STARBUCKS CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements herein are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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," "project," "seek," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements include statements relating to trends in or expectations relating to the effects of our existing and any future initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, the anticipated timing and effects of recovery of our business, the conversion of several market operations to fully licensed models, our plans for streamlining our operations, including store openings, closures and changes in store formats and models, expanding our licensing to Nestlé of our consumer packaged goods and Foodservice businesses and its effects on our Channel Development segment results, tax rates, business opportunities and expansion, strategic acquisitions, our future relationship withStarbucks Coffee Korea Co., Ltd. , expenses, dividends, share repurchases, commodity costs and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, investments, borrowing capacity and use of proceeds, continuing compliance with our covenants under our credit facilities and commercial paper program, repatriation of cash to theU.S. , the likelihood of the issuance of additional debt and the applicable interest rate, the continuing impact of the COVID-19 pandemic on our financial results, future availability of governmental subsidies for COVID-19 or other public health events, the expected effects of new accounting pronouncements and the estimated impact of changes inU.S. tax law, including on tax rates, investments funded by these changes and potential outcomes and effects of legal proceedings. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to: further spread of COVID-19 and related disruptions to our business; regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; the potential for a resurgence of COVID-19 infections and the circulation of novel variants of COVID-19 in a given geographic region after it has hit its "peak"; fluctuations inU.S. and international economies and currencies; our ability to preserve, grow and leverage our brands; the ability of our business partners and third-party providers to fulfill their responsibilities and commitments; potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling; potential negative effects of material breaches of our information technology systems to the extent we experience a material breach; material failures of our information technology systems; costs associated with, and the successful execution of, the Company's initiatives and plans, including the successful expansion of ourGlobal Coffee Alliance with Nestlé; our ability to obtain financing on acceptable terms; the acceptance of the Company's products by our customers, evolving consumer preferences and tastes and changes in consumer spending behavior; partner investments, changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts; significant increased logistics costs; inflationary pressures; the impact of competition; inherent risks of operating a global business; the prices and availability of coffee, dairy and other raw materials; the effect of legal proceedings; the effects of changes in tax laws and related guidance and regulations that may be implemented and other risks detailed in our filings with theSEC , including in Part I Item IA "Risk Factors" in the 10-K. 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 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 theSEC onNovember 19, 2021 . Introduction and OverviewStarbucks is the premier coffee roaster and retailer of specialty coffee with operations in 84 markets around the world. As ofJanuary 2, 2022 ,Starbucks had over 34,300 company-operated and licensed stores, an increase of 4% from the prior year. Additionally, we sell a variety of consumer-packaged goods, primarily through theGlobal Coffee Alliance established with Nestlé and other partnerships and joint ventures. During the quarter endedJanuary 2, 2022 , our global comparable store sales grew 13%, demonstrating powerful momentum beyond recovery from the significant adverse impacts from the pandemic in the prior year period. We have three reportable operating segments: 1)North America , which is inclusive of theU.S. andCanada , 2) International, which is inclusive ofChina ,Japan ,Asia Pacific ,Europe ,Middle East ,Africa ,Latin America and theCaribbean ; and 3) Channel 27 -------------------------------------------------------------------------------- Table of Contents Development. Non-reportable operating segments such as Evolution Fresh and 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 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 growth •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 exclude 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. Stores that are temporarily closed or operating at reduced hours due to the COVID-19 pandemic remain in comparable store sales while stores identified for permanent closure have been removed. Additionally, we monitor our two-year comparable sales metric based on a multiplicative basis(1) to better