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Item 7. Management’s Discussion and Analysis

2024-11-20 compared with 2023-11-17 · 117 added, 120 removed, 303 unchanged (44% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this 10-K.

The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs.

Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified above, under Risk Factors in Part I, Item 1A of this 10-K, and elsewhere herein.

Therefore, our actual results could differ materially from those discussed in the forward-looking statements.

We undertake no obligation to revise or update any forward-looking statements for any reason.

Please also see the cautionary language at the beginning of Part I of this 10-K regarding forward-looking statements.

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

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Fiscal years 2024, 2023, and 2022 included 52 weeks.

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

The discussion of our financial condition and results of operations for the fiscal year ended October 2, 2022, included in Item 7.

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

2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East and 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.

Our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales and margin management.

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, 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.

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• Operating margin

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

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

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

Starbucks results for fiscal 2024 reflect a challenging operating environment, notably driven by reduced customer traffic compared to fiscal 2023, that pressured our financial results.

Consolidated net revenues increased 1% to $36.2 billion in fiscal 2024 compared to $36.0 billion in fiscal 2023, primarily driven by incremental revenues from net new company-operated stores over the past 12 months, partially offset by a decrease in comparable store sales and the impact of unfavorable foreign currency translation.

For both the North America segment and U.S.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

and leveraging the strength of our brand internationally.

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

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

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

market, revenue increased 2% in fiscal 2024 compared to fiscal 2023, primarily driven by net new company-operated store growth over the past 12 months and higher product and equipment sales to, and royalty revenues from, our licensees.

This growth was partially offset by a 2% decline in comparable store sales.

Comparable transactions for both the North America segment and the U.S.

market declined 5%, partially offset by average ticket growth for both the North America segment and the U.S.

market of 4%, primarily driven by annualization of pricing.

For the International segment, revenue declined 2% in fiscal 2024 compared to fiscal 2023, primarily driven by the impact of unfavorable foreign currency translation, a 4% decline in comparable store sales driven by a decline in average ticket of 4%, and lower product and equipment sales to, and royalty revenues from, our licensees.

These decreases were partially offset by net new company-operated and licensed store openings over the past 12 months.

Revenue for our Channel Development segment decreased 7% in fiscal 2024 compared with fiscal 2023, primarily driven by 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 as well as product SKU optimization.

Our performance was lower-than-expected as a result of a pronounced customer traffic decline, reflecting our targeted and accelerated investments not improving customer behaviors as intended, as well as the macroeconomic and competitive environment in China that further pressured our results.

Given these challenges, under the direction of our new chief executive officer, Brian Niccol, we are changing our business strategy to bring customers back to our stores and return to growth.

Our “Back to Starbucks” strategy includes supporting our green apron partners, enhancing the customer experience, reestablishing ourselves as the community coffee house, and innovating the coffee tasting experience through product development, marketing, and in-store experience.

This strategic reset will provide us with the opportunity to assess the business and refocus

our efforts, including capital allocation priorities, efficiency efforts, and store growth initiatives.

We remain confident in the strength of our brand and believe that the new action plans will position the Company for sustainable long-term growth.

Financial Highlights

• Total net revenues increased 1% to $36.2 billion in fiscal 2024 compared to $36.0 billion in fiscal 2023.

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

• Consolidated operating income decreased to $5.4 billion in fiscal 2024 compared to $5.9 billion in fiscal 2023.

Fiscal 2024 operating margin was 15.0% compared to 16.3% in fiscal 2023.

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

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

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

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

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

Operating margin contraction of 130 basis points was primarily due to investments in store partner wages and benefits (approximately 140 basis points), deleverage (approximately 130 basis points), and increased promotional activity (approximately 100 basis points).

These decreases were partially offset by pricing (approximately 180 basis points) and in-store operational efficiencies (approximately 130 basis points).

• Diluted earnings per share (“EPS”) for fiscal 2024 decreased to $3.31, compared to EPS of $3.58 in fiscal 2023.

