July 24, 2003
Net Revenues Up 24 Percent
Comparable Store Sales Grow 8 Percent
Net Earnings Increase 23 Percent
Company Sets Aggressive Targets for Fiscal Year 2004
Starbucks Corporation (Nasdaq:SBUX) today announced revenues and earnings for its fiscal third quarter ended June 29, 2003.
For the 13 weeks ended June 29, 2003, consolidated net revenues increased 24 percent to $1.0 billion from $835 million for the same period in fiscal 2002. Net earnings for the 13-week period ended June 29, 2003 increased 23 percent to $68.4 million from $55.7 million for the same period in fiscal 2002. Diluted earnings per share were $0.17 for the 13-week period ended June 29, 2003, compared to $0.14 for the comparable period in fiscal 2002.
For the 39 weeks ended June 29, 2003, consolidated net revenues increased 24 percent to $3.0 billion from $2.4 billion for the same period in fiscal 2002. Net earnings for the 39-week period ended June 29, 2003 increased 28 percent to $198.9 million from $155.1 million for the same period in fiscal 2002. Diluted earnings per share were $0.50 for the 39-week period ended June 29, 2003, compared to $0.39 per share for the comparable period in fiscal 2002.
Consolidated Financial and Operating Summary
Retail revenues increased 23.3 percent to $877.8 million for the 13 weeks ended June 29, 2003. The increase was primarily attributable to the opening of new Company-operated retail stores and an increase in comparable store sales of 8 percent for the period. The increase in comparable store sales was due almost entirely to an increase in customer transactions.
Specialty revenues increased 28.9 percent to $159.0 million for the 13 weeks ended June 29, 2003. The increase was attributable to growth in the Company's domestic retail licensing channel, foodservice accounts and international licensees.
Cost of sales and related occupancy costs were 41.1 percent of net revenues for the 13 weeks ended June 29, 2003 as compared to 40.4 percent for the corresponding period of fiscal 2002. This increase was primarily due to higher green coffee costs, partially offset by lower food and packaging expenses. The Company's green coffee costs reached a seven-year low in the second and third fiscal quarters of 2002 and have increased gradually since then.
Store operating expenses as a percentage of retail revenues increased to 41.2 percent for the 13 weeks ended June 29, 2003, from 40.9 percent for the corresponding period of fiscal 2002. The increase was primarily due to higher marketing expenditures, and to a lesser extent, additional expenses incurred to support the Starbucks Card for North American Retail operations. Partially offsetting these increases were lower provisions recorded in the current quarter for asset impairment for international Company-operated retail operations, when compared to the corresponding period in the prior year.
Other operating expenses (expenses associated with the Company's specialty operations) increased to 26.4 percent of specialty revenues for the 13 weeks ended June 29, 2003, compared to 23.7 percent in the corresponding period of fiscal 2002. The increase is mainly attributable to continued infrastructure development of the domestic licensing and foodservice channels, including expanding field organizations, restructuring distribution channels and expanding marketing support of new and existing accounts.
Depreciation and amortization expenses increased to $59.8 million for the 13 weeks ended June 29, 2003, from $50.9 million in the corresponding period of fiscal 2002 due to the opening of additional North American and international Company-operated retail stores.
General and administrative expenses increased to $49.3 million for the 13 weeks ended June 29, 2003, from $47.0 million in the corresponding period of fiscal 2002. The increase was attributable to higher payroll-related expenditures. However, as a percentage of total net revenues, general and administrative expenses decreased to 4.8 percent from 5.6 percent.
Income from equity investees was $7.9 million for the 13 weeks ended June 29, 2003, compared to $8.0 million in the corresponding period of fiscal 2002. The decrease was mainly attributable to the Company's 40 percent share of the net losses of Starbucks Japan, Ltd., this year compared to a net profit last year, as well as losses sustained by the Switzerland and Austria equity investees, which are in the start-up phase. Partially offsetting these losses were continued strong results experienced by The North American Coffee Partnership, the Company's 50 percent owned ready-to-drink partnership with the Pepsi-Cola Company, and the Starbucks Ice Cream Partnership with Dreyer's Grand Ice Cream, Inc., from expanded product lines, lower direct costs and manufacturing efficiencies.
