Starbucks 2006 Annual Report Download - page 31

The Company derived the remaining 15% of total net revenues from channels outside the Company-operated retail
stores. Specialty revenues, which include licensing revenues and foodservice and other revenues, increased 17% to
$977 million for the fiscal year ended 2005, from $837 million for the 53-week period of fiscal 2004. Excluding the
impact of the extra week in fiscal 2004, total specialty revenues increased 19%.
Licensing revenues, which are derived from retail store licensing arrangements, as well as grocery, warehouse club and
certain other branded-product licensed operations, increased 19% to $673 million for the 52-week period of 2005, from
$566 million for the 53-week period of fiscal 2004. Excluding the impact of the extra week in fiscal 2004, total licensing
revenues increased 21%, primarily due to higher product sales and royalty revenues from the opening of 926 new licensed
retail stores in the last 12 months.
Foodservice and other revenues increased 12% to $304 million for the 52-week period of fiscal 2005, from $271 million
for the 53-week period of fiscal 2004. Excluding the impact of the extra week in fiscal 2004, foodservice and other
revenues increased 15%, primarily attributable to growth in new and existing U.S. and International foodservice accounts
and, to a lesser extent, growth in the Company’s emerging entertainment business.
Cost of sales including occupancy costs decreased to 40.9% of total net revenues in the 52-week period of fiscal 2005,
from 41.4% in the 53-week period of 2004. The decrease was primarily due to higher average revenue per retail
transaction, offset in part by higher initial costs associated with the continued expansion of a lunch program in Company-
operated retail stores. Approximately 3,800 Company-operated stores had the lunch program at the end of fiscal 2005,
compared to approximately 2,600 at the end of fiscal 2004.
Store operating expenses as a percentage of Company-operated retail revenues were 40.2% for both the 52-week period of
fiscal 2005 and the 53-week period of fiscal 2004, primarily due to higher average revenue per retail transaction in fiscal
2005, offset by higher payroll-related expenditures, as well as higher maintenance and repair expenditures to ensure a
consistent Starbucks Experience in existing stores. In order to facilitate ongoing retail store revenue growth, the Company
opened a higher number of Drive Thru locations over the past year and extended store operating hours, which
contributed to the higher payroll-related expenditures.
Other operating expenses, which are expenses associated with the Company’s Specialty Operations, decreased to 20.2%
of specialty revenues in the 52-week period of fiscal 2005, compared to 20.5% in the 53-week period of fiscal 2004. The
decrease was primarily due to lower expenditures within the grocery, warehouse club and foodservice businesses, partially
offset by higher payroll-related expenditures to support the Company’s emerging entertainment business and to support
the growth of Seattle’s Best Coffee licensed café operations.
Depreciation and amortization expenses increased to $340 million in the 52-week period of fiscal 2005, from
$289 million in the 53-week period of fiscal 2004. The increase was primarily from the opening of 746 new
Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and
amortization decreased to 5.3% for the 52 weeks ended October 2, 2005, from 5.5% for the corresponding 53-week
fiscal 2004 period.
General and administrative expenses increased to $357 million in the 52-week period of fiscal 2005, compared to
$304 million in the 53-week period of fiscal 2004. The increase was primarily due to higher payroll-related expenditures
in support of both domestic and international business growth and increased charitable donations to support multi-year
corporate commitments. As a percentage of total net revenues, general and administrative expenses decreased to 5.6% for
the 52 weeks ended October 2, 2005, from 5.7% for the 53 weeks ended October 3, 2004.
Income from equity investees increased to $77 million in the 52-week period of fiscal 2005, compared to $59 million in
the 53-week period of fiscal 2004. The increase was primarily due to volume-driven operating results for The North
American Coffee Partnership, which produces ready-to-drink beverages which include, among others, bottled
Frappuccino»coffee drinks and Starbucks DoubleShot»espresso drinks, and improved operating results from inter-
national investees, particularly in Japan and Korea, mainly as a result of new store openings.
STARBUCKS CORPORATION, FORM 10-K 27