.3 (2.0) 4.8 4.7 168.3 167.7 0.6 4.7 4.7 General and administrative expenses 82.9 87.4 (4.5) 4.7 4.7 173.3 167.9 5.4 4.8 4.7 Total operating expenses 1,523.7 1,540.9 (17.2) 86.7 83.1 3,128.6 2,981.0 147.6 86.8 84.3 Income from equity investees 0.2 0.8 (0.6) 0.0 0.0 0.3 1.2 (0.9) 0.0 0.0 Operating income $ 233.8 $ 314.7 $ (80.9) 13.3 % 17.0 % $ 475.3 $ 555.1 $ (79.8) 13.2 % 15.7 % Store operating expenses as a % of company-operated stores revenue 51.7 % 48.9 % 51.5 % 50.5 % For the quarter ended March 31, 2024 compared with the quarter ended April 2, 2023 Revenues International total net revenues for the second quarter of fiscal 2024 decreased $98 million, or 5%, primarily due to unfavorable foreign currency translation impacts ($102 million), as well as a 6% decline in comparable store sales ($75 million), driven by a 3% decline in comparable transactions and a 3% decline in average ticket. Also contributing to the decline in international total net revenues were lower product and equipment sales to, and royalty revenues from, our licensees ($25 million), largely driven 35 Table of Contents by disruptions due to multiple international conflicts. These decreases were partially offset by 974 net new company-operated store openings, or a 12% increase, over the past 12 months ($95 million). Operating Margin International operating income for the second quarter of fiscal 2024 decreased to $234 million, compared to $315 million in the second quarter of fiscal 2023. Operating margin decreased 370 basis points to 13.3%, primarily due to increased promotional activity (approximately 220 basis points), increased investments in store partner wages and benefits (approximately 130 basis points), and sales mix shift (approximately 90 basis points), partially offset by pricing in certain markets (approximately 100 basis points). For the two quarters ended March 31, 2024 compared with the two quarters ended April 2, 2023 Revenues International total net revenues for the first two quarters of fiscal 2024 increased $69 million, or 2%, primarily due to 974 net new company-operated store openings, or a 12% increase, over the past 12 months ($199 million). This increase was partially offset by unfavorable foreign currency translation impacts ($130 million). Operating Margin International operating income for the first two quarters of fiscal 2024 decreased to $475 million, compared to $555 million for the same period in fiscal 2023. Operating margin decreased 250 basis points to 13.2%, primarily due to increased promotional activity (approximately 190 basis points), increased investments in store partner wages and benefits (approximately 120 basis points), and sales mix shift (approximately 80 basis points). These decreases were partially offset by leverage (approximately 120 basis points) and pricing in certain markets (approximately 70 basis points). Channel Development Quarter Ended Two Quarters Ended Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 Mar 31, 2024 Apr 2, 2023 $ Change Mar 31, 2024 Apr 2, 2023 As a % of Channel Development Total Net Revenues As a % of Channel Development Total Net Revenues Net revenues $ 418.2 $ 480.7 $ (62.5) $ 866.2 $ 958.9 $ (92.7) Product and distribution costs 252.6 345.6 (93.0) 60.4 % 71.9 % 531.5 639.8 (108.3) 61.4 % 66.7 % Other operating expenses 15.2 12.8 2.4 3.6 2.7 28.0 25.8 2.2 3.2 2.7 Depreciation and amortization expenses — — — — — — 0.1 (0.1) — 0.0 General and administrative expenses 1.9 2.1 (0.2) 0.5 0.4 4.2 4.1 0.1 0.5 0.4 Total operating expenses 269.7 360.5 (90.8) 64.5 75.0 563.7 669.8 (106.1) 65.1 69.9 Income from equity investees 67.8 50.6 17.2 16.2 10.5 123.5 108.0 15.5 14.3 11.3 Gain from sale of assets — 91.3 (91.3) — 19.0 — 91.3 (91.3) — 9.5 Operating income $ 216.3 $ 262.1 $ (45.8) 51.7 % 54.5 % $ 426.0 $ 488.4 $ (62.4) 49.2 % 50.9 % For the quarter ended March 31, 2024 compared with the quarter ended April 2, 2023 Revenues Channel Development total net revenues for the second quarter of fiscal 2024 decreased $63 million, or 13%, primarily due to a decline in revenue in the Global Coffee Alliance ($59 million), following the sale of our Seattle’s Best Coffee brand to Nestlé in the second quarter of fiscal 2023 as well as product SKU optimization. 