STARBUCKS CORPORATION 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 expected effects of our initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, our focus on accelerating growth in high-returning businesses, the conversion of several market operations to fully licensed 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, 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, repatriation of cash to theU.S. , the likely issuance of additional debt and the applicable interest rate, the impact of the coronavirus outbreak on our financial results, 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: 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 integration of the East China business and 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 and evolving consumer preferences and tastes; changes in the availability and cost of labor; 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 the coronavirus outbreak; 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, contained in the 10-K. 26 -------------------------------------------------------------------------------- Table of Contents Introduction and OverviewStarbucks is the premier coffee roaster and retailer of specialty coffee with operations in 82 markets around the world. As ofDecember 29, 2019 ,Starbucks had over 31,000 company-operated and licensed stores, an increase of 6% from the prior year. Additionally, we sell a variety of consumer-packaged goods, or CPG, primarily through theGlobal Coffee Alliance established with Nestlé and other partnerships and joint ventures. Our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales and margin management. Comparable store sales represent company-operated stores open for 13 months or longer and exclude the impact of foreign currency translation. During the quarter endedDecember 29, 2019 , our global comparable store sales grew 5%. We have three reportable operating segments:Americas , International, and Channel Development. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other. In lateJanuary 2020 , we closed more than half of our stores inChina and continue to monitor and modify the operating hours of all of our stores in the market in response to the outbreak of the coronavirus and in an effort to help ensure the health and safety of our partners (employees) and our customers. This is expected to be temporary. Given the dynamic nature of these circumstances, the duration of business disruption, reduced customer traffic and related financial impact cannot be reasonably estimated at this time but are expected to materially affect our International segment and consolidated results for the second quarter and full year of fiscal 2020. Our fiscal year ends on the Sunday closest toSeptember 30 . All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted. Comparable Store SalesStarbucks comparable store sales for the first quarter of fiscal 2020: Quarter Ended Dec 29, 2019 Sales Change in Change in Growth Transactions Ticket Consolidated 5% 2% 3% Americas 6% 2% 3% International 1% (1)% 2% Refer to our Quarterly Store Data , also included in Item 2 of Part I of this 10-Q, for additional information on our company operated and licensed store portfolio. Results of Operations (in millions) Revenues Quarter Ended Dec 29, Dec 30, $ % 2019 2018 Change Change Company-operated stores$ 5,780.7 $ 5,370.3 $ 410.4 7.6 % Licensed stores 792.0 737.1 54.9 7.4 Other 524.4 525.3 (0.9) (0.2) Total net revenues$ 7,097.1 $ 6,632.7 $ 464.4 7.0 % Quarter endedDecember 29, 2019 compared with quarter endedDecember 30, 2018 Total net revenues for the first quarter of fiscal 2020 increased$464 million , primarily due to increased revenues from company-operated stores ($410 million ). The growth in company-operated stores revenues was driven by a 5% increase in comparable store sales ($245 million ) and incremental revenues from 919 net new Starbucks® company-operated store openings, or a 6% increase, over the past 12 months ($236 million ). Partially offsetting these increases were the conversions of our retail businesses inThailand ,France , andthe Netherlands to fully licensed markets during fiscal 2019 ($92 million ). Licensed stores revenue growth also contributed to the increase in total net revenues ($55 million ), driven by increased product and royalty revenues from our licensees ($39 million ), primarily resulting from the opening of 1,008 net new Starbucks® licensed stores, or a 7% increase, over the past 12 months, and the conversions of our retail businesses inThailand ,France , andthe Netherlands to fully licensed markets ($21 million ). Other revenues decreased$1 million , primarily due to lapping prior year product sales related to the Tazo brand transition agreement, partially offset by expansion through theGlobal Coffee Alliance . 