What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-01-28 compared with 2024-07-30 · 119 added, 167 removed, 190 unchanged (60% of the section changed)

4 unchanged sentences

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;

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

• the impact of our marketing strategies, promotional and advertising plans, pricing strategies, platforms, reformulations, innovations, or customer experience initiatives or investments;

• the costs and risks associated with, and the successful execution and effects of, our existing and any future business opportunities, expansions, initiatives, strategies, investments, and plans, including our “ Back to Starbucks ” plan;

• our ability to align our investment efforts with our strategic goals;

• changes in consumer preferences, demand, consumption, or spending behavior, including due to shifts in demographic or health and wellness trends, reduction in discretionary spending and price increases, and our ability to anticipate or react to these changes;

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

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

• our ability to open new stores and efficiently maintain the attractiveness of our existing stores;

• our dependence on the financial performance of our North America operating segment and our increasing dependence on certain international markets;

• our anticipated cash requirements and operating expenses, including our anticipated total capital expenditures;

• inherent risks of operating a global business, including changing conditions in our markets, local factors affecting store openings, protectionist trade or foreign investment policies, economic or trade sanctions, compliance with local laws and other regulations, and local labor policies and conditions, including labor strikes and work stoppages;

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

• the impact of adverse weather conditions or natural disasters;

• the impact of significant increases in logistics costs;

• the potential impact on our supply chain and operations of adverse weather conditions, natural disasters, or significant increases in logistics costs;

• the ability of our supply chain to meet current or future business needs and our ability to scale and improve our forecasting, planning, production, and logistics management;

• 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, local labor policies and conditions, including labor strikes and work stoppages, protectionist trade policies, or economic or trade sanctions, and compliance with local trade practices and other regulations;

• the impact of 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, international trade disputes, government restrictions, geopolitical instability, higher inflation, or deflation;

• failure to meet our announced guidance or market expectations and the impact thereof;

• 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, community, and farmer promises 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 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 impact of foreign currency translation, particularly a stronger U.S.

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

• the impact of changes in U.S.

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

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

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

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

• the impact of, and our ability to respond to, 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;

• potential impacts of climate change;

• evolving corporate governance and public disclosure regulations and expectations;

• the potential impact of activist shareholder actions or tactics;

• failure to comply with applicable laws and changing legal and regulatory requirements;

• the impact or likelihood of significant legal disputes and proceedings or government investigations;

• potential negative effects of, and our ability to respond to, a material failure, inadequacy, or interruption of our information technology systems or those of our third-party business partners or service providers, or failure to comply with data protection laws;

• our ability to adequately protect our intellectual property or adequately ensure that we are not infringing the intellectual property of others.

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

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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.

Introduction and Overview

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

As of June 30, 2024, Starbucks had more than 39,400 company-operated and licensed stores, an increase of 6% from the prior year.

Starbucks is the premier roaster, marketer, and retailer of specialty coffee globally, with a presence in 88 markets worldwide.

As of December 29, 2024, Starbucks had more than 40,500 company-operated and licensed stores, an increase of 5% from the prior year.

Additionally, we sell a variety of consumer-packaged goods, primarily through the Global Coffee Alliance established with Nestlé and other partnerships and joint ventures.

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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 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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• New store openings and store count

• Comparable store sales growth

• Comparable store sales

• 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.

Comparable store sales 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 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.

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

Starbucks results for the third quarter of fiscal 2024 reflect progress against our action plans to drive traffic to our stores and realized in-store and out-of-store efficiencies, which helped partially offset the impact of continued broader headwinds in a challenging global operating environment, including softening consumer sentiment, a pervasive inflationary environment, and disruptions due to multiple international conflicts.

During the third quarter of fiscal 2024, consolidated net revenues decreased 1% to $9.1 billion compared to $9.2 billion in the third 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 June 30, 2024, our global comparable store sales declined 3%, primarily driven by a 2% decline in the U.S.

Starbucks results for the first quarter of fiscal 2025 reflect early progress toward our “Back to Starbucks” plan, as we focused on strategic actions, targeted investments, and operational efficiencies to drive gradual top-line improvements.