36 Table of Contents Operating Margin Channel Development operating income for the second quarter of fiscal 2024 decreased 17% to $216 million, compared to $262 million in the second quarter of fiscal 2023. Operating margin decreased 280 basis points to 51.7%, primarily driven by lapping the gain from the sale of our Seattle’s Best Coffee brand in the second quarter of fiscal 2023 (approximately 1,900 basis points), partially offset by growth in our North American Coffee Partnership joint venture income (approximately 570 basis points), mix shift (approximately 510 basis points), lapping impairment charges against certain manufacturing assets in the second quarter of fiscal 2023 (approximately 350 basis points), and lower product costs related to the Global Coffee Alliance (approximately 240 basis points). For the two quarters ended March 31, 2024 compared with the two quarters ended April 2, 2023 Revenues Channel Development total net revenues for the first two quarters of fiscal 2024 decreased $93 million, or 10%, primarily due to a decline in revenue in the Global Coffee Alliance ($78 million), primarily following the sale of our Seattle’s Best Coffee brand to Nestlé in the second quarter of fiscal 2023 as well as product SKU optimization, and lower revenue in our global ready-to-drink business ($21 million). Operating Margin Channel Development operating income for the first two quarters of fiscal 2024 decreased 13% to $426 million, compared to $488 million for the same period in fiscal 2023. Operating margin decreased 170 basis points to 49.2%, primarily due to lapping the gain from the sale of our Seattle’s Best Coffee brand in the second quarter of fiscal 2023 (approximately 950 basis points), partially offset by mix shift (approximately 440 basis points) and growth in our North American Coffee Partnership joint venture income (approximately 300 basis points). Corporate and Other Quarter Ended Two Quarters Ended Mar 31, 2024 Apr 2, 2023 $ Change % Change Mar 31, 2024 Apr 2, 2023 $ Change % Change Net revenues: Other $ 7.5 $ 3.7 $ 3.8 102.7 % $ 17.8 $ 8.2 $ 9.6 117.1 % Total net revenues 7.5 3.7 3.8 102.7 17.8 8.2 9.6 117.1 Product and distribution costs 8.6 1.5 7.1 473.3 19.7 6.3 13.4 212.7 Other operating expenses 0.5 0.1 0.4 400.0 0.6 0.1 0.5 500.0 Depreciation and amortization expenses 30.5 29.3 1.2 4.1 61.4 58.1 3.3 5.7 General and administrative expenses 467.4 439.7 27.7 6.3 922.2 835.8 86.4 10.3 Restructuring and impairments — 0.3 (0.3) nm — 1.1 (1.1) nm Total operating expenses 507.0 470.9 36.1 7.7 1,003.9 901.4 102.5 11.4 Operating loss $ (499.5) $ (467.2) $ (32.3) 6.9 % $ (986.1) $ (893.2) $ (92.9) 10.4 % 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 March 31, 2024 compared with the quarter ended April 2, 2023 Corporate and Other operating loss increased by 7% to $500 million for the second quarter of fiscal 2024 compared to $467 million for the second quarter of fiscal 2023. This increase was primarily driven by certain proxy solicitation and advisory services costs ($30 million) and incremental investments in technology in support of Reinvention ($22 million). These increases were partially offset by the lapping of a donation to the Starbucks Foundation made in the second quarter of fiscal 2023 ($15 million). For the two quarters ended March 31, 2024 compared with the two quarters ended April 2, 2023 Corporate and Other operating loss increased to $986 million for the first two quarters of fiscal 2024, or 10%, compared to $893 million for the same period in fiscal 2023. This increase was primarily driven by incremental investments in technology in support of Reinvention ($52 million), certain proxy solicitation and advisory services costs ($30 million), and investments in partner wages and benefits ($28 million). These increases were partially offset by the lapping of a donation to the Starbucks Foundation made in the second quarter of fiscal 2023 ($15 million). 37 Table of Contents Quarterly Store Data Our store data for the periods presented is as follows: Net stores opened/(closed) and transferred during the period Quarter Ended Two Quarters Ended Stores open as of Mar 31, 2024 Apr 2, 2023 Mar 31, 2024 Apr 2, 2023 Mar 31, 2024 Apr 2, 2023 North America Company-operated stores 112 91 199 131 10,827 10,347 Licensed stores 22 10 56 56 7,238 7,135 Total North America 134 101 255 187 18,065 17,482 International Company-operated stores 132 174 318 271 9,282 8,308 Licensed stores 98 189 340 465 11,604 10,844 Total International 230 363 658 736 20,886 19,152 Total Company 364 464 913 923 38,951 36,634 Financial Condition, Liquidity and Capital Resources Cash and Investment Overview Our cash and investments were $3.4 billion as of March 31, 2024 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 March 31, 2024, approximately $2.0 billion of cash and short-term investments were held in foreign subsidiaries. Borrowing Capacity 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 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 