01—Abstract
Summary
Summary of the 10-K filed November 24, 2008. Cited figures are marked; the original filing is the authoritative source.
Starbucks Corporation's 2008 10-K filing reveals a challenging year marked by declining comparable store sales, particularly in the U.S. This was primarily attributed to softer customer traffic, exacerbated by economic headwinds like rising energy costs, unemployment, and the global financial crisis.
In response, the company initiated a significant transformation strategy, including the closure of approximately 600 underperforming U.S. stores and a reduction in leadership and non-store positions. Despite these headwinds, Starbucks continued its global expansion, with a net increase of 681 Company-operated stores in the U.S. and 236 internationally. Specialty operations, including licensing and foodservice, also showed growth.
However, overall profitability was impacted by significant restructuring charges of $266.9 milliona. The company anticipates a challenging fiscal year 2009, forecasting flat total revenues and negative comparable store sales, but aims to improve operating income through cost reductions resulting from the restructuring efforts.
02—Key points
Key Highlights
- Fiscal 2008 saw a 5% decline in comparable store sales in the U.S., with a 5% decline in the fourth quarter, signaling a significant downturn in customer traffic.
- Starbucks announced a major strategic initiative, including the closure of approximately 600 underperforming U.S. stores by the end of fiscal 2009, impacting around 1,000 positions in the non-store organization.
- Consolidated net revenues increased by 10.3% to $10.38 billion, driven by both Company-operated retail stores and specialty operations, despite same-store sales challenges.
- Operating income significantly decreased by 52.2% to $503.9 million, with operating margin declining from 11.2% to 4.9%, heavily impacted by $266.9 million in restructuring charges.
- Earnings Per Share (EPS) diluted dropped to $0.43 from $0.87 in the prior year, largely due to the restructuring charges and weaker sales performance.
- International segment revenues grew by 24.0%, outperforming the U.S. segment's 7.3% growth, indicating stronger performance in global markets, though the UK and Canada also experienced slowdowns.
- The company's stock performance from September 2003 to September 2008 showed a decline of approximately 23% relative to a $100 initial investment, underperforming major indices like the S&P 500.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Starbucks Corp kept $0.03.
- Revenue$10.38B100.0%
- Cost of revenue−$4.65B44.7%
- Gross profit$5.74B55.3%
- Operating costs−$5.23B50.4%
- Operating income$503.9M4.9%
- Interest, other & tax−$188.4M1.8%
- Net income$315.5M3.0%
Where FY2008 revenue went
$10.38B- Operating costs: $5.23B, 50% of revenue
- Cost of revenue: $4.65B, 45% of revenue
- Net income: $315.5M, 3.0% of revenue
- Interest, other & tax: $188.4M, 1.8% of revenue
Kept 3.0% as net incomeNet income $315.5M · 3.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed November 24, 2008Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $10.38B$9.41B | +10.3% |
| Cost of Revenue | $4.65B$4.00B | +16.2% |
| Gross Profit | $5.74B$5.41B | +6.0% |
| Operating Expenses | $9.99B$8.47B | +18.0% |
| Operating Income | $503.90M$1.05B | −52.2% |
| Interest Expense | $53.40M$38.00M | +40.5% |
| Net Income | $315.50M$672.60M | −53.1% |
| EPS (Basic) | $0.21$0.45 | −52.2% |
| EPS (Diluted) | $0.21$0.43 | −50.6% |
| Shares Outstanding (Basic) | 1.46B1.50B | −2.4% |
| Shares Outstanding (Diluted) | 1.48B1.54B | −3.7% |
05—Questions
Frequently Asked Questions
What were the primary reasons for Starbucks' financial performance decline in fiscal year 2008?
The primary reasons for the financial performance decline in fiscal year 2008 were a significant drop in customer traffic in U.S. stores, leading to a 5% decrease in comparable store sales. This was exacerbated by a challenging macroeconomic environment, including rising energy costs, increased unemployment, and the broader global financial crisis, which reduced consumer discretionary spending.
What major strategic actions did Starbucks undertake in response to the challenging environment?
Starbucks initiated a comprehensive transformation strategy. Key actions included closing approximately 600 underperforming U.S. stores, restructuring operations in Australia by closing 61 stores, and reducing about 1,000 positions in its leadership and non-store organization to rationalize its infrastructure. The company also focused on re-igniting customer connection through new product offerings like Pike Place Roast and an improved in-store experience.
How did the store count change in fiscal year 2008?
Starbucks experienced net store growth globally. In the U.S., there was a net increase of 445 Company-operated stores. Internationally, there was a net increase of 236 Company-operated stores. In total, the company operated 9,217 Company-operated stores and 7,463 licensed stores worldwide by the end of fiscal year 2008.
What is Starbucks' outlook for fiscal year 2009?
Starbucks anticipates a very difficult economic environment to continue through fiscal 2009. The company expects negative comparable store sales and forecasts total revenues to be relatively flat compared to fiscal 2008. Earnings will be impacted by restructuring costs, but the company expects an estimated pre-tax benefit of $200 million to $210 million from store closures and head count reductions.
06—Continue