Starbucks 2004 Annual Report Download - page 9

20 Fiscal 2004 Annual Report
United States
The Company’s United States operations (“United States”)
represent 85% of Company-operated retail revenues, 83% of
total specialty revenues and 85% of total net revenues. United
States operations sell coffee and other beverages, whole bean
coffees, complementary food, coffee brewing equipment and
merchandise primarily through Company-operated retail stores.
Specialty Operations within the United States include licensed
retail stores and other licensing operations, foodservice accounts
and other initiatives related to the Company’s core businesses.
United States total net revenues increased by $1.0 billion, or
29.3%, to $4.5 billion for the fi scal year ended 2004, compared
to $3.5 billion for the 52-week period of fi scal 2003. Excluding
the impact of the extra sales week in fi scal 2004, United States
total net revenues increased 26.8% to $4.4 billion. United States
Company-operated retail revenues increased by $835 million, or
28.1%, to $3.8 billion for the fi scal year ended 2004, compared
to $3.0 billion for the 52-week period of fi scal 2003, primarily
due to the opening of 514 new Company-operated retail stores
during the previous 12 months and comparable store sales
growth of 11%. The increase in comparable store sales was due
to a 10% increase in the number of customer transactions and a
1% increase in the average value per transaction. Management
believes increased customer traffi c 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. Excluding the impact of the extra sales week in
fi scal 2004, United States Company-operated retail revenues
increased 25.7% to $3.7 billion.
Total United States specialty revenues increased $184 million,
or 36.2%, to $690 million for the fi scal year ended 2004,
compared to $507 million in the 52-week period of fi scal
2003. Excluding the impact of the extra sales week in fi scal
2004, United States specialty revenues increased 33.4% to
$676 million. United States licensing revenues increased
$136 million, or 45.1%, to $437 million, compared to $301
million for the 52-week period of fi scal 2003. The increase
was primarily due to volume-driven growth in the grocery and
warehouse club businesses as a result of expanded agreements
with Kraft Foods, Inc., including the addition of six new
Starbucks coffees along with a selection of Tazo® teas. In
addition, product sales and royalty revenues increased as a
result of opening 417 new licensed retail stores during the
previous 12 months. Foodservice and other revenues increased
$48 million, or 23.3%, to $254 million from $206 million
in fi scal 2003, due to both the addition of new and existing
Starbucks and Seattle Coffee Company foodservice accounts.
United States operating income increased by 26.1% to $765
million for the fi scal year ended 2004, from $607 million for
the fi scal year ended 2003. Operating margin decreased to
17.0% of related revenues from 17.5% in the 52-week period
of fi scal 2003, primarily due to higher dairy and green coffee
commodity costs, as well as higher payroll-related expenditures
to support the Company’s accelerated retail store growth.
These increases were partially offset by leverage gained on fi xed
occupancy costs distributed over an expanded revenue base.
International
The Company’s international operations (“International”)
represent the remaining 15% of Company-operated retail
revenues, 17% of total specialty revenues and 15% of total net
revenues. International sells coffees and other beverages, whole
bean coffees, complementary food, coffee brewing equipment
and merchandise through Company-operated retail stores
in Canada, the United Kingdom, Thailand, Australia and
Singapore, as well as through retail store licensing operations
and foodservice accounts in these and more than 20 other
countries. International operations are in various early stages of
development and have country-specifi c regulatory requirements
that necessitate a more extensive support organization, relative to
the current levels of revenue and operating income, than in the
United States.
International total net revenues increased $200 million, or
33.2%, to $803 million for the fi scal year ended 2004, compared
to $603 million for the 52-week period of fi scal 2003. Excluding
the impact of the extra sales week in fi scal 2004, International
total net revenues increased 30.6%. International Company-
operated retail revenues increased $173 million, or 35.7%, to
$657 million for the fi scal year ended 2004, compared to $484
million for the 52-week period of fi scal 2003. The increase was
primarily due to the opening of 120 new Company-operated
retail stores during the previous 12 months, the weakening
of the U.S. dollar against both the British pound sterling and
Canadian dollar, and comparable store sales growth of 6%. The
increase in comparable store sales resulted from a 5% increase in
the number of customer transactions and a 1% increase in the
average value per transaction. Excluding the impact of the extra
sales week in fi scal 2004, International Company-operated
retail revenues increased 33.0% to $644 million.
Total International specialty revenues increased $27 million, or
22.9%, to $146 million for the fi scal year ended 2004, compared
to $119 million for the 52-week period of fi scal 2003. Excluding
the impact of the extra sales week in fi scal 2004, International
specialty revenues increased 20.6% to $144 million. The increase
was primarily due to higher product sales and royalty revenues
from opening 293 new licensed retail stores during the previous
12 months, partially offset by proportionate eliminations of
sales to equity investees in which the Company increased its
ownership interest in late fi scal 2003.
International operating income increased to $53 million for the
fi scal year ended 2004, compared to $5 million in the 52-week
period of fi scal 2003. Operating margin increased to 6.6% of
related revenues from 0.9% in the 52-week period of fi scal 2003,
primarily due to leverage gained on most fi xed costs distributed
over an expanded revenue base.
Unallocated Corporate
Unallocated corporate expenses pertain to certain functions,
such as executive management, accounting, administration,
tax, treasury and information technology infrastructure,
that support but are not specifi cally attributable to the
Company’s operating segments and include related depreciation
and amortization expenses. Unallocated corporate expenses
increased to $208 million for the fi scal year ended 2004, from
$187 million in the 52-week period of fi scal 2003, primarily due
to higher provisions for incentive compensation based on the
Company’s performance and other payroll-related expenditures.
Total unallocated corporate expenses as a percentage of total
net revenues decreased to 3.9% for the fi scal year ended 2004,
compared to 4.6% for the 52-week period of fi scal 2003.
RESULTS OF OPERATIONS – FISCAL 2003
COMPARED TO FISCAL 2002
Consolidated Results of Operations
Net revenues for the fi scal year ended 2003 increased 23.9% to
$4.1 billion, from $3.3 billion for the corresponding fi scal 2002
period. During the fi scal year ended 2003, Starbucks derived
85% of total net revenues from its Company-operated retail
stores. Company-operated retail revenues increased 23.5% to
$3.4 billion for the fi scal year ended 2003, from $2.8 billion
for the corresponding fi scal 2002 period. This increase was due
primarily to the opening of 602 new Company-operated retail
stores during the previous 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