8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934

Date of Report (Date of earliest event reported): January 21, 2004

STARBUCKS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Washington
(State or Other Jurisdiction of
Incorporation or Organization) 0-20322
(Commission File Number) 91-1325671
(IRS Employer
Identification No.)

2401 Utah Avenue South, Seattle, Washington 98134
(Address of principal executive offices)

(206) 447-1575
(Registrant’s Telephone Number, including Area Code)

TABLE OF CONTENTS

	Item 12. Results of Operations and Financial Condition
SIGNATURES
EXHIBIT INDEX
EXHIBIT 99.1

Item 12. Results of Operations and Financial Condition.

     On January 21, 2004, Starbucks Corporation issued an earnings release announcing its financial results for the 13 weeks ended December 28, 2003. A copy of the earnings release is attached as Exhibit 99.1.

     The information in this Current Report is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	STARBUCKS CORPORATION
Dated: January 21, 2004
		By:	/s/ MICHAEL CASEY
			Michael Casey
			executive vice president and chief financial officer
			Signing on behalf of the registrant and as principal financial officer

2

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Earnings Release of Starbucks Corporation dated January 21, 2004.

3 EX-99.1 3 v95776exv99w1.htm EXHIBIT 99.1

Exhibit 99.1

For Immediate Release
Contact: Mary Ellen Fukuhara
Starbucks Investor Relations
(206) 318-4025

Starbucks Announces Record First Quarter Results
First Quarter Earnings Per Share of $0.27 Compared to $0.20 Per Share In First Quarter Of Fiscal 2003
Net Earnings Increase 41 Percent On 28 Percent Revenue Growth

SEATTLE; January 21, 2004 – Starbucks Corporation (Nasdaq: SBUX) today announced record revenues and earnings for its fiscal first quarter ended December 28, 2003.

For the 13 weeks ended December 28, 2003, consolidated net revenues increased 27.7 percent to $1.3 billion from $1.0 billion for the same period in fiscal 2003. Net earnings for the 13 weeks ended December 28, 2003, increased 41.4 percent to $110.8 million from $78.4 million for the same period in fiscal 2003. Diluted earnings were $0.27 per share for the 13 weeks ended December 28, 2003, compared to $0.20 per share for the comparable period in fiscal 2003.

“I am extremely pleased with our first quarter results. Our partners’ focused execution at all levels of the business resulted in the most successful first quarter in Starbucks history,” stated Orin Smith, president and ceo. “From a strong holiday promotion in our retail stores, to continued growth of our specialty and international operations, our performance sets a strong foundation for Starbucks fiscal year 2004.”

Consolidated Financial and Operating Summary

Company-operated retail revenues increased 27.2 percent to $1.1 billion for the 13 weeks ended December 28, 2003, from $849.5 million for the same period in fiscal 2003. The increase was primarily attributable to the opening of 670 new Company-operated retail stores in the last 12 months and comparable store sales growth of 10 percent for the quarter. The increase in comparable store sales was due almost entirely to an increase in the number of customer transactions.

Specialty revenues increased 30.3 percent to $200.7 million for the 13 weeks ended December 28, 2003, compared to $154.0 million for the same period in fiscal 2003. The increase was primarily due to a 34.9 percent growth in licensing revenues, which are derived from retail store licensing arrangements, grocery and warehouse club licensing, and certain other branded-product operations. The Company added 704 new licensed retail stores in the last 12 months. Additionally, the Company’s foodservice business contributed to the growth as a result of the acquisition of Seattle Coffee Company in the fiscal fourth quarter of 2003 and the addition of new Starbucks foodservice accounts.

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Cost of sales and related occupancy costs were 41.4 percent of total net revenues for the 13 weeks ended December 28, 2003, compared to 41.8 percent for the corresponding period of fiscal 2003. This decrease was primarily due to efficiencies gained in the Company’s international supply chain operations and leverage gained on fixed occupancy costs distributed over an expanded revenue base, partially offset by a shift in sales mix toward lower margin products.