analyze our performance due to the adverse impacts from the pandemic. Our fiscal year ends on the Sunday closest toSeptember 30 . Our fiscal 2022 year includes 52 weeks while our fiscal 2021 year included 53 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 2022 demonstrate the overall strength and resilience of our brand. Consolidated net revenues increased 19% to$8.1 billion in the first quarter of fiscal 2022 compared to$6.7 billion in the first quarter of fiscal 2021, primarily driven by strength in ourU.S. business attributable to strong holiday performance, partially offset by continued COVID-19 related disruptions in certainNorth America and International markets. Consolidated operating margin expanded 110 basis points from the prior year to 14.6%, primarily due to sales leverage from business recovery, pricing inNorth America and lower restructuring costs, partially offset by investments in store partner wages and benefits as well as inflation. For theNorth America segment, comparable store sales increased 18% for the first quarter of fiscal 2022 compared to a decline of 6% in the first quarter of fiscal 2021. Comparable store sales for our U.S. market increased 18% for the first quarter of fiscal 2022 compared to a decline of 5% in the first quarter of fiscal 2021. The U.S. market also had a 12% increase in two-year comparable store sales, despite modified store operations related to the COVID-19 pandemic, which have been ongoing, whether intermittently or concentrated, since the COVID-19 pandemic began, The segment also experienced higher than anticipated costs, primarily related to enhancements in retail store partner wages, increased supply chain costs due to inflationary pressures and increased spend on new partner training and support costs to address labor market conditions. For the International segment, comparable store sales declined 3%, inclusive of a 3% adverse impact from lapping the prior-year value-added tax benefit. Comparable store sales for ourChina market declined 14% for the first quarter of fiscal 2022, inclusive of a 4% adverse impact from lapping the prior-year value-added tax benefit. OurChina market continued to experience pandemic-related restrictions that significantly impacted customer mobility during the quarter, while our other International markets were not as severely impacted. Net revenues for our Channel Development segment increased$46 million , or 12%, when compared with the first quarter of fiscal 2021. This was largely due to higher product sales to and royalty revenue from theGlobal Coffee Alliance and growth in our international ready-to-drink business. Absent significant COVID-19 relapses or global economic disruptions, and based on the current trend of our retail business operations and our focused efforts to expand contactless customer experiences, enhance digital capabilities and drive beverage innovation, we are confident in the strength of our brand and the durability of our long-term growth model. However, our business is experiencing, and expects to continue to experience, operating margin pressures such as accelerated inflation, increased spend due to labor market conditions and extended COVID-19 related pay and benefits for our partners. We believe we have plans to effectively mitigate these pressures, such as improving retail store operations and potential adjustments to pricing. However, if our mitigation plans are not effective, these pressures and other factors could have an adverse impact on our business. (1)Two-year comparable store sales metric is calculated as ((1 + % change in comparable store sales in FY21) * (1 + % change in comparable store sales in FY22)) - 1. Two-year comparable store sales for theU.S. of 12% = ((1 + (-5%)) * (1 + 18%)) - 1. 28 -------------------------------------------------------------------------------- Table of Contents Results of Operations (in millions) Revenues Quarter Ended Jan 2, Dec 27, $ % 2022 2020 Change Change Company-operated stores$ 6,722.4 $ 5,726.5 $ 995.9 17.4 % Licensed stores 850.8 613.8 237.0 38.6 Other 477.2 409.1 68.1 16.6 Total net revenues$ 8,050.4 $ 6,749.4 $ 1,301.0 19.3 % For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Total net revenues for the first quarter of fiscal 2022 increased$1.3 billion , primarily due to higher revenues from company-operated stores ($1.0 billion ). The growth of company-operated stores revenue was driven by a 13% increase in comparable store sales ($719 million ), attributable to a 10% increase in comparable transactions and a 3% increase in average ticket. Also contributing to the increase were incremental revenues from 664 net new Starbucks® company-operated stores, or a 4% increase, over the past 12 months ($254 million ). Licensed stores revenue increased$237 million also contributed to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($206 million ) and the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($39 million ). Other revenues increased$68 million , primarily due to higher product sales and royalty revenue in theGlobal Coffee Alliance and growth in our international ready-to-drink business. Operating Expenses Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of Total Net Revenues Product and distribution costs$ 2,526.9 $ 2,049.1 $ 477.8 31.4 % 30.4 % Store operating expenses 3,400.0 2,867.3 532.7 42.2 42.5 Other operating expenses 101.7 91.8 9.9 1.3 1.4 Depreciation and amortization expenses 366.0 366.1 (0.1) 4.5 5.4 General and administrative expenses 525.8 472.1 53.7 6.5 7.0 Restructuring and impairments (7.5) 72.2 (79.7) (0.1) 1.1 Total operating expenses 6,912.9 5,918.6 994.3 85.9 % 87.7 % Income from equity investees 40.3 82.7 (42.4) 0.5 1.2 Operating income$ 1,177.8 $ 913.5 $ 264.3 14.6 % 13.5 % Store operating expenses as a % of company-operated stores 50.6 % 50.1 %
