Starbucks 2007 Annual Report Download - page 25

Consolidated Results of Operations
Net revenues for the fiscal year ended 2007, increased 21% to $9.4 billion from $7.8 billion for fiscal 2006, driven
by increases in both Company-operated retail revenues and specialty operations.
During the fiscal year ended 2007, Starbucks derived 85% of total net revenues from its Company-operated retail
stores. Company-operated retail revenues increased 21% to $8.0 billion for the fiscal year ended 2007, from
$6.6 billion for fiscal 2006. The increase was primarily attributable to the opening of 1,342 new Company-operated
retail stores in the last 12 months and comparable store sales growth of 5% for the fiscal year ended 2007. The
increase in comparable store sales was due to a 4% increase in the average value per transaction and a 1% increase in
the number of customer transactions.
The Company derived the remaining 15% of total net revenues from channels outside the Company-operated retail
stores, collectively known as specialty operations. Specialty revenues, which include licensing revenues and
foodservice and other revenues, increased 17% to $1.4 billion for the fiscal year ended 2007, from $1.2 billion for
fiscal 2006.
Licensing revenues, which are derived from retail store licensing arrangements as well as grocery, warehouse club
and certain other branded-product operations, increased 19% to $1.0 billion for the fiscal year ended 2007, from
$861 million for fiscal 2006. The increase was primarily due to higher product sales and royalty revenues from the
opening of 1,229 new licensed retail stores in the last 12 months and a 20% increase in licensing revenues from the
Company’s CPG business.
Foodservice and other revenues increased 13% to $387 million for the fiscal year ended 2007, from $343 million for
fiscal 2006. The increase was primarily attributable to growth in new and existing accounts in the U.S. foodservice
business.
Cost of sales including occupancy costs increased to 42.5% of total net revenues for the fiscal year ended 2007,
compared to 40.8% for fiscal 2006. The increase was primarily due to a shift in sales mix to higher cost products, the
rise in distribution costs, higher rent expense and higher dairy costs. Dairy expense for the U.S. segment represents
approximately 75% of the total Company’s dairy expense. For the U.S. segment the average dairy costs per gallon
rose 10% in fiscal 2007 compared to fiscal 2006, resulting in approximately $20 million of additional expense.
Store operating expenses as a percentage of Company-operated retail revenues decreased to 40.2% for the fiscal
year ended 2007, from 40.8% for fiscal 2006, primarily due to higher provisions for incentive compensation in the
prior year due to exceptionally strong performance as well as leverage on regional overhead costs in fiscal 2007.
Other operating expenses (expenses associated with the Company’s Specialty Operations) decreased to 20.8% of
total specialty revenues for the fiscal year ended 2007, compared to 21.1% in fiscal 2006. The decline resulted
primarily from controlled discretionary spending in fiscal 2007.
Depreciation and amortization expenses increased to $467 million for the fiscal year ended 2007, compared to
$387 million for the corresponding period of fiscal 2006. The increase was primarily due to the opening of 1,342
new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and
amortization expenses decreased to 4.9% for the fiscal 2007, compared to 5.0% for fiscal 2006.
General and administrative expenses increased to $489 million for the fiscal year ended 2007, compared to
$479 million for fiscal 2006. The increase was primarily due to higher payroll-related expenditures in support of
continued global growth, offset in part by unusually high charitable contributions in fiscal 2006. As a percentage of
total net revenues, general and administrative expenses decreased to 5.2% for the fiscal year ended 2007, from 6.1%
for fiscal 2006.
Income from equity investees increased 15% to $108 million for the fiscal year ended 2007, compared to $94 million
for fiscal 2006, primarily due to higher equity income from international investees.
Operating income increased 18% to $1.1 billion for the fiscal year ended 2007, compared to $894 million for fiscal
2006. Operating margin decreased to 11.2% of total net revenues for the fiscal year ended 2007, from 11.5% for
fiscal 2006. Margin compression was due to higher costs of sales and occupancy costs as a percentage of total net
revenues due to a shift in sales to higher cost products and higher distribution costs, rent expense and dairy costs.
23