Store operating expenses as a percentage of Company-operated retail revenues decreased to 37.6 percent for the 13 weeks ended December 28, 2003, from 37.7 percent for the corresponding period of fiscal 2003. This decrease was primarily due to leverage gained on fixed expenditures spread over an expanded revenue base, partially offset by higher holiday marketing expenditures.

Other operating expenses (expenses associated with the Company’s specialty operations) increased to 22.0 percent of total specialty revenues for the 13 weeks ended December 28, 2003, compared to 20.5 percent in the corresponding period of fiscal 2003, primarily attributable to expanding the foodservice distribution network and maintaining new and existing customer accounts.

Depreciation and amortization expenses increased to $65.9 million for the 13 weeks ended December 28, 2003, compared to $57.4 million for the corresponding period of fiscal 2003. The increase was primarily due to the opening of 670 Company-operated retail stores and the refurbishment of existing Company-operated retail stores. As a percentage of total net revenues, depreciation and amortization decreased to 5.1 percent for the 13 weeks ended December 28, 2003, from 5.7 percent for the same period in fiscal 2003.

General and administrative expenses increased to $69.6 million for the 13 weeks ended December 28, 2003, compared to $60.9 million for the corresponding period of fiscal 2003. The increase was primarily due to higher payroll-related expenditures. However, as a percentage of total net revenues, general and administrative expenses decreased to 5.4 percent for the 13 weeks ended December 28, 2003, from 6.1 percent for the same period in fiscal 2003.

Income from equity investees increased $3.8 million to $10.4 million for the 13 weeks ended December 28, 2003, from $6.6 million for the same period in fiscal 2003. The increase was primarily due to new licensed retail store openings, improved operating results in several international markets, and the July 2003 increase in the Company’s ownership interest from 5 percent to 50 percent for the Taiwan and Shanghai licensed operations.

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Operating income increased 45.3 percent to $175.5 million for the 13 weeks ended December 28, 2003, compared to $120.8 million for the same period in fiscal 2003. Operating margin increased to 13.7 percent of total net revenues in the 13 weeks ended December 28, 2003, compared to 12.0 percent in the corresponding period of fiscal 2003, primarily due to the leverage gained in most operating expense line items from strong revenue growth.

Interest and other income decreased to $3.2 million for the 13 weeks ended December 28, 2003, from $4.5 million in the corresponding period of fiscal 2003, primarily due to lower foreign currency exchange gains in the first quarter of fiscal 2004 related to the Company’s application of the spot-to-spot method for net investment hedges, and a small loss this year compared to a small gain last year related to transactions based in currencies other than the United States dollar.

Fiscal 2004 Targets

The Company also provided updated fiscal 2004 targets:

• Starbucks plans to open approximately 1,300 new stores on a global basis for fiscal 2004. The components of the Company’s store opening targets have been adjusted to reflect the Company’s new operating segments as defined in its recent Form 10-K filing. Accordingly, in the United States the Company plans to open approximately 525 new Company-operated locations and 350 licensed locations. Internationally, including Canada, the Company plans to open approximately 100 locations in Company-operated markets and 325 locations in licensed markets.

• Starbucks continues to target total revenue growth of approximately 20 percent for its business. However, based on the above-target growth during the first quarter, as well as the 53^rd week of sales that will be recorded in the fourth quarter, the Company now expects full year fiscal 2004 revenue growth of approximately 25 percent. The Company continues to target comparable store sales growth in the range of three to seven percent, with monthly anomalies for the remainder of the year. January comparable store sales growth is expected to be above the Company’s target in part due to the record level of Starbucks Card activations over the holiday season, which many customers are redeeming in January. It is also important to note, that while recent results have been higher and near-term future results may exceed these goals, the Company continues to believe approximately 20 percent revenue growth and three to seven percent comparable store sales growth is the right level for longer-term expectations.