income
For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Product and distribution costs as a percentage of total net revenues increased 100 basis points for the first quarter of fiscal 2022, primarily due to supply chain costs due to inflationary pressures (approximately 180 basis points) and product mix changes (approximately 40 basis points), partially offset by pricing inNorth America (approximately 150 basis points). Store operating expenses as a percentage of total net revenues decreased 30 basis points for the first quarter of fiscal 2022. Store operating expenses as a percentage of company-operated stores revenue increased 50 basis points, primarily due to enhancements in retail store partner wages and benefits (approximately 180 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 110 basis points), partially offset by sales leverage from business recovery. Depreciation and amortization expenses as a percentage of total net revenues decreased 90 basis points, primarily due to sales leverage. 29 -------------------------------------------------------------------------------- Table of Contents General and administrative expenses increased$54 million , primarily due to incremental investments in technology ($29 million ) and increased partner wages and benefits ($19 million ), partially offset by lower performance-based compensation ($8 million ). Restructuring and impairment expenses decreased$80 million , primarily due to lapping ourNorth America store portfolio optimization in the prior year, specifically lower asset impairment charges ($41 million ) and accelerated lease right-of-use asset amortization costs ($39 million ). Income from equity investees decreased$42 million , primarily due to the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($27 million ) and lower income from ourNorth American Coffee Partnership joint venture ($17 million ). The combination of these changes resulted in an overall increase in operating margin of 110 basis points for the first quarter of fiscal 2022. Other Income and Expenses Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of Total Net Revenues Operating income$ 1,177.8 $ 913.5 $ 264.3 14.6 % 13.5 % Interest income and other, net (0.1) 15.5 (15.6) - 0.2 Interest expense (115.3) (120.7) 5.4 (1.4) (1.8) Earnings before income taxes 1,062.4 808.3 254.1 13.2 12.0 Income tax expense 246.3 186.1 60.2 3.1 2.8 Net earnings including noncontrolling interests 816.1 622.2 193.9 10.1 9.2 Net earnings attributable to noncontrolling interests 0.2 - 0.2 - - Net earnings attributable to Starbucks$ 815.9 $ 622.2 $ 193.7 10.1 % 9.2 % Effective tax rate including noncontrolling interests 23.2 % 23.0 % For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Interest income and other, net decreased$16 million , primarily due to higher net losses from certain investments. Interest expense decreased$5 million , primarily due to lower debt balances attributed to repayments of short-term and current portion of long-term debt balances. Segment Information Results of operations by segment (in millions): 30 -------------------------------------------------------------------------------- Table of Contents North America (1) Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of North America Total Net Revenues Net revenues: Company-operated stores$ 5,214.1 $ 4,284.8 $ 929.3 91.0 % 91.6 % Licensed stores 515.9 388.6 127.3 9.0 8.3 Other 2.3 2.2 0.1 - - Total net revenues 5,732.3 4,675.6 1,056.7 100.0 100.0 Product and distribution costs 1,629.4 1,260.6 368.8 28.4 27.0 Store operating expenses 2,702.4 2,238.8 463.6 47.1 47.9 Other operating expenses 48.2 41.5 6.7 0.8 0.9 Depreciation and amortization expenses 200.0 188.9 11.1 3.5 4.0 General and administrative expenses 76.7 70.8 5.9 1.3 1.5 Restructuring and impairments (7.5) 72.2 (79.7) (0.1) 1.5 Total operating expenses 4,649.2 3,872.8 776.4 81.1 82.8 Operating income$ 1,083.1 $ 802.8 $ 280.3 18.9 % 17.2 %
Store operating expenses as % of corporate store revenue