During the first quarter of fiscal 2025, consolidated net revenues were flat compared to the first quarter of fiscal 2024, primarily driven by a decline in global comparable store sales and lower product and equipment sales to our licensees, partially offset by incremental revenues from net new company-operated store openings over the past 12 months.

During the quarter ended December 29, 2024, our global comparable store sales declined 4%, primarily driven by a 4% decline in the U.S.

market and a 4% decline internationally.

Consolidated operating margin decreased 60 basis points from the prior year to 16.7%, primarily driven by increased promotional activity, increased investments in store partner wages and benefits, and deleverage, partially offset by strategic pricing and in-store operational efficiencies.

Further, our efficiency focus extended beyond our stores, and we realized meaningful out-of-store efficiencies during the quarter, largely within our supply chain.

Despite continued complex macroeconomic challenges across multiple markets and regions, we are encouraged by our progress.

In the balance of the fiscal year, we anticipate continued progress on our action plans to increase demand across dayparts by introducing innovative and exciting beverage and food offerings to reach customers more broadly, while expanding our efficiency efforts and disciplined operational execution.

Specific to the U.S.

market, the decrease in comparable store sales was driven by an 8% decrease in comparable transactions, partially offset by a 4% increase in average ticket, primarily due to annualization of pricing, attach, and fewer discounts.

These drivers more than offset mix shift into lower priced beverages, and the removal of the extra charge for non-dairy milk customizations.

Consolidated operating margin contracted 390 basis points from the prior year to 11.9%, primarily driven by deleverage, investments in support of “Back to Starbucks,” including store partner wages, benefits, and hours, and the removal of the extra charge for non-dairy milk customizations.

The contraction was partially offset by the annualization of pricing and supply chain efficiencies.

As we look ahead, for the balance of this fiscal year, we will continue to learn and implement our “Back to Starbucks” plan, building momentum from this first quarter of fiscal 2025.

We will continue to focus our efforts on making disciplined investments that align with our strategies of supporting our green apron partners, re-introducing Starbucks to the world, enhancing the customer experience to win the morning, and reestablishing ourselves as the community coffeehouse.

Results of Operations (in millions)

Quarter Ended Three Quarters Ended

Quarter Ended

Company-operated stores $ 7,785.3 $ 7,755.2 $ 30.1 0.4 %

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Total net revenues $ 9,397.8 $ 9,425.3 $ (27.5) (0.3) %

For the quarter ended June 30, 2024 compared with the quarter ended July 2, 2023

Total net revenues for the third quarter of fiscal 2024 decreased $54 million, primarily due to lower revenues from company-operated stores ($41 million).

The decrease in revenues from company-operated stores was driven by a 3% decrease in

comparable store sales ($227 million), attributable to a 5% decrease in comparable transactions, partially offset by a 2% increase in average ticket.

Also contributing to the decrease in company-operated stores revenue were unfavorable foreign currency translation impacts ($101 million).

Partially offsetting these decreases were incremental revenues from 1,434 net new company-operated stores, or an 8% increase, over the past 12 months ($290 million).

Licensed stores revenue decreased $7 million, primarily driven by lower product and equipment sales to, and royalty revenues from, our licensees in our International segment ($23 million) and unfavorable foreign currency translation impacts ($10 million), partially offset by higher product and equipment sales to, and royalty revenues from, our licensees in North America ($19 million).

Other revenues decreased $7 million, primarily due to a decline in revenue in the Global Coffee Alliance ($21 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, partially offset by growth in our global ready-to-drink business ($9 million).

For the three quarters ended June 30, 2024 compared with the three quarters ended July 2, 2023

Total net revenues for the first three quarters of fiscal 2024 increased $500 million, primarily due to higher revenues from company-operated stores ($541 million), which were driven by incremental revenues from 1,434 net new company-operated stores, or an 8% increase, over the past 12 months ($871 million).

Partially offsetting this increase were unfavorable foreign currency translation impacts ($222 million) and a 1% decrease in comparable store sales ($110 million), attributable to a 3% decrease in comparable transactions, partially offset by a 2% increase in average ticket.

