Starbucks 2006 Annual Report Download - page 24

continues to believe that the Company’s long-term goal of approximately 20,000 Starbucks retail locations throughout
the United States and at least 20,000 stores in International markets is achievable.
In addition to opening new retail stores, Starbucks works to increase revenues generated at new and existing Company-
operated stores by attracting new customers and increasing the frequency of visits by current customers. The strategy is to
increase comparable store sales by continuously improving the level of customer service, introducing innovative products
and improving speed with service through training, technology and process improvement.
Global comparable store sales for Company-operated markets increased by 7%, making fiscal 2006 the 15th consecutive
year with comparable store sales growth of 5% or greater. Comparable store sales growth for fiscal 2007 is expected to be
in the range of 3% to 7%.
In licensed retail operations, Starbucks shares operating and store development experience to help licensees improve the
profitability of existing stores and build new stores. Internationally, the Company’s strategy is to selectively increase its
equity stake in licensed international operations as these markets develop. In January 2006, the Company increased its
equity ownership from 5% to 100% in its operations in Hawaii and Puerto Rico, and subsequent to the end of fiscal 2006
purchased a 90% stake in its previously-licensed operations in Beijing, China.
The combination of more retail stores, comparable store sales growth of 7% and growth in other business channels in the
U.S., International, and CPG operating segments resulted in a 22% increase in total net revenues for fiscal 2006,
compared to fiscal 2005. The Company expects revenue growth of approximately 20% in fiscal 2007, consistent with its
three to five year revenue growth target.
Operating income as a percentage of total net revenues decreased to 11.5% in fiscal 2006 from 12.3% in fiscal 2005, due
to the recognition of stock-based compensation. Net earnings increased by 14% in fiscal 2006, compared to fiscal 2005.
Reported operating margin and net earnings include the effects of stock-based compensation in fiscal 2006, while stock-
based compensation expense was not included in the Company’s consolidated financial results in fiscal 2005.
ACQUISITIONS
In January 2006, Starbucks increased its equity ownership to 100% in its operations in Hawaii and Puerto Rico and
applied the consolidation method of accounting from the acquisition date. Previously the Company owned 5% of both
Coffee Partners Hawaii and Café del Caribe in Puerto Rico. Because Coffee Partners Hawaii was a general partnership,
the equity method of accounting was previously applied. Retroactive application of the equity method of accounting for
the Puerto Rico investment, which was previously accounted for under the cost method, resulted in a reduction of
retained earnings of $0.5 million as of April 2, 2006. The cumulative effect of the accounting change for financial results
previously reported under the cost method and as restated in this report under the equity method reduced net earnings by
$97 thousand for the fiscal year ended October 2, 2005 and $93 thousand for the fiscal year ended October 2, 2004.
Previously reported earnings per share amounts were not impacted.
On October 18, 2006, the Company acquired 90% equity ownership of the licensed operations of 61 Starbucks retail
stores in Beijing and Tianjin, China (See Note 20 “Subsequent Event”).
20 STARBUCKS CORPORATION, FORM 10-K