51.8 % 52.2 % (1)North America licensed stores revenue, total net revenues, product and distribution costs, other operating expenses, total operating expenses and operating income for the quarter endedDecember 27, 2020 , have been restated to conform with current period presentation. For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 RevenuesNorth America total net revenues for the first quarter of fiscal 2022 increased$1.1 billion , or 23%, primarily due to an 18% increase in comparable store sales ($762 million ) driven by a 12% increase in transactions and a 6% increase in average ticket. Also contributing to these increases were the performance of new stores compared to the closure of underperforming stores in prior year including stores related to our restructuring plan ($140 million ) and higher product and equipment sales to and royalty revenues from our licensees ($130 million ) primarily due to business recovery from the COVID-19 pandemic. Operating MarginNorth America operating income for the first quarter of fiscal 2022 increased 35% to$1.1 billion , compared to$803 million in the first quarter of fiscal 2021. Operating margin increased 170 basis points to 18.9%, primarily due to sales leverage from business recovery. Also contributing to the margin improvement was pricing (approximately 210 basis points), lower restructuring expenses (approximately 170 basis points), sourcing savings (approximately 70 basis points) and benefits from the closure of lower-performing stores (approximately 70 basis points). These increases were partially offset by higher supply chain costs due to inflationary pressures (approximately 240 basis points), enhancements in retail store partner wages and benefits (approximately 190 basis points) and increased spend on new partner training and support costs to address labor market conditions (approximately 130 basis points). 31 -------------------------------------------------------------------------------- Table of Contents International (1) Quarter Ended Jan 2, Dec 27, $ Jan 2, Dec 27, 2022 2020 Change 2022 2020 As a % of International Total Net Revenues Net revenues: Company-operated stores$ 1,508.3 $ 1,441.7 $ 66.6 80.4 % 85.7 % Licensed stores 334.9 225.2 109.7 17.9 13.4 Other 32.7 15.0 17.7 1.7 0.9 Total net revenues 1,875.9 1,681.9 194.0 100.0 100.0 Product and distribution costs 615.8 536.0 79.8 32.8 31.9 Store operating expenses 697.6 628.5 69.1 37.2 37.4 Other operating expenses 39.2 35.6 3.6 2.1 2.1 Depreciation and amortization expenses 133.1 140.0 (6.9) 7.1 8.3 General and administrative expenses 91.3 85.1 6.2 4.9 5.1 Total operating expenses 1,577.0 1,425.2 151.8 84.1 84.7 Income from equity investees 0.7 26.3 (25.6) - 1.6 Operating income$ 299.6 $ 283.0 $ 16.6 16.0 % 16.8 %
Store operating expenses as % of corporate store revenue
46.3 % 43.6 % (1)International licensed stores revenue, total net revenues, product and distribution costs, other operating expenses, general and administrative expenses, total operating expenses and operating income for the quarter endedDecember 27, 2020 , have been restated to conform with current period presentation. For the quarter endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Revenues International total net revenues for the first quarter of fiscal 2022 increased$194 million , or 12%, primarily due to 774 net newStarbucks company-operated store openings, or a 12% increase over the past 12 months ($113 million ). Additionally, there were higher product and equipment sales to and royalty revenues from our licensees ($76 million ) primarily due to lapping the impact of the COVID-19 pandemic in the prior year. Also contributing to the increase was the conversion of ourKorea market from a joint venture to a fully licensed market in the fourth quarter of fiscal 2021 ($39 million ). These increases were partially offset by a 3% decline in comparable store sales ($43 million ), driven by a 5% decrease in average ticket, partially offset by a 2% increase in transactions, as well as unfavorable foreign currency translation ($17 million ). Operating Margin International operating income for the first quarter of fiscal 2022 increased 6% to$300 million , compared to$283 million in the first quarter of fiscal 2021. Operating margin decreased 80 basis points to 16.0%, primarily due to investments and growth in retail store partner wages and benefits (approximately 150 basis points), strategic investments, largely inChina (approximately 110 basis points) and product mix changes (approximately 90 basis points). These decreases were partially offset by sales leverage outside ofChina driven by lapping the more severe impact of the COVID-19 pandemic in the prior year. 32 --------------------------------------------------------------------------------
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Channel Development
Quarter Ended
Jan 2, Dec 27, $ Jan 2, Dec 27,
2022 2020 Change 2022 2020
As a % of Channel Development
Total Net Revenues
Net revenues $ 417.1 $ 371.4 $ 45.7
Product and distribution costs 258.8 233.5 25.3 62.0 % 62.9 %
Other operating expenses 11.4 11.1 0.3 2.7 3.0
Depreciation and amortization expenses - 0.2 (0.2) - 0.1
General and administrative expenses 3.3 2.2 1.1 0.8 0.6
Total operating expenses 273.5 247.0 26.5 65.6 66.5
Income from equity investees 39.6 56.4 (16.8) 9.5 15.2
Operating income $ 183.2 $ 180.8 $ 2.4 43.9 % 48.7 %
For the quarter ended January 2, 2022 compared with the quarter ended
December 27, 2020
Revenues
Channel Development total net revenues for the first quarter of fiscal 2022
increased $46 million , or 12%, primarily due to higher Global Coffee Alliance
product sales and royalty revenue ($31 million ) and volume growth in our
ready-to-drink businesses ($16 million ).
