Starbucks 2003 Annual Report Download - page 5

16฀ Fiscal฀2003฀Annual฀Report
Fiscal฀2003฀Annual฀Report฀ 17
RESULTS฀OF฀OPERATIONS฀–฀FISCAL฀2003฀COMPARED฀TO฀FISCAL฀2002
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:
฀ Sept฀28,฀ Sept฀29,฀ Sept฀30,
฀ 2003฀ 2002฀ 2001
Fiscal฀year฀end฀ (52฀Wks)฀ (52฀Wks)฀ (52฀Wks)
STATEMENTS฀OF฀EARNINGS฀DATA
Net฀revenues:
฀ Retail ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 84.6%฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 84.9% ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 84.2%
฀ Specialty ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 15.4 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 15.1฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 15.8
Total฀net฀revenues฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀100.0 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀100.0฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀100.0
Cost฀of฀sales฀including฀occupancy ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 41.4 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 41.0฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 42.0
Store฀operating฀expenses฀(1)฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀40.0 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 39.7฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 38.9
Other฀operating฀expenses฀(2)฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀22.6 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 21.4฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 17.3
Depreciation฀and฀amortization฀expenses ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 5.8 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 6.3฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 6.2
General฀and฀administrative฀expenses ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 6.0 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 7.1฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 6.8
Income฀from฀equity฀investees ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.9 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 1.0฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 1.0
฀ ฀ Operating฀income ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 10.4 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 9.6฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 10.6
Interest฀and฀other฀income,฀net ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.3 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.3฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.4
Internet-related฀investment฀losses ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.0 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.0฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.1
Gain฀on฀sale฀of฀investment ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.0 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.4฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 0.0
Earnings฀before฀income฀taxes฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 10.7 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 10.3฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 10.9
Income฀taxes฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 4.1 ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3.8฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 4.1
฀ Net฀earnings ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 6.6%฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 6.5% ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 6.8%
(1) ฀฀ Shown฀as฀a฀percentage฀of฀retail฀revenues.
(2) ฀฀ Shown฀as฀a฀percentage฀of฀specialty฀revenues.
Consolidated฀Results฀of฀Operations
Net฀revenues฀for฀the฀fiscal฀year฀ended฀2003฀increased฀23.9%฀
to฀$4.1฀billion฀from฀$3.3฀billion฀for฀the฀corresponding฀period฀
in฀fiscal฀2002.฀During฀the฀fiscal฀year฀ended฀2003,฀Starbucks฀
derived฀ approximately฀ 85%฀ of฀ total฀ net฀ revenues฀ from฀ its฀
Company-operated฀ retail฀ stores.฀ Retail฀ revenues฀ increased฀
23.5%฀ to฀ $3.4฀ billion฀ for฀ the฀ fiscal฀ year฀ ended฀ 2003,฀ from฀
$2.8฀ billion฀ for฀ the฀ corresponding฀ period฀ of฀ fiscal฀ 2002.฀
This฀ increase฀ was฀ due฀ primarily฀ to฀ the฀ opening฀ of฀ 602฀
new฀ Company-operated฀ retail฀ stores฀ in฀ the฀ last฀ 12฀ months,฀
comparable฀store฀sales฀ growth฀ of฀ 8%฀ driven฀almost฀entirely฀
by฀ increased฀ transactions฀ and฀ the฀ July฀ 2003฀ acquisition฀ of฀
49฀ Seattle’s฀ Best฀ Coffee฀ and฀ 21฀ Torrefazione฀ Italia฀ stores.฀
Management฀believes฀increased฀customer฀traffic฀continues฀to฀
be฀driven฀by฀new฀product฀innovation,฀continued฀popularity฀
of฀ core฀ products,฀ a฀ high฀ level฀ of฀ customer฀ satisfaction฀ and฀
improved฀ speed฀ of฀ service฀ through฀ enhanced฀ technology,฀
training฀and฀execution฀at฀retail฀stores.