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• The Company continues to target full year operating income margin improvement in fiscal year 2004 in three areas: 1) leverage on fixed occupancy costs; 2) improved efficiencies in Starbucks supply chain operations and; 3) moderately lower other operating expense as a percentage of specialty revenues as the Company leverages the infrastructure of its non-retail channels.

• In the Company’s December revenue release, Starbucks raised its full year earnings per share target to $0.84 to $0.87 for fiscal 2004, up from its original fiscal 2004 earnings target range of $0.83 to $0.85 per share. As a result of the Company’s stronger than expected first quarter, Starbucks today narrowed its full year fiscal 2004 earnings per share target to $0.86 to $0.87, or 28 to 30 percent growth versus fiscal 2003. Both the new target and the previous target ranges include an approximately $0.02 per share benefit from a 53^rd week in fiscal 2004. The entire benefit from the 53^rd week will occur in the fourth quarter of 2004. On a quarterly basis, the Company continues to expect year-over-year earnings per share growth of approximately 20 percent in the second and third quarters of 2004, and approximately 40 percent in the fourth quarter of 2004.

In addition, Starbucks is continuing to target an effective tax rate of 38.0 percent for fiscal 2004. The Company continues to plan for capital expenditures to be in the range of $450 to $475 million.

Based on the strength of the Company’s core business as reflected in its first quarter results, Starbucks believes it is well-positioned to aggressively pursue its goals of approximately 20 percent revenue growth and 20 to 25 percent earnings per share growth over the next three to five years.

Starbucks will be holding a conference call today at 1:30 p.m. Pacific time, which will be hosted by Howard Schultz, chairman and chief global strategist, Orin Smith, president and chief executive officer, and Michael Casey, executive vice president and chief financial officer. The call will be broadcast live over the Internet and can be accessed at the Company’s web site address of http://www.starbucks.com/aboutus/investor.asp. A replay of the call will be available from approximately 4:30 p.m. Pacific time today through 4:30 p.m. Pacific time on January 28, 2004, by calling 1-800-642-1687, reservation number 4807831, or by accessing it via the Company’s web site at http://www.starbucks.com/aboutus/investor.asp.

The Company’s consolidated financial statements, operating segment results, and other additional information have been provided on the following pages in accordance with current year classifications, and should be reviewed in conjunction with this press release. Please refer to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 23, 2003, for additional information regarding reclassifications within operating expenses.

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)

				13 Weeks Ended							13 Weeks Ended
				December 28,		December 29,		%			December 28,			December 29,
				2003		2002		Change			2003			2002
				(in thousands, except per share data)
											As a % of total net revenues
											(unless otherwise indicated)
Net revenues:
	Company-operated retail			$	1,080,495	$	849,486		27.2	%		84.3	%		84.7	%
	Specialty:
		Licensing			133,499		98,972		34.9	%		10.4	%		9.9	%
		Foodservice and other			67,197		55,068		22.0	%		5.3	%		5.4	%
			Total specialty		200,696		154,040		30.3	%		15.7	%		15.3	%
Total net revenues					1,281,191		1,003,526		27.7	%		100.0	%		100.0	%
Cost of sales and related occupancy costs					530,371		419,161					41.4	%		41.8	%
Store operating expenses					406,100		320,287					(a)37.6	%		(a)37.7	%
Other operating expenses					44,198		31,516					(b)22.0	%		(b)20.5	%
Depreciation and amortization expenses					65,863		57,385					5.1	%		5.7	%
General and administrative expenses					69,551		60,943					5.4	%		6.1	%
Income from equity investees					10,412		6,601					0.8	%		0.7	%
		Operating income			175,520		120,835		45.3	%		13.7	%		12.0	%
Interest and other income, net					3,208		4,496					0.3	%		0.4	%
		Earnings before income taxes			178,728		125,331					14.0	%		12.4	%
Income taxes(c)					67,917		46,968					5.3	%		4.6	%
Net earnings				$	110,811	$	78,363		41.4	%		8.6	%		7.8	%
Net earnings per common share - diluted				$	0.27	$	0.20
Weighted average shares outstanding - diluted					407,645		399,218

