Starbucks 2008 Annual Report Download - page 37

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Cost of sales including occupancy costs increased 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 US segment represents
approximately 75% of the total Company’s dairy expense. For the US 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 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 decreased primarily as a result of controlled
discretionary spending in fiscal 2007. Depreciation and amortization expenses increased primarily due to the
opening of 1,342 new Company-operated retail stores in the last 12 months. General and administrative expenses
increased primarily due to higher payroll-related expenditures in support of continued global growth, offset in part
by unusually high charitable contributions in fiscal 2006. Income from equity investees increased primarily due to
higher equity income from international investees.
Operating 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.
These cost pressures were offset in part by leveraging general and administrative expenses, store operating
expenses, and other operating expenses as a percentage of total net revenues.
Fiscal Year Ended
Sep 30,
2007
Oct 1,
2006 % Change
Sep 30,
2007
Oct 1,
2006
% of Total Net
Revenues
Interest income and other, net...................... $ 40.4 $ 20.7 95.2% 0.4% 0.3%
Interest expense ................................ (38.0) (8.4) nm (0.4) (0.1)
Earnings before income taxes ...................... 1,056.3 906.3 16.6 11.2 11.6
Income taxes .................................. 383.7 324.8 18.1 4.1 4.2
Earnings before cumulative effect of change in accounting
principle ................................... 672.6 581.5 15.7 7.1 7.5
Cumulative effect of accounting change for FIN 47, net of
taxes ...................................... — 17.2 nm — 0.3
Net earnings .................................. $ 672.6 $564.3 19.2% 7.1% 7.2%
Interest income and other, net, increased due to a higher amount of income recognized on unredeemed stored value
card and gift certificate balances in fiscal 2007 compared to fiscal 2006. Interest expense increased due to a higher
level of borrowings outstanding, which included the $550 million of Senior Notes issued in August 2007.
Income taxes for the fiscal year ended 2007 resulted in an effective tax rate of 36.3%, compared to 35.8% for fiscal
2006.
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