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STARBUCKS CORP Annual Report, Year Ended Sep 29, 2002

Filing Date
Filed December 20, 2002
Period End
September 29, 2002
Security
SBUX
In the record · 2016–202610-K1010-Q348-K147

SBUX filed 10 annual reports (10-K), 34 quarterly reports (10-Q) and 147 current reports (8-K) between 2016 and 2026.

  1. Deal closed8-K · Jan ’18Jan ’18
  2. FY2019 annual report10-K · Nov ’19Nov ’19
  3. Leadership change8-K · Feb ’22Feb ’22
  4. Leadership change8-K · Nov ’25Nov ’25

01—Abstract

Summary

Summary of the 10-K filed December 20, 2002. Cited figures are marked; the original filing is the authoritative source.

Starbucks' fiscal 2002 10-K (fiscal year ended September 29, 2002) shows a company still in rapid expansion with strong top-line growth and improving profitability.

Total net revenues rose 24% to $3.29 billiona, driven by 614 new Company-operated stores and a 6% consolidated comparable store sales increase (North America +7%, International -3%). Net earnings grew 19% to $215.1 million, and diluted EPS rose to $0.54 from $0.46. Retail accounted for about 85% of revenue, with the remaining 15% from Specialty Operations such as the Pepsi-partnered bottled Frappuccino, Dreyer's ice cream, grocery channel licensing with Kraft, and licensed stores.

Margin trends were mixed. Cost of sales improved to 41.0% of revenue from 42.0%, helped by sales mix shifting toward higher-margin beverages and lower green coffee costs. However, operating margin contracted to 9.7% from 10.6% because store operating expenses rose to 40.1% of retail revenue (from 39.3%), with higher payroll costs, rent, and $26.0 millionb in store asset impairments.

Management also flagged that it does not expect a further benefit from lower coffee costs in fiscal 2003, since it has shifted to higher fixed-price contracts. The company also recorded an $18.0 millionc charge to settle two California class action lawsuits. Balance sheet and cash flow remain strong.

Operating cash flow was $477.7 milliond against $375.5 million in capital expenditures, leaving the company with $402.2 million in cash and short-term investments and working capital of $310.0 million. The company has no dividend and is repurchasing shares under a 10 million share authorization, with about 7.9 million shares remaining.

Management plans to open at least 1,200 new stores in fiscal 2003 and expects capital spending of roughly $425 million. Key risks include coffee price volatility, possible downward pressure on comparable store sales from cannibalization, and rising occupancy costs.

02—Key points

Key Highlights

  1. Total net revenues grew 24% to $3.29 billion, with 1,177 systemwide stores opened during the year to reach 5,886 stores
  2. Net earnings rose 19% to $215.1 million; diluted EPS of $0.54 vs. $0.46 in fiscal 2001
  3. Consolidated comparable store sales up 6%, led by North America at +7%, while International fell 3%
  4. Operating margin declined to 9.7% from 10.6% due to higher store operating costs and $26.0 million in store impairments, despite lower cost of sales (41.0% vs. 42.0%)
  5. Strong liquidity: $477.7 million operating cash flow, $402.2 million cash and short-term investments, and no debt of significance ($5.8 million long-term debt)
  6. Fiscal 2003 plan: at least 1,200 new stores and roughly $425 million in capital expenditures, with $242.2 million in fixed-price green coffee commitments
  7. $18.0 million litigation charge for settlement of two California class action lawsuits, with most payments expected in fiscal Q2 2003

03—Questions

Frequently Asked Questions

  1. Is Starbucks' growth translating into stronger profitability?

    Partly. Net earnings and diluted EPS grew 19% and 17%, respectively, on 24% revenue growth. However, operating margin fell to 9.7% from 10.6%, as store operating expenses, labor, rent, and impairments grew faster than revenue, so profit growth lagged sales growth.

  2. How much is comparable store growth contributing, and is it sustainable?

    Consolidated comparable store sales rose 6%, with North America at 7% driven by higher transaction volume. Management warned that cannibalization from clustered new stores, competition, and a slowing economy could pressure future comparable sales growth.

  3. What are the main risks from coffee prices?

    Green coffee prices are volatile, and the company has moved away from formula-based pricing toward higher fixed-price contracts, so it will not benefit from lower coffee costs in fiscal 2003. Starbucks has $242.2 million in fixed-price commitments, and management says non-delivery risk is low, but its ability to pass on higher coffee costs through price increases may be limited.

  4. How strong is the balance sheet and how will capital be deployed?

    The company is nearly debt-free, with $402.2 million in cash and short-term investments and working capital of $310.0 million. Fiscal 2003 capital spending is planned at about $425 million to fund new stores, remodels, and production capacity, and the company has 7.9 million shares left under its repurchase authorization.

  5. Did the California class action lawsuits have a material impact?

    The settlement cost $18.0 million, recorded in general and administrative expenses in fiscal 2002. The court approved it on December 17, 2002. Management does not consider any pending proceedings material.

04—Continue

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