Starbucks Corporation (NASDAQ:SBUX) today announced earnings for its fiscal third quarter ended July 2, 2006, revenues for the four-week period ended July 30, 2006, and introduced targets for fiscal 2007.
Fiscal Third Quarter 2006 Results:
-- Record quarterly consolidated net revenues of $2 billion, an increase of 23 percent
-- Third quarter net earnings of $145 million, an increase of 16 percent
-- Earnings per share of $0.18, compared to $0.16 in the third quarter of fiscal 2005
-- Q3 2006 earnings per share includes $0.01 related to a one-time tax benefit
July 2006 Revenue Highlights:
-- Net revenues increased 20 percent, to $596 million
-- Comparable store sales rose four percent
Fiscal 2006 Targets:
-- New store openings target raised from 1,800 to at least 2,000 net new stores on a global basis
-- Fiscal Q4 earnings per share target maintained at $0.16 - $0.17 per share
-- Fiscal 2006 earnings per share target maintained at $0.71 - $0.72, excluding $0.01 related to fiscal Q3 one-time tax benefit
Introducing Fiscal 2007 Targets:
-- New store openings targeted at approximately 2,400 net new stores on a global basis in fiscal 2007, up from 2,000 new stores in fiscal 2006
-- Total net revenue growth target set at approximately 20 percent; comparable store sales growth of three to seven percent
-- Fiscal 2007 earnings per share target range set at $0.87-$0.89, reflecting growth of approximately 20 to 25 percent over fiscal 2006, excluding FY 2006 one-time tax benefit of $0.01
"Our third quarter financial results demonstrate the continued strength in both our U.S. and International operations," commented Jim Donald, Starbucks president and ceo. "Record third-quarter store openings helped drive robust revenue growth and our strong year-to-date results position us well to achieve our fiscal 2006 targets. We are confident in our growth potential and our ability to execute on that growth potential."
Added Donald, "July marked our 175th consecutive month of comparable store sales growth and we remain comfortable with our three to seven percent target range for the remainder of the fiscal year."
Consolidated Financial and Operating Summary
Company-operated retail revenues increased 22 percent to $1.7 billion for the 13 weeks ended July 2, 2006, from $1.4 billion for the same period in fiscal 2005. The increase was primarily attributable to the opening of 955 new Company-operated retail stores in the last 12 months and comparable store sales growth of six percent for the quarter. The increase in comparable store sales was due to a four percent increase in the number of customer transactions and a two percent increase in the average value per transaction.
Specialty revenues increased 23 percent to $303 million for the 13 weeks ended July 2, 2006, compared to $245 million for the corresponding period of fiscal 2005. Licensing revenues increased 27 percent to $216 million primarily due to higher product sales and royalty revenues from the opening of 1,158 new licensed retail stores in the last 12 months and, to a lesser extent, growth in the licensed grocery and warehouse club business. Foodservice and other revenues increased 15 percent to $86 million primarily due to growth in the U.S. foodservice business.
Cost of sales including occupancy costs increased to 41.0 percent of total net revenues for the 13 weeks ended July 2, 2006, compared to 40.6 percent in the corresponding 13-week period of fiscal 2005. This increase was due to higher green coffee costs.
Store operating expenses as a percentage of Company-operated retail revenues increased to 41.3 percent for the 13 weeks ended July 2, 2006, from 40.2 percent for the corresponding period of fiscal 2005, primarily due to higher payroll-related expenditures from the recognition of stock-based compensation expense and higher employee benefits costs. In addition, the Company held regional leadership conferences for its retail management employees during its third fiscal quarter of 2006, which replaced a North American leadership conference held during the fiscal second quarter of 2005.
Other operating expense (expenses associated with the Company's specialty operations) increased to 23.0 percent of total specialty revenues for the 13 weeks ended July 2, 2006, compared to 19.8 percent in the corresponding period of fiscal 2005. The increase was primarily due to higher marketing and advertising costs related to Starbucks ready-to-drink coffee beverages in Japan, Taiwan and Korea as well as in our emerging U.S. Entertainment business. In addition, the recognition of stock-based compensation expense increased payroll-related expenditures.
Depreciation and amortization expenses increased to $99 million for the 13 weeks ended July 2, 2006, compared to $85 million for the corresponding period of fiscal 2005. The increase was primarily due to the opening of 955 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses decreased to 5.0 percent for the 13 weeks ended July 2, 2006, from 5.3 percent for the corresponding 13-week period of fiscal 2005.