Operating Margin
Channel Development operating income for the first quarter of fiscal 2022
increased 1% to $183 million , compared to $181 million in the first quarter of
fiscal 2021. Operating margin decreased 480 basis points to 43.9%, primarily due
to a decline in our North American Coffee Partnership joint venture income due
to supply chain constraints and inflationary pressures as well as a business mix
shift.
Corporate and Other (1)
Quarter Ended
Jan 2, Dec 27, $ %
2022 2020 Change Change
Net revenues:
Other $ 25.1 $ 20.5 $ 4.6 22.4 %
Total net revenues 25.1 20.5 4.6 22.4
Product and distribution costs 22.9 19.0
3.9 20.5
Other operating expenses 2.9 3.6 (0.7) (19.4) Depreciation and amortization expenses 32.9 37.0 (4.1) (11.1) General and administrative expenses 354.5 314.0 40.5 12.9 Total operating expenses 413.2 373.6 39.6 10.6 Operating loss$ (388.1) $ (353.1) $ (35.0) 9.9 % (1)Corporate and other general and administrative expenses, total operating expenses and operating loss for the fiscal year endedDecember 27, 2020 , have been restated to conform with current period presentation. Corporate and Other primarily consists of our unallocated corporate expenses, as well as Evolution Fresh. 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 endedJanuary 2, 2022 compared with the quarter endedDecember 27, 2020 Corporate and Other operating loss increased to$388 million for the first quarter of fiscal 2022, or 10%, compared to$353 million for the first quarter of fiscal 2021. This increase was primarily driven by incremental investments in technology ($22 million ) and increased partner wages and benefits ($9 million ). 33 -------------------------------------------------------------------------------- Table of Contents 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
Jan 2, Dec 27, Jan 2, Dec 27,
2022 2020 2022 2020
North America
Company-operated stores 39 (80) 9,900 10,029
Licensed stores 23 30 6,988 6,861
Total North America (1) 62 (50) 16,888 16,890
International
Company-operated stores 213 185 7,485 6,713
Licensed stores 209 143 9,944 9,335
Total International (1) 422 328 17,429 16,048
Total Company 484 278 34,317 32,938
(1)North America and International licensed stores as of December 27, 2020 , have
been recast as a result of our fiscal 2021 operating segment reporting structure
realignment.
Financial Condition, Liquidity and Capital Resources
Investment Overview
Our cash and investments totaled $4.4 billion as of January 2, 2022 and $6.9
billion as of October 3, 2021 . We actively manage our cash and investments in
order to internally fund operating needs, make scheduled interest and principal
payments on our borrowings, make 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
(foreign and domestic) and commercial paper. As of January 2, 2022 ,
approximately $3.0 billion of cash was held in foreign subsidiaries.
Borrowing Capacity
Revolving Credit Facility
Our $3 billion unsecured five-year revolving credit facility (the "2021 credit
facility"), of which $150 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 will bear interest at a variable rate
based on LIBOR, 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 2021 credit facility contains alternative interest rate provisions
specifying rate calculations to be used at such time LIBOR ceases to be
available as a benchmark due to reference rate reform. The "Base Rate" is the
highest of (i) the Federal Funds Rate (as defined in the 2021 credit facility)
plus 0.025%, (ii) Bank of America's prime rate and (iii) the Eurocurrency Rate
(as defined in the 2021 credit facility) plus 1.025%.
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 January 2, 2022 , we were
in compliance with all applicable covenants. No amounts were outstanding under
our 2021 credit facility as of January 2, 2022 or October 3, 2021 .
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 the 2021 credit facility discussed
above. 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. As of January 2, 2022 , we
had $200.0 million
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borrowings outstanding under our commercial paper program. Our total contractual
borrowing capacity for general corporate purposes was $2.8 billion as of the end
of our first quarter of fiscal 2022.
