SEATTLE--(BUSINESS WIRE)--Starbucks Corporation (NASDAQ:SBUX) today announced financial results for its fiscal fourth quarter and fiscal year ended September 30, 2007.

Fiscal Fourth Quarter 2007 Highlights:

• Consolidated net revenues of $2.4 billion, a 22 percent increase
• Comparable store sales growth of four percent
• Operating margin improved 30 basis points to 10.2 percent
• Earnings per share of $0.21, compared to $0.15 per share

Fiscal Year End 2007 Highlights:

• 2,571 new store openings; 70 percent in the U.S. and 30 percent in International markets
• Consolidated net revenues of $9.4 billion, a 21 percent increase
• Comparable store sales growth of five percent
• Operating margin contracted 30 basis points to 11.2 percent
• Earnings per share of $0.87, compared to $0.71 per share

“For the year, we delivered solid results, in spite of a difficult economic and operating environment,” said Jim Donald, president and CEO. “Looking ahead, we believe in the global opportunity for Starbucks, and we remain focused on delivering the highest quality beverages and legendary service, while driving innovation and extending the Starbucks Experience to more customers throughout the world.”

Consolidated net revenues increased 22 percent to $2.4 billion for the 13 weeks ended September 30, 2007, compared to $2.0 billion for the fiscal fourth quarter of 2006. Net earnings totaled $159 million in the fourth quarter 2007 versus $117 million for the same period a year ago. Earnings per share for the fourth quarter rose to $0.21 from $0.15 in the prior year period. Net earnings and earnings per share in fiscal 2006 included a one-time cumulative accounting charge of $17 million or $0.02 per share recorded in the fourth quarter of fiscal 2006 resulting from the company’s adoption of the new accounting requirements of FIN 47, which addresses asset retirement obligations. Excluding the cumulative effect of the adjustment, fiscal 2007 fourth quarter earnings grew 18 percent and earnings per share increased 24 percent.

Fiscal Year 2007 in Review

Fiscal year 2007 consolidated net revenues increased 21 percent to $9.4 billion, compared to $7.8 billion for the 52 weeks ended October 1, 2006. Company-operated retail revenues in fiscal 2007 rose 21 percent to $8.0 billion from $6.6 billion in fiscal 2006, predominantly due to the opening of 1,342 stores and comparable store sales growth of five percent. The increase in comparable store sales was due to a four percent increase in the average value per transaction and one percent growth in the number of customer transactions. Specialty revenues grew 17 percent to $1.4 billion from $1.2 billion in fiscal 2006.

For fiscal 2007, operating income increased to $1.1 billion, compared to $894 million for fiscal 2006. Operating margin contracted 30 basis points to 11.2 percent of total net revenues for the full year ended September 30, 2007, from 11.5 percent for the same period a year ago. Margin compression was due to higher costs of sales and occupancy costs as a percentage of total net revenues due to a shift in sales to higher cost products and higher distribution costs, rent expense and dairy costs. These cost pressures were offset in part by lower general and administrative and store operating expenses as a percentage of total net revenues.

Net earnings rose to $673 million in fiscal 2007 from $564 million for the previous year. Earnings per share for the period increased to $0.87 compared to $0.71 a year ago. Excluding the adjustment for FIN 47 in fourth quarter 2006, earnings grew 16 percent and earnings per share increased 19 percent.

Fourth Quarter Summary of Results

Company-operated retail revenues increased 21 percent to $2.1 billion for the 13 weeks ended September 30, 2007, from $1.7 billion for the same period in fiscal 2006, resulting primarily from opening 1,342 new company-operated retail stores in the last 12 months and comparable store sales growth of four percent for the quarter. The increase in comparable store sales was due to a four percent increase in the average value per transaction.

Specialty revenues increased 24 percent to $383 million for the 13 weeks ended September 30, 2007, compared to $309 million for the corresponding period of fiscal 2006. Licensing revenues increased 27 percent to $283 million for the 13 weeks ended September 30, 2007, driven by revenue growth of 44 percent from the company’s Global Consumer Products business, and from higher product sales and royalty revenues from the opening of 1,229 new licensed retail stores in the last 12 months.

Cost of sales including occupancy increased to 43.7 as a percent of total net revenues for the 13 weeks ended September 30, 2007, compared to 41.7 percent in the corresponding 13-week period of fiscal 2006. The increase was primarily due to a shift in sales to higher cost products and higher dairy costs.