Operating income increased 21.7 percent to $106.1 million for the 13 weeks ended June 29, 2003, from $87.2 million in the corresponding period of fiscal 2002, mainly due to revenue growth. The operating margin decreased to 10.2 percent of total net revenues in the 13 weeks ended June 29, 2003, compared to 10.4 percent in the corresponding period of fiscal 2002, primarily due to higher green coffee costs.
Interest and other income increased to $5.1 million for the 13 weeks ended June 29, 2003, compared to $1.5 million in the corresponding period of fiscal 2002, primarily due to gains realized on market revaluations of the Company's trading securities, compared to realized losses on this portfolio in the same period last year.
Income taxes for the 13 weeks ended June 29, 2003 were based on an effective tax rate of 38.5 percent, compared to 37.2 percent in the corresponding period of fiscal 2002, as a result of a shift in the composition of the Company's pre-tax earnings in fiscal 2003.
Fiscal 2003 Targets
The Company reviewed the following fiscal 2003 targets:
-- Open approximately 1,200 new stores on a global basis. In continental North America, the Company continues to expect to open 525 Company-operated locations and 275 licensed locations. Internationally, the Company has targeted to open 75 locations in Company-operated markets and approximately 325 locations in licensed markets.
-- The Company believes it will continue to exceed its growth target for total revenues of approximately 20 percent for the remainder of fiscal 2003, and expects comparable store sales growth to continue to be at or above the high end of the 3-7 percent target range for the remainder of the year.
-- The Company is targeting earnings per share of $0.17 for the fiscal fourth quarter and, as a result of the strong fiscal third quarter, now expects earnings per share for fiscal 2003 to be $0.67. This full year target is at the high end of the previous estimate of $0.66-$0.67 per share, and above the original fiscal 2003 target range of $0.64-$0.66.
In addition, Starbucks expects capital expenditures for fiscal 2003 to be approximately $410 million.
Fiscal 2004 Targets
The Company set the following fiscal 2004 targets:
-- Open approximately 1,300 new stores on a global basis. In continental North America, the Company plans to open approximately 575 Company-operated locations and 375 licensed locations. Internationally, the Company plans to open approximately 50 locations in Company-operated markets and 300 locations in licensed markets.
-- The Company continues to target total revenue growth of approximately 20 percent, and comparable store sales growth in the range of 3-7 percent, with monthly anomalies.
-- The Company expects earnings per share of $0.83-$0.85 for fiscal 2004, including an approximate $0.02 per share benefit of a 53rd week in fiscal 2004. The benefit from the 53rd week will occur entirely in the fiscal fourth quarter of 2004.
In addition, Starbucks expects the effective tax rate to be 38.0 percent for fiscal 2004, which is lower than the current year rate of 38.5 percent. The Company is planning for capital expenditures to be in the range of $450 to $475 million.
Starbucks will be holding a conference call today at 1:30 p.m. Pacific time, which will be hosted by Howard Schultz, chairman and chief global strategist, Orin Smith, president and chief executive officer and Michael Casey, executive vice president and chief financial officer. The call will be broadcast live over the Internet and can be accessed at the Company's web site address of http://www.starbucks.com/aboutus/investor.asp. A replay of the call will be available from approximately 4:00 p.m. Pacific time today through 4:30 p.m. Pacific time on July 31, 2003, by calling 1-800-642-1687, reservation number 1622907, or by accessing it via the Company's web site at http://www.starbucks.com/aboutus/investor.asp.
