By Lee Kern

21 January 2022


Acquisition of Activision Blizzard

  • Microsoft announced a deal that will see it acquire video game giant Activision Blizzard for $68.7 bn. This is the biggest deal in Microsoft’s history but will certainly not leave it short-changed, with the tech giant having amassed a $130 bn war chest for times like these.

  • Previosly, Tencent held the record for most valuable gaming acquisition, buying an 81.4 % share of developer Supercell for $8.6 billion in 2016. Last week, Take-two Interactive topped this by acquiring mobile game developer Zynga for a record $12.7 billion. This acquisition of Activision Blizzard (5x the size of the Zynga deal) will make Microsoft the second biggest gaming company in the world behind Tencent.

  • Last year the video game industry was valued around $180bn by Newzoo - ten times what the global movie industry brought in at the box office last year. Okay, it was a quiet year for movies last yeat but even in its best year ever the box office only brought in $39bn. Mobile games, ie: games played on a smartphone or tablet, have grown so quickly over the last ten years that they are now a larger segment than both console and PC games combined

  • The selection of games Microsoft has bought over the years (incl. Blizzard) is extensive and impressive. If competition authorities allow, this deal will see Microsoft have 30 internal game development studios and access to popular gaming titles, the sequels of which our grandchildren will likely be playing.

  • So why now? It has to do with the metaverse – the way many folks will interact in the future, by way of 3D virtual worlds which have a social media component to them. That’s also what Facebook (now named Meta Platforms) is banking on.  Simply put, it’ll be like having a social media profile, email, retail and gaming applications in one easily accessible destination. However, this interaction will look like you’re in a video game, even being represented by a customized avatar at times. 

  • This future will be interactive and immersive thanks to augmented reality headsets and glasses, and even optical implants and nerve-impulse clothing to make the experiences more realistic. This will allow you to have all the interactions of real life (as well as anything your imagination can conjure) all from the comfort of your couch. It will be about plugging into any experience (or game) you desire, regardless of where you are physically. 

  • • And your brain will be rewarded with all the feel-good chemicals associated with not just these experiences, but also social media, gaming and being online – the same chemical reactions studies show are related to gambling and recreational drugs. Facebook/Meta Platforms and Microsoft basically want to become drug companies. Online experiences of our choosing which flood our brains with a cocktail of drugs (which our bodies manufacture) for business and entertainment, on demand. 

  • We already have little dopamine reactors in our pockets called cell phones. Last I checked, shares of Apple aren't performing too poorly. Forget your phone somewhere and only then will you realize how hopelessly addicted to them we have become. Cell phones are just a microcosm of the metaverse. The real world is becoming unaffordable and imperfect (as the planet is slowly destroyed by human activity). The metaverse offers a convenient solution to these problems - a perfect world to escape to that is affordable and readily available at the push of a button. 

  • You can see why Microsoft may be interested in buying a vast library intellectual property for this future instead of trying to re-create it from scratch. We believe the company will continue to excel - and are owners of Microsoft in offshore managed portfolios as well as in the Cratos BCI Worldwide Flexible Fund.


By Ron Klipin

21 January 2022

Bank of America

Q4 2021

  • Bank of America reported a solid set of results for the 4th quarter of 2021,   beating earnings per share estimates by $0.06 to $0.82. The company topped   analysts’ expectations due a 10% boost in revenue, driven by strong deposit   growth.

  • Brian Moynihan, the long-standing group CEO said that the “driver of   rate increases, has not come through yet’’, referring to the Federal   Reserve’s expected 3-4 increases in interest rates in 2022. This should prove   to be a boost for growth in Net Interest Income (NII), leading to a positive   increase in bottom-line profits, offsetting the increase in operating   expenses in Q4. Growth in digital transformation is also expected to drive   down operating expenses.

  • Provisions for credit losses improved by $542m, despite average loan   balances being up by $10bn. This was driven by good asset quality, and a net   reserve release of $851m being written back into the income statement having   a positive impact on the financial results.

