Starbucks 2007 Annual Report Download - page 23

In setting targets for fiscal 2008, management’s goal was to balance the long-term opportunity for store growth with
the near-term realities of the challenging economic and operating environment. For fiscal 2008 the Company is
targeting:
• Opening approximately 2,500 new stores;
• Comparable store sales growth in the range of 3% to 5%;
• Total net revenue growth in the range of approximately 17% to 18%, to over $11 billion; and
• Earnings per share in the range of $1.02 to $1.05, representing 17% to 21% growth, with earnings per share
expansion expected to be greater in the second half of fiscal 2008.
In summary, management believes these targets are balanced for fiscal 2008. The Company intends to continue to
build out stores to take advantage of its global opportunity, to better execute in its U.S. business, to grow and deliver
significant margin expansion in its International business, and to deliver margin improvement for the Company on a
consolidated basis.
Operating Segment Overview
Starbucks has three reportable operating segments: United States, International and CPG.
The United States and International segments both include Company-operated retail stores, licensed retail stores
and foodservice operations. The United States segment has been operating significantly longer than the Interna-
tional segment and has developed deeper awareness of, and attachment to, the Starbucks brand and stores among its
customer base. As a result, the United States segment has significantly more stores, and higher total revenues than
the International segment. Average sales per store are also higher in the United States due to various factors
including length of time in market and local income levels. Further, certain market costs, particularly occupancy
costs, are lower in the United States segment compared to the average for the International segment, which
comprises a more diverse group of operations. As a result of the relative strength of the brand in the United States
segment, the number of stores, the higher unit volumes, and the lower market costs, the United States segment has a
higher operating margin than the less-developed International segment.
The Company’s International store base continues to increase rapidly and Starbucks is achieving a growing
contribution from established international markets while at the same time investing in emerging markets, such as
China, Brazil and Russia. The Company’s newer international markets require a more extensive support organi-
zation, relative to the current levels of revenue and operating income.
The CPG segment includes the Company’s grocery and warehouse club business as well as branded products
operations worldwide. The CPG segment operates primarily through joint ventures and licensing arrangements with
large consumer products business partners, most significantly The North American Coffee Partnership with the
Pepsi-Cola Company for distribution of ready-to-drink beverages, and with Kraft Foods Inc. for distribution of
packaged coffees and teas. This operating model allows the CPG segment to leverage the business partners’ existing
infrastructures and to extend the Starbucks brand in an efficient way. Most of the customer revenues from the ready-
to-drink and packaged coffee channels are recognized as revenues by the joint venture or licensed business partner,
not by the CPG segment, and the proportionate share of the results of the Company’s joint ventures are included on a
net basis in “Income from equity investees” on the consolidated statements of earnings. As a result, the CPG
segment reflects relatively lower revenues, a modest cost structure, and a resulting higher operating margin,
compared to the Company’s other two reporting segments, which consist primarily of retail stores.
Expenses pertaining to corporate administrative functions that support the operating segments but are not
specifically attributable to or managed by any segment are not included in the reported financial results of the
operating segments. These unallocated corporate expenses include certain general and administrative expenses,
related depreciation and amortization expenses and amounts included in “Net interest and other income” on the
consolidated statements of earnings.
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