Starbucks 2014 Annual Report Download - page 26

22 Starbucks Corporation 2014 Form 10-K
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Our fiscal year ends on the Sunday closest to September 30. The fiscal years ended on September 28, 2014, September 29,
2013 and September 30, 2012 all included 52 weeks. All references to store counts, including data for new store openings, are
reported net of related store closures, unless otherwise noted.
Financial Highlights
• Total net revenues increased 11% to $16.4 billion in fiscal 2014 compared to $14.9 billion in fiscal 2013.
• Global comparable store sales grew 6% driven by a 3% increase in the number of transactions and a 3% increase in
average ticket.
• Consolidated operating income increased to $3.1 billion in fiscal 2014 compared to an operating loss of $325.4 million
in fiscal 2013. Fiscal 2014 operating margin was 18.7% compared to (2.2)% in fiscal 2013. The operating margin
expansion was primarily due to lapping the $2.8 billion Kraft litigation charge in the prior year. The remaining change
in operating margin was primarily driven by sales leverage and lower commodity costs, mainly coffee.
• Earnings per share for fiscal 2014 increased to $2.71, compared to EPS of $0.01 in fiscal 2013, primarily due to lapping
the Kraft litigation charge, which reduced EPS by $2.25 per share in fiscal 2013. The remaining increase was primarily
due to the improved sales leverage and lower commodity costs, as well as a gain on the sale of our equity interest in our
Malaysia joint venture.
• Cash flows from operations were $607.8 million in fiscal 2014 compared to $2.9 billion in fiscal 2013. The decline in
fiscal 2014 was driven by the payment of $2.8 billion during the year for the Kraft arbitration matter. This was partially
offset by cash provided by operating activities of $3.4 billion resulting from strong earnings and favorable changes in
working capital accounts in the current year.
• Capital expenditures were $1.2 billion in fiscal 2014 and fiscal 2013.
• We returned $1.6 billion to our shareholders in fiscal 2014 through dividends and share repurchases.
Overview
Starbucks results for fiscal 2014 demonstrate the continued strength of our global business model and our ability to
successfully execute new growth initiatives in a disciplined manner. All reportable segments contributed to strong revenue
growth and collectively drove an increase in consolidated operating income and operating margin expansion.
The Americas segment continued its strong performance in fiscal 2014, with revenues growing 9% to $12.0 billion, primarily
driven by comparable store sales growth of 6%, comprised of a 3% increase in average ticket and a 2% increase in number of
transactions. Enhanced food offerings, including the full rollout of our La Boulange™ food platform in the US, the impact of
price increases in our retail stores and successful promotional beverages contributed to the growth in comparable store sales.
Americas operating margin grew 190 basis points to 23.4% in fiscal 2014, primarily driven by sales leverage and lower
commodity costs. Looking forward, we expect to continue to drive revenue growth and margin expansion through new stores
and continued product innovation, targeted at driving growth across all geographies and all dayparts. We plan to continue to
expand our beverage platforms and elevate our food program, in part with continued enhancements to our lunch options.
In the EMEA segment, fiscal 2014 benefited from the significant performance improvement of this segment, reaching double-
digit revenue growth and increased profitability compared to the prior year. Revenues grew 12% to $1.3 billion, primarily
driven by favorable foreign currency exchange and comparable store sales growth of 5%. Incremental revenues from 180 net
new licensed store openings over the past year also contributed. EMEA operating margin expanded 370 basis points to 9.2% in
fiscal 2014, primarily due to sales leverage and continued cost management, largely driven by the shift in our store portfolio to
more licensed stores in this segment. We expect our continued disciplined licensed store expansion and focus on the customer
experience in this region will result in improved operating performance as we progress on our plan towards mid-teens operating
margin over time.
Our China/Asia Pacific segment results reflect the growth and strong performance of new stores in the region, including 250
company-operated and 492 licensed net new store openings over the past year. This new store growth, along with a 7% increase
in comparable store sales, drove a 23% increase in total net revenues to $1.1 billion for fiscal 2014. Operating income grew
$51.3 million, or 16%, to $373 million compared to the prior year. Operating margin declined 200 basis points primarily
resulting from the shift in the composition of our store portfolio in this segment to more company-operated stores. We expect
this segment will become a more significant contributor to overall company profitability in the future. We look forward to
continued new store openings and the acquisition and integration of Starbucks Japan, including expanding our presence into