  • Warren Buffet and Charlie Munger have long-favoured Bank of America   over the other larger players in the market, with Berkshire Hathaway holding   14.6% of Bank of America. It is Berkshire’s second biggest holding after   Apple.

  • Bank of America’s target market is focused around the consumer   segment, which is reflects buoyant turnaround prospects with around 70% of   deposit accounts paying investors low returns.

  • This has resulted in a low cost of capital, which should be   beneficial with a rise of say 1% in lending rates. This should boost the   bank’s net interest income and expand the net interest margin.

  • Strong share repurchases for the current year of $25.1bn, and   dividends paid of$6bn, represent a positive return of capital to   shareholders. Shareholders can expect a quarterly dividend of $0.21 for the   current quarter.

  • The outlook for 2022 appears to be positive, with the share price up   4% since the release of the results, whilst share prices of its peers have   declined following disappointing results from them.

  • US bank shares, a defensive investment, with the sector on a PE of around 10-14x, compares favourably against the S&P on 22x earnings. With tailwinds of increasing interest rates on the horizon, BAC fits into the investment category of value shares. I have been buying Bank of America shares alongside JP Morgan Chase for portfolios I manage. Bank of America is a global player, encompassing, Investment Banking, Wealth Management, Corporate Banking, and Retail Banking services.


By Lee Kern

03 December 2021


Q3 2021

  • Customer relationship management software   provider Salesforce reported third quarter results which beat Wall Street   expectations on the top and bottom lines. However, the performance was   overshadowed by softer fourth quarter guidance which saw its share price come   under pressure.

  • Total third quarter   revenue was $6.86 billion, an increase of 27% year-over-year, and 26% in   constant currency.

  • Subscription and support revenues for the   quarter brought in $6.38 billion, an increase of 25% year-over-year. Professional   services and other revenues made up the difference of $0.48 billion, an   increase of 45% year-over-year.

  • A breakdown of   subscription and support services saw Sales Cloud, the company’s core product   that salespeople use to track leads and opportunities, increase sales 17% to   $1.54 billion from last year. Service Cloud sales rose over 20% from last   year to $1.66 billion. And The Platform and Other unit reported $1.27 billion   in sales during the quarter, up 51% year over year. Workplace communication   app Slack, which Salesforce paid $27 billion for, contributed $276 million in   sales to the Platform unit. Salesforce says the number of customers on Slack   that spent over $100,000 is up 44% year over year. Lastly, Workforce   re-classified sales from its Tableau and Mulesoft acquisitions into its Data   unit, which reported $900 million in sales, up 20% year over year.

  • The third quarter   non-GAAP operating margin fell slightly to 19.8% with non-GAAP diluted   earnings per share coming in at $1.27. Workforce generated cash from   operations of $0.40 billion in the third quarter, an increase of 19%   year-over-year – with its cash pile totaling $9.39 billion at the end of the   third quarter. This should improve substantially in Q4 2021 and Q1 of 2022.   New business and renewals are strongest in those quarters as a result of   annual billing, leading to increased collections and operating cash flows at   that time of the year.

  • The company expects   between $7.22 billion and $7.23 billion in revenue in its fiscal fourth   quarter, raising its previous guidance in line with analyst forecasts.   However, earnings per share for the December quarter will fall between 72 and   73 cents, which is lower than analysts were expecting.

  • The company also   announced Bret Taylor as a co-CEO, alongside Marc Benioff who co-founded the   company in 1999. Taylor helped create Google Maps, productivity startup Quip   (which was bought by Salesforce), and he sold social networking start-up   FriendFeed to Facebook. He also spent 3 years as Facebook's technology chief.   This looks like a smart addition to Workforces leadership roster.