General and administrative expenses increased to $115 million for the 13 weeks ended July 2, 2006, compared to $91 million for the corresponding period of fiscal 2005. The increase was primarily due to higher payroll-related expenditures from stock-based compensation and additional employees to support continued global growth. As a percentage of total net revenues, general and administrative expenses increased to 5.9 percent for the 13 weeks ended July 2, 2006, from 5.7 percent for the corresponding period of fiscal 2005.
Income from equity investees increased 42 percent to $26 million for the 13 weeks ended July 2, 2006, compared to $18 million for the corresponding period of fiscal 2005. The increase was primarily due to volume-driven results for The North American Coffee Partnership, which produces bottled Frappuccino(R) and Starbucks DoubleShot(R) coffee drinks, and improved results from international investees, particularly in Japan.
Operating income increased 8 percent to $215 million for the 13 weeks ended July 2, 2006, compared to $200 million for the corresponding 13-week period of fiscal 2005. Operating margin decreased to 10.9 percent of total net revenues for the 13 weeks ended July 2, 2006, compared to 12.5 percent for the corresponding period of fiscal 2005, primarily due to the recognition of stock-based compensation.
Income taxes for the 13 weeks ended July 2, 2006, resulted in an effective tax rate of 33.7 percent, compared to 38.1 percent for the corresponding 13-week period of fiscal 2005. The decline in the effective tax rate was primarily due to the settlement in the current period of a multi-year income tax audit in a foreign jurisdiction for which the Company had established a contingent liability.
Net earnings for the 13 weeks ended July 2, 2006, increased 16 percent to $145 million from $126 million for the same period in fiscal 2005. Earnings per share were $0.18 for the 13 weeks ended July 2, 2006, including a $0.01 per share benefit from the tax settlement discussed above, compared to $0.16 per share for the comparable period in fiscal 2005.
Updated Fiscal 2006 Targets:
Starbucks provided updated fiscal 2006 targets:
-- Starbucks now expects to open at least 2,000 net new stores on a global basis in fiscal 2006, an increase of 200 new stores from the Company's previous target of 1,800. In the United States, Starbucks now plans to open approximately 750 Company-operated locations and 650 licensed locations. In International markets, Starbucks now plans to open approximately 200 Company-operated stores and 400 licensed stores;
-- The Company continues to target total net revenue growth of approximately 20 percent and comparable store sales growth in the range of three percent to seven percent, with monthly anomalies;
-- Based on third quarter results along with its current outlook for the balance of year, Starbucks is now targeting earnings per share in the range of $0.72 to $0.73 for fiscal 2006. This target includes $0.01 per share related to a one-time tax benefit recorded in the fiscal third quarter and, excluding that benefit, is consistent with the Company's previous target range of $0.71-$0.72 per share. Both the new target and the previous target ranges include stock-based compensation expense estimated at approximately $0.09 per share;
-- The effective tax rate is expected to be approximately 38 percent for the fiscal fourth quarter, and;
-- Starbucks is now targeting capital expenditures of approximately $800 million in fiscal 2006, an increase from the previous target of $750 million-$775 million, primarily driven by the acceleration in new store development.
Fiscal 2007 Targets:
Looking ahead, Starbucks introduced the following fiscal 2007 targets:
-- The Company is again accelerating its store development plans and expects to open approximately 2,400 net new stores on a global basis in fiscal 2007, an increase of 400 stores compared to its newly raised fiscal 2006 target. In the United States, Starbucks plans to open approximately 1,000 Company-operated locations and 700 licensed locations. In International markets, Starbucks plans to open approximately 300 Company-operated stores and 400 licensed stores;
-- Starbucks is targeting total net revenue growth of approximately 20 percent and comparable store sales growth in the range of three percent to seven percent, with monthly anomalies, again in fiscal 2007;
-- Starbucks is targeting earnings per share of $0.87 to $0.89 for fiscal 2007, which reflects growth of approximately 20 percent to 25 percent compared to the Company's fiscal 2006 earnings per share target range of $0.72 to $0.73 when adjusted to exclude the one-time tax benefit of $0.01 recorded in the fiscal 2006 third quarter;
-- The Company is targeting an effective tax rate of approximately 38 percent, with quarterly variations, and;
-- Capital expenditures are expected to be in the range of $950 million to $1.0 billion in fiscal 2007.
