Starbucks 1999 Annual Report Download - page 4

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements set forth in this Annual Report, including anticipated store openings, planned
capital expenditures and trends in or expectations regarding the Company’s operations, specifically
including the effect of problems associated with the Year 2000, constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on currently available operating, financial and competitive information and
are subject to various risks and uncertainties. Actual future results and trends may differ
materially depending on a variety of factors, including, but not limited to, coffee and other raw
materials prices and availability, successful execution of internal performance and expansion plans,
the impact of competition, the effect of legal proceedings and other risks detailed herein and in
the Company’s annual and quarterly filings with the Securities and Exchange Commission.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Starbucks presently derives approximately 85% of net revenues from its Company-operated
retail stores. The remaining 15% of net revenues is derived from the Company’s specialty
operations, which include sales to wholesale accounts and licensees, royalty and license fee income
and sales through its direct-to-consumer business and its on-line store at www.starbucks.com.The
Company’s fiscal year ends on the Sunday closest to September 30. Fiscal year 1999 had 53 weeks,
and fiscal years 1998 and 1997 each had 52 weeks.The fiscal year ending on October 1, 2000, will
include 52 weeks.
The Company’s net revenues increased from $1.3 billion in fiscal 1998 to $1.7 billion in fiscal
1999, due primarily to the Company’s store expansion program and comparable store sales
increases. Comparable store sales increased by 6%, 5% and 5% in fiscal 1999, 1998 and 1997,
respectively. As part of its expansion strategy of clustering stores in existing markets, Starbucks
has experienced a certain level of cannibalization of existing stores by new stores as store
concentration has increased. However, management believes such cannibalization has been
justified by the incremental sales and return on new store investments. This cannibalization, as
well as increased competition and other factors, may continue to put downward pressure on the
Company’s comparable store sales growth in future periods.
The following table sets forth the percentage relationship to total net revenues, unless otherwise
indicated, of certain items included in the Company’s consolidated statements of earnings:
Fiscal year ended  ,   ,   , 
(53 Wks) (52 Wks) (52 Wks)
   
Net revenues
Retail 84.7 % 84.2 % 85.7 %
Specialty 15.3 15.8 14.3
Total net revenues 100.0 100.0 100.0
Cost of sales and related occupancy costs 44.1 44.2 44.8
Gross margin 55.9 55.8 55.2
Store operating expenses(1) 38.2 38.0 37.6
Other operating expenses(2) 20.0 21.1 20.3
Depreciation and amortization 5.8 5.5 5.4
General and administrative expenses 5.3 5.9 5.9
Merger expenses 0.0 0.7 0.0
Operating income 9.3 8.3 8.8
Interest and other income 0.5 0.7 1.3
Interest and other expense (0.0) (0.1) (0.7)
Earnings before income taxes 9.8 8.9 9.4
Income taxes 3.7 3.7 3.7
Net earnings 6.1 % 5.2 % 5.7 %
(1) Shown as a percentage of retail revenues.
(2) Shown as a percentage of specialty revenues.
.  STARBUCKS COFFEE COMPANY