Business Context and Reporting Period
Company: Starbucks Corporation
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 13 weeks and 39 weeks ended July 1, 2001 (Fiscal Year 2001)
Business Overview: The Company operates Company-operated retail stores in North America and international markets, alongside specialty operations including wholesale, licensing, and direct-to-consumer sales. Approximately 84% of net revenues are derived from Company-operated retail stores.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended July 1, 2001 |
13 Weeks Ended July 2, 2000 |
39 Weeks Ended July 1, 2001 |
39 Weeks Ended July 2, 2000 |
|---|---|---|---|---|
| Total Net Revenues | $662,769 | $557,516 | $1,959,444 | $1,593,516 |
| Gross Margin | $391,419 (59.1%) | $314,450 (56.4%) | $1,124,696 (57.4%) | $884,496 (55.5%) |
| Operating Income | $71,307 | $54,306 | $198,218 | $144,146 |
| Net Earnings | $46,757 | $34,913 | $127,962 | $93,068 |
| Diluted EPS | $0.12 | $0.09 | $0.32 | $0.24 |
| Cash & Equivalents (Balance Sheet) | $151,991 | $70,817 | N/A | |
| Net Cash from Operating Activities | N/A | $339,051 | $253,262 | |
| Long-Term Debt | $5,961 | $6,483 | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 19% for the quarter and 23% for the nine-month period. Retail revenues grew 20% (quarter) and 23% (nine months), driven by the opening of new stores and comparable store sales increases of 3% and 6%, respectively.
- Margin Expansion: Gross margin improved to 59.1% (quarter) and 57.4% (nine months) from 56.4% and 55.5% in the prior year. Improvements were attributed to lower green coffee costs, price increases on beverages, and procurement efficiencies.
- Expense Trends: Store operating expenses as a percentage of retail revenues increased slightly (40.5% vs. 39.7% for the quarter) due to higher wage rates and a shift toward labor-intensive handcrafted beverages. General and administrative expenses also rose as a percentage of revenue due to payroll and non-insured earthquake-related expenses.
- Liquidity: Cash and cash equivalents increased by $81 million to $152 million during the nine-month period. Working capital stood at $231 million.
Guidance, Outlook, and Risks
- Store Expansion: Management plans to open at least 500 Company-operated stores in North America and 100 internationally for the remainder of fiscal 2001. For fiscal 2002, plans include at least 525 North American and 100 international stores.
- Capital Expenditures: Expected to be approximately $150 million for the remainder of fiscal 2001 (totaling ~$400 million for the year) and approximately $500 million for fiscal 2002.
- Coffee Price Risk: The Company faces volatility in green coffee prices. As of July 1, 2001, it held $225 million in fixed-price purchase commitments to secure supply through late 2002.
- Legal Proceedings: Two class-action lawsuits were filed in California alleging improper classification of store managers as exempt employees. The financial impact is currently unpredictable as cases are in early stages.
- Accounting Changes: The Company is assessing the impact of SFAS 142 (Goodwill and Other Intangible Assets), which eliminates goodwill amortization. Adoption is required by September 30, 2002, with early adoption permitted.
Investor Verification Checklist
- Comparable Store Sales: Verify the sustainability of the 3% (quarter) and 6% (nine months) comparable store sales growth amidst economic conditions.
- Cost of Sales: Monitor the impact of the $225 million fixed-price coffee commitments against future market price fluctuations.
- Legal Exposure: Track the progression of the California wage and hour class-action lawsuits for potential liability.
- Capital Allocation: Assess the execution of the planned $400 million capital expenditure program and its impact on cash flow.
- Segment Performance: Review the profitability of the "Business Alliances" segment (foodservice and licensing) following the internal reorganization.