Starbucks will be holding a conference call today at 1:30 p.m. Pacific Time, which will be hosted by Howard Schultz, chairman, Jim Donald, president and ceo, 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 via telephone through 5:30 p.m. Pacific Time on Wednesday, August 2, 2006, by calling 1-800-642-1687, reservation number 3728558. A posting of speaker remarks and a replay of the call will also be available via the Investor Relations page on Starbucks.com through approximately 5:00 p.m. Pacific Time on Wednesday, August 30, 2006, at the following URL: 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. This information should be reviewed in conjunction with this press release. Please refer to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 16, 2005, for additional information.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
13 Weeks Ended 13 Weeks Ended
-------------------------------- ---------------
July 2, July 3, % July 2, July 3,
2006 2005 Change 2006 2005
----------- ----------- -------- ------- -------
(in thousands, except per share As a % of total
data) net revenues
---------------
Net revenues:
Company-operated
retail $1,660,977 $1,356,605 22.4% 84.6% 84.7%
Specialty:
Licensing 216,267 170,330 27.0% 11.0% 10.6%
Foodservice and
other 86,429 74,864 15.4% 4.4% 4.7%
----------- ----------- ------- -------
Total specialty 302,696 245,194 23.5% 15.4% 15.3%
----------- ----------- ------- -------
Total net revenues 1,963,673 1,601,799 22.6% 100.0% 100.0%
Cost of sales
including occupancy
costs 804,889 649,831 41.0% 40.6%
Store operating
expenses (a) 686,602 546,008 35.0% 34.1%
Other operating
expenses (b) 69,478 48,464 3.5% 2.9%
Depreciation and
amortization
expenses 98,539 85,363 5.0% 5.3%
General and
administrative
expenses 115,258 90,637 5.9% 5.7%
----------- ----------- ------- -------
Subtotal operating
expenses 1,774,766 1,420,303 25.0% 90.4% 88.6%
Income from equity
investees 25,666 18,074 1.3% 1.1%
----------- ----------- ------- -------
Operating income 214,573 199,570 7.5% 10.9% 12.5%
Interest and other
income, net 5,028 3,235 0.3% 0.2%
----------- ----------- ------- -------
Earnings before
income taxes 219,601 202,805 8.3% 11.2% 12.7%
Income taxes(c) 74,103 77,292 3.8% 4.9%
----------- ----------- ------- -------
Net earnings $ 145,498 $ 125,513 15.9% 7.4% 7.8%
=========== =========== ======= =======
Net earnings per
common share -
diluted $ 0.18 $ 0.16
Weighted avg. shares
outstanding -
diluted 798,259 808,037
(a) As a percentage of related Company-operated retail revenues, store
operating expenses were 41.3 percent for the 13 weeks ended July
2, 2006, and 40.2 percent for the 13 weeks ended July 3, 2005.
(b) As a percentage of related total specialty revenues, other
operating expenses were 23.0 percent for the 13 weeks ended July
2, 2006, and 19.8 percent for the 13 weeks ended July 3, 2005.
(c) The effective tax rates were 33.7 percent for the 13 weeks ended
July 2, 2006, and 38.1 percent for the 13 weeks ended July 3,
2005.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
39 Weeks Ended 39 Weeks Ended
-------------------------------- ---------------
July 2, July 3, % July 2, July 3,
2006 2005 Change 2006 2005
----------- ----------- -------- ------- -------
(in thousands, except per share As a % of total
data) net revenues
---------------
Net revenues:
Company-operated
retail $4,888,804 $3,999,213 22.2% 84.5% 84.9%
Specialty:
Licensing 637,771 488,835 30.5% 11.0% 10.4%
Foodservice and
other 257,012 222,011 15.8% 4.5% 4.7%
----------- ----------- ------- -------
Total specialty 894,783 710,846 25.9% 15.5% 15.1%
----------- ----------- ------- -------
Total net revenues 5,783,587 4,710,059 22.8% 100.0% 100.0%
Cost of sales
including occupancy
costs 2,343,800 1,926,326 40.5% 40.9%
Store operating
expenses (a) 1,974,041 1,599,958 34.2% 34.0%
Other operating
expenses (b) 192,274 139,092 3.3% 3.0%
Depreciation and
amortization
expenses 284,335 251,694 4.9% 5.3%
General and
administrative
expenses 358,194 256,165 6.2% 5.4%
----------- ----------- ------- -------
Subtotal operating
expenses 5,152,644 4,173,235 23.5% 89.1% 88.6%
Income from equity
investees 65,371 47,179 1.1% 1.0%
----------- ----------- ------- -------
Operating income 696,314 584,003 19.2% 12.0% 12.4%
Interest and other
income, net 8,439 12,371 0.2% 0.3%
----------- ----------- ------- -------
Earnings before
income taxes 704,753 596,374 18.2% 12.2% 12.7%
Income taxes(c) 257,783 225,726 4.5% 4.8%
----------- ----------- ------- -------
Net earnings $ 446,970 $ 370,648 20.6% 7.7% 7.9%
=========== =========== ======= =======
Net earnings per
common share -
diluted $ 0.56 $ 0.45
Weighted avg. shares
outstanding -
diluted 795,285 822,245
(a) As a percentage of related Company-operated retail revenues, store
operating expenses were 40.4 percent for the 39 weeks ended July
2, 2006, and 40.0 percent for the 39 weeks ended July 3, 2005.
