Starbucks Corporation F2Q10 (Qtr End 03/28/10) Earnings Call Transcript

Starbucks Corporation F2Q10 (Qtr End 03/28/10) Earnings Call Transcript
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Starbucks Corporation (SBUX)

F2Q10 Earnings Call

April 21, 2010 5:00 pm ET

Executives

JoAnn DeGrande – Investor Relations

Howard Schultz – Chairman of the Board, President & Chief Executive Officer

Tory Alstead – Chief Financial Officer, Executive Vice President & Chief Administrative Officer

John Culver – President Starbucks Coffee International

Clifford Burrows – President Starbucks Coffee US

Analysts

John Glass – Morgan Stanley

Sharon Zackfia – William Blair & Company, LLC

[Sarah Sinatory] – Sanford Bernstein

Analyst for Joseph Buckley – Bank of America Merrill Lynch

John Ivankow – JP Morgan

Matthew Difrisco – Oppenheimer & Co.

Jeffery Bernstein – Barclays Capital

Nicole Miller Regan – Piper Jaffray

Mitchell Speiser – Buckingham Research

Presentation

Operator

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At this time I would like to welcome everyone to Starbucks Coffee Company second quarter fiscal year 2010 conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. (Operator Instructions) Ms. DeGrande, you may begin your conference.

JoAnn DeGrande

This is JoAnn DeGrande, Director of Investor Relations at Starbucks Coffee Company. With me in Seattle today are Howard Schultz, Chairman, President and CEO; Troy Alstead, CFO; and John Culver, President of our International business. Before we get started I would like to remind you that this conference call will be containing forward-looking statements. Forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements and should be considered in conjunction with cautionary statements in our earnings release and risk factors discussions in our filings with the SEC including our last annual report on Form 10K.

Starbucks assumes no obligation to update any of these forward-looking statements or information. Please refer to the investor relations section of Starbucks’ website at

www.Starbucks.com

and to the financial statements of the company and the earnings release to find disclosures and reconciliations of non-GAAP financial measures mentioned on today’s call along with our corresponding GAAP measures.

With that, I would now like to turn the call over to Howard Schultz.

Howard Schultz

The second quarter results we announced today demonstrate the success of our efforts over the last two years to dramatically transform Starbucks’ business and to position the company for sustained profitable growth in to the future. I am pleased to report that our Q2 results reflect the strong underlying fundamentals of our business and the significant improvements in revenues, comp store sales, operating performance, margins and earnings per share that we sought to achieve.

Our top to bottom transformation has created new discipline throughout our company and a solid foundation from which to grow. Starbucks today enjoys a leaner, vastly more efficient operating structure, increased operating leverage, a highly relevant pipeline of innovative new product offerings both in the market and yet to be introduced, powerful marketing muscle, a deeper, stronger connection with an increasingly more satisfied customer base and a renewed passionate, committed 200,000 partner work force in 52 countries around the world.

We’ve learned valuable lessons over the last few years and we are now sharing and integrating these lessons in order to improve our operations across the global. Global retail expansion in the future will be achieved by combining our coffee leadership position with cost discipline and operational excellence as unequivocal prerequisites. We have created an innovative differentiated model to adapt to the changing rules of engagement in traditional marketing and have embraced social networks and digital media as part of an ongoing 360 degree conversation with our customers all over the world.

The success of these efforts has resulted in our becoming the number one brand on Facebook and one of the leading brands on Twitter. We have infused this digital mindset in to all of our marketing and communications to leverage our already effective brand voice enabling a powerful, highly relevant low cost customer acquisition vehicle and we will continue to innovate and strive to be best of class in all aspects of our business internationally and domestically.

We’ve also refined our longer term strategy beyond the retail experience and can now offer consumers innovative new coffee products in multiple brands, form factors and across new and established categories, formats and channels. Taken together, these efforts and initiatives represent a strategy that we believe will provide us with a run way for disciplined profitable growth long in to the future.

The results for Q2 exceeded our expectations in many ways and let me just touch on a few. Consolidated net revenues increased 9% to $2.5 billion. US comparable store sales increased 7% driven by a 3% increase in traffic and a 5% increase in average ticket. Importantly, this is the first quarter in 13 in which we saw a return to traffic growth in our US stores. International comparable store sales also increased 7% driven by a 6% increase in traffic and a 1% increase in average ticket.

Reported consolidated operating margin increased to 13.4% from 1.8% in Q2 of the prior year. EPS for the quarter increased to $0.28 per share up from $0.03 per share in the same period last year. Increasing business momentum over the last four quarters and the operating leverage inherent in our business model have also enabled us to generate a very strong cash flow which we are investing against our global growth strategy. At the same time, we are able now to return cash to shareholders in the form of a quarterly dividend and have increased the number of shares authorized for repurchase under our stock repurchase plan.

Together, these programs reflect the strength of Starbucks business today and the confidence we have in the growth and health of Starbucks’ business over the long term. Before turning the call over to Troy to discuss in detail the financial results of the quarter, let me share some segment highlights with you from my own perspective. Our US business has been completely transformed under the stewardship of Cliff Burrows and his excellent field leadership team and performed well ahead of expectations.

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