10-KPeriod: FY2007

STARBUCKS CORP Annual Report, Year Ended Sep 30, 2007

Filed November 29, 2007For Securities:SBUX

Summary

Starbucks Corporation's 2007 10-K filing reveals a company experiencing robust growth, driven primarily by a significant increase in company-operated retail stores, which now number over 8,500 globally. Net revenues saw a substantial 21% increase, reaching $9.4 billion, fueled by both company-operated retail and specialty operations. The international segment showed particularly strong momentum, with a 32% increase in company-operated retail revenue. However, the filing also highlights growing challenges, particularly in the U.S. market, where a flattening transaction count and negative traffic trends were observed, attributed to economic slowdown and price increases. The company also faced increased operating costs, notably with dairy expenses rising significantly. Despite these headwinds, Starbucks management expressed confidence in its strategy to focus on operational excellence, innovation, and efficiency to navigate the challenging economic environment and achieve targeted growth for fiscal year 2008.

Financial Highlights

30 data points
Beta

Revenue

$9.41B

57.5% Gross Margin

Net Income

$672.60M

7.1% Net Margin

EPS (Diluted)

$0.43

Cash & Equivalents

$281.30M

Free Cash Flow

$250.90M

Financial Statements
Beta
Revenue$9.41B
Cost of Revenue$4.00B
Gross Profit$5.41B
Operating Expenses$8.47B
Operating Income$1.05B
Interest Expense$38.00M
Net Income$672.60M
EPS (Basic)$0.45
EPS (Diluted)$0.43
Shares Outstanding (Basic)1.50B
Shares Outstanding (Diluted)1.54B

Key Highlights

  • 1Net revenues increased by 21% to $9.4 billion in fiscal year 2007.
  • 2Company-operated retail stores grew by 1,342 to a total of 8,505 globally.
  • 3International segment demonstrated strong growth with a 30% increase in total net revenues.
  • 4U.S. market experienced a 19% increase in net revenues but faced declining transaction trends.
  • 5Operating margin slightly contracted to 11.2% from 11.5% due to higher costs, particularly dairy.
  • 6Net earnings increased by 19% to $673 million, with diluted EPS rising to $0.87.
  • 7Starbucks continued its share repurchase program, repurchasing approximately 12.6 million shares during fiscal year 2007.

Frequently Asked Questions

Starbucks' revenue growth in fiscal year 2007 was primarily driven by the opening of 1,342 new company-operated retail stores and a 5% increase in comparable store sales, which was achieved through a 4% increase in average transaction value and a 1% increase in customer transactions. Growth in specialty operations, including licensing and foodservice, also contributed significantly.

In the U.S. market, Starbucks faced challenges including a flattening transaction count and negative traffic trends, which management attributed to the U.S. economic slowdown and two price increases implemented during the year. The company also experienced significant increases in operating costs, particularly for dairy.

Starbucks experienced higher costs of sales including occupancy costs due to a shift in sales mix to higher-cost products, increased distribution costs, higher rent, and higher dairy costs. While some of these were offset by leveraging general and administrative expenses and store operating expenses, the overall impact led to a slight contraction in operating margin.

For fiscal year 2008, Starbucks is targeting opening approximately 2,500 new stores, comparable store sales growth of 3% to 5%, total net revenue growth of 17% to 18% (exceeding $11 billion), and earnings per share between $1.02 to $1.05, representing 17% to 21% growth.