(b) As a percentage of related total specialty revenues, other
operating expenses were 21.5 percent for the 39 weeks ended July
2, 2006, and 19.6 percent for the 39 weeks ended July 3, 2005.
(c) The effective tax rates were 36.6 percent for the 39 weeks ended
July 2, 2006, and 37.8 percent for the 39 weeks ended July 3,
2005.
STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
July 2, October 2,
2006 2005
----------- -----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 215,739 $ 173,809
Short-term investments - available-for-sale
securities 175,851 95,379
Short-term investments - trading securities 50,389 37,848
Accounts receivable, net of allowances of
$5,985 and $3,079, respectively 184,941 190,762
Inventories 557,359 546,299
Prepaid expenses and other current assets 95,424 94,429
Deferred income taxes, net 89,969 70,808
----------- -----------
Total current assets 1,369,672 1,209,334
Long-term investments - available-for-sale
securities 24,045 60,475
Equity and other investments 217,306 201,089
Property, plant and equipment, net 2,090,903 1,842,019
Other assets 147,648 72,893
Other intangible assets 36,821 35,409
Goodwill 166,047 92,474
----------- -----------
TOTAL ASSETS $4,052,442 $3,513,693
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 255,158 $ 220,975
Accrued compensation and related costs 293,186 232,354
Accrued occupancy costs 51,797 44,496
Accrued taxes 70,543 78,293
Short-term borrowings 200,000 277,000
Other accrued expenses 215,810 198,082
Deferred revenue 235,528 175,048
Current portion of long-term debt 758 748
----------- -----------
Total current liabilities 1,322,780 1,226,996
Long-term debt 2,300 2,870
Other long-term liabilities 222,267 193,565
Shareholders' equity:
Common stock - Authorized, 1,200,000,000
shares; issued and outstanding 768,376,679
and 767,442,110 shares, respectively,
(includes 3,394,200 common stock units
in both periods) 768 767
Additional paid-in-capital 42,065 90,201
Other additional paid-in-capital 39,393 39,393
Retained earnings 2,385,957 1,938,987
Accumulated other comprehensive income 36,912 20,914
----------- -----------
Total shareholders' equity 2,505,095 2,090,262
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,052,442 $3,513,693
=========== ===========
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
39 Weeks Ended
---------------------
July 2, July 3,
2006 2005
---------- ----------
OPERATING ACTIVITIES:
Net earnings $ 446,970 $ 370,648
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 303,210 271,795
Provision for impairments and asset
retirements 12,017 15,159
Deferred income taxes (75,094) (37,484)
Equity in income of investees (40,989) (27,644)
Distribution from equity investees 37,499 24,342
Stock-based compensation 78,698 -
Tax benefit from exercise of non-qualified
stock options 908 99,798
Excess tax benefit from exercise of non-
qualified stock options (93,327) -
Net amortization of premium on securities 1,643 9,248
Cash provided/(used) by changes in operating
assets and liabilities:
Inventories (6,672) (72,292)
Accounts payable 27,549 (16,440)
Accrued compensation and related costs 58,535 7,393
Accrued taxes 85,308 32,994
Deferred revenue 60,085 51,616
Other operating assets and liabilities 39,434 30,191
---------- ----------
Net cash provided by operating activities 935,774 759,324
INVESTING ACTIVITIES:
Purchase of available-for-sale securities (529,764) (616,093)
Maturity of available-for-sale securities 193,184 449,524
Sale of available-for-sale securities 291,878 507,589
Acquisitions, net of cash acquired (90,578) (18,976)
Net (purchases)/sales of equity, other
investments and other assets (19,938) 6,676
Net additions to property, plant and equipment (522,348) (469,916)
---------- ----------
Net cash used by investing activities (677,566) (141,196)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 131,824 145,870
Excess tax benefit from exercise of non-
qualified stock options 93,327 -
Net repayments of revolving credit facility (77,000) -
Repurchase of common stock (367,771) (777,657)
Principal payments on long-term debt (560) (550)
---------- ----------
Net cash used by financing activities (220,180) (632,337)
Effect of exchange rate changes on cash and cash
equivalents 3,902 (732)