(a)	Calculated as a percentage of Company-operated retail revenues.
(b)	Calculated as a percentage of total specialty revenues.
(c)	The effective tax rates for the 13 weeks ended December 28, 2003, and the 13 weeks ended December 29, 2002, was 38.0 percent and 37.5 percent for the respective periods.

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STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

			December 28,		September 28,
			2003		2003
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	448,676	$	200,907
	Short-term investments - Available-for-sale securities			190,329		128,905
	Short-term investments - Trading securities			26,388		20,199
	Accounts receivable, net of allowances of $4,333 and $4,809, respectively			122,072		114,448
	Inventories			305,529		342,944
	Prepaid expenses and other current assets			59,825		55,173
	Deferred income taxes, net			71,528		61,453
		Total current assets		1,224,347		924,029
Long-term investments – Available-for-sale securities				178,867		136,159
Equity and other investments				150,462		144,257
Property, plant and equipment, net				1,377,716		1,384,902
Other assets				53,071		52,113
Other intangible assets				25,270		24,942
Goodwill				63,374		63,344
	TOTAL ASSETS		$	3,073,107	$	2,729,746
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	144,748	$	168,984
	Accrued compensation and related costs			154,962		152,608
	Accrued occupancy costs			58,377		56,179
	Accrued taxes			113,891		54,934
	Other accrued expenses			167,239		101,800
	Deferred revenue			146,151		73,476
	Current portion of long-term debt			725		722
		Total current liabilities		786,093		608,703
Deferred income taxes, net				33,873		33,217
Long-term debt				4,171		4,354
Other long-term liabilities				2,533		1,045
Shareholders’ equity:
	Common stock and additional paid-in capital - Authorized, 600,000,000 shares; issued and outstanding, 395,701,806 and 393,692,536 shares, respectively, (includes 1,697,100 common stock units in both periods)			999,217		959,103
	Other additional paid-in-capital			39,393		39,393
	Retained earnings			1,180,494		1,069,683
	Accumulated other comprehensive income			27,333		14,248
		Total shareholders’ equity		2,246,437		2,082,427
	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	3,073,107	$	2,729,746

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)

				13 Weeks Ended
				December 28, 2003			December 29, 2002
OPERATING ACTIVITIES:
Net earnings				$	110,811		$	78,363
Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization			72,028			61,562
		Provision for impairments and asset disposals			2,176			(1,761	)
		Deferred income taxes, net			(6,861	)		(1,649	)
		Equity in income of investees			(3,748	)		(2,865	)
		Tax benefit from exercise of non-qualified stock options			9,439			4,274
		Net amortization of premium on securities			1,831			1,138
		Cash provided/(used) by changes in operating assets and liabilities:
			Accounts receivable		(7,425	)		(13,661	)
			Inventories		39,450			53,407
			Accounts payable		(25,835	)		(12,439	)
			Accrued taxes		58,456			24,940
			Deferred revenue		72,545			49,442
			Other accrued expenses		54,348			1,633
			Other operating assets and liabilities		(1,682	)		(8,636	)
Net cash provided by operating activities					375,533			233,748
INVESTING ACTIVITIES:
	Purchase of available-for-sale securities				(138,022	)		(60,489	)
	Maturity of available-for-sale securities				17,060			45,270
	Sale of available-for-sale securities				14,585			40,094
	Net additions to equity, other investments and other assets				(4,395	)		(2,240	)
	Distributions from equity investees				5,085			6,976
	Net additions to property, plant and equipment				(55,547	)		(93,751	)
Net cash used by investing activities					(161,234	)		(64,140	)
FINANCING ACTIVITIES:
	Proceeds from issuance of common stock				30,675			11,789
	Principal payments on long-term debt				(180	)		(176	)
	Repurchase of common stock				—			(29,936	)
Net cash provided/(used) by financing activities					30,495			(18,323	)
Effect of exchange rate changes on cash and cash equivalents					2,975			499
Net increase in cash and cash equivalents					247,769			151,784
CASH AND CASH EQUIVALENTS:
Beginning of period					200,907			99,677
End of the period				$	448,676		$	251,461
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
	Interest			$	51		$	37
	Income taxes			$	14,858		$	21,663