The decrease was primarily driven by contraction in operating margin as compared to the prior year.

• Capital expenditures were $2.8 billion in fiscal 2024 and $2.3 billion in fiscal 2023.

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

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

• We returned $3.8 billion and $3.4 billion to our shareholders in fiscal 2024 and fiscal 2023, respectively, through dividends and share repurchases.

Acquisitions and Divestitures

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Consolidated results of operations (in millions) :

Fiscal Year Ended Oct 1,

Fiscal Year Ended Sep 29,

Net revenues:

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Total net revenues $ 36,176.2 $ 35,975.6 0.6 %

Total net revenues increased $3.7 billion, or 12%, over fiscal 2022, primarily due to higher revenues from company-operated stores ($2.9 billion).

The growth in company-operated store revenue was driven by an 8% increase in comparable store sales ($2.1 billion) attributed to a 5% increase in average ticket and 3% increase in comparable transactions.

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

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

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

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

Total net revenues increased $201 million, or 1%, over fiscal 2023, primarily due to higher revenues from company-operated stores ($304 million).

The growth in company-operated store revenue was driven by incremental revenues from 1,426 net new company-operated stores, or a 7% increase, over the past 12 months ($1.2 billion).

Partially offsetting this increase were a 2% decrease in comparable store sales ($629 million), attributable to a 4% decrease in comparable transactions, partially offset by a 2% increase in average ticket, primarily due to annualization of pricing, and unfavorable foreign currency translation impacts ($235 million).

Licensed stores revenue decreased $8 million, primarily driven by lower product and equipment sales to, and royalty revenues from, our licensees in our International segment ($69 million) and unfavorable foreign currency translation impacts ($27 million), partially offset by higher product and equipment sales to, and royalty revenues from, our licensees in our North America segment ($80 million).

Other revenues decreased $95 million, primarily due to a decline in revenue in the Global Coffee Alliance ($125 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

Fiscal Year Ended Oct 1,

Fiscal Year Ended Sep 29,

As a % of Total

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Store operating expenses as a % of related revenues 51.4 % 50.0 %

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

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

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

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

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

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

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

Income from equity investees increased $64 million, primarily due to higher income from our North American Coffee Partnership joint venture ($64 million).

Product and distribution costs as a percentage of total net revenues decreased 80 basis points, primarily due to the impact of increased sales from pricing (approximately 70 basis points) and a reduction in supply chain costs (approximately 60 basis points).

Store operating expenses as a percentage of total net revenues increased 140 basis points.

Store operating expenses as a percentage of company-operated store revenues increased 140 basis points, primarily due to investments in store partner wages and benefits (approximately 170 basis points), deleverage (approximately 80 basis points), and increased promotional activity (approximately 70 basis points), partially offset by in-store operational efficiencies (approximately 170 basis points).

Other operating expenses increased $26 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 $82 million, primarily due to incremental investments in technology ($93 million), investments in partner wages and benefits ($90 million), and certain proxy solicitation and advisory services costs incurred in the second quarter of fiscal 2024 ($28 million).

These increases were partially offset by lower performance-based compensation ($86 million) and the lapping of donations to The Starbucks Foundation made in fiscal 2023 ($30 million).

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

The combination of these changes resulted in an overall increase in operating margin of 200 basis points in fiscal 2023 when compared to fiscal 2022.

The combination of these changes resulted in an overall decrease in operating margin of 130 basis points in fiscal 2024 when compared to fiscal 2023.

Other Income and Expenses

Fiscal Year Ended Oct 1,

Fiscal Year Ended Sep 29,

As a % of Total

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Effective tax rate including noncontrolling interests 24.3 % 23.6 %

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

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

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

See Note 14 , Income Taxes, for further discussion.

Interest income and other, net increased $42 million, and i nterest expens e increased $12 million, both primarily due to higher interest rates in the current year.