---------- ----------
Net increase/(decrease) in cash and cash
equivalents 41,930 (14,941)
CASH AND CASH EQUIVALENTS:
Beginning of period 173,809 145,053
---------- ----------
End of the period $ 215,739 $ 130,112
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the 39 weeks ended:
Interest $ 4,892 $ 333
Income taxes $ 239,004 $ 129,530
Stock Compensation Expense
Effective October 3, 2005, the beginning of Starbucks first fiscal quarter of 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board Statement No. 123(R), "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires all stock-based compensation, including grants of employee stock options, to be recognized in the statement of earnings based on their fair values. The Company adopted this accounting treatment using the modified prospective transition method, as permitted under SFAS 123R; therefore results for prior periods have not been restated. Prior to the adoption of SFAS 123R, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, stock-based compensation was included as pro forma disclosure in the financial statement footnotes. The Company is providing the table below because management believes it provides useful information to investors regarding the Company's results of operations by separately identifying the stock-based compensation expense and providing reported amounts on a basis comparable to that used in prior periods. In addition, the Company's internal reporting and budgeting, as well as the calculation of its incentive compensation payments, excludes stock-based compensation expense from reported amounts. The amounts shown in the column below entitled "Using Previous Accounting" are considered "non-GAAP financial measures" under applicable SEC rules because they exclude the stock-based payment expense that is included in the directly comparable measures calculated in accordance with generally accepted accounting principles ("GAAP") in the United States, which are shown in the column entitled "As Reported." These non-GAAP financial measures are not a substitute for the reported GAAP measures.
The application of SFAS 123R had the following effect on reported amounts for the 13 and 39 weeks ended July 2, 2006 relative to the amounts that would have been reported using the intrinsic value method under the Company's previous accounting (in thousands, except earnings per share):
Consolidated Statements of
Earnings
---------------------------------
13 Weeks Ended July 2, 2006
---------------------------------
Using
Previous Stock-based As
Accounting Compensation Reported
---------- ------------ ---------
Cost of sales including occupancy
costs $802,372 $ 2,517 $804,889
Store operating expenses 678,624 7,978 686,602
Other operating expenses 66,930 2,548 69,478
General and administrative expenses 100,900 14,358 115,258
Operating income 241,974 (27,401) 214,573
Earnings before income taxes 247,002 (27,401) 219,601
Income taxes 83,402 (9,299) 74,103
Net earnings 163,600 (18,102) 145,498
Net earnings per common share-
diluted $ 0.20 $ (0.02) $ 0.18
Consolidated Statements of Earnings
------------------------------------
39 Weeks Ended July 2, 2006
------------------------------------
Using
Previous Stock-based As
Accounting Compensation Reported
----------- ------------ -----------
Cost of sales including
occupancy costs $2,335,978 $ 7,822 $2,343,800
Store operating expenses 1,953,227 20,814 1,974,041
Other operating expenses 184,353 7,921 192,274
General and administrative
expenses 316,717 41,477 358,194
Operating income 774,348 (78,034) 696,314
Earnings before income taxes 782,787 (78,034) 704,753
Income taxes 284,364 (26,581) 257,783
Net earnings 498,423 (51,453) 446,970
Net earnings per common share-
diluted $ 0.63 $ (0.07) $ 0.56
Segment Results
Segment information is prepared on the basis that the Company's management reviews financial information for operational decision-making purposes. The tables below present operating segment results net of intersegment eliminations for the 13 weeks ended July 2, 2006 (in thousands):
13 Weeks Ended 13 Weeks Ended
----------------------------- -------------------
July 2, July 3, % July 2, July 3,
2006 2005 Change 2006 2005
----------- ----------------- -------------------
As a % of U.S.