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Segment Results

Segment information is prepared consistent with the basis on which the Company’s management internally reviews financial information for operational decision making purposes, which correlates to two distinct operating segments: United States and International.

United States

United States operations (“United States”) sell coffee and other beverages, whole bean coffees, complementary food, coffee brewing equipment and merchandise through Company-operated retail stores. Specialty operations within the United States include: retail store and other licensing operations, foodservice accounts and other initiatives related to the Company’s core businesses.

International

International operations (“International”) sell coffee and other beverages, whole bean coffees, complementary food, coffee brewing equipment and merchandise through Company-operated retail stores in Canada, the United Kingdom, Thailand and Australia, as well as through retail store licensing operations and foodservice accounts in these and 27 other countries. Because International operations are in an early phase of development and have country-specific regulatory requirements, they require a more extensive administrative support organization, compared to the United States, to provide resources and respond to business needs.

Unallocated Corporate

Unallocated corporate expenses pertain to certain functions, such as executive management, administration, tax, treasury, and information technology infrastructure, and include related depreciation and amortization expenses.

Historical annual and quarterly financial data for the United States and International operating segments as well as the statements of earnings reclassifications for fiscal years 2002 and 2003 will be posted on the Investor Relations page at http://www.starbucks.com by February 2004.

The tables below present, by operating segment, total net revenues, operating income and operating income as a percentage of related revenues, net of intersegment eliminations for the periods indicated:

(unaudited, in thousands)

							Unallocated
13 weeks ended	United States			International			corporate			Total
December 28, 2003
Total net revenues	$	1,090,617		$	190,574		$	—		$	1,281,191
Operating income		216,686			10,987			(52,153	)		175,520
Operating income as a percentage of related revenues		19.9	%		5.8	%		—			13.7	%
December 29, 2002
Total net revenues	$	859,438		$	144,088		$	—		$	1,003,526
Operating income		170,122			(1,423	)		(47,864	)		120,835
Operating income as a percentage of related revenues		19.8	%		(1.0	%)		—			12.0	%

United States

United States total net revenues increased by $231.2 million, or 26.9 percent, to $1.1 billion for the 13 weeks ended December 28, 2003, compared to $859.4 million for the corresponding period of fiscal 2003. United States Company-operated retail revenues increased by $189.1 million, or 25.7 percent, to $924.5 million for the 13 weeks ended December 28, 2003, compared to $735.4 million for the corresponding period of fiscal 2003, primarily due to the opening of 563 new Company-operated retail stores in the last 12 months and comparable store sales growth of 11 percent for the quarter. The increase in comparable store sales was almost entirely due to an increase in the number of customer transactions. Total United States specialty revenues increased $42.1 million, or 33.9 percent, to $166.1 million for the 13 weeks ended December 28, 2003, compared to $124.0 million in the corresponding period of fiscal 2003. The increase was primarily due to growth in the foodservice and grocery businesses as a result of the acquisition of Seattle Coffee Company in the fiscal fourth quarter of 2003, as well as the opening of 428 licensed retail stores in the last 12 months.