The฀ Company฀ derived฀ the฀ remaining฀ 15%฀ of฀ total฀ net฀
revenues฀ from฀ its฀ Specialty฀ Operations.฀ Specialty฀ revenues฀
increased฀ $129.9฀ million,฀ or฀ 26.2%,฀ to฀ $625.9฀ million฀ for฀
the฀ fiscal฀ year฀ ended฀ 2003,฀ from฀ $496.0฀ million฀ for฀ the฀
corresponding฀ period฀ in฀ fiscal฀ 2002.฀ Of฀ the฀ total฀ growth,฀
expanded฀ Starbucks฀ retail฀ licensing฀ operations฀ provided฀
$70.3฀million,฀or฀54.1%,฀broader฀distribution฀and฀additional฀
accounts฀ in฀ foodservice฀ provided฀ $24.5฀ million,฀ or฀ 18.9%,฀
and฀an฀increase฀in฀the฀grocery฀and฀warehouse฀club฀business฀
provided฀$22.0฀million,฀or฀16.9%.฀
Cost฀of฀sales฀and฀related฀occupancy฀costs฀increased฀to฀41.4%฀
of฀total฀net฀revenues฀in฀fiscal฀2003,฀from฀41.0%฀in฀fiscal฀2002.฀
The฀increase฀was฀primarily฀due฀to฀higher฀green฀coffee฀costs฀
and฀a฀shift฀in฀specialty฀revenue฀mix฀to฀lower฀margin฀products.฀
The฀ Company’s฀ green฀ coffee฀ costs฀ reached฀ an฀ historic฀ low฀
for฀Starbucks฀in฀the฀second฀and฀third฀fiscal฀quarters฀of฀2002฀
and฀have฀gradually฀increased฀since฀then.฀These฀increases฀were฀
partially฀offset฀by฀leverage฀gained฀on฀fixed฀occupancy฀costs฀
distributed฀over฀an฀expanded฀revenue฀base.฀
Store฀ operating฀ expenses฀ as฀ a฀ percentage฀ of฀ retail฀ revenues฀
increased฀to฀40.0%฀in฀fiscal฀2003,฀from฀39.7%฀in฀fiscal฀2002,฀
primarily฀ due฀ to฀ higher฀ payroll-related฀ and฀ advertising฀
expenditures.฀ Payroll-related฀ costs฀ have฀ increased฀ primarily฀
due฀to฀an฀increase฀in฀the฀number฀of฀partners฀who฀qualify฀for฀
the฀ Company’s฀ medical฀ and฀ vacation฀ benefits.฀ Advertising฀
expenditures฀increased฀in฀fiscal฀2003฀due฀to฀promotions฀for฀
new฀ and฀ existing฀ products.฀ These฀ increases฀ were฀ partially฀
offset฀by฀lower฀provisions฀for฀asset฀impairment฀for฀international฀
Company-operated฀retail฀stores฀in฀2003฀as฀compared฀to฀the฀
prior฀year.฀
Other฀ operating฀ expenses฀ (expenses฀ associated฀ with฀ the฀
Company’s฀ Specialty฀ Operations)฀ were฀ 22.6%฀ of฀ specialty฀
revenues฀ in฀ fiscal฀ 2003,฀ compared฀ to฀ 21.4%฀ in฀ fiscal฀ 2002,฀
primarily฀due฀to฀higher฀payroll-related฀expenditures฀to฀support฀
the฀ continued฀ development฀ of฀ the฀ Company’s฀ foodservice฀
distribution฀ network฀ and฀ international฀ infrastructure,฀
including฀regional฀offices฀and฀field฀personnel.
Depreciation฀and฀amortization฀expenses฀increased฀to฀$237.8฀
million฀ in฀ fiscal฀ 2003,฀ from฀ $205.6฀ million฀ in฀ fiscal฀ 2002,฀
primarily฀ due฀ to฀ opening฀ 602฀ Company-operated฀ retail฀
stores฀in฀the฀last฀12฀months฀and฀the฀refurbishment฀of฀existing฀
Company-operated฀retail฀stores.
General฀ and฀ administrative฀ expenses฀ increased฀ to฀ $244.6฀
million฀ in฀ fiscal฀ 2003,฀ compared฀ to฀ $234.6฀ million฀ in฀
fiscal฀2002,฀which฀included฀an฀$18.0฀million฀charge฀for฀the฀
litigation฀ settlement฀ of฀ two฀ California฀ class฀ action฀ lawsuits.฀
Excluding฀ the฀ litigation฀ charge,฀ general฀ and฀ administrative฀
expenses฀increased฀$28.0฀million฀from฀the฀comparable฀period฀
in฀fiscal฀2002฀due฀to฀higher฀payroll-related฀expenditures฀and฀
costs฀ related฀ to฀ the฀ acquisition฀ of฀ Seattle฀ Coffee฀ Company.฀
General฀and฀administrative฀expenses฀as฀a฀percentage฀of฀total฀
net฀revenues฀decreased฀to฀6.0%฀in฀fiscal฀2003,฀compared฀to฀
7.1%฀in฀fiscal฀2002.
Operating฀ income฀ increased฀ 34.3%฀ to฀ $424.7฀ million฀
in฀ fiscal฀ 2003,฀ from฀ $316.3฀ million฀ in฀ fiscal฀ 2002.฀ The฀
operating฀margin฀increased฀to฀10.4%฀of฀total฀net฀revenues฀in฀
fiscal฀2003,฀compared฀to฀9.6%฀in฀fiscal฀2002฀primarily฀due฀
to฀leverage฀gained฀on฀fixed฀costs฀spread฀over฀an฀expanding฀
revenue฀ base,฀ partially฀ offset฀ by฀ higher฀ green฀ coffee฀ costs,฀
as฀discussed฀above.
Income฀ from฀ equity฀ investees฀ was฀ $38.4฀ million฀ in฀ fiscal฀
2003,฀compared฀to฀$33.4฀million฀in฀fiscal฀2002.฀The฀increase฀
was฀ mainly฀ attributable฀ to฀ continued฀ strong฀ results฀ by฀
The฀North฀ American฀ Coffee฀ Partnership,฀ the฀ Company’s฀
50%฀ owned฀ ready-to-drink฀ partnership฀ with฀ the฀ Pepsi-
Cola฀ Company,฀ from฀ expanded฀ product฀ lines,฀ lower฀ direct฀
costs฀and฀manufacturing฀efficiencies.฀Partially฀offsetting฀this฀
increase฀ was฀ the฀ Company’s฀ proportionate฀ share฀ of฀ the฀ net฀
losses฀ of฀ Starbucks฀ Japan,฀ Ltd.฀ (“Starbucks฀ Japan”)฀ in฀ fiscal฀
2003,฀compared฀to฀a฀net฀profit฀in฀fiscal฀2002,฀primarily฀due฀
to฀lower฀average฀sales฀per฀store.