Starbucks 2011 Annual Report Download - page 34

Operating Expenses
Cost of sales including occupancy costs as a percentage of total International net revenues increased by 90 basis
points compared to the prior year. The increase was primarily due to higher commodity costs (approximately 100
basis points), driven primarily by increased coffee costs. Partially offsetting this increase were lower occupancy
costs as a percentage of total net revenues (approximately 40 basis points), primarily due to increased sales leverage.
Store operating expenses as a percentage of total International net revenues decreased 190 basis points primarily due
to increased sales leverage (approximately 240 basis points) and fewer impairment charges in the current year
compared to fiscal 2010 (approximately 80 basis points). These decreases were partially offset by an increase in
salaries and benefits expense to support new store openings (approximately 110 basis points).
The above changes contributed to an overall increase in operating margin of 350 basis points for fiscal 2011.
Considering the impact from all line items, the primary drivers for the increase in operating margin for fiscal 2011
were increased sales leverage (approximately 330 basis points), the absence of restructuring charges in the current
year (approximately 110 basis points), fewer impairment charges in the current year compared to fiscal 2010
(approximately 80 basis points), partially offset by increased salaries and benefits (approximately 110 basis points)
and higher commodity costs (approximately 100 basis points).
Global Consumer Products Group
Fiscal Year Ended
Oct 2,
2011
Oct 3,
2010
Oct 2,
2011
Oct 3,
2010
As a % of CPG
Total Net Revenues
Total net revenues ......................................... $860.5 $707.4 100.0% 100.0%
Costofsalesincludingoccupancycosts ......................... $492.5 $384.9 57.2% 54.4%
Otheroperatingexpenses .................................... 153.9 117.0 17.9% 16.5%
Depreciationandamortizationexpenses ......................... 2.4 3.7 0.3% 0.5%
Generalandadministrativeexpenses............................ 14.3 11.0 1.7% 1.6%
Totaloperatingexpenses..................................... 663.1 516.6 77.1% 73.0%
Incomefromequityinvestees ................................. 75.6 70.6 8.8% 10.0%
Operating income ......................................... $273.0 $261.4 31.7% 37.0%
Revenues
Total CPG net revenues for fiscal 2011 increased 22%, or $153 million. The increase was primarily due to the
benefit of recognizing full revenue from packaged coffee and tea sales under the direct distribution model for the
majority of the year (approximately $70 million). On March 1, 2011, we successfully transitioned to a direct
distribution model from our previous distribution arrangement with Kraft for the sale of packaged Starbucks®and
Seattle’s Best Coffee®coffee products in grocery and warehouse club stores throughout the US, and to grocery
stores in Canada, the UK and other European countries. We successfully transitioned the Tazo®tea business to a
direct distribution model in January 2011. Also contributing to the increase were improved revenues from US
foodservice (approximately $26 million) and the expanded distribution of Starbucks VIA®Ready Brew in fiscal
2011 (approximately $24 million), partially offset by the extra week in fiscal 2010 (approximately $16 million).
Operating Expenses
Operating margin decreased 530 basis points over the prior year primarily due to increased commodity costs
(approximately 830 basis points), driven by higher coffee costs. Partially offsetting the increase in commodity costs
were the benefit of price increases (approximately 200 basis points) and lower marketing expenses for Starbucks
VIA®Ready Brew in the current year (approximately 120 basis points).
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