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United States operating income increased by 27.4 percent to $216.7 million for the 13 weeks ended December 28, 2003 from $170.1 million for the same period in fiscal 2003. Operating margin increased to 19.9 percent of related revenues from 19.8 percent in the corresponding period of fiscal 2003, primarily due to leverage gained on fixed operating costs spread over an expanded revenue base, partially offset by higher expenditures to support the Company’s expansion of its specialty operations and higher dairy costs.

International

International total net revenues increased by $46.5 million, or 32.3 percent, to $190.6 million for the 13 weeks ended December 28, 2003, compared to $144.1 million for the corresponding period of fiscal 2003. International Company-operated retail revenues increased by $41.9 million, or 36.8 percent, to $156.0 million for the 13 weeks ended December 28, 2003, compared to $114.0 million for the corresponding period for fiscal 2003, primarily due to the opening of 107 new Company-operated retail stores in the last 12 months and comparable store sales growth of seven percent for the quarter. The increase in comparable store sales resulted from a five percent increase in the number of customer transactions coupled with a two percent increase in the average value per transaction. Total international specialty revenues increased $4.6 million, or 15.2 percent, to $34.6 million for the 13 weeks ended December 28, 2003, compared to $30.1 million in the corresponding period of fiscal 2003. The increase was primarily due to the opening of 276 licensed retail stores in the last 12 months, partially offset by proportionate eliminations of sales to equity investees, in which the Company increased its ownership interests in late fiscal 2003.

International operating income increased to $11.0 million for the 13 weeks ended December 28, 2003, from ($1.4) million in the corresponding period of fiscal 2003. Operating margin increased to 5.8 percent of related revenues from (1.0) percent in the corresponding period of fiscal 2003, primarily due to leverage gained on fixed costs spread over an expanded revenue base, increased earnings generated by equity investees and efficiencies gained in the Company’s international supply chain operations. Excluding Canadian operations, operating income increased to $1.3 million for the 13 weeks ended December 28, 2003, compared to an operating loss of ($7.8) million in the corresponding period of fiscal 2003.

Store Data

The Company’s store data for the periods presented are as follows:

		Net stores opened during the
		13-week period ended
						Stores open as of
		December 28,		December 29,		December 28,
		2003		2002		2003
United States:
	Company-operated Stores		100		107		3,879
	Licensed Stores		110		71		1,532
			210		178		5,411
International: (1)
	Company-operated Stores		37		26		804
	Licensed Stores		95		103		1,352
			132		129		2,156
Total			342		307		7,567

⁽¹⁾ Note that international store counts now include Canadian locations.

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Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world, with more than 7,500 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim. The Company is committed to offering the highest quality coffee and the Starbucks Experience while conducting its business in ways that produce social, environmental and economic benefits for communities in which it does business. In addition to its retail operations, the Company produces and sells bottled Frappuccino^® coffee drinks, Starbucks DoubleShot™ coffee drink, and a line of superpremium ice creams through its joint venture partnerships. The Company’s brand portfolio provides a wide variety of consumer products. Tazo Tea’s line of innovative premium teas and Hear Music’s exceptional compact discs enhance the Starbucks Experience through best-of-class products. The Seattle’s Best Coffee^® and Torrefazione Italia^® Coffee brands enable Starbucks to appeal to a broader consumer base by offering an alternative variety of coffee flavor profiles.

This release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, including anticipated store openings, comparable store sales expectations, trends in or expectations regarding the Company’s revenue and expense growth, capital expenditures, effective tax rate, net earnings and earnings per share results, are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors including but not limited to, coffee, dairy and other raw material prices and availability, successful execution of internal performance and expansion plans, fluctuations in U.S. and international economies, ramifications from the war on terrorism, or other international events or developments, the impact of initiatives by competitors, the effect of legal proceedings, and other risks detailed in the Company’s filings with the Securities and Exchange Commission, including the “Certain Additional Risks and Uncertainties” section of Starbucks Annual Report on Form 10-K for the fiscal year ended September 28, 2003.

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EX-99.1

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