10-KPeriod: FY2005

STARBUCKS CORP Annual Report, Year Ended Oct 2, 2005

Filed December 16, 2005For Securities:SBUX

Summary

Starbucks Corporation's 2005 10-K report highlights a year of robust growth and strategic expansion. The company demonstrated strong financial performance, driven primarily by its extensive network of Company-operated retail stores, which accounted for 85% of total net revenues. This segment saw significant growth through the opening of 735 new stores and an 8% increase in comparable store sales, underscoring the continued appeal of the "Starbucks Experience." Specialty Operations also contributed positively, representing 15% of net revenues and encompassing licensing, foodservice, and other initiatives that further leverage the Starbucks brand. The company's strategic focus remains on global brand recognition and rapid retail expansion, with ambitious long-term goals for store growth in both the U.S. and international markets. Starbucks is actively managing its supply chain and commodity costs, particularly for coffee and dairy, and is exploring new product innovations and distribution channels. Despite strong performance, the company acknowledges risks associated with its dependence on the U.S. market, intense competition, and the challenges of managing rapid international growth. Overall, the filing indicates a company on a strong growth trajectory, with a clear strategy for continued expansion and brand development.

Key Highlights

  • 1Total net revenues increased by 20% to $6.4 billion in fiscal year 2005.
  • 2Company-operated retail stores accounted for 85% of total net revenues, with 735 new stores opened in fiscal year 2005, bringing the total to 6,000.
  • 3Comparable store sales for Company-operated stores increased by 8% globally, marking the 14th consecutive year of 5% or greater growth.
  • 4Specialty Operations contributed 15% of total net revenues, growing 17% year-over-year.
  • 5The company acquired majority equity stakes in licensed operations in Germany, Southern China, and Chile for $41 million.
  • 6Starbucks has a long-term goal of opening approximately 15,000 stores in the United States and at least 15,000 stores internationally.
  • 7The company had $375 million in fixed-price purchase commitments for green coffee, expected to provide adequate supply through fiscal 2006.

Frequently Asked Questions

The primary driver of Starbucks' revenue growth in fiscal year 2005 was the opening of new retail stores, both Company-operated and licensed. The company opened 735 new Company-operated stores and 937 new licensed stores, alongside an 8% increase in comparable store sales for Company-operated stores.

Starbucks controls its coffee purchasing, roasting, and distribution to ensure quality. The company uses fixed-price purchase commitments to secure an adequate supply of quality green coffee and to provide cost certainty. As of October 2, 2005, Starbucks had $375 million in such commitments, expected to cover supply through fiscal 2006. They also manage commodity price volatility through strategic supplier relationships and hedging strategies.

Key risks identified by Starbucks include high market expectations for financial performance, dependence on the U.S. operating segment, intense competition in the specialty coffee market, the challenge of managing rapid growth (especially internationally), brand value protection, potential adverse public opinion on health effects of products, and volatility in commodity prices like coffee and dairy. They also note risks related to international expansion, particularly in markets like China.

Starbucks aims to establish its brand globally through rapid retail expansion. For international markets, the strategy involves selectively increasing equity stakes in licensed operations as they develop, leveraging local partners' expertise while sharing Starbucks' operating and store development experience. The company believes its long-term goal of at least 15,000 stores internationally is achievable.