  • Salesforce did warn that   increased costs could appear in various ways, including in travel and   expenses which would put pressure on operating margins going forward. The   company had received massive tailwinds from the lockdowns which buoyed this   capital-light business through the pandemic. The share price has been weaker   following this set of results, as well as from the recent risk-off sentiment   thanks to the Omicron variant of COVID-19 surfacing. This may present an   opportunity to investors looking to add this stock to their portfolios.


By Lee Kern

26 NOVEMBER 2021

Dick's Sporting Goods

Q3 2021

  • Dick’s Sporting Goods, the largest sporting   goods retailer in the United States, posted its strongest fiscal   third-quarter earnings ever topping Wall Street estimates. The company also   raised its guidance for the full year.

  • Revenue   in Q3 increased 14% y-o-y to $2.75 billion. Same-store sales, at stores open   for at least 12 months, climbed 12.2%, beating analyst forecasts for a gain   of only 1.9%. Online sales rose just 1% year-on-year. However, on a two-year   basis online shopping is up 97% and now makes up 19% of revenues, from 13% in   2019.

  • Dicks   announced a tie-up with its biggest brand vendor, Nike, in the quarter to   allow customers to shop for exclusive Nike shoes and apparel on Dick’s   website. Net income rose 79% to $316.5 million, or $2.78 per share, from the   same period a year earlier. Excluding once-off items, Dick’s earned $3.19 per   share, ahead of the $1.97 that analysts had been expecting.

  • Dick’s   launched its own men’s athleisure brand, VRST this year, which it says, along   with other own brands, performed well in the quarter. Dick’s also this year   opened its largest store in Rochester, New York, (to attract walk-in   shoppers) called the House of Sport, which comes complete with an indoor   rock-climbing wall, putting green, health and wellness shop, and an astroturf   and athletics track outside. Shares are up over 125% year-to-date giving the   retailer a market cap of $11.28 bn.

  • Dick’s   Chief Executive Officer Lauren Hobart said that consumer demand has remained   strong after the back-to-school rush and summer season. Dick’s now expects   sales of between $12.12 billion and $12.19 billion for the full-year.   Previously, the sports goods retailer was expecting sales of $11.52 billion   to $11.72 billion. Dick’s is now forecasting earnings in the region of $12.88   to $13.06 per share. After adjusting for Covid-19-related expenses, that   would put earnings between $14.60 and $14.80 per share. Previously Dicks had   estimated full-year adjusted earnings to be between $12.45 and $12.95 per   share.

  • Dicks   is trading on price earnings multiple of 9.8x which is in line with that of   the US specialty retail average of 10.2x. The company has grown earnings   30.3% annually over the past 5 years but earnings are expected to come under   pressure in the coming years. The company has low debt and reasonable free   cash flows. Most metrics indicate it is a well-run business. Dick’s is on a   dividend yield of 1.37%, however, it has an unstable dividend track record.   And it is also concerning that insiders have been sellers of the stock over   the past 9 months. We are instead owners of in the retail space   but will keep an eye on this counter for any possible opportunities.


Desmond Esakov

19 NOVEMBER 2021


Q1 2021

  • Intuit is a provider   of small-business accounting software (QuickBooks), personal tax solutions   (TurboTax), and professional tax offerings (Lacerte). Intuit accounts for the   lion's share of US market for small-business accounting and DIY tax-filing   software.

  • The company reported revenue of $2 billion for the Q1 2022, which   was up by 52% on Q1 2021 and was $200 million above consensus. Adjusted EPS   increased by 63% to $1.53 and was also ahead of expectations of $0.97.   Looking ahead, the company is projecting revenue of between S12.2 and $12.3   billion. This is significantly up from the previous guidance of between $11.0   to $11.2 billion, which represents growth of 26% to 28%.

  • EPS is projected to be in the range of $11.48 to $11.64 (previous   guidance: $11 to $11.25) representing growth of 18 to 20%. The Intuit board   approved a quarterly dividend of $0.68 per share, an increase of 15% on Q1   2020. Over the last decade, dividends have increased by over 250% while the   pay-out ratio has increased from just 25% to 30%.