Credit facilities in Japan
Additionally, we hold Japanese yen-denominated credit facilities for the use of
our Japan subsidiary. These are available for working capital needs and capital
expenditures within our Japanese market.
•A ¥5 billion, or $43.4 million , credit facility is currently set to mature on
December 31, 2022 . Borrowings under such 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 billion, or $86.9 million , credit facility is currently set to mature on
March 26, 2022 . Borrowings under such 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 0.350%.
As of January 2, 2022 , we had no borrowings outstanding under these Japanese
yen-denominated credit facilities.
See Note 7, 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 January 2, 2022 ,
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, as well as 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 in support of our "Growth at Scale"
agenda. 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 the foreseeable future. Significant new joint
ventures, acquisitions and/or other new business opportunities may require
additional outside funding. 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. 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 indefinite
reinvestment of foreign earnings. In the event we determine that all or a
portion of such foreign earnings are no longer indefinitely reinvested, we may
be subject to additional foreign withholding taxes and U.S. state income taxes,
which could be material. We do not anticipate the need for repatriated funds to
the U.S. to satisfy domestic liquidity needs.
During the first quarter of fiscal 2022, our Board of Directors approved a
quarterly cash dividend to shareholders of $0.49 per share to be paid on
February 25, 2022 to shareholders of record as of the close of business on
February 11, 2022 .
During the first quarter of fiscal 2022, we resumed our share repurchase program
which was temporarily suspended in March 2020 . During the quarter ended
January 2, 2022 , we repurchased 31.1 million shares of common stock for $3.5
billion . As of January 2, 2022 , 17.8 million shares remained available for
repurchase under current authorizations.
Other than normal operating expenses, cash requirements for the remainder of
fiscal 2022 are expected to consist primarily of capital expenditures for
investments in our new and existing stores and our supply chain and corporate
facilities. Total capital expenditures for fiscal 2022 are expected to be
approximately $2.0 billion .
In Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 10-K, we disclosed that we had $33.7 billion of
current and long-term material cash requirements as of October 3, 2021 . There
have been no
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material changes to our material cash requirements during the period covered by
this 10-Q outside of the normal course of our business.
Cash Flows
Cash provided by operating activities was $1.9 billion for the first quarter of
fiscal 2022, compared to $1.8 billion for the same period in fiscal 2021. The
increase was primarily due to higher net earnings, partially offset by lower
losses on retirement and impairment of assets and increases in net cash used by
changes in operating assets and liabilities.
Cash used in investing activities for the first quarter of fiscal 2022 totaled
$401 million , compared to cash used in investing activities of $273 million for
the same period in fiscal 2021. The change was primarily due to a increase in
spend on capital expenditures.
Cash used in financing activities for the first quarter of fiscal 2022 totaled
$4.0 billion compared to cash used by financing activities of $1.0 billion for
the same period in fiscal 2021. The increase was primarily due to resuming our
share repurchase program, partially offset by lower repayments of long-term
debt.
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
directly impact our results of operations, and we expect commodity prices,
particularly coffee, to impact future results of operations. For additional
details, see Product Supply in Item 1 of the 10-K, as well as Risk Factors in
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.
However, the COVID-19 pandemic may have an impact on consumer behaviors and
customer traffic that result in changes in the seasonal fluctuations of our
business. Additionally, as our stored value 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 our stored value cards are recognized upon redemption and not when cash is
loaded, 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.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 , Summary of Significant Accounting Policies, 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.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed or
submitted under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Our disclosure controls and procedures
are also designed to ensure that information required to be disclosed in the
reports we file or submit under the Exchange Act is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer as appropriate, to allow timely decisions regarding required
disclosure.
During the first quarter of fiscal 2022, we carried out an evaluation, under the
supervision and with the participation of our management, including our chief
executive officer and our chief financial officer, of the effectiveness of the
design and operation of the disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were effective, as of the end of the
period covered by this report (January 2, 2022 ).
There were no changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most
recently completed fiscal quarter that materially affected or are reasonably
likely to materially affect internal control over financial reporting.
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The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are
filed as exhibits 31.1 and 31.2 to this 10-Q.
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