10-KPeriod: FY2006

STARBUCKS CORP Annual Report, Year Ended Oct 1, 2006

Filed December 14, 2006For Securities:SBUX

Summary

Starbucks Corporation's 2006 10-K filing highlights a year of robust financial performance, primarily driven by aggressive store expansion and consistent comparable store sales growth. The company reported a 22% increase in total net revenues, reaching $7.8 billion, fueled by the opening of 2,199 new retail locations globally and a 7% increase in comparable store sales for Company-operated markets, marking the 15th consecutive year of 5% or greater growth. Strategic initiatives focused on balancing core business growth with future expansion, including selective increases in equity stakes in international licensed operations. The company also saw growth in its specialty businesses and Consumer Packaged Goods (CPG) segment. While operating income margin saw a slight decrease to 11.5% from 12.3% due to the recognition of stock-based compensation, net earnings rose by 14%. Starbucks anticipates continued strong revenue growth, projecting approximately 20% for fiscal 2007, supported by plans to open around 2,400 new stores.

Key Highlights

  • 1Total net revenues increased by 22% to $7.8 billion in fiscal 2006.
  • 2Opened 2,199 new stores globally in fiscal 2006, with plans for approximately 2,400 in fiscal 2007.
  • 3Achieved 7% comparable store sales growth in Company-operated markets, the 15th consecutive year of 5%+ growth.
  • 4Operating income margin decreased slightly to 11.5% from 12.3% due to stock-based compensation expenses.
  • 5Net earnings increased by 14% to $564.3 million.
  • 6Expanded international presence through acquisitions, including a 90% stake in Beijing and Tianjin operations.
  • 7Expects continued strong revenue growth of approximately 20% in fiscal 2007.

Frequently Asked Questions

The primary driver of revenue growth was the opening of new retail stores, both Company-operated and licensed. Starbucks opened 2,199 new stores in fiscal 2006, contributing significantly to the 22% increase in total net revenues.

Starbucks adopted the fair value recognition provisions of SFAS 123R in fiscal 2006, which led to the recognition of stock-based compensation expense. This expense contributed to a decrease in the operating margin to 11.5% from 12.3% in the prior year and increased operating expenses in Company-operated retail, Specialty Operations, and General and Administrative expenses.

Starbucks plans to open approximately 2,400 new stores in fiscal 2007, continuing its aggressive global expansion strategy aimed at achieving its long-term goal of approximately 20,000 stores in the U.S. and at least 20,000 internationally.

International net revenues increased by 27% to $1.3 billion in fiscal 2006. This growth was driven by the opening of 230 new Company-operated stores, 8% comparable store sales growth, and the weakening of the U.S. dollar against certain foreign currencies. Operating income for international operations also saw a significant increase of 31.8%.