Starbucks 2010 Annual Report Download - page 28

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Starbucks Corporation’s 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 our fourth fiscal quarter. Fiscal years ended on September 27,
2009 and September 28, 2008 both included 52 weeks. Comparable store sales percentages below 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 $1.4 billion for fiscal 2010 compared to $562 million in fiscal 2009, and
the operating margin increased to 13.3% compared to 5.7% in fiscal 2009. The operating margin expansion
was driven by increased sales leverage and the continued benefits from operational efficiencies. Comparable
store sales growth at company-operated stores was 7% in fiscal 2010 compared to a decline of 6% in fiscal
2009. Lower restructuring charges in fiscal 2010 compared to the prior year also contributed approximately
290 basis points of the increase in operating margin.
• EPS for fiscal 2010 was $1.24, compared to EPS of $0.52 reported in fiscal 2009, with the increase driven by
the improved sales leverage and the continued benefits from operational efficiencies. Restructuring charges
impacted EPS by approximately $0.04 per share in fiscal 2010 and approximately $0.28 in fiscal 2009.
• Cash flow from operations was $1.7 billion in fiscal 2010 compared to $1.4 billion in fiscal 2009, and capital
expenditures were approximately $440 million in both fiscal years. Available operating cash flow after
capital expenditures during fiscal 2010 was directed at returning approximately $460 million of cash to our
shareholders via share repurchases and dividends, and investing in short term investment grade securities.
Overview
Starbucks results for fiscal 2010 demonstrate the ongoing success of our efforts over the last two years to improve
the health of our core business and to position the Company for sustained, profitable growth into the future. Strong
comparable stores sales growth of 7% for the year (US 7% and International 6%), combined with a more efficient
operating structure drove increased sales leverage and resulted in higher operating margins and net earnings. The
operational improvements implemented throughout fiscal 2009 in our supply chain and company-operated stores
have driven reduced product costs and store waste as well as in-store labor savings, concurrent with improved
customer satisfaction scores. These improvements were partially offset by higher performance based compensation
expenses in fiscal 2010 and by higher marketing expenses to support the launch of Starbucks VIA®Ready Brew in
the grocery channel and the introduction of our new customizable Frappuccino®blended beverage. In our US
business we will continue to refine our store efficiency efforts while pursuing a consistently high level of customer
satisfaction.
While the reinvigorated US business has been the primary driver of Starbucks improved consolidated financial
results, the profitability of our international business continues to improve, driven primarily by increased sales
leverage and supply chain efficiencies. Our management continues to focus on our international business by
leveraging the valuable lessons learned in the US. We intend to capitalize on the large expansion opportunities that
exist outside the US, including continued growth and scale in our more mature existing markets, and emphasis on
expansion in key emerging markets like China and Brazil.
Our global consumer products group (“CPG”) represents another important profitable growth opportunity for us as
we accelerate both product innovation and distribution. We are aggressively pursuing the opportunities beyond our
more traditional store experience to offer consumers new coffee products in multiple forms, across new categories,
and through diverse channels, leveraging our strong brand and established retail store base. Examples include the
ongoing expansion of our successful Starbucks VIA®Ready Brew product and the ongoing growth in points of
distribution for Seattle’s Best Coffee.
Starbucks continues to generate strong operating cash flows, which provide us the financial flexibility to continue
disciplined investment and spending in both our core business and new growth platforms, while also returning cash
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