Licensed stores revenue increased $51 million, driven by higher product and equipment sales to, and royalty revenues from, our licensees ($48 million), primarily driven by revenues from 821 net new licensed store openings, or a 5% increase, over the past 12 months.

Other revenues decreased $92 million, primarily due to a decline in revenue in the Global Coffee Alliance ($99 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 quarter ended December 29, 2024 compared with the quarter ended December 31, 2023

Total net revenues for the first quarter of fiscal 2025 decreased $28 million, primarily due to lower revenues from licensed stores ($56 million), partially offset by an increase in revenues from company-operated stores ($30 million).

Company-operated store revenue increased $30 million, primarily driven by incremental revenues from 1,347 net new company-operated stores, or a 7% increase, over the past 12 months ($301 million), and incremental revenue from the conversion of 113 licensed stores to company-operated stores ($27 million) following the acquisition of 23.5 Degrees Topco Limited, a U.K.

licensed business partner, during the quarter.

These increases in net revenue were partially offset by a 4% decrease in comparable store sales ($283 million), attributable to a 6% decrease in comparable transactions, partially offset by a 3% increase in average ticket, as well as unfavorable foreign currency translation impacts ($18 million).

Licensed stores revenue decreased $56 million, primarily driven by lower product and equipment sales to our licensees ($39 million), the impact of the acquisition of 23.5 Degrees Topco Limited ($9 million), and unfavorable foreign currency translation impacts ($8 million).

Operating Expenses

Quarter Ended Three Quarters Ended

Change Jun 30,

Total Net Revenues As a % of

Quarter Ended

Total Net Revenues

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General and administrative expenses 665.8 648.0 17.8 7.1 6.9

Restructuring and impairments — 7.1 (7.1) — 0.1 — 21.8 (21.8) — 0.1

Total operating expenses 8,322.6 7,995.8 326.8 88.6 84.8

Income from equity investees 46.5 55.9 (9.4) 0.5 0.6

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

Operating income $ 1,121.7 $ 1,485.4 $ (363.7) 11.9 % 15.8 %

Store operating expenses as a % of company-operated stores revenue 54.0 % 49.7 %

For the quarter ended June 30, 2024 compared with the quarter ended July 2, 2023

Product and distribution costs as a percentage of total net revenues decreased 110 basis points for the third quarter of fiscal 2024, primarily due to a reduction in supply chain costs (approximately 80 basis points).

Store operating expenses as a percentage of total net revenues increased 170 basis points for the third quarter of fiscal 2024.

Store operating expenses as a percentage of company-operated stores revenue increased 200 basis points, primarily due to increased investments in store partner wages and benefits (approximately 200 basis points) and increased promotional activity (approximately 100 basis points), partially offset by in-store operational efficiencies (approximately 140 basis points).

Depreciation and amortization expenses as a percentage of total net revenues increased 50 basis points, primarily due to deleverage.

General and administrative expenses decreased $28 million, primarily due to lower performance-based compensation ($46 million) and the lapping of a donation to the Starbucks Foundation made in the third quarter of fiscal 2023 ($15 million).

These decreases were partially offset by increased investments in partner wages and benefits ($23 million) and incremental investments in technology in support of Reinvention ($23 million).

The combination of these changes resulted in an overall decrease in operating margin of 60 basis points for the third quarter of fiscal 2024.

For the three quarters ended June 30, 2024 compared with the three quarters ended July 2, 2023

Product and distribution costs as a percentage of total net revenues decreased 100 basis points for the first three quarters 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 60 basis points).

Store operating expenses as a percentage of total net revenues increased 80 basis points for the first three quarters of fiscal 2024.

Store operating expenses as a percentage of company-operated stores revenue increased 60 basis points, primarily due to increased investments in store partner wages and benefits (approximately 170 basis points) and increased promotional activity (approximately 80 basis points), partially offset by in-store operational efficiencies (approximately 190 basis points).

Other operating expenses increased $33 million, primarily due to support costs for our growing licensed markets.

