Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained herein are “forward-looking” statements within the meaning of applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. By their nature, forward-looking statements involve risks, uncertainties, and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections. Our forward-looking statements, and the risks and uncertainties related thereto, include, but are not limited to, those described under the “Risk Factors” and “Management ’ s Discussion and Analysis of Financial Condition and Results of Operations” sections of our most recently filed 10-K and 10-Q and in other reports we file with the SEC, as well as, among others:
• 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 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;
• 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 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. dollar;
• 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;
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• 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; and
• 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. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. 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.
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Introduction and Overview
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.
We have three reportable operating segments: 1) North America, which is inclusive of the U.S. and Canada; 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, Africa, Latin America, and the Caribbean; and 3) Channel Development. Unallocated corporate expenses are reported within Corporate and Other.
We believe our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales, and operating margin management, underpinned by disciplined capital allocation. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies. Throughout this MD&A, we commonly discuss the following key operating metrics:
• New store openings and store count
• Comparable store sales
• Operating margin
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.
Our fiscal year ends on the Sunday closest to September 30. Fiscal 2025 and 2024 include 52 weeks. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted.
Starbucks results for the 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. 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)
Revenues
Quarter Ended
Dec 29,
2024 Dec 31,
2023 $
Change %
Change
Company-operated stores $ 7,785.3 $ 7,755.2 $ 30.1 0.4 %
Licensed stores 1,135.7 1,192.1 (56.4) (4.7)
Other 476.8 478.0 (1.2) (0.3)
Total net revenues $ 9,397.8 $ 9,425.3 $ (27.5) (0.3) %
For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023
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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
Dec 29,
2024 Dec 31,
2023 $
Change
Dec 29,
2024 Dec 31,
2023
As a % of
Total Net Revenues
Product and distribution costs $ 2,893.7 $ 2,980.6 $ (86.9) 30.8 % 31.6 %
Store operating expenses 4,203.0 3,851.5 351.5 44.7 40.9
Other operating expenses 152.5 150.4 2.1 1.6 1.6
Depreciation and amortization expenses 407.6 365.3 42.3 4.3 3.9
General and administrative expenses 665.8 648.0 17.8 7.1 6.9
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
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 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 $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.
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Other Income and Expenses
Quarter Ended
Dec 29,
2024 Dec 31,
2023 $
Change
Dec 29,
2024 Dec 31,
2023
As a % of Total
Net Revenues
Operating income $ 1,121.7 $ 1,485.4 $ (363.7) 11.9 % 15.8 %
Interest income and other, net 27.8 33.8 (6.0) 0.3 0.4
Interest expense (127.2) (140.1) 12.9 (1.4) (1.5)
Earnings before income taxes 1,022.3 1,379.1 (356.8) 10.9 14.6
Income tax expense 241.4 354.7 (113.3) 2.6 3.8
Net earnings including noncontrolling interests 780.9 1,024.4 (243.5) 8.3 10.9
Net earnings attributable to noncontrolling interests 0.1 — 0.1 0.0 0.0
Net earnings attributable to Starbucks $ 780.8 $ 1,024.4 $ (243.6) 8.3 % 10.9 %
Effective tax rate including noncontrolling interests 23.6 % 25.7 %
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).
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Segment Information
Results of operations by segment (in millions) :
North America
Quarter Ended
Dec 29,
2024 Dec 31,
2023 $
Change
Dec 29,
2024 Dec 31,
2023
As a % of North America
Total Net Revenues
Net revenues:
Company-operated stores $ 6,367.9 $ 6,381.1 $ (13.2) 90.0 % 89.6 %
Licensed stores 702.7 737.9 (35.2) 9.9 10.4
Other 1.3 1.7 (0.4) 0.0 0.0
Total net revenues 7,071.9 7,120.7 (48.8) 100.0 100.0
Product and distribution costs 1,967.5 2,023.9 (56.4) 27.8 28.4
Store operating expenses 3,458.4 3,147.7 310.7 48.9 44.2
Other operating expenses 78.4 77.4 1.0 1.1 1.1
Depreciation and amortization expenses 289.0 250.4 38.6 4.1 3.5
General and administrative expenses 97.3 100.5 (3.2) 1.4 1.4
Total operating expenses 5,890.6 5,599.9 290.7 83.3 78.6
Operating income $ 1,181.3 $ 1,520.8 $ (339.5) 16.7 % 21.4 %
Store operating expenses as a % of company-operated stores revenue 54.3 % 49.3 %
For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023
Revenues
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 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).
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International
Quarter Ended
Dec 29,
2024 Dec 31,
2023 $
Change
Dec 29,
2024 Dec 31,
2023
As a % of International
Total Net Revenues
Net revenues:
Company-operated stores $ 1,417.4 $ 1,374.1 $ 43.3 75.7 % 74.4 %
Licensed stores 433.0 454.2 (21.2) 23.1 24.6
Other 20.9 18.0 2.9 1.1 1.0
Total net revenues 1,871.3 1,846.3 25.0 100.0 100.0
Product and distribution costs 647.0 666.5 (19.5) 34.6 36.1
Store operating expenses 744.6 703.8 40.8 39.8 38.1
Other operating expenses 60.7 60.1 0.6 3.2 3.3
Depreciation and amortization expenses 89.1 84.1 5.0 4.8 4.6
General and administrative expenses 92.4 90.5 1.9 4.9 4.9
Total operating expenses 1,633.8 1,605.0 28.8 87.3 86.9
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 December 29, 2024 compared with the quarter ended December 31, 2023
Revenues
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 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).