United States total net revenues
------------------- -------------------
Net revenues:
Company-
operated
retail $1,364,075 $1,141,555 19.5% 85.0% 85.2%
Specialty:
Licensing 162,421 129,355 25.6% 10.1% 9.7%
Foodservice
and other 78,981 68,530 15.3% 4.9% 5.1%
----------- ----------- ----------------
Total
specialty 241,402 197,885 22.0% 15.0% 14.8%
----------- ----------- ----------------
Total net revenues 1,605,477 1,339,440 19.9% 100.0% 100.0%
Cost of sales
including
occupancy costs 633,782 516,368 39.5% 38.6%
Store operating
expenses 574,460 465,021 42.1%(1) 40.7%(1)
Other operating
expenses 53,588 40,793 22.2%(2) 20.6%(2)
Depreciation and
amortization
expenses 71,435 63,027 4.4% 4.7%
General and
administrative
expenses 23,427 19,266 1.5% 1.4%
Income from equity
investees 15,478 10,105 1.0% 0.8%
----------- ----------- ----------------
Operating
income $ 264,263 $ 245,070 7.8% 16.5% 18.3%
=========== =========== ================
As a % of
International
International total net revenues
------------------- -------------------
Net revenues:
Company-
operated
retail $ 296,902 $ 215,050 38.1% 82.9% 82.0%
Specialty:
Licensing 53,846 40,975 31.4% 15.0% 15.6%
Foodservice
and other 7,448 6,334 17.6% 2.1% 2.4%
----------- ----------- ----------------
Total
specialty 61,294 47,309 29.6% 17.1% 18.0%
----------- ----------- ----------------
Total net revenues 358,196 262,359 36.5% 100.0% 100.0%
Cost of sales
including
occupancy costs 171,107 133,463 47.8% 50.9%
Store operating
expenses 112,142 80,987 37.8%(1) 37.7%(1)
Other operating
expenses 15,890 7,671 25.9%(2) 16.2%(2)
Depreciation and
amortization
expenses 18,089 14,015 5.1% 5.3%
General and
administrative
expenses 21,878 15,332 6.1% 5.8%
Income from equity
investees 10,188 7,969 2.9% 3.0%
----------- ----------- ----------------
Operating
income $ 29,278 $ 18,860 55.2% 8.2% 7.2%
=========== =========== ================
Unallocated As a % of total net
Corporate revenues
------------------- -------------------
Depreciation and
amortization
expenses $ 9,015 $ 8,321 0.5% 0.5%
General and
administrative
expenses 69,953 56,039 3.5% 3.5%
----------- ----------- ----------------
Operating
loss $ (78,968) $ (64,360) (4.0)% (4.0)%
=========== =========== ================
(1) Shown as a percentage of related Company-operated retail revenues.
(2) Shown as a percentage of related total specialty revenues.
The tables below present operating segment results net of intersegment eliminations for the 39 weeks ended July 2, 2006 (in thousands):
39 Weeks Ended 39 Weeks Ended
----------------------------- ------------------
July 2, July 3, % July 2, July 3,
2006 2005 Change 2006 2005
----------- ----------------- ------------------
As a % of U.S.
total net
United States revenues
-------------------- ------------------
Net revenues:
Company-operated
retail $4,072,880 $3,375,922 20.6% 84.9% 85.4%
Specialty:
Licensing 487,738 374,626 30.2% 10.2% 9.5%
Foodservice
and other 235,936 204,083 15.6% 4.9% 5.1%
----------- ----------- ---------------
Total
specialty 723,674 578,709 25.0% 15.1% 14.6%
----------- ----------- ---------------
Total net revenues 4,796,554 3,954,631 21.3% 100.0% 100.0%
Cost of sales
including occupancy
costs 1,871,313 1,542,157 39.0% 39.0%
Store operating
expenses 1,665,664 1,365,920 40.9%(1) 40.5%(1)
Other operating
expenses 152,169 116,737 21.0%(2) 20.2%(2)
Depreciation and
amortization
expenses 208,255 185,181 4.3% 4.7%
General and
administrative
expenses 68,161 65,239 1.4% 1.6%
Income from equity
investees 37,938 27,377 0.8% 0.7%
----------- ----------- ---------------
Operating
income $ 868,930 $ 706,774 22.9% 18.1% 17.9%
=========== =========== ===============
As a % of
International
total net
International revenues
-------------------- ------------------
Net revenues:
Company-operated
retail $ 815,924 $ 623,291 30.9% 82.7% 82.5%
Specialty:
Licensing 150,033 114,209 31.4% 15.2% 15.1%
Foodservice
and other 21,076 17,928 17.6% 2.1% 2.4%
----------- ----------- ---------------
Total
specialty 171,109 132,137 29.5% 17.3% 17.5%
----------- ----------- ---------------
Total net revenues 987,033 755,428 30.7% 100.0% 100.0%
Cost of sales
including occupancy
costs 472,487 384,169 47.9% 50.9%
Store operating
expenses 308,377 234,038 37.8%(1) 37.5%(1)
Other operating
expenses 40,105 22,355 23.4%(2) 16.9%(2)
Depreciation and
amortization
expenses 49,843 41,232 5.0% 5.5%
General and
administrative
expenses 56,635 37,447 5.7% 5.0%
Income from equity
investees 27,433 19,802 2.8% 2.6%
----------- ----------- ---------------
Operating
income $ 87,019 $ 55,989 55.4% 8.8% 7.4%
=========== =========== ===============
Unallocated As a % of total
Corporate net revenues
-------------------- ------------------
Depreciation and
amortization
expenses $ 26,237 $ 25,281 0.5% 0.5%
General and
administrative
expenses 233,398 153,479 4.0% 3.3%
----------- ----------- ---------------
Operating loss $ (259,635) $ (178,760) (4.5)% (3.8)%
=========== =========== ===============
(1) Shown as a percentage of related Company-operated retail revenues.