For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023

Product and distribution costs as a percentage of total net revenues decreased 80 basis points for the first quarter of fiscal 2025, primarily due to supply chain efficiencies (approximately 70 basis points).

Store operating expenses as a percentage of total net revenues increased 380 basis points for the first quarter of fiscal 2025.

Store operating expenses as a percentage of company-operated stores revenue increased 430 basis points, primarily due to deleverage (approximately 260 basis points) and investments in support of “Back to Starbucks,” including store partner wages, benefits, and hours (approximately 190 basis points).

Depreciation and amortization expenses as a percentage of total net revenues increased 40 basis points, primarily due to deleverage.

General and administrative expenses increased $73 million, primarily due to incremental investments in technology in support of Reinvention ($75 million), increased investments in partner wages and benefits ($71 million), and certain proxy solicitation and advisory services costs ($28 million).

These increases were partially offset by lower performance-based compensation ($54 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.

Income from equity investees increased $19 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 60 basis points for the first three quarters of fiscal 2024.

General and administrative expenses increased $18 million, primarily due to increased costs to support leadership transitions ($13 million) and incremental investments in technology ($10 million).

Income from equity investees decreased $9 million, primarily due to higher costs in our North American Coffee Partnership joint venture income.

The combination of these changes resulted in an overall decrease in operating margin of 390 basis points for the first quarter of fiscal 2025.

Other Income and Expenses

Quarter Ended Three Quarters Ended

Change Jun 30,

Quarter Ended

As a % of Total

Net Revenues As a % of Total

Operating income $ 1,121.7 $ 1,485.4 $ (363.7) 11.9 % 15.8 %

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Effective tax rate including noncontrolling interests 23.6 % 25.7 %

For the quarter ended June 30, 2024 compared with the quarter ended July 2, 2023

The effective tax rate for the quarter ended June 30, 2024 was 24.8% compared to 22.0% for the same period in fiscal 2023.

The increase was primarily due to lapping the release of valuation allowances recorded against certain deferred tax assets of an international jurisdiction in the prior year (approximately 300 basis points).

For the three quarters ended June 30, 2024 compared with the three quarters ended July 2, 2023

Interest income and other, net increased $45 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 three quarters ended June 30, 2024 was 24.4% compared to 23.7% for the same period in 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 120 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 80 basis points).

For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023

Interest income and other, net, decreased $6 million, primarily due to higher foreign currency exchange losses and lower interest rates in the current year.

Interest expense decreased $13 million, primarily due to savings from cross-currency interest rate hedging, partially offset by higher interest rates on refinanced long-term debt.

The effective tax rate for the quarter ended December 29, 2024 was 23.6% compared to 25.7% for the same period in fiscal 2024.

The decrease was primarily due to the discrete impact of a tax status change for a certain foreign entity (approximately 300 basis points).

Segment Information

1 unchanged sentence

North America

Quarter Ended Three Quarters Ended

Change Jun 30,

Quarter Ended

As a % of North America

Total Net Revenues As a % of North America

Total Net Revenues

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General and administrative expenses 97.3 100.5 (3.2) 1.4 1.4

Restructuring and impairments — 7.1 (7.1) — 0.1 — 20.7 (20.7) — 0.1

Total operating expenses 5,890.6 5,599.9 290.7 83.3 78.6

1 unchanged sentence

Store operating expenses as a % of company-operated stores revenue 54.3 % 49.3 %

For the quarter ended June 30, 2024 compared with the quarter ended July 2, 2023

North America total net revenues for the third quarter of fiscal 2024 increased $79 million, or 1%, primarily driven by net new company-operated store growth of 5%, or 488 stores, over the past 12 months ($202 million), as well as higher product and equipment sales to, and royalty revenues from, our licensees ($19 million).

This growth was partially offset by a 2% decrease in comparable store sales ($139 million) driven by a 6% decrease in comparable transactions, partially offset by a 3% increase in average ticket, primarily due to annualization of pricing and increased beverage attach.

