Starbucks 2007 Annual Report Download - page 30

Total unallocated corporate expenses remained relatively flat at $338 million for the fiscal year ended 2007,
compared to $337 million in fiscal 2006. Unallocated corporate expenses as a percentage of total net revenues
decreased to 3.6% for the fiscal year ended 2007, from 4.3% for fiscal 2006, primarily as a result of leveraging of the
Company’s scale and infrastructure against global growth.
RESULTS OF OPERATIONS — FISCAL 2006 COMPARED TO FISCAL 2005
Consolidated Results of Operations
Net revenues for the fiscal year ended 2006 increased 22% to $7.8 billion from $6.4 billion for fiscal 2005, driven by
increases in both Company-operated retail revenues and specialty operations.
During the fiscal year ended 2006, Starbucks derived 85% of total net revenues from its Company-operated retail
stores. Company-operated retail revenues increased 22% to $6.6 billion for the fiscal year ended 2006, from
$5.4 billion for fiscal 2005. This increase was primarily due to the opening of 1,043 new Company-operated retail
stores in the last 12 months and comparable store sales growth of 7% in fiscal 2006. The increase in comparable
store sales was due to a 5% increase in the number of customer transactions and a 2% increase in the average value
per transaction.
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 23% to
$1.2 billion for the fiscal year ended 2006, from $977 million for fiscal 2005.
Licensing revenues, which are derived from retail store licensing arrangements, as well as grocery, warehouse club and
certain other branded product operations, increased 28% to $861 million for fiscal 2006, from $673 million for fiscal
2005. The increase is primarily due to higher product sales and royalty revenues from the opening of 1,156 new licensed
retail stores in the last 12 months and, to a lesser extent, growth in the licensed grocery and warehouse club business.
Foodservice and other revenues increased 13% to $343 million for fiscal 2006, from $304 million for fiscal 2005.
Foodservice and other revenues increased primarily due to growth in new and existing U.S. foodservice accounts.
Cost of sales including occupancy costs decreased slightly to 40.8% of total net revenues for fiscal 2006, from 40.9% in
fiscal 2005. The decrease was primarily due to fixed rent costs in fiscal 2006 being distributed over an expanded revenue
base, as well as increased occupancy costs in fiscal 2005 resulting from intensified store maintenance activities. These
favorable items, combined with lower dairy costs, offset higher green coffee costs for fiscal 2006.
Store operating expenses as a percentage of Company-operated retail revenues increased to 40.8% for fiscal 2006
from 40.2% for fiscal 2005. The increase was due to the recognition of stock-based compensation expense and to
higher provisions for incentive compensation. The Company adopted the fair value recognition provisions of new
accounting requirements to expense stock-based compensation at the beginning of its fiscal first quarter of 2006.
Under the transition provisions allowed, it adopted the new requirements on a prospective basis and the financial
statements for fiscal 2005 and prior years do not include stock-based compensation expense.
Other operating expenses, which are expenses associated with the Company’s Specialty Operations, increased to
21.1% of specialty revenues in fiscal 2006, compared to 19.7% in fiscal 2005. The increase was primarily due to the
recognition of stock-based compensation expense as well as higher payroll-related expenditures to support the
expanding licensed store operations, both in the U.S. and in existing and new international markets.
Depreciation and amortization expenses increased to $387 million in fiscal 2006, from $340 million in fiscal 2005.
The increase of $47 million was due to the opening of 1,043 new Company-operated retail stores in the last
12 months. As a percentage of total net revenues, depreciation and amortization decreased to 5.0% for fiscal 2006,
from 5.3% for fiscal 2005.
General and administrative expenses increased to $479 million in fiscal 2006, compared to $362 million in fiscal
2005. The increase was due to higher payroll-related expenditures from the recognition of stock-based compen-
sation expense, additional employees to support continued global growth, and higher professional fees in support of
global systems infrastructure development. As a percentage of total net revenues, general and administrative
expenses increased to 6.1% for fiscal 2006, from 5.7% for fiscal 2005.
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