Starbucks(SBUX) - 2023 Q4 - Annual Report

Part I - Business and Risk Factors Business Overview Starbucks operates as a premier global coffee roaster and retailer across 86 markets, primarily generating revenue from company-operated and licensed stores within its North America, International, and Channel Development segments - Starbucks is the premier roaster, marketer, and retailer of specialty coffee, operating in 86 markets, with main brands including Starbucks Coffee, Teavana, Ethos, Starbucks Reserve, and Princi[9] - As of October 1, 2023, approximately 3.6% of Starbucks partners in U.S. company-operated stores are represented by unions[15] Worldwide Employee Distribution (as of Oct 1, 2023) | Region | Number of Employees | | :--- | :--- | | Total Worldwide | ~381,000 | | U.S. | ~228,000 | | Outside of the U.S. | ~153,000 | FY2023 Revenue Contribution by Segment | Segment | % of Total Net Revenues | | :--- | :--- | | North America | 74% | | International | 21% | | Channel Development | 5% | Global Store Count by Type (as of Oct 1, 2023) | Store Type | North America | International | Total | % of Total | | :--- | :--- | :--- | :--- | :--- | | Company-operated | 10,628 | 8,964 | 19,592 | 52% | | Licensed | 7,182 | 11,264 | 18,446 | 48% | | Total | 17,810 | 20,228 | 38,038 | 100% | Retail Sales Mix by Product (Company-Operated Stores) | Product Type | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Beverages | 74% | 74% | 74% | | Food | 22% | 22% | 21% | | Other | 4% | 4% | 5% | Risk Factors Starbucks faces significant risks including brand reputation damage, supply chain vulnerabilities, macroeconomic pressures, labor cost increases, intense competition, and cybersecurity threats, particularly impacting its North America and China operations - The company's success is substantially dependent on its brand value, which could be diminished by unethical or illegal actions, negative publicity regarding responses to unionization efforts, or failure to meet social and environmental goals[42] - Starbucks is highly dependent on the financial performance of its North America operating segment, which accounted for approximately 74% of consolidated total net revenues in fiscal year 2023[49] - The business is exposed to significant risks in China, its second-largest market, including U.S.-China trade tensions, new competitors, and regulatory uncertainty[50][51] - Increases in the cost or decreases in the availability of high-quality arabica coffee beans and dairy products could have an adverse impact on business and financial results, with climate change potentially exacerbating these factors[55] - The business could be adversely impacted by rising labor costs, union organizing efforts, and difficulties in attracting and retaining qualified personnel, with unionization presenting potential operational disruptions and increased costs[62] - The company faces risks from failure to comply with complex and evolving data privacy laws such as GDPR in Europe and CCPA in California, which could result in significant fines and reputational harm[70][71] - Heavy reliance on information technology for point-of-sale, mobile platforms, and supply chain management exposes the company to risks of system failures or cybersecurity breaches, which could disrupt operations and harm financial results[73] Properties Starbucks primarily leases its 19,592 company-operated stores and most warehousing, distribution, and corporate sites, while owning key roasting facilities in locations like York, PA, and Minden, NV Major Corporate, Roasting, and Distribution Properties | Location | Approx. Size (Sq. Feet) | Purpose | | :--- | :--- | :--- | | York, PA | 1,957,000 | Roasting, warehousing and distribution | | Seattle, WA | 1,294,000 | Corporate administrative | | Minden, NV | 1,080,000 | Roasting, warehousing and distribution | | Kunshan, China | 630,000 | Roasting, warehousing and distribution | - As of October 1, 2023, Starbucks had 19,592 company-operated stores, and almost all of these locations are leased[79] Part II - Financial Information Shareholder and Market Information This section details Starbucks' common stock, dividend policy, and share repurchase activities, noting over 3.1 million shares repurchased in Q4 FY2023 and a comparative stock performance analysis Share Repurchases (Q4 FY2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 3 - Jul 30, 2023 | — | $ — | | Jul 31 - Aug 27, 2023 | 1,072,090 | $ 98.16 | | Aug 28 - Oct 1, 2023 | 2,059,067 | $ 95.39 | | Total | 3,131,157 | $ 96.34 | - As of the end of Q4 FY2023, the maximum number of shares that may yet be purchased under the company's repurchase plans is 42,589,661[86] Management's Discussion and Analysis (MD&A) Starbucks achieved strong FY2023 financial results with 12% revenue growth to $36.0 billion and a 200 basis point operating margin expansion, driven by pricing and operational