Operating Margin

North America operating income for the third quarter of fiscal 2024 decreased 2% to $1.4 billion, compared to $1.5 billion in the third quarter of fiscal 2023.

Operating margin decreased 70 basis points to 21.0%, primarily due to increased investments in store partner wages and benefits (approximately 170 basis points), increased promotional activity (approximately 160 basis points), and deleverage (approximately 130 basis points), partially offset by strategic pricing (approximately 260 basis points) and in-store operational efficiencies (approximately 120 basis points).

For the three quarters ended June 30, 2024 compared with the three quarters ended July 2, 2023

North America total net revenues for the first three quarters of fiscal 2024 increased $648 million, or 3%, primarily driven by net new company-operated store growth of 5%, or 488 stores, over the past 12 months ($584 million) and higher product and equipment sales to, and royalty revenues from, our licensees ($82 million).

This growth was partially offset by a decline in comparable store sales ($29 million) driven by a 4% decrease in comparable transactions, partially offset by a 4% increase in average ticket, primarily due to annualization of pricing.

For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023

North America total net revenues for the first quarter of fiscal 2025 decreased $49 million, or 1%, primarily due to a net 4% decrease in comparable store sales ($234 million), driven by an 8% decrease in comparable transactions, partially offset by a 4% increase in average ticket, primarily due to annualization of pricing, attach, and fewer discounts.

These drivers more than offset mix shift into lower priced beverages, and the removal of the extra charge for non-dairy milk customizations.

Also contributing to the decrease were lower product sales to, and royalty revenues from, our licensees ($35 million).

These decreases were partially offset by net new company-operated store growth of 5%, or 527 stores, over the past 12 months ($230 million).

Operating Margin

North America operating income for the first three quarters of fiscal 2024 increased 5% to $4.1 billion, compared to $3.9 billion in the first three quarters of fiscal 2023.

Operating margin increased 40 basis points to 20.2%, primarily driven by strategic pricing (approximately 200 basis points) and in-store operational efficiencies (approximately 190 basis points), partially offset by increased investments in store partner wages and benefits (approximately 140 basis points), increased promotional activity (approximately 100 basis points), and deleverage (approximately 70 basis points).

North America operating income for the first quarter of fiscal 2025 decreased 22% to $1.2 billion, compared to $1.5 billion in the first quarter of fiscal 2024.

Operating margin contracted 470 basis points to 16.7%, primarily driven by deleverage (approximately 370 basis points) and investments in support of “Back to Starbucks,” including store partner wages, benefits, and hours (approximately 180 basis points), and the removal of the extra charge for non-dairy milk customizations (approximately 60 basis points).

This contraction in operating margin was partially offset by the annualization of pricing (approximately 230 basis points).

International

Quarter Ended Three Quarters Ended

Quarter Ended

As a % of International

Total Net Revenues As a % of International

Total Net Revenues

10 unchanged sentences

Total operating expenses 1,633.8 1,605.0 28.8 87.3 86.9

Income from equity investees 2.5 0.8 1.7 0.1 0.0 2.9 2.0 0.9 0.1 0.0

Income/(loss) from equity investees

(0.4) 0.2 (0.6) 0.0 0.0

Operating income $ 237.1 $ 241.5 $ (4.4) 12.7 % 13.1 %

Store operating expenses as a % of company-operated stores revenue 52.5 % 51.2 %

For the quarter ended June 30, 2024 compared with the quarter ended July 2, 2023

International total net revenues for the third quarter of fiscal 2024 decreased $131 million, or 7%, primarily due to unfavorable foreign currency translation impacts ($105 million), as well as a 7% decline in comparable store sales ($88 million), driven by a 4% decline in average ticket and a 3% decline in comparable transactions.

Also contributing to the decline in international total net revenues were lower product and equipment sales to, and royalty revenues from, our licensees ($23 million), largely driven by disruptions due to multiple international conflicts, partially offset by the performance of 703 net new licensed store openings

over the past 12 months.

In addition, these decreases were partially offset by net new company-operated store growth of 11%, or 946 stores, over the past 12 months ($88 million).

