Starbucks 2011 Annual Report Download - page 28

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Our fiscal year ends on the Sunday closest to September 30. The fiscal year ended on October 3, 2010 included 53
weeks with the 53rd week falling in the fourth fiscal quarter. The fiscal years ended on October 2, 2011 and
September 27, 2009 both included 52 weeks. Comparable store sales percentages for fiscal 2010 are calculated
excluding the 53rd week. All references to store counts, including data for new store openings, are reported net of
related store closures, unless otherwise noted.
Financial Highlights
• Consolidated operating income was $1.7 billion for fiscal 2011 compared to $1.4 billion in fiscal 2010 and
operating margin increased to 14.8% compared to 13.3% in fiscal 2010. The operating margin expansion was
driven by increased sales leverage, partially offset by higher commodity costs. Comparable store sales
growth at company-operated stores was 8% in fiscal 2011 compared to 7% in fiscal 2010.
• EPS for fiscal 2011 was $1.62, compared to EPS of $1.24 reported in fiscal 2010, with the increase driven by
the improved sales leverage and certain gains recorded in the fourth quarter of fiscal 2011. We recognized a
gain from a fair market value adjustment resulting from the acquisition of the remaining ownership interest in
our joint venture in Switzerland and Austria as well as a gain on the sale of corporate real estate. These gains
contributed approximately $0.10 to EPS in fiscal 2011.
• Cash flow from operations was $1.6 billion in fiscal 2011 compared to $1.7 billion in fiscal 2010. Capital
expenditures were approximately $532 million in fiscal 2011 compared to $440 million in fiscal 2010.
Available operating cash flow after capital expenditures during fiscal 2011 was directed at returning
approximately $945 million of cash to our shareholders via share repurchases and dividends.
Overview
Starbucks results for fiscal 2011 reflect the strength and resiliency of our business model, the global power of our
brand and the talent and dedication of our employees. Our business has performed well this year despite significant
headwinds from commodity costs and a continuingly challenging consumer environment. Strong global comparable
stores sales growth of 8% for the full year (US 8% and International 5%) drove increased sales leverage and resulted
in higher operating margins and net earnings. This helped mitigate the impact of higher commodity costs, which
negatively impacted EPS by approximately $0.20 per share for the year, equivalent to approximately 220 basis
points of operating margin. Most of the commodity pressure was related to coffee, with dairy, cocoa, sugar and fuel
accounting for the rest.
Our US business continued its strong momentum and contributed 69% of total net revenues in fiscal 2011. We saw
benefits from a variety of initiatives including our loyalty program, innovative products such as our Starbucks
Petites®platform and other new food and beverage options. We also continued to refine our store efficiency efforts,
including the rollout of our new point-of-sale and inventory management systems in our company-operated stores.
The combination of these efforts resulted in strong comparable store sales of 8%, which translated to an increase in
sales leverage, which more than offset the effect of higher commodity costs.
Our international portfolio, which contributed 22% of total net revenues in fiscal 2011, continues to improve, with
an operating margin of 13% for the year. We continue to leverage the valuable lessons learned from the turnaround
of our US business, and continue to make progress on scaling the infrastructure of this segment. We are aggressively
pursuing the profitable expansion opportunities that exist outside the US, including disciplined growth and scale in
our more mature markets, and faster expansion in key emerging markets like China.
Our global consumer products group (“CPG”) represents another important profitable growth opportunity for us.
During the second quarter, we successfully transitioned our packaged coffee and tea businesses to an in-house direct
model, away from the previous distribution arrangement. This model now gives us total control over the sell-in and
distribution to retailers of these products. We also aggressively pursued the opportunities beyond our more
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