The effective tax rate for fiscal 2024 was 24.3% compared to 23.6% for fiscal 2023.The increase was due to lapping the release of valuation allowances recorded against certain deferred tax assets of an international jurisdiction in the prior year (approximately 80 basis points) and the accrual of foreign withholding taxes related to the current year earnings of certain foreign subsidiaries (approximately 60 basis points), partially offset by electing an alternative tax approach in a certain foreign jurisdiction that resulted in a tax benefit in the second quarter of fiscal 2024 (approximately 60 basis points).

See Note 14 , Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, for further discussion.

Segment Information

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North America

Fiscal Year Ended Oct 1,

Fiscal Year Ended Sep 29,

As a % of North America

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Store operating expenses as a % of related revenues 51.4 % 50.0 %

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

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

North America total net revenues for fiscal 2024 increased $440 million, or 2%, primarily driven by net new company-operated store growth of 5%, or 533 stores, over the past 12 months ($788 million) and higher product and equipment sales to, and royalty revenues from, our licensees ($80 million).

This growth was partially offset by a 2% decline in comparable store sales ($420 million) driven by a 5% decrease in comparable transactions, partially offset by a 4% increase in average ticket, primarily due to annualization of pricing.

Operating Margin

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

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

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

North America operating income for fiscal 2024 decreased 3% to $5.4 billion, compared to $5.5 billion in fiscal 2023.

Operating margin contracted 90 basis points to 19.8%, primarily due to investments in store partner wages and benefits (approximately 150 basis points), deleverage (approximately 150 basis points), and increased promotional activity (approximately 100 basis points), partially offset by pricing (approximately 220 basis points) and in-store operational efficiencies (approximately 150 basis points).

International

Fiscal Year Ended Oct 1,

Fiscal Year Ended Sep 29,

As a % of International

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Store operating expenses as a % of related revenues 51.2 % 49.7 %

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

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

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

International total net revenues for fiscal 2024 decreased $149 million, or 2%, primarily due to unfavorable foreign currency translation impacts ($252 million), as well as a 4% decline in comparable store sales ($210 million), driven by a 4% 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 ($69 million), largely driven by continued disruptions due to multiple international conflicts, partially offset by the performance of 654 net new licensed store openings over the past 12 months.

These decreases were partially offset by net new company-operated store growth of 10%, or 893 stores, over the past 12 months ($378 million).

Operating Margin

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

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

International operating income for fiscal 2024 decreased 15% to $1.0 billion, compared to $1.2 billion in fiscal 2023.

Operating margin contracted 220 basis points to 14.2%, primarily due to increased promotional activity (approximately 170 basis points) and investments in store partner wages and benefits (approximately 120 basis points), partially offset by in-store operational efficiencies (approximately 100 basis points).

Channel Development

Fiscal Year Ended Oct 1,

Fiscal Year Ended Sep 29,

As a % of Channel Development

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Operating income $ 925.9 $ 967.6 52.3 % 51.1 %

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

Channel Development total net revenues for fiscal 2024 decreased $124 million, or 7%, compared to fiscal 2023, primarily due to a decline in revenue in the Global Coffee Alliance ($125 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 Margin

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

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

Channel Development operating income for fiscal 2024 decreased 4% to $926 million, compared to $968 million in fiscal 2023.

Operating margin expanded 120 basis points to 52.3%, primarily due to mix shift (approximately 350 basis points), strength in our North American Coffee Partnership joint venture income (approximately 120 basis points), and lapping impairment charges against certain manufacturing assets in the second quarter of fiscal 2023 (approximately 90 basis points).

These increases were partially offset by lapping the gain from the sale of our Seattle’s Best Coffee brand in the second quarter of fiscal 2023 (approximately 480 basis points).

Corporate and Other

Fiscal Year Ended Oct 1,

Fiscal Year Ended Sep 29,

Net revenues:

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General and administrative expenses 1,801.0 1,707.4 5.5

Restructuring and impairments 1.1 12.7 (91.3)

Restructuring and impairments — 1.1 nm

Total operating expenses 1,976.1 1,848.0 6.9

Operating loss $ (1,918.1) $ (1,823.4) 5.2 %

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.

