Starbucks 2005 Annual Report Download - page 31

RESULTS OF OPERATIONS Ì FISCAL 2004 COMPARED TO FISCAL 2003
Consolidated Results of Operations
Net revenues for the fiscal year ended 2004 increased 30% to $5.3 billion from $4.1 billion for the 52-week
period of fiscal 2003. Net revenues increased 27% when calculated on a comparative 52-week basis for both
fiscal 2004 and 2003.
During the fiscal year ended 2004, Starbucks derived 84% of total net revenues from its Company-operated
retail stores. Company-operated retail revenues increased 29% to $4.5 billion for the fiscal year ended 2004,
from $3.4 billion for the 52-week period of fiscal 2003. Company-operated retail revenues increased 27% when
calculated on a comparative 52-week basis for both fiscal 2004 and 2003. This increase was primarily due to
the opening of 634 new Company-operated retail stores in the last 12 months and comparable store sales
growth of 10%. The increase in comparable store sales was due to a 9% increase in the number of customer
transactions and a 1% increase in the average value per transaction. Comparable store sales growth
percentages were calculated excluding the extra week of fiscal 2004.
The Company derived the remaining 16% of total net revenues from its Specialty Operations. Specialty
revenues, which include licensing revenues and foodservice and other revenues, increased 34% to $837 million
for the fiscal year ended 2004, from $626 million for the 52-week period of fiscal 2003. Excluding the impact
of the extra sales week in fiscal 2004, total specialty revenues increased 31% to $820 million.
Licensing revenues increased 38% to $566 million for the fiscal year ended 2004, from $410 million for the
52-week period of fiscal 2003. The increase was due to higher product sales and royalty revenues from the
addition of 710 new licensed retail stores in the last 12 months and growth in the grocery and warehouse club
businesses. The growth in the grocery and warehouse club businesses was a result of expanded agreements
with Kraft Foods, Inc., which included the addition of six new Starbucks coffees along with a selection of
Tazo» teas, and the acquisition of Seattle Coffee Company in the fourth quarter of fiscal 2003.
Foodservice and other revenues increased 25% to $271 million for the fiscal year ended 2004, from
$216 million for the 52-week period of fiscal 2003. The increase was primarily attributable to the growth in
new and existing foodservice accounts, which benefited from the July 2003 acquisition of Seattle Coffee
Company.
Cost of sales including occupancy costs increased to 41.4% of total net revenues in fiscal 2004, from 41.3% in
fiscal 2003. The increase was primarily due to higher dairy and green coffee commodity costs, partially offset
by leverage gained on occupancy costs, which are primarily fixed expenses.
Store operating expenses as a percentage of Company-operated retail revenues increased to 40.2% in fiscal
2004, from 40.0% in fiscal 2003, primarily due to higher marketing expenditures for holiday and new product
promotions, as well as increased costs to maintain retail stores and equipment due to sustained high traffic
levels.
Other operating expenses (expenses associated with the Company's Specialty Operations) decreased to 20.5%
of specialty revenues in fiscal 2004, compared to 22.6% in fiscal 2003. The decrease was primarily due to
leverage gained on payroll-related expenditures distributed over an expanded revenue base.
Depreciation and amortization expenses increased to $289 million in fiscal 2004, from $245 million in fiscal
2003. The increase was primarily due to a net increase of 634 new Company-operated retail stores in the last
12 months and higher depreciation expenses associated with shortened estimated useful lives of equipment
deployed in the Company's foodservice operations. As a percentage of total net revenues, depreciation and
amortization decreased to 5.5% for the 53 weeks ended October 3, 2004, from 6.0% for the corresponding
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