27 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Quarter Ended Dec 29, Dec 30, $ Dec 29, Dec 30, 2019 2018 Change 2019 2018 As a % of Total Net Revenues Cost of sales$ 2,236.4 $ 2,175.8 $ 60.6 31.5 % 32.8 % Store operating expenses 2,821.5 2,586.8 234.7 39.8 39.0 Other operating expenses 101.8 97.6 4.2 1.4 1.5 Depreciation and amortization expenses 351.0 333.4 17.6 4.9 5.0 General and administrative expenses 434.2 448.0 (13.8) 6.1 6.8 Restructuring and impairments 6.3 43.2 (36.9) 0.1 0.7 Total operating expenses 5,951.2 5,684.8 266.4 83.9 85.7 Income from equity investees 73.9 67.8 6.1 1.0 1.0 Operating income$ 1,219.8 $ 1,015.7 $ 204.1 17.2 % 15.3 % Store operating expenses as a % of company-operated store 48.8 % 48.2 % revenues Quarter endedDecember 29, 2019 compared with quarter endedDecember 30, 2018 Cost of sales as a percentage of total net revenues decreased 130 basis points for the first quarter of fiscal 2020, primarily due to supply chain efficiencies (approximately 90 basis points). Store operating expenses as a percentage of total net revenues increased 80 basis points for the first quarter of fiscal 2020. Store operating expenses as a percentage of company-operated store revenues increased 60 basis points, primarily due to growth in wages and benefits (approximately 170 basis points), largely in theAmericas segment, partially offset by sales leverage. Other operating expenses increased$4 million for the first quarter of fiscal 2020, primarily due to incremental costs to develop and grow theGlobal Coffee Alliance ($5 million ). General and administrative expenses decreased$14 million , primarily due to lapping the 2018 U.S stock award granted in the third quarter of fiscal 2018, which was funded by savings from the Tax Act and vested in the third quarter of fiscal 2019 ($23 million ), partially offset by incremental strategic investments in technology. Restructuring and impairment expenses decreased$37 million , primarily due to lapping prior year severance costs ($24 million ) and asset impairments in theU.S ($10 million ) and lower costs associated with the closure of certain company-operated stores ($4 million ). Income from equity investees increased$6 million , primarily due to improved comparable store sales from our joint venture operations inSouth Korea and higher income from ourNorth American Coffee Partnership joint venture. The combination of these changes resulted in an overall increase in operating margin of 190 basis points for the first quarter of fiscal 2020. 28 -------------------------------------------------------------------------------- Table of Contents Other Income and Expenses Quarter Ended Dec 29, Dec 30, $ Dec 29, Dec 30, 2019 2018 Change 2019 2018 As a % of Total Net Revenues Operating income$ 1,219.8 $ 1,015.7 $ 204.1 17.2 % 15.3 % Interest income and other, net 15.9 24.8 (8.9) 0.2 0.4 Interest expense (91.9) (75.0) (16.9) (1.3) (1.1) Earnings before income taxes 1,143.8 965.5 178.3 16.1 14.6 Income tax expense 258.5 205.1 53.4 3.6 3.1 Net earnings including noncontrolling interests 885.3 760.4 124.9 12.5 11.5
Net earnings/(loss) attributable to noncontrolling interests
(0.4) (0.2) (0.2) - -
Net earnings attributable to Starbucks $ 885.7 $ 760.6 $ 125.1 12.5 % 11.5 %
Effective tax rate including noncontrolling interests 22.6 % 21.2 %
Quarter ended December 29, 2019 compared with quarter ended December 30, 2018
Interest expense increased $17 million primarily due to additional interest
incurred on long-term debt issued in May 2019 .
The effective tax rate for the quarter ended December 29, 2019 was 22.6%
compared to 21.2% for the same quarter in fiscal 2019. The increase was
primarily due to lapping the release of income tax reserves related to the
settlement of a U.S. tax examination (approximately 350 basis points), lower
stock-based compensation excess tax benefit (approximately 220 basis points),
lapping the impact of foreign derived intangible income primarily related to our
Nestlé transaction (approximately 130 basis points) and lapping other immaterial
true-ups. These unfavorable impacts were partially offset by the impact of
changes in indefinite reinvestment assertions for certain foreign subsidiaries
in the first quarter of fiscal 2019 (approximately 810 basis points).