  • Looking at various business segments, QuickBooks Online Accounting   revenue grew 32% driven primarily by customer growth, higher effective prices   and mix-shift. Online Services revenue increased 42%, driven by QuickBooks   Online payroll and QuickBooks Online payments. Total international online   revenue grew 39% on a constant currency basis.

  • Intuit is a high-quality business consistently generating operating   margins of close to 30% and returns on equity of above 20%. Over the last   decade revenues have increased by 130%, but perhaps more impressive is the   growth in operating profits and free cash flow which have increased by 200%   and 190% respectively. Although the company is on a relatively elevated   valuation, we hold the stock in the Cratos Worldwide Flexible Fund.


By Lee Kern

19 NOVEMBER 2021


Q3 2021

  • Target, the big box retailer saw shares fall this week despite reporting financial results which beat estimates on the top and bottom lines. The company suffered the same fate as sector peers, with regards to inflationary pressures, and chose to absorb some of the costs instead of passing them onto consumers.

  • Revenue for the fiscal third quarters rose 13% to $25.65 billion from the same period a year ago. Comparable sales were up 12.7%, as customers made more trips to stores and visits to its website. The strongest month of the quarter was August, as parents and students bought back-to-school supplies as learners prepared for a return to in-person learning.

  • Store comparable sales grew 9.7% in the period under review, whilst digital comparable sales continued to improve, growing 29%. Store comparable sales were up 9.9% and 155%, respectively, in the year-ago quarter.

  • Sales through its same-day services grew nearly 60% in the quarter. This on top of more the more than 200% growth in the year-ago period. Same-day services are comprised of curbside pickup, drive up, in-store order pickup, and home delivery service Shipt.

  • Operating income was $2.0 billion in third quarter 2021, up 3.9%. Margins were impacted by higher prices of groceries, fuels and other items. Net income jumped 48% to $1.49 billion, or $3.04 per share, from $1.01 billion, or $2.01 per share, a year earlier. Excluding once-off items, the retailer earned $3.03 per share. 

  • Target also raised its fourth-quarter guidance, forecasting comparable sales to rise between high single-digit and low double-digits. Previously, it estimated a high single-digit increase.

  • Target has deployed some innovative measures to help Santa get gifts to homes this holiday season in lieu of supply chain challenges. It has its own ships and unloaded about 60% of its containers at off-peak times, and sent more of its goods to less-trafficked ports in Georgia, Virginia or the Pacific Northwest. This helped increase inventory levels by nearly 20% y-o-y. Walmart has also loaded stores with Apple, Disney, Lego and Ulta (beauty) shops ahead of the holiday period to help drive sales. Although target is an impressive company, we own in the retail space in managed portfolios and the Cratos world wide flexible fund.


By Ron Klipin

19 NOVEMBER 2021


Q3 2021

  • Walmart, the world’s   largest company by revenue, reported robust comparable same-store sales   growth of 9.2% in the USA. This is in spite of the challenging supply chains.   However, the retail megalith anticipated this by stockpiling ahead of the   holiday season.

  • Total group revenues were up 4.3% to $140.5 bn from the $134.7 bn   for the same quarter in 2020. Cost of sales, however, increased by 4.7%. Net   income was down 38% year-over-year. This was primarily due to an increase in   working capital, higher interest payments, and the building-up of stocks (up   11.50%) ahead of the festive season, which includes the Thanksgiving holidays   on the 25th November.

  • Walmart cut non-performing operations in the UK, Japan, and   Argentina, which seems to be the right strategy. It will focus on growth   jurisdictions such as Mexico (where sales were up 7.2%), China (up 16.5%) and   Canada (up 6%).

  • Strong growth in e-commerce sales is finally starting to show a   turnaround, after large capital injections and investment in an experienced   IT team. This has resulted in sales rising 19.8% and 32% Internationally and   in the US, respectively.