efficiencies, while anticipating continued global store growth FY2023 Financial Highlights vs. FY2022 | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | $36.0 billion | $32.3 billion | +12% | | Operating Income | $5.9 billion | $4.6 billion | +28% | | Operating Margin | 16.3% | 14.3% | +200 bps | | Diluted EPS | $3.58 | $2.83 | +26.5% | | Capital Expenditures | $2.3 billion | $1.8 billion | +28% | | Cash Returned to Shareholders | $3.4 billion | $6.3 billion | -46% | Consolidated Revenue Breakdown (FY2023 vs FY2022) | Revenue Source | FY 2023 (in millions) | FY 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Company-operated stores | $29,462.3 | $26,576.1 | +10.9% | | Licensed stores | $4,512.7 | $3,655.5 | +23.4% | | Other | $2,000.6 | $2,018.7 | -0.9% | | Total net revenues | $35,975.6 | $32,250.3 | +11.6% | - The 200 basis point expansion in consolidated operating margin was primarily driven by pricing (+250 bps), sales leverage (+240 bps), and in-store operational efficiencies (+160 bps), partially offset by investments in partner wages (-250 bps) and higher G&A expenses (-130 bps)[97] - Cash provided by operating activities increased to $6.0 billion in FY2023 from $4.4 billion in FY2022, primarily due to higher net earnings and lower inventory purchases driven by reduced coffee commodity prices[129] - The company identifies Income Taxes, Property, Plant & Equipment impairment, and Goodwill & Intangible Asset impairment as its critical accounting estimates, requiring significant management judgment[139] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal years 2023, 2022, and 2021, including statements of earnings, balance sheets, and cash flows, with detailed notes on accounting policies and segment performance Consolidated Statements of Earnings (in millions) | Fiscal Year Ended | Oct 1, 2023 | Oct 2, 2022 | Oct 3, 2021 | | :--- | :--- | :--- | :--- | | Total net revenues | $35,975.6 | $32,250.3 | $29,060.6 | | Operating income | $5,870.8 | $4,617.8 | $4,872.1 | | Net earnings attributable to Starbucks | $4,124.5 | $3,281.6 | $4,199.3 | | Diluted EPS | $3.58 | $2.83 | $3.54 | Consolidated Balance Sheets (in millions) | As of | Oct 1, 2023 | Oct 2, 2022 | | :--- | :--- | :--- | | Total current assets | $7,303.4 | $7,018.7 | | Total assets | $29,445.5 | $27,978.4 | | Total current liabilities | $9,345.3 | $9,151.8 | | Long-term debt | $13,547.6 | $13,119.9 | | Total liabilities | $37,433.3 | $36,677.1 | | Total shareholders' deficit | ($7,994.8) | ($8,706.6) | - In FY2023, the company sold the Seattle's Best Coffee brand to Nestlé for $110.0 million, recognizing a pre-tax gain of $91.3 million[214] - As of October 1, 2023, the company had committed to purchasing green coffee totaling $989 million ($412 million under fixed-price contracts and an estimated $577 million under price-to-be-fixed contracts)[239] - In FY2023, the company repurchased 10.0 million shares of common stock for $1.0 billion; as of October 1, 2023, 42.6 million shares remained available for repurchase under current authorizations[265] - Revenues from the United States represented 73% of total net revenues in FY2023, at $26.4 billion[286] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of October 1, 2023, as affirmed by an unqualified audit opinion - Based on an evaluation, the chief executive officer and chief financial officer concluded that the company's disclosure controls and procedures were effective as of October 1, 2023[298] - Management concluded that the company's internal control over financial reporting was effective as of October 1, 2023, based on the COSO framework, and this assessment was audited by Deloitte & Touche LLP, which issued an unqualified opinion[299][302] Part III - Corporate Governance and Executive Compensation Corporate Governance, Compensation, and Related Matters This section incorporates information on corporate governance, executive compensation, and related matters by reference from the company's definitive Proxy Statement for the Annual Meeting of Shareholders - Information required for Items 10 through 14 is incorporated by reference from the company's definitive Proxy Statement for the Annual Meeting of Shareholders scheduled for March 13, 2024[310][311][312][313][314] Part IV - Exhibits and Schedules Exhibits and Financial Statement Schedules This section provides a comprehensive list of exhibits and financial statement schedules filed with the Form 10-K, including consolidated financial statements, audit reports, and various corporate and contractual documents - This section lists the financial statements, notes, and the Report of Independent Registered Public Accounting Firm included in Item 8[316] - A comprehensive list of exhibits filed with the 10-K is provided, including Restated Articles of Incorporation, various debt indentures, credit agreements, and executive compensation plans[319][320][322]