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Segment Information
Results of operations by segment (in millions):
Americas
Quarter Ended
Dec 29, Dec 30, $ Dec 29, Dec 30,
2019 2018 Change 2019 2018
As a % of Americas
Total Net Revenues
Net revenues:
Company-operated stores $ 4,471.0 $ 4,092.2 $ 378.8 89.2 % 88.7 %
Licensed stores 537.3 514.6 22.7 10.7 11.2
Other 2.6 5.7 (3.1) 0.1 0.1
Total net revenues 5,010.9 4,612.5 398.4 100.0 100.0
Cost of sales 1,388.4 1,351.3 37.1 27.7 29.3
Store operating expenses 2,214.4 1,983.1 231.3 44.2 43.0
Other operating expenses 42.5 44.5 (2.0) 0.8 1.0
Depreciation and amortization expenses 189.2 166.9 22.3 3.8 3.6
General and administrative expenses 72.4 75.1 (2.7) 1.4 1.6
Restructuring and impairments 5.2 22.9 (17.7) 0.1 0.5
Total operating expenses 3,912.1 3,643.8 268.3 78.1 79.0
Operating income $ 1,098.8 $ 968.7 $ 130.1 21.9 % 21.0 %Store operating expenses as a % of company-operated store revenues
49.5 % 48.5 %
Quarter endedDecember 29, 2019 compared with quarter endedDecember 30, 2018 RevenuesAmericas total net revenues for the first quarter of fiscal 2020 increased$398 million , or 9%, primarily driven by a 6% increase in comparable store sales ($230 million ) and 243 net new Starbucks® company-operated store openings, or a 2% increase, over the past 12 months ($139 million ). Also contributing were higher product sales to and royalty revenues from our licensees ($24 million ), primarily resulting from comparable store sales growth and the opening of 307 net new Starbucks® licensed stores, or a 4% increase, over the past 12 months. Operating MarginAmericas operating income for the first quarter of fiscal 2020 increased 13% to$1,098.8 million , compared to$968.7 million in the first quarter of fiscal 2019. Operating margin increased 90 basis points to 21.9%, primarily driven by sales leverage (approximately 240 basis points), supply chain efficiencies (approximately 130 basis points) and decreased restructuring costs related to the closure of certainU.S. andCanada company-operated stores (approximately 40 basis points). Partially offsetting these were higher partner costs (approximately 200 basis points), primarily growth in wages and benefits and to a lesser extent, investments in store labor hours, as well as higher occupancy costs. 30 -------------------------------------------------------------------------------- Table of Contents International Quarter Ended Dec 29, Dec 30, $ Dec 29, Dec 30, 2019 2018 Change 2019 2018 As a % of International Total Net Revenues Net revenues: Company-operated stores$ 1,309.7 $ 1,278.1 $ 31.6 83.4 % 85.0 % Licensed stores 254.7 222.5 32.2 16.2 14.8 Other 6.7 3.4 3.3 0.4 0.2 Total net revenues 1,571.1 1,504.0 67.1 100.0 100.0 Cost of sales 488.5 462.7 25.8 31.1 30.8 Store operating expenses 607.1 603.7 3.4 38.6 40.1 Other operating expenses 35.9 31.3 4.6 2.3 2.1 Depreciation and amortization expenses 126.6 127.0 (0.4) 8.1 8.4 General and administrative expenses 67.2 69.3 (2.1) 4.3 4.6 Restructuring and impairments 0.8 6.4 (5.6) 0.1 0.4 Total operating expenses 1,326.1 1,300.4 25.7 84.4 86.5 Income from equity investees 30.9 26.4 4.5 2.0 1.8 Operating income$ 275.9 $ 230.0 $ 45.9 17.6 % 15.3 %
Store operating expenses as a % of company-operated store revenues
46.4 % 47.2 %
Quarter endedDecember 29, 2019 compared with quarter endedDecember 30, 2018 Revenues International total net revenues for the first quarter of fiscal 2020 increased$67 million , or 4%, primarily driven by 676 net new Starbucks® company-operated store openings, or a 12% increase, over the past 12 months ($97 million ). Also contributing were increased product sales to and royalty revenues from licensees ($16 million ), primarily resulting from the opening of 701 net new licensed stores, or an 11% increase, over the past 12 months, and a 1% increase in comparable company-operated store sales ($15 million ). These increases were partially