Corporate and Other operating loss increased to $1.9 billion for fiscal 2024, or 5%, compared to $1.8 billion in fiscal 2023.

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

This increase was primarily driven by incremental investments in technology ($93 million), investments in partner wages and benefits ($57 million), and certain proxy solicitation and advisory services costs incurred in the second quarter of fiscal 2024 ($28 million).

These increases were partially offset by lower performance-based compensation ($61 million) and the lapping of donations to The Starbucks Foundation made in fiscal 2023 ($30 million).

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Cash and Investment Overview

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

Our cash and investments were $3.8 billion and $4.2 billion as of September 29, 2024, and October 1, 2023, respectively.

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 October 1, 2023, approximately $2.5 billion of cash and short-term investments were held in foreign subsidiaries.

As of September 29, 2024, approximately $2.1 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 October 1, 2023, we were in compliance with all applicable covenants.

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

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

As of September 29, 2024, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of September 29, 2024, or October 1, 2023.

Our total available contractual borrowing capacity for general corporate purposes was $3.0 billion as of the end of fiscal 2024.

Commercial Paper

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

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

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

As of September 29, 2024, and October 1, 2023, we had no amounts outstanding under our commercial paper program.

Credit Facilities in Japan

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

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

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

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 $34.5 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 Tokyo Interbank Offered Rate (“TIBOR”) plus an applicable margin of 0.400%.

• A ¥10.0 billion, or $69.1 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 September 29, 2024, we had no 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.

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

See Note 9 , Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K 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 October 1, 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 September 29, 2024, 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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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 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.

See Note 14 , Income Taxes, for further discussion.

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.

During fiscal 2024, we paid approximately $18 million for foreign withholding taxes related to repatriating the earnings of certain foreign subsidiaries.

See Note 14 , Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, for further discussion.

During each of the first three quarters of fiscal 2023, we declared a cash dividend to shareholders of $0.53 per share.

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

During the fourth quarter of fiscal 2023, and for each of the first three quarters of fiscal 2024, we declared a cash dividend of $0.57 per share.

During the fourth quarter of fiscal 2024, we declared a cash dividend of $0.61 per share to be paid on November 29, 2024, with an expected payout of approximately $691.4 million.

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

Cash returned to shareholders through dividends in fiscal 2024 and 2023 totaled $2.6 billion and $2.4 billion, respectively.

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

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

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

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

During the fiscal year ended September 29, 2024, we repurchased 12.8 million shares of common stock for $1.3 billion on the open market.

As of September 29, 2024, 29.8 million shares remained available for repurchase under current authorizations.

Other than normal operating expenses, cash requirements for fiscal 2025 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.

The following table summarizes current and long-term material cash requirements as of October 1, 2023, which we expect to fund primarily with operating cash flows ( in millions ):

Total capital expenditures for fiscal 2025 are expected to be reasonably consistent with fiscal 2024.

The following table summarizes current and long-term material cash requirements as of September 29, 2024, which we expect to fund primarily with operating cash flows ( in millions ):

Material Cash Requirements

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Green coffee purchase commitments comprise 86% of total purchase obligations.

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

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

Cash provided by operating activities was $6.1 billion for fiscal 2024, compared to $6.0 billion for fiscal 2023.

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

The change was primarily due to an increase in net cash provided by changes in other operating assets and liabilities, primarily driven by net hedging activity, largely related to our coffee hedging program.

See Note 3 , Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion.

Also contributing were the change in operating lease liability driven by the timing of cash payment for rent, an increase in depreciation and amortization driven by capital additions, and higher distributions received from our North America Coffee Partnership.

These increases were partially offset by lower net earnings during the period and higher inventory purchase costs, primarily driven by increased coffee commodity prices.