  • Walmart raised its guidance for the full year, and is estimating US   comparable sales growth of 6% and adjusted EPS of $6.40. This is better than   previous forecasts of between $6.20 and $6.35.

  • The groups’ dominant scale, and innovation starts-ups such as   on-demand autonomous drone delivery (in its infancy) should enable Walmart to   mitigate rising cost pressures relative to its smaller peers, and grow market   share.

  • Walmart shares traded lower after the release of these results, despite a strong quarter of comparable sales and an EPS beats. The share price has been static over the past year, trading in a range of $126 to $153. The retail counter is now trading at $147 and could be on the cusp of a break to the upside. Bank of America is projecting a 12-month price target of $190 per share. I am an investor in Walmart, in managed portfolios, and patiently await a turnaround.


By Ron Klipin

19 NOVEMBER 2021

Johnson & Johnson

Corporate Action

  • Johnson &   Johnson announced plans to spin-off its less profitable Consumer products   division and focus on its pharmaceutical business, which is a highly   profitable industry giant.

  • The plans, which appears to have taken the market by surprise, will   split the company into two separate focused entities. Each company will have   its own management team, and independent capital structure which should   create value for shareholders. This should result in the sum of the parts   being valued at more than the combined entity.

  • The J&J pharma and medical devices operations are showing strong   profit growth, whilst the consumer division has underperformed in terms of   bottom-line contributions to the groups’ results.

  • Peers such as Pfizer, Merk and Glaxo- SmithKline have already   spun-off their consumer healthcare operations which require different   management skills. Under highly competitive global market conditions, this   segment is subject to high volumes and relatively low margins (compared to   that of the pharma business).

  • Strong brands in the consumer operations, such as Tylenol,   Listerine, Neutrogena and Band-Aid, are a positive factor with each product   generating in excess of $1bn sales. This division is expected to grow by at   least 5% per anum. It has had numerous lawsuits alleging its baby powder, and   other talc products, contained asbestos which caused ovarian cancer in woman.   J&J have denied the allegations but put the business into bankruptcy and   is no longer a drag on their profits.

  • The pharma operations, focused on cancer treatments, vaccines and   medical equipment are estimated to have sales of around $80 bn and are the   major drivers of J&J earnings.

  • The company is expected to complete the separation of the two   companies in 18 to 24 months, with the pharmaceutical-medical unit retaining   the J&J name. That unit plans a major rollout of 14 new drugs by 2025,   with potential sales of $4 bn for each new drug.

  • Details of   the deal are sketchy at this point in time. Johnson & Johnson, as it now   stands, has consistently delivered profit growth and is a high-quality   business. We have been invested in J&J for a number of years, and with   the potential value unlock as a result of corporate action we will remain   shareholders.


By Ron Klipin

12 November 2021

General Electric

Corporate News

  • General   Electric, the industrial conglomerate, made the decision to split the company   into three focused business operations this week, after years of slashing   high debt levels, battling elevated costs at center, embarking on asset   sales, and numerous other restructuring efforts.

  • The spin-offs will result in GE Aviation, Healthcare, and Power   enabling investors to pick and choose which businesses they want to own.

  • Aviation the largest division by revenue with jet engines, its most   profitable segment, generating strong cash flows. It was unfortunately   impacted by the Covid-19 pandemic which stymied the air travel industry over   the past two years resulting in cancellations of orders for new aircraft.

  • The break-up plans are a positive move with the new stand-alone   entities becoming more focused, with their own clearer capital deployment and   specific business models. This move is like that of Siemens, which was split   into listed focused entities.

  • General Electric was founded in 1892 and seemed to have lost its way   acquiring diverse businesses, such as mortgages, credit cards, TV,   entertainment, and a host of other entities. This resulted in a major   underperformance over the past decade. The appointment of Larry Culp in 2018   ushered in a new era for the group. The recent $30 billion merger of GE Jet   leasing operations with an Irish company, and the sale of the Biopharma   business for $21 billion, resulted in a reduction in gross debt from $140   billion in 2018 to less than $65 billion currently.