offset by the conversions of our retail businesses inThailand ,France , andthe Netherlands ($71 million ). Operating Margin International operating income for the first quarter of fiscal 2020 increased 20% to$276 million , compared to$230 million in the first quarter of fiscal 2019. Operating margin increased 230 basis points to 17.6%, primarily driven by sales leverage (approximately 80 basis points), supply chain efficiencies (approximately 70 basis points), the conversions of our retail businesses inThailand ,France , andthe Netherlands to fully licensed markets (approximately 60 basis points) and lower restructuring costs (approximately 30 basis points), partially offset by product mix shift (approximately 40 basis points) and strategic investments (approximately 30 basis points). 31 --------------------------------------------------------------------------------
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Channel Development
Quarter Ended
Dec 29, Dec 30, $ Dec 29, Dec 30,
2019 2018 Change 2019 2018
As a % of Channel Development
Total Net Revenues
Net revenues $ 494.6 $ 504.6 $ (10.0)
Cost of sales 338.8 348.4 (9.6) 68.5 % 69.0 %
Other operating expenses 20.6 18.6 2.0 4.2 3.7
Depreciation and amortization expenses 0.3 - 0.3 0.1 -
General and administrative expenses 2.4 3.2 (0.8) 0.5 0.6
Total operating expenses 362.1 370.2 (8.1) 73.2 73.4
Income from equity investees 43.0 41.4 1.6 8.7 8.2
Operating income $ 175.5 $ 175.8 $ (0.3) 35.5 % 34.8 %
Quarter ended December 29, 2019 compared with quarter ended December 30, 2018
Revenues
Channel Development total net revenues for the first quarter of fiscal 2020
decreased $10 million , or 2%, primarily due to lapping prior year product sales
to Unilever as a result of the sale and transition of the Tazo brand ($22
million ), partially offset by expansion through the Global Coffee Alliance .
Operating Margin
Channel Development operating income for the first quarter of fiscal 2020 was
flat at $176 million , compared to the first quarter of fiscal 2019. Operating
margin increased 70 basis points to 35.5%, primarily driven by lapping prior
year Nestlé transaction costs (approximately 100 basis points), distribution
efficiencies (approximately 50 basis points), and favorable business mix shift
(approximately 30 basis points), partially offset by incremental costs to
develop and grow the Global Coffee Alliance (approximately 100 basis points).
Corporate and Other
Quarter Ended
Dec 29, Dec 30, $ %
2019 2018 Change Change
Net revenues:
Other 20.5 11.6 8.9 76.7
Total net revenues 20.5 11.6 8.9 76.7
Cost of sales 20.7 13.4 7.3 54.5
Other operating expenses 2.8 3.2 (0.4) (12.5)
Depreciation and amortization expenses 34.9 39.5 (4.6) (11.6)
General and administrative expenses 292.2 300.4 (8.2) (2.7)
Restructuring and impairments 0.3 13.9 (13.6) nm
Total operating expenses 350.9 370.4 (19.5) (5.3)
Operating loss $ (330.4) $ (358.8) $ 28.4 (7.9) %
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.
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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, Dec 30, Dec 29, Dec 30,
2019 2018 2019 2018
Americas
Company-operated stores 46 87 10,020 9,777
Licensed stores 90 106 8,183 7,876
Total Americas 136 193 18,203 17,653
International
Company-operated stores 199 188 6,059 5,839
Licensed stores 204 172 7,533 6,373
Total International 403 360 13,592 12,212
Corporate and Other
Licensed stores - (12) - -
Total Corporate and Other - (12) - -
Total Company 539 541 31,795 29,865
Financial Condition, Liquidity and Capital Resources
Investment Overview
Our cash and investments totaled $3.3 billion as of December 29, 2019 and $3.0
billion as of September 29, 2019 . 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 government treasury securities (foreign and domestic) and
corporate debt securities. As of December 29, 2019 , approximately $2.0 billion
of cash was held in foreign subsidiaries.
Borrowing Capacity
Our $2.0 billion unsecured 5-year revolving credit facility (the "2018 credit
facility") and our $1.0 billion unsecured 364-day credit facility (the "364-day
credit facility") are available for working capital, capital expenditures and
other corporate purposes, including acquisitions and share repurchases.
The 2018 credit facility, of which $150 million may be used for issuances of
letters of credit, is currently set to mature on October 25, 2022 . We have the
option, subject to negotiation and agreement with the related banks, to increase
the maximum commitment amount by an additional $500 million . Borrowings under
the 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 credit facility), in each case plus an applicable margin. The
applicable margin is based on the better of (i) the Company's long-term credit
ratings assigned by Moody's and Standard & Poor's rating agencies and (ii) the
Company's fixed charge coverage ratio, pursuant to a pricing grid set forth in
the five-year credit agreement. The current applicable margin is 0.910% for
Eurocurrency Rate Loans and 0.000% (nil) for Base Rate Loans.
The 364-day credit facility, of which no amount may be used for issuances of
letters of credit, is currently set to mature on October 21, 2020 . We have the
option, subject to negotiation and agreement with the related banks, to increase
the maximum commitment amount by an additional $500 million . Borrowings under
the 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 credit facility), in each case plus an applicable margin. The
applicable margin is 0.920% for Eurocurrency Rate Loans and 0.000% (nil) for
Base Rate Loans.
Both credit facilities contain 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, 2019 , we
had no borrowings outstanding and were in compliance with all applicable
covenants related to our credit facilities.
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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 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 December 29, 2019 , we
had borrowings of $497.9 million outstanding, net of unamortized discount, under
our commercial paper program.
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.
The indentures under which all of our Senior Notes were issued require us to
maintain compliance with certain covenants, including limits on future liens and
sale and leaseback transactions on certain material properties. As of
December 29, 2019 , 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 invest in our core
businesses, including capital expenditures, new product innovations, related
marketing support and partner and digital investments, return cash to
shareholders through common stock cash dividend payments and share repurchases,
as well as other new business opportunities related to our core and developing
businesses. Further, 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 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 dividends and
share repurchases.
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 2020, our Board of Directors declared a
quarterly cash dividend to shareholders of $0.41 per share to be paid on
February 21, 2020 to shareholders of record as of the close of business on
February 6, 2020 .
We repurchased 13.0 million shares of common stock for $1.1 billion during the
first quarter ended December 29, 2019 under our ongoing share repurchase
program. As of December 29, 2019 , 16.2 million shares remained available for
repurchase under current authorizations.
Other than normal operating expenses, cash requirements for the remainder of
fiscal 2020 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 2020 are expected to be
approximately $1.8 billion .
Cash Flows
Cash provided by operating activities was $1.8 billion for the first quarter of
fiscal 2020, compared to $2.4 billion for the same period in fiscal 2019. The
change was primarily due to the timing of tax payments and refunds.
Cash used by investing activities for the first quarter of fiscal 2020 totaled
$0.4 billion , compared to cash used by investing activities of $0.5 billion for
the same period in fiscal 2019. The change was primarily driven by lower
purchases of investments.
Cash used by financing activities for the first quarter of fiscal 2020 and
fiscal 2019 totaled $1.1 billion and $5.9 billion , respectively. The change was
primarily due to higher repurchases of our common stock under accelerated share
repurchase agreements in fiscal 2019.
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Contractual Obligations
In Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 10-K, we disclosed that we had $28.2 billion in total
contractual obligations as of September 29, 2019 . There have been no material
changes to our total obligations during the period covered by this 10-Q outside
of the normal course of our business.
Off-Balance Sheet Arrangements
There has been no material change in our off-balance sheet arrangements
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the 10-K.
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.
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 2020, 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 (December 29, 2019 ).
Effective September 30, 2019 , we adopted the new lease accounting guidance.
Please refer to Note 1 Summary of Significant Accounting Policies, for
additional information regarding the impacts of the adoption. As a result, we
implemented a new accounting system and modified existing reporting systems,
processes and internal controls over leases to assist us in the application of
the new accounting guidance. There were no other 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.
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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