Operating Margin

International operating income for the third quarter of fiscal 2024 decreased 23% to $288 million, compared to $375 million in the third quarter of fiscal 2023.

Operating margin decreased 340 basis points to 15.6%, primarily due to increased promotional activity (approximately 210 basis points), increased investments in store partner wages and benefits (approximately 160 basis points), and strategic investments (approximately 70 basis points), partially offset by in-store operational efficiencies (approximately 130 basis points).

For the three quarters ended June 30, 2024 compared with the three quarters ended July 2, 2023

International total net revenues for the first three quarters of fiscal 2024 decreased $62 million, or 1%, primarily due to unfavorable foreign currency translation impacts ($235 million), as well as a 2% decline in comparable store sales ($81 million) driven by a 3% decline in average ticket, partially offset by a 1% increase in comparable transactions.

Also contributing to the decline in international total net revenues were lower product and equipment sales to, and royalty revenues from, our licensees ($34 million), largely driven by disruptions due to multiple international conflicts, partially offset by the performance of 703 net new licensed store openings over the past 12 months.

In addition, these decreases were partially offset by net new company-operated store growth of 11%, or 946 stores, over the past 12 months ($287 million).

For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023

International total net revenues for the first quarter of fiscal 2025 increased $25 million, or 1%, primarily due to net new company-operated store growth of 9%, or 820 stores, over the past 12 months ($72 million), and the incremental net revenue from the conversion of 113 licensed stores to company-operated stores ($18 million) following the acquisition of 23.5 Degrees Topco Limited, a U.K.

licensed business partner, during the quarter.

The net revenue increases were partially offset by a 4% decline in comparable store sales ($48 million), driven by a 2% decline in both average ticket and comparable transactions, and unfavorable foreign currency translation impacts ($16 million).

Also contributing to the decrease in revenue were lower product and equipment sales to our licensees ($4 million), which were partially offset by the opening of 563 net new licensed stores over the past 12 months.

Operating Margin

International operating income for the first three quarters of fiscal 2024 decreased 18% to $763 million, compared to $930 million for the same period in fiscal 2023.

Operating margin decreased 290 basis points to 14.0%, primarily due to increased promotional activity (approximately 200 basis points), increased investments in store partner wages and benefits (approximately 130 basis points), and sales mix shift (approximately 70 basis points).

These decreases were partially offset by in-store operational efficiencies (approximately 100 basis points).

International operating income for the first quarter of fiscal 2025 decreased 2% to $237 million, compared to $242 million in the first quarter of fiscal 2024.

Operating margin contracted 40 basis points to 12.7%, primarily due to increased promotional activity (approximately 170 basis points) and investments in store partner wages and benefits (approximately 90 basis points).

This contraction was partially offset by supply chain efficiencies (approximately 130 basis points) and in-store operational efficiencies (approximately 100 basis points).

Channel Development

Quarter Ended Three Quarters Ended

Change Jun 30,

Quarter Ended

As a % of Channel Development

Total Net Revenues As a % of Channel Development

Total Net Revenues

6 unchanged sentences

Income from equity investees 46.9 55.7 (8.8) 10.7 12.4

Gain from sale of assets — — — — — — 91.3 (91.3) — 6.5

Operating income $ 208.0 $ 209.7 $ (1.7) 47.7 % 46.8 %

For the quarter ended June 30, 2024 compared with the quarter ended July 2, 2023

Channel Development total net revenues for the third quarter of fiscal 2024 decreased $11 million, or 2%, primarily due to a decline in revenue in the Global Coffee Alliance ($21 million) from product SKU optimization as well as the sale of our Seattle’s Best Coffee brand to Nestlé in the second quarter of fiscal 2023, partially offset by higher revenue in our global ready-to-drink business ($9 million).

Operating Margin

Channel Development operating income for the third quarter of fiscal 2024 increased 13% to $235 million, compared to $208 million in the third quarter of fiscal 2023.

Operating margin increased 740 basis points to 53.7%, primarily driven by mix shift (approximately 350 basis points), lower product costs related to the Global Coffee Alliance (approximately 270 basis points), and strength in our North American Coffee Partnership joint venture income (approximately 90 basis points).