The Company's consolidated financial statements, operating segment results, and other additional information have been provided on the following pages in accordance with current year classifications, and should be reviewed in conjunction with this press release.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
13 Weeks Ended 13 Weeks Ended
----------------------------- ------------------
June 29, June 30, June 29, June 30,
2003 2002 % Change 2003 2002
----------------------------- ------------------
As a % of total
net revenues
(in thousands, except per (unless otherwise
share data) indicated)
----------------------------- ------------------
Net revenues:
Retail $ 877,754 $711,834 23.3% 84.7% 85.2%
Specialty 159,022 123,324 28.9% 15.3% 14.8%
-------------------- ------------------
Total net revenues 1,036,776 835,158 24.1% 100.0% 100.0%
Cost of sales and
related occupancy
costs 425,709 337,401 41.1% 40.4%
Store operating
expenses 361,835 291,445 (a)41.2% (a)40.9%
Other operating
expenses 41,946 29,269 (b)26.4% (b)23.7%
Depreciation and
amortization expenses 59,764 50,873 5.8% 6.1%
General and
administrative
expenses 49,325 46,997 4.8% 5.6%
Income from equity
investees 7,917 8,030 0.8% 1.0%
--------------------
Operating income 106,114 87,203 21.7% 10.2% 10.4%
Interest and other
income, net 5,115 1,456 0.5% 0.2%
-------------------- ------------------
Earnings before
income taxes 111,229 88,659 10.7% 10.6%
Income taxes 42,815 32,991 4.1% 3.9%
-------------------- ------------------
Net earnings $ 68,414 $ 55,668 22.9% 6.6% 6.7%
==================== ==================
Net earnings per
common share -
diluted $ 0.17 $ 0.14
====================
Weighted average
shares outstanding -
diluted 402,664 401,191
====================
(a) Calculated as a percentage of retail revenues.
(b) Calculated as a percentage of specialty revenues.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
39 Weeks Ended 39 Weeks Ended
------------------------------- ------------------
June 29, June 30, June 29, June 30,
2003 2002 % Change 2003 2002
------------------------------- ------------------
As a % of total
net revenues
(in thousands, except (unless otherwise
per share data) indicated)
------------------------------- ------------------
Net revenues:
Retail $2,536,557 $2,058,361 23.2% 84.7% 84.9%
Specialty 457,951 365,349 25.3% 15.3% 15.1%
---------------------- ------------------
Total net revenues 2,994,508 2,423,710 23.6% 100.0% 100.0%
Cost of sales and
related occupancy
costs 1,236,968 994,511 41.3% 41.0%
Store operating
expenses 1,016,423 822,921 (a)40.1% (a)40.0%
Other operating
expenses 123,885 93,137 (b)27.1% (b)25.5%
Depreciation and
amortization
expenses 175,110 151,146 5.8% 6.2%
General and
administrative
expenses 150,770 155,440 5.0% 6.4%
Income from equity
investees 21,165 21,085 0.7% 0.9%
----------------------
Operating income 312,517 227,640 37.3% 10.4% 9.4%
Interest and other
income, net 10,850 6,084 0.4% 0.3%
Gain on sale of
Starbucks Japan
shares - 13,361 0.0% 0.5%
---------------------- ------------------
Earnings before
income taxes 323,367 247,085 10.8% 10.2%
Income taxes 124,496 91,974 4.2% 3.8%
---------------------- ------------------
Net earnings $ 198,871 $ 155,111 28.2% 6.6% 6.4%
====================== ==================
Net earnings per
common share -
diluted $ 0.50 $ 0.39
======================
Weighted average
shares outstanding
- diluted 400,544 397,179
======================
(a) Calculated as a percentage of retail revenues.
(b) Calculated as a percentage of specialty revenues.