(2) Shown as a percentage of related total specialty revenues.
United States
United States total net revenues increased by $266 million, or 20 percent, to $1.6 billion for the 13 weeks ended July 2, 2006, compared to $1.3 billion for the corresponding period of fiscal 2005. United States Company-operated retail revenues increased by $223 million, or 19 percent, to $1.4 billion, primarily due to the opening of 727 new Company-operated retail stores in the last 12 months and comparable store sales growth of six percent for the quarter. The increase in comparable store sales was due to a five percent increase in the number of customer transactions and a one percent increase in the average value per transaction.
Total United States specialty revenues increased by $44 million, or 22 percent, to $241 million for the 13 weeks ended July 2, 2006, compared to $198 million in the corresponding period of fiscal 2005. United States licensing revenues increased 26 percent to $162 million from $129 million in fiscal 2005, primarily due to higher product sales and royalty revenues as a result of opening 730 new licensed retail stores in the last 12 months and, to a lesser extent, growth in the licensed grocery and warehouse club business. United States foodservice and other revenues increased to $79 million, or 15 percent, from $69 million in fiscal 2005, primarily due to growth in new and existing foodservice accounts.
United States operating income increased by 8 percent to $264 million for the 13 weeks ended July 2, 2006, from $245 million for the same period in fiscal 2005. Operating margin decreased to 16.5 percent of related revenues from 18.3 percent in the corresponding period of fiscal 2005. The decrease was primarily due to higher store operating expenses from increased payroll-related expenditures and costs incurred related to regional leadership conferences, which were held during the third fiscal quarter of fiscal 2006, compared to the second quarter in fiscal 2005. Additionally, costs of sales including occupancy increased due to higher green coffee costs and higher distribution and utilities costs.
International
International total net revenues increased by $96 million, or 37 percent, to $358 million for the 13 weeks ended July 2, 2006, compared to $262 million for the corresponding period of fiscal 2005. International Company-operated retail revenues increased by $82 million, or 38 percent, to $297 million, primarily due to the opening of 228 new Company-operated retail stores in the last 12 months and comparable store sales growth of seven percent for the quarter. The increase in comparable store sales resulted from a four percent increase in the number of customer transactions coupled with a three percent increase in the average value per transaction.
Total international specialty revenues increased by $14 million, or 30 percent, to $61 million for the 13 weeks ended July 2, 2006, compared to $47 million in the corresponding period of fiscal 2005. The increase was primarily due to higher product sales and royalty revenues from opening 428 licensed retail stores in the last 12 months and sales of ready-to-drink coffee beverages introduced in Japan, Taiwan and Korea in the fall of 2005.
International operating income increased by 55 percent to $29 million for the 13 weeks ended July 2, 2006, compared to $19 million in the corresponding period of fiscal 2005. Operating margin increased to 8.2 percent of related revenues from 7.2 percent in the corresponding period of fiscal 2005. This improvement was primarily due to lower costs of sales including occupancy costs due primarily to leverage gained from fixed costs distributed over an expanded revenue base. The improvement was offset in part by higher marketing expenditures in support of the re-introduction of one of the Company's ready-to-drink coffee beverages in Japan and higher payroll-related expenditures to support global expansion.