Store operating expenses as a percentage of company-operated retail revenues improved to 41.0 percent for the 13 weeks ended September 30, 2007, from 42.1 percent for the corresponding period of fiscal 2006. The improvement was due to the benefit gained from price increases coupled with leverage on regional overhead, partially offset by higher payroll expenditures from wage increases for retail store partners.

Other operating expenses (expenses associated with the company’s specialty operations) decreased to 19.5 percent of total specialty revenues for the 13 weeks ended September 30, 2007, compared to 21.4 percent in the corresponding period of fiscal 2006. The improvement resulted primarily from lower payroll-related expenditures as a percentage of total specialty revenues.

General and administrative expenses as a percentage of total net revenues decreased to 5.0 percent for the fourth quarter fiscal 2007, from 5.8 percent for the corresponding period of fiscal 2006. The improvement was a result of leveraging of the company’s scale and infrastructure against continued global growth.

Operating income increased to $248 million for the 13 weeks ended September 30, 2007, compared to $198 million for the corresponding period of fiscal 2006. Operating margin increased 30 basis points to 10.2 percent of total net revenues for the 13 weeks ended September 30, 2007, from 9.9 percent for the corresponding period of fiscal 2006. Lower store operating expenses, general and administrative expenses, and other operating expenses as a percentage of total net revenues more than offset the increase in cost of sales including occupancy.

Net interest and other was an expense of $1.2 million for the 13 weeks ended September 30, 2007, compared to income of $3.9 million for the corresponding period of fiscal 2006, primarily due to a higher level of borrowings outstanding, which include the $550 million senior notes issued in August 2007.

Fourth Quarter Results - United States

United States total net revenues increased 19 percent to $1.9 billion for the 13 weeks ended September 30, 2007, compared to $1.6 billion for the corresponding period of fiscal 2006. United States company-operated retail revenues increased 19 percent to $1.7 billion, primarily due to the opening of 1,065 new company-operated retail stores in the last 12 months and comparable store sales growth of four percent for the quarter. Comparable store sales growth was due to a five percent increase in the average value per transaction, which included the impact of price increases taken during the fiscal year, partially offset by a one percent decrease in number of transactions.

Total United States specialty revenues increased 16 percent to $201 million for the 13 weeks ended September 30, 2007, compared to $173 million in the corresponding period of fiscal 2006. United States licensing revenues in the fourth quarter 2007 increased 17 percent to $111 million from $95 million for the same period a year ago. The growth was primarily due to higher product sales and royalty revenues as a result of opening 723 new licensed retail stores in the last 12 months.

United States operating income increased 12 percent to $225 million for the 13 weeks ended September 30, 2007, from $201 million for the corresponding period in fiscal 2006. Operating margin decreased 70 basis points to 12.1 percent of related revenues from 12.8 percent in the corresponding period of fiscal 2006. The decrease was driven by higher cost of sales including occupancy costs, primarily due to higher dairy costs.

Fourth Quarter Results - International

International total net revenues increased 31 percent to $472 million for the 13 weeks ended September 30, 2007, compared to $361 million for the corresponding period of fiscal 2006. International company-operated retail revenues increased 32 percent to $399 million, primarily due to the opening of 277 new company-operated retail stores in the last 12 months, favorable foreign currency exchange for the British pound sterling and Canadian dollar, and comparable store sales growth of six percent for the quarter. The increase in comparable store sales resulted from a five percent increase in the number of customer transactions coupled with a one percent increase in the average value per transaction.

Total International specialty revenues increased by $13 million, or 23 percent, to $73 million for the 13 weeks ended September 30, 2007, compared to $59 million in the corresponding period of fiscal 2006. The growth was primarily due to higher product sales and royalty revenues from opening 506 licensed retail stores in the last 12 months.

International operating income increased to $51 million for the 13 weeks ended September 30, 2007, compared to $27 million in the corresponding period of fiscal 2006. Operating margin increased 350 basis points to 10.8 percent of related revenues from 7.3 percent in the corresponding period of fiscal 2006, primarily due to lower general and administrative expenses and lower store operating expenses as a percentage of related revenues, as well as higher income from equity investees.