The following reconciliation of net earnings and earnings per
share is provided to assist the reader with understanding the
financial impact of one-time items:
(unaudited and in thousands, except per share data)
39 Weeks Ended 39 Weeks Ended
----------------------------- ------------------
June 29, June 30, % June 29, June 30,
2003 2002 Change 2003 2002
--------- --------- --------- -------- ---------
Net earnings, as
reported above $198,871 $155,111 28.2% $ 0.50 $ 0.39
Gain on sale of
Starbucks Japan
shares
(net of tax) - (8,417) - (0.02)
Settlement charge
included in general
and administrative
expenses (net of
tax) - 11,340 - 0.03
--------- --------- -- ----- - -------
Net earnings,
excluding one-time
items $198,871 $158,034 25.8% $ 0.50 $ 0.40
========= ========= == ===== = =======
STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 29, Sept. 29,
2003 2002
----------- -----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 263,638 $ 99,677
Short-term investments - Available-for-sale
securities 282,879 217,302
Short-term investments - Trading securities 18,789 10,360
Accounts receivable, net of allowances of
$2,777 and $3,680, respectively 107,472 97,573
Inventories 280,239 263,174
Prepaid expenses and other current assets 62,291 42,351
Deferred income taxes, net 47,584 42,206
----------- -----------
Total current assets 1,062,892 772,643
Equity and other investments 119,339 102,929
Property, plant and equipment, net 1,346,525 1,265,756
Other assets 44,167 43,691
Goodwill and other intangible assets 31,202 29,764
----------- -----------
TOTAL ASSETS $2,604,125 $2,214,783
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 180,499 $ 135,994
Accrued compensation and related costs 136,094 105,899
Accrued occupancy costs 51,529 51,195
Accrued taxes 48,212 54,244
Other accrued expenses 106,817 72,289
Deferred revenue 74,648 42,264
Current portion of long-term debt 719 710
----------- -----------
Total current liabilities 598,518 462,595
Deferred income taxes, net 23,298 22,496
Long-term debt 4,542 5,076
Other long-term liabilities 948 1,036
Shareholders' equity:
Common stock and additional paid-in capital
- Authorized, 600,000,000; issued and
outstanding, 391,596,947 and 388,228,592
shares, respectively, (includes 1,697,100
common stock units in both periods) 925,283 891,040
Other additional paid-in-capital 39,393 39,393
Retained earnings 1,000,599 801,728
Accumulated other comprehensive income
(loss) 11,544 (8,581)
----------- -----------
Total shareholders' equity 1,976,819 1,723,580
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,604,125 $2,214,783
=========== ===========
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
39 Weeks Ended
---------------------
June 29, June 30,
2003 2002
---------- ----------
OPERATING ACTIVITIES:
Net earnings $ 198,871 $ 155,111
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 190,654 162,764
Gain on sale of investment - (13,361)
Provision for impairments and asset disposals 5,007 19,324
Deferred income taxes, net (4,037) 10,310
Equity in income of investees (7,689) (11,042)
Tax benefit from exercise of non-qualified
stock options 23,328 43,260
Net accretion of discount and amortization of
premium on marketable securities 4,312 -
Cash provided/(used) by changes in operating
assets and liabilities:
Inventories (15,081) 2,970
Prepaid expenses and other current assets (19,856) (17,367)
Accounts payable 40,248 (7,662)
Accrued compensation and related costs 28,638 25,628
Accrued occupancy costs (24) 13,130
Accrued taxes (6,326) (51,501)
Deferred revenue 32,017 17,512
Other operating assets and liabilities 17,517 20,637
---------- ----------
Net cash provided by operating activities 487,579 369,713
INVESTING ACTIVITIES:
Purchase of available-for-sale securities (271,556) (272,646)
Maturity of available-for-sale securities 132,558 129,260
Sale of available-for-sale securities 69,178 36,849
Net additions to equity, other investments and
other assets (8,807) (9,015)
Proceeds from sale of equity investment - 14,843
Additions to property, plant and equipment (259,179) (269,117)
---------- ----------
Net cash used by investing activities (337,806) (369,826)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 72,298 100,111
Principal payments on long-term debt (525) (522)
Repurchase of common stock (61,242) (1,829)
---------- ----------
Net cash provided by financing activities 10,531 97,760
Effect of exchange rate changes on cash and cash
equivalents 3,657 1,282
---------- ----------
Net increase in cash and cash equivalents 163,961 98,929
CASH AND CASH EQUIVALENTS:
Beginning of period 99,677 51,250
---------- ----------
End of the period $ 263,638 $ 150,179
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 226 $ 200
Income taxes $ 112,381 $ 91,486
Segment Results
Starbucks Corporation is organized into a number of business units that correspond to the Company's operating segments: North American Retail, Business Alliances, which includes North American store licensing and foodservice accounts, and All other business units, which includes international retail, international store licensing, grocery channel licensing, warehouse club accounts, interactive operations, equity investees and other initiatives.