  • GE will become a focused aviation entity operating under the GE   banner, manufacturing, selling and servicing aircraft engines. This includes   more than 26,000 military engines and 37,000 commercial engines sold over the   past years. A backlog of orders, estimated to be in the region of $260   billion, are expected to be rolled out as global economies normalize. The   power and renewable Energy unit, producing, selling and servicing gas and   wind turbines, also has a major backlog in orders and should benefit from   green energy zeitgeist.

  • It is early days for the pending transformation of GE to benefit   shareholders, however Deutsche Bank have arrived at a price based on the sum   of the parts of $131.00, with RBC analysts sharing similar views. The current   share price of $108.00 could herald a value unlock for patient investors, and   the move should be seen as a positive move away from the old-style   multinational conglomerate model.


By Lee Kern

12 November 2021


Q4 2021

  • Disney, the diversified entertainment giant, posted a disappointing set of results which missed revenue, earnings, and subscriber estimates, sending shares lower. 

  • The house of mouse pulled in $18.5 billion of revenue in the fiscal fourth, up 26% year-over-year. Operating income jumped over 100% to $1.6 billion. Adjusted diluted earnings per share (EPS) came in at a $0.37 profit from a loss of $0.20 in the year-ago quarter. And Free cash flows bounced 62% year-over-year to $1.5 billion. 

  • The numbers were off a low base. However, revenue remains below the $19.1 billion which Disney made in the same quarter back in 2019. Worse still, is that Disney's profits were less than 25% of what they were before the covid-19 pandemic. Last year parks and cruises were affected by covid-19 lockdown restriction shutdowns. These operations all resumed, but at reduced capacity in some cases. Covid-19 also increased health and safety costs by $1 billion for Full-year 2021. After a long hiatus Disney cruise ships are sailing again. However, the cruise industry is now worth just $24 billion, down from $154 billion pre-pandemic. Despite these challenges the Parks, Experiences and Products division had another profitable quarter, albeit below analyst forecasts, with sales jumping 99% year-over-year to $5.45 billion. But the risk of continued interruptions from Covid-19 remain. China locked 30,000 guests and staff in Disneyland Shanghai after a visitor tested positive elsewhere but had already been to the resort. All 30,000 attendees tested negative in what must have been the longest queue in Disneyland history. 

  • The Media and Entertainment Distribution segment had revenues increase 9% year-over-year to $13.08 billion in Q4. This segment suffered from a lack of content during lockdown and Disney expects content output to peak H2 2022. 

  • The streaming service Disney+ only added 2.1 million new Disney+ subscribers to reach a total of 118.1 million, as folks left their homes in the period thanks to vaccine programs. Disney said this is in line with the company’s estimates and reiterated that it would reach its goal of 230 million to 260 million Disney+ subscribers by 2024. The average monthly revenue per subscriber for Disney+ came in at $4.12, down 9% year over year due to lower price points in Indonesia and India which pulled down the average.

  • Disney remains a high-quality established entertainment business with a fantastic trove of intellectual property. It is a stock which we hold in offshore managed portfolios. The share could be in for more of a bumpy ride as economies reopen, inflation heats up, and supply chains are tested. But ultimately it will benefit from a relaxation of lockdown rules as folks adjust to living with Covid-19 and go out again to experience the (Disney)world. The recent weakness in the share price may be an opportunity to buy the quality counter. 


By Desmond Esakov

09 NOVEMBER 2021


Q3 2021

  • Mondelez   International is a US-based multinational confectionary company that owns   brands such as Cadbury’s, Oreo, Côte d'Or, Toblerone, Tuc, Chips Ahoy! and   Halls.

  • The company reported Q3 2021 results on Monday, with net revenue for   the period up 8% to $7.18 billion primarily driven by strong organic net   revenue growth of 5.5%. The reported figure was $120 million above   expectations.