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Channel Development
Quarter Ended
Dec 29,
2024 Dec 31,
2023 $
Change
Dec 29,
2024 Dec 31,
2023
As a % of Channel Development
Total Net Revenues
Net revenues $ 436.3 $ 448.0 $ (11.7)
Product and distribution costs 259.8 279.0 (19.2) 59.5 % 62.3 %
Other operating expenses 13.4 12.8 0.6 3.1 2.9
Depreciation and amortization expenses 0.0 — 0.0 0.0 —
General and administrative expenses 2.0 2.2 (0.2) 0.5 0.5
Total operating expenses 275.2 294.0 (18.8) 63.1 65.6
Income from equity investees 46.9 55.7 (8.8) 10.7 12.4
Operating income $ 208.0 $ 209.7 $ (1.7) 47.7 % 46.8 %
For the quarter ended December 29, 2024 compared with the quarter ended December 31, 2023
Revenues
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 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
Dec 29,
2024 Dec 31,
2023 $
Change
%
Change
Net revenues:
Other $ 18.3 $ 10.3 $ 8.0 77.7 %
Total net revenues 18.3 10.3 8.0 77.7
Product and distribution costs 19.4 11.2 8.2 73.2
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
Total operating expenses 523.0 496.9 26.1 5.3
Operating loss $ (504.7) $ (486.6) $ (18.1) 3.7 %
Corporate and Other primarily consists of our unallocated corporate expenses. Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments.
For the quarter ended 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).
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Quarterly Store Data
Our store data for the periods presented is as follows:
Net stores opened/(closed) and transferred during the period
Quarter Ended Stores open as of
Dec 29,
2024 Dec 31,
2023 Dec 29,
2024 Dec 31,
2023
North America
Company-operated stores 81 87 11,242 10,715
Licensed stores 32 34 7,295 7,216
Total North America 113 121 18,537 17,931
International
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 $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 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
Revolving Credit Facility
Our $3.0 billion unsecured five-year revolving credit facility (the “2021 credit facility”), of which $150.0 million may be used for issuances of letters of credit, is currently set to mature on September 16, 2026. The 2021 credit facility is available for working capital, capital expenditures, and other corporate purposes, including acquisitions and share repurchases. We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $1.0 billion.
Borrowings under the 2021 credit facility, which was most recently amended in April 2023, will bear interest at a variable rate based on Term SOFR, and, for U.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the 2021 credit facility), in each case plus an applicable margin. The applicable margin is based on the Company’s long-term credit ratings assigned by the Moody’s and Standard & Poor’s rating agencies. The “Base Rate” is the highest of (i) the Federal Funds Rate (as defined in the 2021 credit facility) plus 0.500%, (ii) Bank of America’s prime rate, and (iii) Term SOFR plus 1.000%. Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.
The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. As of 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
Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $3.0 billion, with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our 2021 credit facility. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures, and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock, and share repurchases. We had no borrowings outstanding under our commercial paper
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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
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 $31.6 million, credit facility is currently set to mature on December 30, 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 0.400%.
• A ¥10.0 billion, or $63.3 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 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 December 29, 2024, we were in compliance with all applicable covenants.
Use of Cash
We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facilities, commercial paper program, and the issuance of debt to support and invest in our core businesses, including investing in new ways to serve our customers and supporting our store partners, repaying maturing debts, returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases, and investing in new business opportunities related to our core and developing businesses. Furthermore, we may use our available cash resources to make proportionate capital contributions to our investees. We may also seek strategic acquisitions to leverage existing capabilities and further build our business. Acquisitions may include increasing our ownership interests in our investees. Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy.
We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally, combined with our ability to leverage our balance sheet through the issuance of debt, will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for at least the next 12 months. We are currently not aware of any trends or demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates; however, additional borrowings would result in increased interest expense in the future. In this regard, we may incur additional debt, within targeted levels, as part of our plans to fund our capital programs, including cash returns to shareholders through future dividends and discretionary share repurchases, refinancing debt maturities, as well as investing in new business opportunities. If necessary, we may pursue additional sources of financing, including both short-term and long-term borrowings and debt issuances.
We regularly review our cash positions and our determination of partial indefinite reinvestment of foreign earnings. In the event we determine that all or another portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes, which could be material. Any foreign earnings that are not indefinitely reinvested may be repatriated at management’s discretion.
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 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.
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Cash Flows
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
Commodity price risk represents our primary market risk, generated by our purchases of green coffee and dairy products, among other items. We purchase, roast, and sell high-quality arabica coffee and related products, and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores. The price and availability of these commodities, 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.
Seasonality and Quarterly Results
Our business is subject to moderate seasonal fluctuations, of which our fiscal second quarter typically experiences lower revenues and operating income. Additionally, as our stored value cards (“Starbucks Cards”) are issued to, and loaded by, customers during the holiday season, we tend to have higher cash flows from operations during the first quarter of the fiscal year. However, since revenues from Starbucks Cards are recognized upon redemption and not when cash is loaded onto the Starbucks Cards, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced. As a result of moderate seasonal fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported. Note 1 , Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 1 of Part I of this 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 10-K describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 10-K.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 , Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the commodity price risk, foreign currency exchange risk, equity security price risk, or interest rate risk discussed in Item 7A of the 10-K.
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