North American Retail revenues increased 21.9 percent, to $803.2 million for the 13 weeks ended June 29, 2003, from $658.9 million for the corresponding period of fiscal 2002, primarily due to the opening of new retail stores and an increase in comparable store sales of 9 percent. The increase in comparable store sales was due almost entirely to higher transaction volume. Operating income increased 14.0 percent to $128.0 million for the 13 weeks ended June 29, 2003, from $112.3 million in the corresponding period in 2002. Operating margin decreased from a record third quarter high of 17.0 percent in the prior year, to 15.9 percent primarily due to higher green coffee costs, higher marketing expenditures and slight increases as a percentage of related revenues in most store operating expenses, except payroll-related expenditures. The Company's green coffee costs reached a seven year low in the second and third fiscal quarters of 2002 and have increased gradually since then.
Business Alliances revenues increased 38.2 percent, to $77.9 million for the 13 weeks ended June 29, 2003, from $56.3 million in the corresponding period in fiscal 2002, primarily due to the opening of new licensed stores and the resulting increase in product sales to and royalty revenues from those licensees. Growth in the foodservice channel also contributed to the increase. Operating income increased 1.8 percent to $16.3 million for the 13 weeks ended June 29, 2003, from $16.0 million in the corresponding period in fiscal 2002. Operating margin decreased to 20.9 percent of related revenues from 28.4 percent in the prior year due to the change in sales mix to lower margin products and continued investments to restructure distribution channels and expand marketing support of new and existing accounts.
The tables below present net revenues, operating income by operating segment and operating income as a percentage of related revenues, net of intersegment eliminations for the periods indicated:
(unaudited, in North All other
thousands) American Business business Unallocated
Retail Alliances units corporate Total
13 weeks ended (b)
-------------- ----------- --------- --------- ----------- -----------
June 29, 2003
Total net
revenues (a) $ 803,201 $ 77,851 $155,724 $ - $1,036,776
Operating
income 127,991 16,302 19,334 (57,513) 106,114
Operating
income as a
percentage of
related
revenues 15.9% 20.9% 12.4% - 10.2%
-------------- ----------- --------- --------- ---------- ----------
June 30, 2002
Total net
revenues (a) $ 658,938 $ 56,336 $119,884 $ - $ 835,158
Operating
income 112,320 16,009 13,201 (54,327) 87,203
Operating
income as a
percentage of
related
revenues 17.0% 28.4% 11.0% - 10.4%
-------------- ----------- --------- --------- ---------- ----------
39 weeks ended
-------------- ------------------------------------------------------
June 29, 2003
Total net
revenues (a) $2,326,940 $220,772 $446,796 $ - $2,994,508
Operating
income 393,791 45,503 46,886 (173,663) 312,517
Operating
income as a
percentage of
related
revenues 16.9% 20.6% 10.5% - 10.4%
-------------- ----------- --------- --------- ---------- ----------
June 30, 2002
Total net
revenues (a) $1,909,411 $163,685 $350,614 $ - $2,423,710
Operating
income 323,068 42,104 43,005 (180,537) 227,640
Operating
income as a
percentage of
related
revenues 16.9% 25.7% 12.3% - 9.4%
-------------- ----------- --------- --------- ---------- ----------
(a) Included in all other business units are revenues for the
Company's international retail business unit of $74,553 and
$52,896 for the 13 weeks ended June 29, 2003 and June 30, 2002,
respectively, and $209,617 and $148,950 for the 39 weeks ended
June 29, 2003 and June 30, 2002, respectively. Revenues for both
North American Retail and international retail are reflected in
"Retail" revenues, and all other revenues are included in
"Specialty" revenues on the accompanying consolidated statements
of earnings.