  • The gross profit margin decreased by a significant 260 basis points   to 39.3%, with higher restructuring and input costs proving a headwind.   Diluted EPS was $0.89, up 14.1% while adjusted EPS was $0.71, up 9.4% on a   constant currency basis.

  • Looking ahead for the full-year, Mondelez guided organic net revenue   to rise 4.5% and adjusted EPS to grow by high single digits on a constant-currency   basis.

  • · Year-to-date cash provided by operating activities was $2.7 billion,   an increase of $0.4 billion versus the prior year, while free cash flow was   $2.1 billion, an increase of $0.4 billion.

  • On a geographical basis, Latin America reported the highest organic   growth, with revenue in the region growing by 25.9% in Q3 to just north of   $750 million. Mondelez’s two largest markets Europe ($2.7 billion) and North   America ($2.1 billion) grew by 4.6% and 0.3% respectively. Asia, Middle East   & Africa recorded revenue growth of 5.7% to $1.6 billion.

  • Mondelez is a high-quality business with an outstanding array of   brands. The company is projecting more than $3 billion in free cash flow for   the full year, which places the company on 3.8% free cash flow yield at the   current share price. Although this is on the rich side, the company does have   significant investment opportunities and earnings are expected to grow at   high single digit rates over the medium term, which in turn will likely see a   low double digit growth rate in dividends. Over the last 5 years Mondelez   have grown dividends at an average annual rate of 11% which, if sustained,   justifies the relatively high valuation. Mondelez is a holding in the Cratos   Worldwide Flexible Fund as well as Cratos Global portfolios.


By Lee Kern

09 NOVEMBER 2021


Q4 2021

  • Java   giant, Starbucks, reported fourth quarter results which showed how labour   challenges, rising costs, and the lingering impact of the pandemic continued   to affect the business.

  • The company reported a jump in sales of 31% to $8.1 billion, which was   below Wall Street estimates. This was due to low base effects from   disruptions in the prior year quarter, as well as an extra week in the most   recent quarter. Global same-store sales climbed 17% year-over-year, with a 2%   pickup in average order sizes. US same-store sales increased by 22% and   Chinese same-store sales shrank by 7%. China, the company’s second-largest   market, was hit by renewed lockdown rules after a resurgence of Covid-19. At   its peak in mid-August, approximately 80% of stores in China were impacted by   the pandemic.

  • The non-GAAP operating margin of 19.6% increased from 13.2% in the   prior year primarily driven by sales leverage from a recovery as well as the   lapping of Covid-19 and restructuring-related costs incurred in the prior   year. Higher pricing in North America provided a boost but was partially   offset by increased supply chain costs.

  • Starbucks reported fiscal fourth-quarter net income of $1.76   billion, or non-GAAP earnings per share of $1.00. This is up from $0.51 in   the prior year and includes $0.10 in earnings related to the extra week in Q4   fiscal 2021.

  • The coffee king opened 538 net new stores in Q4 2021 - ending the   period with a record 33,833 stores globally. 51% and 49% stores are   company-operated and licensed, respectively. Starbucks closed some old-format   stores in the period and opened new ones designed for mobile and to-go orders.   The company plans to add approximately 2,000 net new cafes to its global   geographic footprint, with roughly three-quarters of those new locations   expected to be built outside of the US.

  • The Starbucks Rewards loyalty program 90-day active members in the   US increased 28% year-over-year to 24.8 million. During the quarter, 51% of   customers were Starbucks Rewards members.

  • Looking   ahead, Starbucks expects a bumper holiday season quarter with record-breaking   sales. And for fiscal full-year 2022, the coffee chain is forecasting   adjusted earnings per share to rise by at least 10%. The share appears   relatively expensive trading on 31x historic earnings. Even though Starbucks   is bouncing back from the pandemic, the question on investors’ minds is   whether they are doing so fast enough. We are not holders of the stock.