Unallocated Corporate
Unallocated corporate expenses increased to $79 million for the 13 weeks ended July 2, 2006, compared to $64 million in the corresponding period of fiscal 2005, primarily due to higher payroll-related expenses from stock-based compensation and additional employees to support continued rapid global growth. Total unallocated corporate expenses as a percentage of total net revenues were 4.0 percent for both the 13 weeks ended July 2, 2006 and July 3, 2005.
Store Data
The Company's store data for the periods presented are as follows:
Net stores opened during the period
----------------------------------- Stores open as
13-week period 39-week period of
--------------- --------------- ----------------
July 2, July 3, July 2, July 3, July 2, July 3,
2006 2005 2006 2005 2006 2005
------- ------- ------- ------- ------- --------
United States:
Company-operated
Stores 208 141 526 373 5,393 4,666
Licensed Stores 187 142 517 383 2,952 2,222
------- ------- ------- ------- ------- --------
395 283 1,043 756 8,345 6,888
International:
Company-operated
Stores(1) 47 33 162 106 1,357 1,129
Licensed Stores(1) 117 94 338 240 2,082 1,654
------- ------- ------- ------- ------- --------
164 127 500 346 3,439 2,783
------- ------- ------- ------- ------- --------
Total 559 410 1,543 1,102 11,784 9,671
======= ======= ======= ======= ======= ========
(1) International store data has been adjusted for the acquisitions of
the Southern China, Chile, Hawaii and Puerto Rico operations by
reclassifying historical information from Licensed Stores to
Company-operated Stores.
July 2006 Revenues
Starbucks Corporation today also reported consolidated net revenues of $596 million for the four-week period ended July 30, 2006, an increase of 20 percent from consolidated net revenues of $496 million for the same period in fiscal 2005. On a comparable store sales basis (stores open for at least 13 months), sales at Company-operated stores increased four percent for the four weeks ended July 30, 2006, as compared to the same four-week period in fiscal 2005.
For the 43 weeks ended July 30, 2006, consolidated net revenues were $6.4 billion, an increase of 23 percent from consolidated net revenues of $5.2 billion for the same 43 week period in 2005. Comparable store sales increased seven percent for the 43 weeks ended July 30, 2006, as compared to the same 43 weeks in fiscal 2005.
Fiscal YTD Store Data
The Company's store data for the periods presented are as follows:
Net stores opened during
the 43 weeks ended Stores open as of
July 30, 2006 July 30, 2006
------------------- ----------------
United States:
Company-operated Stores 575 5,442
Licensed Stores 594 3,029
------ -----
1,169 8,471
------ -----
International:
Company-operated Stores 179 1,374
Licensed Stores 357 2,101
------ -----
536 3,475
------ -----
Total 1,705 11,946
====== ======
Through the dedication of our passionate partners (employees), Starbucks Coffee Company has transformed the way people in 37 countries enjoy their coffee, one cup at a time. Starbucks is the premier purveyor of the finest coffee in the world, with nearly 12,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim. The Company is committed to offering its customers the highest quality coffee and human connection through the Starbucks Experience, while striving to improve the social, environmental and economic well being of its partners, coffee farmers, countries of coffee origin, and the communities which it serves. Through Ethos Water, Starbucks demonstrates its long history of integrating a social conscience into all aspects of its business. The Company surprises and delights its customers by producing and selling bottled Starbucks Frappuccino(R) coffee drinks, Starbucks DoubleShot(R) espresso drink and Starbucks(R) superpremium ice creams through its joint venture partnerships, and Starbucks(TM) Coffee and Cream Liqueurs through a marketing and distribution agreement, in other convenient locations outside its retail operations. The Company's brand portfolio includes superpremium Tazo(R) teas, Starbucks Hear Music(TM) compact discs, Seattle's Best Coffee and Torrefazione Italia. These brands' unique and innovative personalities allow Starbucks to appeal to a broad consumer base.
This release includes the following forward-looking statements: anticipated store openings, comparable store sales expectations, trends in or expectations regarding the Company's net revenue, estimated stock-based compensation expense, expected capital expenditures, expected effective tax rate, and earnings per share results. These forward-looking 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, coffee, dairy and other raw material prices and availability, successful execution of internal performance and expansion plans, fluctuations in U.S. and international economies and currencies, the impact of initiatives by competitors, the effect of legal proceedings, and other risks detailed in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" section of Starbucks Annual Report on Form 10-K for the fiscal year ended October 2, 2005. The Company assumes no obligation to update any of these forward-looking statements.
(C) 2006 Starbucks Coffee Company. All rights reserved.