For the three quarters ended June 30, 2024 compared with the three quarters ended July 2, 2023

Channel Development total net revenues for the first three quarters of fiscal 2024 decreased $103 million, or 7%, primarily due to a decline in revenue in the Global Coffee Alliance ($99 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, and lower revenue in our global ready-to-drink business ($12 million).

For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023

Channel Development total net revenues for the first quarter of fiscal 2025 decreased $12 million, or 3%, primarily due to a decline in revenue in the Global Coffee Alliance ($7 million) from product SKU optimization and lower revenue in our global ready-to-drink business ($3 million).

Operating Margin

Channel Development operating income for the first three quarters of fiscal 2024 decreased 5% to $661 million, compared to $696 million for the same period in fiscal 2023.

Operating margin increased 120 basis points to 50.7%, primarily due to mix shift (approximately 410 basis points), strength in our North American Coffee Partnership joint venture income (approximately 240 basis points), and lapping impairment charges against certain manufacturing assets in the second quarter of fiscal 2023 (approximately 120 basis points), partially offset by lapping the gain from the sale of our Seattle’s Best Coffee brand in the second quarter of fiscal 2023 (approximately 650 basis points).

Channel Development operating income for the first quarter of fiscal 2025 decreased 1% to $208 million, compared to $210 million in the first quarter of fiscal 2024.

Operating margin expanded 90 basis points to 47.7%, primarily driven by mix shift (approximately 180 basis points), and lower product costs related to the Global Coffee Alliance (approximately 80 basis points), partially offset by higher costs in our North American Coffee Partnership joint venture income (approximately 170 basis points).

Corporate and Other

Quarter Ended Three Quarters Ended

Quarter Ended

Net revenues:

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Product and distribution costs 19.4 11.2 8.2 73.2

Other operating expenses 0.4 1.8 (1.4) (77.8) 1.1 1.8 (0.7) (38.9)

Other operating expenses 0.0 0.1 (0.1) nm

Depreciation and amortization expenses 29.5 30.8 (1.3) (4.2)

General and administrative expenses 474.1 454.8 19.3 4.2

Restructuring and impairments — — — nm — 1.1 (1.1) nm

Total operating expenses 523.0 496.9 26.1 5.3

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

For the quarter ended June 30, 2024 compared with the quarter ended July 2, 2023

Corporate and Other operating loss decreased 5% to $438 million for the third quarter of fiscal 2024 compared to $463 million for the third quarter of fiscal 2023.

This decrease was primarily due to lower performance-based compensation ($35 million) and the lapping of a donation to the Starbucks Foundation made in the third quarter of fiscal 2023 ($15 million).

These decreases were partially offset by incremental investments in technology in support of Reinvention ($23 million) and increased investments in partner wages and benefits ($15 million).

For the three quarters ended June 30, 2024 compared with the three quarters ended July 2, 2023

Corporate and Other operating loss increased to $1.4 billion for the first three quarters of fiscal 2024, or 5%, compared to the same period in fiscal 2023.

This increase was primarily driven by incremental investments in technology in support of

Reinvention ($75 million), increased investments in partner wages and benefits ($43 million), and certain proxy solicitation and advisory services costs ($28 million).

These increases were partially offset by lower performance-based compensation ($46 million) and the lapping of donations to the Starbucks Foundation made in fiscal 2023 ($30 million).

For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023

Corporate and Other operating loss increased 4% to $505 million for the first quarter of fiscal 2025 compared to $487 million for the first quarter of fiscal 2024, primarily due to increased costs to support leadership transitions ($13 million) and incremental investments in technology ($10 million).

Quarterly Store Data

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

Quarter Ended Three Quarters Ended Stores open as of

Quarter Ended Stores open as of

North America

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Company-operated stores (1)

226 186 10,083 9,150

Licensed stores (1)

38 242 11,956 11,506

Total International 264 428 22,039 20,656

Total Company 377 549 40,576 38,587

(1) Includes the conversion of 113 licensed stores to company-operated stores following the acquisition of 23.5 Degrees Topco Limited during the first quarter of fiscal 2025.