Fourth Quarter Results - Global Consumer Products Group

For the Global Consumer Products Group (CPG), total net revenues increased by $33 million, or 44 percent, to $110 million for the 13 weeks ended September 30, 2007, compared to $76 million for the corresponding period of fiscal 2006. The increase in revenues was primarily due to higher sales of U.S. packaged coffee and tea and increased product sales and royalties in the international ready-to-drink business.

CPG operating income increased to $62 million for the 13 weeks ended September 30, 2007, compared to $47 million in the same period of fiscal 2006. Operating margin decreased to 56.9 percent of related revenues from 61.8 percent in fiscal fourth quarter 2006. Contraction of operating margin for the quarter was due to slower growth in income from equity investees from The North American Coffee Partnership, which produces ready-to-drink beverages.

Fourth Quarter Results - Unallocated Corporate Expenses

Total unallocated corporate expenses as a percentage of total net revenues improved to 3.7 percent for the 13-weeks ended September 30, 2007, from 3.8 percent for the corresponding period of fiscal 2006, primarily due to leverage from growth.

Cash Flow and Balance Sheet

For the 52 weeks ended September 30, 2007, net cash flow from operating activities totaled $1.3 billion, compared to $1.1 billion in the same period a year ago. Capital expenditures for fiscal year 2007 were $1.1 billion, of which approximately 80 percent was used to fund new store openings and existing store remodels.

On August 23rd, the company issued $550 million of 6.25% Senior Notes due in August 2017. The proceeds were primarily used to repay short-term borrowings and fund additional share repurchases.

During the fourth quarter, the company repurchased a total of 12.6 million shares at a cost of $342 million. During fiscal year 2007, Starbucks repurchased 33.0 million shares at a cost of $1.0 billion. At the end of the fiscal fourth quarter, 13.5 million shares remained available for repurchase under the current authorization.

Fiscal 2008 Targets

During the fourth quarter, Starbucks evaluated its plan for fiscal 2008 given the challenging operating environment. As a result, the company has established the following fiscal 2008 targets:

• The company has adjusted its new store opening target to approximately 2,500 net new stores on a global basis in fiscal 2008; approximately 900 company-operated locations and 700 licensed locations in the U.S., and approximately 300 company-operated stores and 600 licensed stores in international markets;
• Comparable store sales growth in the range of three to five percent;

• Total net revenue growth of approximately 17 to 18 percent;
• Total company operating margin to expand slightly year-over-year, with improvement expected to be in the second half of fiscal 2008;

• Diluted earnings per share in the range of $1.02 to $1.05 representing 17 percent to 21 percent growth, with earnings per share expansion expected to be greater in the second half of fiscal 2008;

• Effective tax rate in-line with fiscal 2007; and,
• Capital expenditures in-line with the $1.1 billion invested in fiscal 2007.

Pete Bocian, chief financial officer, commented, “Given the current economic environment, and the commodity costs that are not expected to ease until the latter part of the year, we expect EPS expansion to be greater in the second half of fiscal 2008.”

Conference Call

Starbucks will be holding a conference call today at 2:00 p.m. PST, which will be hosted by Jim Donald, president and ceo, Martin Coles, chief operating officer, and Pete Bocian, 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://investor.starbucks.com. A replay of the call will be available via telephone through 5:30 p.m. PST on Thursday, November 22, 2007, by calling 1-800-642-1687, reservation number 4132564. 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. PST on Friday, December 14, 2007, at the following URL: http://investor.starbucks.com.

The company’s consolidated statements of earnings, 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 14, 2006, as amended by Amendment No.1 to Annual Report on Form 10-K/A filed on December 21, 2006, for additional information.

About Starbucks

Starbucks Coffee Company provides an uplifting experience that enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time. To share in the experience, visit www.starbucks.com.

Forward-Looking Statements

This release includes forward-looking statements about trends in or expectations regarding: store openings, comparable store sales, net revenue, earnings per share, operating margin, commodity costs, effective tax rate, and capital expenditures. 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 1, 2006. The company assumes no obligation to update any of these forward-looking statements.

Segment Results

The tables below present reportable segment results net of intersegment eliminations (in thousands):

Fiscal Fourth Quarter 2007 Store Data

The company’s store data for the periods presented are as follows:

Starbucks Contact, Investor Relations:
JoAnn DeGrande, 206-318-7893
jdegrand@starbucks.com
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Starbucks Contact, Media:
Valerie O’Neil, 206-318-8953
voneil@starbucks.com
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