(b) Unallocated corporate includes general and administrative expenses
and certain depreciation expenses on general and administrative
related assets.
Systemwide Retail Store Sales
Systemwide retail store sales are used by industry analysts and by management to measure global penetration of Starbucks retail stores. However, this measure excludes revenues generated in non-retail-store channels, such as foodservice accounts, warehouse club accounts, interactive operations, distribution through the Company's grocery channel, or any of the external sales of bottled Frappuccino(R), Starbucks DoubleShot(TM), or Tazo(R) tea products.
Systemwide retail store sales, which include net sales for both Company-operated and licensed retail stores, net store openings per respective period and ending store counts were as follows:
(sales amounts in millions)
13 Weeks Ended
--------------------------------
June 29, 2003 June 30, 2002
--------------- ---------------
Net Net Stores
Stores Opened
Sales Opened Sales
--------------- ---------------
Continental North
America:
Company-
operated(a) $803 131 $659 116
Licensed
Stores(b) 121 80 90 33
--------------- ---------------
924 211 749 149
International:
Company-
operated(a) 75 15 53 17
Licensed
Stores(b) 207 57 170 74
--------------- ---------------
282 72 223 91
--------------- ---------------
Total Stores $1,206 283 $972 240
=============== ===============
(sales amounts in millions)
39 Weeks Ended
---------------------------------------------------
June 29, 2003 June 30, 2002
-------------------------- ------------------------
Net Ending Net Ending
Stores Store Stores Store
Sales Opened Count Sales Opened Count
----------------- -------- ------- -------- -------
Continental North
America:
Company-
operated(a) $2,327 358 3,854 $1,909 423 3,394
Licensed
Stores(b) 338 231 1,309 245 186 995
----------------- -------- ------- -------- -------
2,665 589 5,163 2,154 609 4,389
International:
Company-
operated(a) 210 48 432 149 72 367
Licensed
Stores(b) 590 218 1,146 474 218 852
----------------- -------- ------- -------- -------
800 266 1,578 623 290 1,219
----------------- -------- ------- -------- -------
Total Stores $3,465 855 6,741 $2,777 899 5,608
================= ======== ======= ======== =======
(a) Company-operated retail store sales are reflected as "Retail"
revenues on the accompanying consolidated statements of earnings.
(b) Includes retail store sales as reported by domestic and
international licensees. Portions of these sales may be estimated
due to timing of periodic reporting by licensees.
The increases in systemwide retail store sales of 24 and 25
percent for both the 13-week and 39-week periods ended June 29, 2003,
respectively, compared to the same periods in fiscal 2002 were
primarily due to the opening of 1,133 stores in the last 12 months and
strong comparable store sales growth for Company-operated retail
stores.
Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world, with more than 6,500 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim. The Company is committed to offering the highest quality coffee and the Starbucks Experience while conducting its business in ways that produce social, environmental and economic benefits for communities in which it does business. In addition to its retail operations, the Company produces and sells bottled Frappuccino(R) coffee drinks, Starbucks DoubleShot(TM) coffee drink, and a line of superpremium ice creams through its joint venture partnerships. The Company's other brands enhance the Starbucks Experience through best-of-class products: Tazo Tea Company offers a line of innovative premium teas, and Hear Music produces and distributes a line of exceptional compact discs.
This release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, including anticipated store openings, comparable store sales expectations, trends in or expectations regarding the Company's revenue growth, capital expenditures, effective tax rate, net earnings and earnings per share results, are all 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, coffee and other raw material prices and availability, successful execution of internal performance and expansion plans, fluctuations in U.S. and international economies, ramifications from the war on terrorism, or other international events or developments, the impact of competition, the effect of legal proceedings, and other risks detailed in the Company's filings with the Securities and Exchange Commission.
Mary Ellen Fukuhara
Starbucks Investor Relations
(206) 318-4025
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