Financial Condition, Liquidity, and Capital Resources

Cash and Investment Overview

Our cash and investments were $3.7 billion as of June 30, 2024 and $4.2 billion as of October 1, 2023.

Our cash and investments were $4.2 billion as of December 29, 2024 and $3.8 billion as of September 29, 2024.

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 June 30, 2024, approximately $2.0 billion of cash and short-term investments were held in foreign subsidiaries.

Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities and government treasury securities (domestic and foreign), as well as principal-protected structured deposits.

As of December 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 June 30, 2024, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of June 30, 2024 or October 1, 2023.

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

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

No amounts were outstanding under our commercial paper program as

of June 30, 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 third quarter of fiscal 2024.

We had no borrowings outstanding under our commercial paper

program as of December 29, 2024 and September 29, 2024.

Our total available contractual borrowing capacity for general corporate purposes was $3.0 billion as of the end of our first quarter of fiscal 2025.

Credit Facilities in Japan

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

As of June 30, 2024, we had ¥2.0 billion, or $12.4 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.

As of December 29, 2024 and September 29, 2024, we had no 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 June 30, 2024, we were in compliance with all applicable covenants.

As of December 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.

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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 $16 million for foreign withholding taxes during the first three quarters of fiscal year 2024.

During the third quarter of fiscal 2024, our Board of Directors approved a quarterly cash dividend to shareholders of $0.57 per share to be paid on August 30, 2024 to shareholders of record as of the close of business on August 16, 2024.

During the three quarters ended June 30, 2024, we repurchased 12.8 million shares of common stock for $1,250.1 million on the open market.

As of June 30, 2024, 29.8 million shares remained available for repurchase under current authorizations.

During the first quarter of fiscal 2025, our Board of Directors approved a quarterly cash dividend to shareholders of $0.61 per share to be paid on February 28, 2025 to shareholders of record as of the close of business on February 14, 2025.

During the quarter ended December 29, 2024, we made no common stock share repurchases.

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

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

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.

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

In the MD&A included in the 10-K, we disclosed that we had $35.6 billion of current and long-term material cash requirements as of September 29, 2024.

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.

Net cash provided by operating activities was $4.6 billion for the first three quarters of fiscal 2024, compared to $4.1 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 depreciation and amortization, lapping the gain on sale of assets from the prior year sale of Seattle’s Best Coffee brand to Nestlé, and an increase in non-cash lease costs.

Net cash used in investing activities totaled $1.8 billion for the first three quarters of fiscal 2024, compared to $1.4 billion 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 three quarters of fiscal 2024 totaled $3.1 billion, compared to $2.1 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.

Net cash provided by operating activities was $2.1 billion for the first quarter of fiscal 2025, compared to $2.4 billion for the same period in fiscal 2024.

The change was primarily due to a decrease in net earnings of $244 million and a net increase of $149 million in inventories, which was primarily driven by a net increase in green coffee inventories.

Net cash used in investing activities totaled $855 million for the first quarter of fiscal 2025, compared to $569 million for the same period in fiscal 2024.

The change was primarily due to the acquisition of 23.5 Degrees Topco Limited, a net decrease of $166 million in maturities and calls of investments, primarily structured deposit investments, and a net increase of $97 million in capital expenditures.

These cash uses were partially offset by a net decrease of $151 million in purchases of investments, primarily structured deposit investments.

Net cash used in financing activities for the first quarter of fiscal 2025 totaled $755 million, compared to $2.4 billion for the same period in fiscal 2024.

The change was primarily due to no current year share repurchases of our common stock and no current year repayments of long-term debt compared to repurchases and repayments in the prior year.

These cash uses were partially offset by a decrease of $300 million in proceeds from issuances of commercial paper.

Commodity Prices, Availability and General Risk Conditions

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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.

The price and availability of these commodities, including recent sustained increases in green coffee prices, directly impact our results of operations, and we expect commodity prices, particularly coffee, to continue to impact future results of operations.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis