Starbucks Corporation 10-K Summary
Business Context and Reporting Period
This filing covers the fiscal year ended September 29, 1996. Starbucks Corporation is a vertically integrated coffee company that purchases, roasts, and distributes high-quality whole bean coffees and espresso beverages. The company operates primarily through Company-operated retail stores, which accounted for approximately 86% of net revenues in fiscal 1996. As of the reporting date, the company operated 1,006 total stores (929 Company-operated and 75 licensed) across 21 U.S. states, the District of Columbia, and Canada, with initial international expansion into Japan.
Key Financial Metrics
Note: Specific revenue, profit, cash flow, and margin figures are incorporated by reference to the 1996 Annual Report to Shareholders and are not explicitly detailed in the provided text.
- Revenue Mix: Retail stores (86%), Specialty Sales (11%), Direct Response (3%), and Licensed Stores/Royalties (1%).
- Product Mix (Retail): Coffee beverages (61%), Whole bean coffees (15%), Food items (16%), and Hardware/Equipment (8%).
- Debt and Liquidity: The company has 4 1/4% Convertible Subordinated Debentures due 2002 registered under Section 12(g). A credit agreement exists with Seattle-First National Bank.
- Commitments: Approximately $47 million in fixed-price purchase commitments for green coffee as of September 29, 1996.
- Allowance for Doubtful Accounts: Decreased from $242,000 at the beginning of the year to $116,000 at year-end.
- Market Data: As of December 1, 1996, there were 77,786,819 shares of Common Stock outstanding, with an aggregate market value of voting stock held by non-affiliates of $2,598,426,062.
Material Changes and Operational Highlights
- Store Expansion: The company opened its first two international stores in Tokyo, Japan, in the fourth quarter of fiscal 1996. It also entered into joint ventures for locations in Hawaii and Singapore, with openings anticipated in fiscal 1997.
- Product Launches: Introduced bottled Frappuccino coffee drinks (joint venture with Pepsi) on the West Coast and five flavors of Starbucks premium coffee ice cream (joint venture with Dreyer's).
- Margin Pressure: Gross margins were negatively impacted in the latter part of fiscal 1995 and throughout fiscal 1996 due to the sell-through of higher-cost coffee inventories acquired during previous price increases.
- Real Estate: The company sublet its former Boston roasting plant, deeming it no longer necessary. It operates three primary roasting/distribution facilities (two in Seattle, one in York County, PA).
Outlook, Risks, and Management Commentary
Guidance and Plans: Management intends to open at least 325 new stores in North America during fiscal 1997 and enter at least three major new markets (including Phoenix and Miami). International expansion is planned with 10-12 additional stores in Japan and five in Singapore.
Risks and Contingencies:
- Commodity Volatility: Green coffee prices are subject to substantial fluctuation due to weather, political conditions, and supply quotas. The company relies on fixed-price purchase commitments and may use futures contracts (though none were used in fiscal 1996) to mitigate risk.
- Competition: Significant competition exists from supermarkets (e.g., Kraft, P&G, Nestle), regional specialty chains (e.g., Second Cup), and general restaurant/beverage outlets.
- Seasonality: A significant portion of revenues and profits is realized in the first fiscal quarter due to the December holiday season.
- Legal: The company is not currently a party to any legal proceedings believed to have a material adverse effect.
Investor Verification Checklist
- Verify the specific revenue, net income, and cash flow figures in the 1996 Annual Report to Shareholders, as these are incorporated by reference and not listed in this text.
- Confirm the status of the $47 million fixed-price coffee purchase commitments and their impact on future cost of goods sold.
- Monitor the execution of the 325 new store openings planned for fiscal 1997 and the success of the new international joint ventures in Japan, Hawaii, and Singapore.
- Review the performance of the Pepsi and Dreyer's joint ventures (Frappuccino and Ice Cream) as new revenue streams.
- Assess the impact of green coffee commodity price volatility on future gross margins, given the recent sell-through of higher-cost inventory.