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 March 31, 2024, we were in compliance with all applicable covenants. No amounts were outstanding under our 2021 credit facility as of March 31, 2024 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 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. No amounts were outstanding under our commercial paper program as 38 Table of Contents of March 31, 2024 and October 1, 2023. Our total available contractual borrowing capacity for general corporate purposes was $3.0 billion as of the end of our second quarter of fiscal 2024. Credit Facilities in Japan 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 $33.0 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%. • A ¥10.0 billion, or $66.1 million, credit facility is currently set to mature on March 27, 2025. 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 March 31, 2024, we had ¥5.0 billion, or $33.0 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 8 , 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 March 31, 2024, we were in compliance with all applicable covenants. Use of Cash 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. We may also seek strategic acquisitions to leverage existing capabilities and further build our business. Acquisitions may include increasing our ownership interests in our investees. Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy. We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally, combined with our ability to leverage our balance sheet through the issuance of debt, will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for at least the next 12 months. 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. 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 $11 million for foreign withholding taxes during the first two quarters of fiscal year 2024. During the second quarter of fiscal 2024, our Board of Directors approved a quarterly cash dividend to shareholders of $0.57 per share to be paid on May 31, 2024 to shareholders of record as of the close of business on May 17, 2024. During the two quarters ended March 31, 2024, we repurchased 12.8 million shares of common stock for $1,250.1 million on the open market. As of March 31, 2024, 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. Total capital expenditures for fiscal 2024 are expected to be approximately $3.0 billion. 39 Table of Contents In the MD&A included in the 10-K, we disclosed that we had $33.9 billion of current and long-term material cash requirements as of October 1, 2023. 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 Flows Net cash provided by operating activities was $2.9 billion for the first two quarters of fiscal 2024, compared to $2.4 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, an increase in non-cash lease costs, and lapping the gain on sale of assets from the prior year sale of Seattle’s Best Coffee brand to Nestlé. Net cash used in investing activities totaled $1.3 billion for the first two quarters of fiscal 2024, compared to $907.0 million for the same period in fiscal 2023. The change was primarily due to an increase in capital expenditures, purchases of investments, and lapping the proceeds from sale of assets from the prior year sale of Seattle’s Best Coffee brand to Nestlé, partially offset by an increase in maturities and calls of investments. Net cash used in financing activities for the first two quarters of fiscal 2024 totaled $2.4 billion, compared to $1.3 billion for the same period in fiscal 2023. The change was primarily due to an increase in repayments of debt and an increase in share repurchase activities, partially offset by net proceeds from issuances of debt. Commodity Prices, Availability and General Risk Conditions 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 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 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 (“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 Cards, 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. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported. Note 1 , Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 1 of Part I of this 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 10-K describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 10-K. RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 , Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no material change in the commodity price risk, foreign currency exchange risk, equity security price risk, or interest rate risk discussed in Item 7A of the 10-K. 40 Table of Contents