Cash used in investing activities was $2.7 billion for fiscal 2024, compared to $2.3 billion for fiscal 2023.

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

The change was primarily due to increased capital expenditures, driven by higher existing and new store investments in North America, and lapping the proceeds from the prior year sale of Seattle’s Best Coffee brand to Nestlé.

These increases were partially offset by higher maturities and calls of investments, driven by maturities of structured deposits.

Cash used in financing activities was $3.7 billion for fiscal 2024, compared to $3.0 billion for fiscal 2023.

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

The change was primarily due to an increase in repayments of debt and an increase in cash returned to shareholders through dividends and share repurchases, partially offset by an increase in net proceeds from issuances of debt.

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

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

FINANCIAL RISK MANAGEMENT

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

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

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

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

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

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

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

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

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

Refer to Note 1 , Summary of Significant Accounting Policies and Estimates, and Note 3 , Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our hedging instruments.

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

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

The following table summarizes the potential impact as of September 29, 2024, to Starbucks future net earnings and other comprehensive income (“OCI”) from changes in commodity prices.

The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items (in millions) :

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The volatility in the foreign exchange market may lead to significant fluctuation in foreign currency exchange rates and adversely impact our financial results in the case of weakening foreign currencies relative to the U.S.

The following table summarizes the potential impact as of October 1, 2023 to Starbucks future net earnings and other comprehensive income from changes in the fair value of these derivative financial instruments due to a change in the value of the U.S.

The following table summarizes the potential impact as of September 29, 2024, to Starbucks future net earnings and other comprehensive income from changes in the fair value of these derivative financial instruments due to a change in the value of the U.S.

dollar as compared to foreign exchange rates.

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Gains and losses from the portfolio and the change in our MDCP liability are recorded in our consolidated statements of earnings.

We performed a sensitivity analysis based on a 10% change in the underlying equity prices of our investments as of October 1, 2023 and determined that such a change would not have a significant impact on the fair value of these instruments.

We performed a sensitivity analysis based on a 10% change in the underlying equity prices of our investments as of September 29, 2024, and determined that such a change would not have a significant impact on the fair value of these instruments.

Interest Rate Risk

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We utilize short-term and long-term financing and may use interest rate hedges to manage our overall interest expense related to our existing fixed-rate debt, as well as to hedge the variability in cash flows due to changes in benchmark interest rates related to anticipated debt issuances.

See Note 3 , Derivative Financial Instruments and Note 9 , Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our interest rate hedge agreements and details of the components of our long-term debt, respectively, as of October 1, 2023.

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

The following table summarizes the impact of a change in interest rates as of September 29, 2024, on the fair value of Starbucks debt (in millions) :

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

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

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

Available-for-Sale Debt Securities

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We do not hedge the interest rate exposure on our investments.

We performed a sensitivity analysis based on a 100 basis point change in the underlying interest rate of our available-for-sale securities as of October 1, 2023 and determined that such a change would not have a significant impact on the fair value of these instruments.

We performed a sensitivity analysis based on a 100 basis point change in the underlying interest rate of our available-for-sale securities as of September 29, 2024, and determined that such a change would not have a significant impact on the fair value of these instruments.

CRITICAL ACCOUNTING ESTIMATES

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state income taxes, which could be material.

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

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

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

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

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

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

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

No restructuring and impairment costs attributable to the Reinvention Plan were recorded in our consolidated statements of earnings during the fiscal year ended September 29, 2024.

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

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If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit using discounted cash flows or a combination of discounted cash flow and market approaches.

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit is influenced by a number of factors, inclusive of the carrying value of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition.

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit is influenced by a number of factors, inclusive of the carrying value of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, and the amount of time in between quantitative fair value assessments and the date of acquisition.

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

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

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

and China, we do not anticipate incurring significant

goodwill impairment in the next 12 months.

Our fiscal 2024 annual goodwill impairment testing was completed in the third fiscal quarter.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis