Starbucks Corp. (SBUX)
Analysis of Revenues
Revenue Recognition Accounting Policy
Consolidated revenues are presented net of intercompany eliminations for wholly-owned subsidiaries and investees controlled by Starbucks and for product sales to and royalty and other fees from licensees accounted for under the equity method. Additionally, consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon redemptions and rebates.
Company-operated Store Revenues
Company-operated store revenues are recognized when payment is tendered at the point of sale. Company-operated store revenues are reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities.
Licensed Store Revenues
Licensed store revenues consist of product and equipment sales to licensees, as well as royalties and other fees paid by licensees. Sales of coffee, tea, food and related products are generally recognized upon shipment to licensees, depending on contract terms. Shipping charges billed to licensees are also recognized as revenue, and the related shipping costs are included in cost of sales including occupancy costs on Starbucks’ consolidated statements of earnings.
Initial nonrefundable license fees for licensed stores are recognized upon substantial performance of services for new market business development activities, such as initial business, real estate and store development planning, as well as providing operational materials and functional training courses for opening new licensed retail markets. Royalty revenues based upon a percentage of reported sales, and other continuing fees, such as marketing and service fees, are recognized on a monthly basis when earned.
Other revenues primarily include sales of packaged coffee, tea and a variety of ready-to-drink beverages and single-serve coffee and tea products to customers outside of Starbucks’ company-operated and licensed stores. Historically revenues have included domestic and international sales of Starbucks’ packaged coffee, tea and ready-to-drink products to grocery, warehouse clubs and specialty retail stores and through institutional foodservice accounts. Sales of coffee, tea, ready-to-drink beverages and related products to grocery, warehouse club stores and foodservice accounts were generally recognized when received by the customer or distributor, depending on contract terms. Revenues were recorded net of sales discounts given to customers for trade promotions and other incentives and for sales return allowances, which are determined based on historical patterns.
Sales to customers through CPG channels and national foodservice accounts, including sales to national distributors, were recognized net of certain fees paid to the customer. Starbucks characterized these fees as a reduction of revenue unless Starbucks were able to identify a sufficiently separable benefit from the customer’s purchase of the products such that Starbucks could have entered into an exchange transaction with a party other than the customer in order to receive such benefit, and Starbucks could reasonably estimate the fair value of such benefit.
Revenues from sales of products to manufacturers that produce, market and sell Starbucks’ products through licensing agreements are generally recognized when the product is received by the manufacturer or distributor. License fee revenues from manufacturers are based on a percentage of sales and are recognized on a monthly basis when earned.
In the fourth quarter of fiscal 2018, Starbucks licensed the rights to sell and market the products in authorized channels to Nestlé and also received an upfront prepaid royalty. The upfront payment was recorded as deferred revenue and will be recognized as other revenue on a straight-line basis over the estimated economic life of the arrangement of 40 years. At September 30, 2018, the current and long term deferred revenue related to the Nestlé upfront payment was $174 million and $6.8 billion, respectively.
Additionally, other revenues will include product sales to and licensing revenue from Nestlé under this arrangement. Product sales to Nestlé are generally recognized when the product is shipped, whereas license and royalty revenues are based on a percentage of sales and are recognized on a monthly basis when earned.
Stored Value Cards
Stored value cards, primarily Starbucks Cards, can be activated at Starbucks’ company-operated and most licensed store locations, online at Starbucks.com or via mobile devices held by the customers, and at certain other third party locations, such as grocery stores, although they cannot be reloaded at these third party locations. When an amount is loaded onto a stored value card at any of these locations, Starbucks recognizes a corresponding liability for the full amount loaded onto the card, which is recorded within stored value card liability on the consolidated balance sheets.
Stored value cards can be redeemed at company-operated and most licensed stores. When a stored value card is redeemed at a company-operated store, Starbucks recognizes revenue by reducing the stored value card liability. When a stored value card is redeemed at a licensed store location, Starbucks reduces the corresponding stored value card liability and cash, which is reimbursed to the licensee.
In most markets, there are no expiration dates on the stored value cards and Starbucks does not charge service fees that cause a decrement to customer balances. While Starbucks will continue to honor all stored value cards presented for payment, management may determine the likelihood of redemption, based on historical experience, is deemed to be remote for certain cards due to long periods of inactivity. In these circumstances, if management also determines there is no requirement for remitting balances to government agencies under unclaimed property laws, unredeemed card balances may then be recognized as breakage income, which is included in interest income and other, net on Starbucks’ consolidated statements of earnings. In fiscal 2018, 2017, and 2016, Starbucks recognized breakage income of $155.9 million, $104.6 million, and $60.5 million, respectively.
In the U.S. and Canada, effective April 2016, Starbucks modified the transaction-based loyalty program, My Starbucks Rewards® to a spend-based program, Starbucks RewardsTM. For fiscal 2016, the existing transaction-based programs remain unchanged for other markets. During fiscal 2017, Starbucks launched Starbucks RewardsTM in Japan. Customers in the U.S., Canada, and certain other countries who register their Starbucks Card are automatically enrolled in the program. They earn loyalty points ("Stars") with each purchase at participating Starbucks®stores, as well as on certain packaged coffee products purchased in select Starbucks® stores, through CPG channels, and when making purchases with the Starbucks branded credit and debit cards. After accumulating a certain number of Stars, the customer earns a reward that can be redeemed for free product that, regardless of where the related Stars were earned within that country, will be honored at company-operated stores and certain participating licensed store locations in that same country.
Regardless of whether it is a spend or transaction-based program, Starbucks defers revenue associated with the estimated selling price of Stars earned by the program members towards free product as each Star is earned, and a corresponding liability is established within stored value card liability on the consolidated balance sheets. The estimated selling price of each Star earned is based on the estimated value of the product for which the reward is expected to be redeemed, net of Stars Starbucks does not expect to be redeemed, based on historical redemption patterns. Stars generally expire if inactive for a period of six months.
When a customer redeems an earned reward, Starbucks recognizes revenue for the redeemed product and reduce the related loyalty program liability.
Source: 10-K (filing date: 2018-11-16).
Revenues as Reported
Starbucks Corp., Income Statement, Revenues
US$ in thousands
|12 months ended||Sep 30, 2018||Oct 1, 2017||Oct 2, 2016||Sep 27, 2015||Sep 28, 2014||Sep 29, 2013|
|Packaged and single-serve coffees and teas|
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
|Net revenues||Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).||Starbucks Corp.’s net revenues increased from 2016 to 2017 and from 2017 to 2018.|