SBUX » Topics » Fiscal 2009 - The Year In Review

This excerpt taken from the SBUX DEF 14A filed Jan 22, 2010.
Fiscal 2009 — The Year In Review
 
When determining fiscal 2009 target compensation, the Company expected to continue to face a very challenging economic environment. As a result, the Compensation Committee did not approve base salary increases for the named executive officers (other than Mr. Alstead in connection with his promotion to chief financial officer) because it believed fiscal 2008 levels remained competitive and Company performance for the prior fiscal year did not warrant an increase. In addition, the Compensation Committee revised our long-term incentive program to include performance-based restricted stock units (“performance RSUs”) as well as stock options to help drive Company performance. The Compensation Committee determined that Mr. Schultz’s target fiscal 2009 compensation should be primarily tied to increasing our share price. Thus, his compensation package consisted of base salary and a long-term incentive award consisting only of stock options. In January 2009, the Compensation Committee, upon Mr. Schultz’s request, reduced his base salary for fiscal 2009 to $6,900 effective March 30, 2009.
 
Fiscal 2009 was a challenging year for Starbucks. We were confronted with extraordinary economic and operating challenges, in addition to facing an increasingly competitive landscape. Despite this difficult environment, Starbucks delivered strong financial results by applying a more disciplined focus on operations and introducing numerous initiatives to permanently improve the Company’s cost structure. For fiscal 2009, these measures resulted in a full-year cost savings of approximately $580 million (exceeding the most recent target by $30 million), an earnings per share increase of 21% from the prior year and an operating margin improvement of 80 basis points from the prior year. Because our executive compensation program emphasizes pay for performance, compensation awarded for fiscal 2009 reflected the positive results achieved in a particularly difficult environment.
 
As a result of the Company’s strong fiscal 2009 performance, our executive officers, including the named executive officers other than Mr. Schultz, received bonus payouts under our annual incentive bonus plan. In addition to these bonuses, we paid discretionary bonuses to reward the contributions of our executive officers in meeting our operational goals despite the challenging economic environment. Additional information regarding discretionary bonuses is provided on page 31.
 
This excerpt taken from the SBUX DEF 14A filed Jan 22, 2009.
Fiscal 2008 — The Year In Review
 
Fiscal 2008 was a transitional year for Starbucks as the Company took steps to transform and reinvigorate its business. The deterioration in the U.S. economic environment impacted traffic in our stores, and as the year progressed, the economic weakness spread globally, influencing key international markets. Partly as a result of this difficult economic environment and partly as a result of matters within our control, the Company’s performance in fiscal 2008 did not meet our plans or expectations. As a result of the Company’s fiscal 2008 performance, none of the named executive officers received a bonus payout under our annual incentive bonus plans. Consequently, actual total direct compensation paid to our named executive officers for fiscal 2008 fell below our 2008 target levels.
 
Fiscal 2008 — The Year in Review
 
Throughout fiscal 2008, Starbucks continued to experience declining comparable store sales in its US stores, primarily due to lower customer traffic. With the US segment representing 76% of consolidated revenues, the impact of this decline on the Company’s financial results for fiscal 2008 was significant. For fiscal year 2008 comparable store sales declined 5% in the US, with a declining trend over the course of the year, ending with a decline of 8% in the fourth quarter. The Company also experienced declining comparable sales in Canada and the UK, its two largest Company-operated International markets, primarily due to lower traffic. The Company believes that the weaker traffic has been caused by a number of ongoing factors in the global economies that have negatively impacted consumers’ discretionary spending, as well as factors within the Company’s control with respect to the pace of store openings in the US and store level execution. In the US, the economic factors included the higher cost of such basic consumer staples as gas and food, rising levels of unemployment and personal debt, reduced access to consumer credit, and lower home values as well as increased foreclosure activity in certain areas of the country (California and Florida) where Starbucks has a high concentration of Company-operated stores. These developments combined with recent and ongoing unprecedented shocks to the global financial system and capital markets have all contributed to sharp declines in consumer confidence in the US.
 
Starbucks business is highly sensitive to increases and decreases in customer traffic. Increased customer visits create sales leverage, meaning that fixed expenses, such as occupancy costs, are spread across a greater revenue base, thereby improving operating margins. But the reverse is also true — sales de-leveraging creates downward pressure on margins. The softness in US revenues during fiscal 2008 impacted nearly all consolidated and US segment operating expense line items when viewed as a percentage of sales.
 
Since January 2008, when Company founder Howard Schultz reassumed the role of president and chief executive officer in addition to his role as chairman, Starbucks has taken steps to address the deterioration in the US retail environment and address its global support structure. These included the development and implementation of several important strategic initiatives as part of a transformation strategy designed to reinvigorate the Starbucks Experience for the Company’s customers, increase customer traffic in its US stores, reduce infrastructure expenses, and improve the Company’s results of operations. These significant actions have been designed to structure the Company’s business for long-term profitable growth.
 
As a result of the continued weak economy and decreased customer traffic, as well as the costs associated with the store closures and other actions in its transformation strategy, the Company’s fiscal 2008 results were negatively impacted in the following ways:
 
  •  Consolidated operating income was $503.9 million in fiscal 2008, and operating margin for the year was 4.9% compared with 11.2% in the prior year. Approximately 260 basis points of the decrease in operating margin was a result of restructuring charges, primarily related to the significant US store closures. Softness in US revenues along with higher cost of sales including occupancy costs and store operating expenses were also significant drivers in the margin decline.
 
  •  EPS for fiscal 2008 was $0.43, compared to EPS of $0.87 per share earned in the prior year. Restructuring charges and costs associated with the execution of the transformation agenda impacted EPS by approximately $0.28 per share in fiscal 2008.


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Table of Contents

 
Fiscal
2008 — The Year in Review



 



Throughout fiscal 2008, Starbucks continued to experience
declining comparable store sales in its US stores, primarily due
to lower customer traffic. With the US segment representing 76%
of consolidated revenues, the impact of this decline on the
Company’s financial results for fiscal 2008 was
significant. For fiscal year 2008 comparable store sales
declined 5% in the US, with a declining trend over the course of
the year, ending with a decline of 8% in the fourth quarter. The
Company also experienced declining comparable sales in Canada
and the UK, its two largest Company-operated International
markets, primarily due to lower traffic. The Company believes
that the weaker traffic has been caused by a number of ongoing
factors in the global economies that have negatively impacted
consumers’ discretionary spending, as well as factors
within the Company’s control with respect to the pace of
store openings in the US and store level execution. In the US,
the economic factors included the higher cost of such basic
consumer staples as gas and food, rising levels of unemployment
and personal debt, reduced access to consumer credit, and lower
home values as well as increased foreclosure activity in certain
areas of the country (California and Florida) where Starbucks
has a high concentration of Company-operated stores. These
developments combined with recent and ongoing unprecedented
shocks to the global financial system and capital markets have
all contributed to sharp declines in consumer confidence in the
US.


 



Starbucks business is highly sensitive to increases and
decreases in customer traffic. Increased customer visits create
sales leverage, meaning that fixed expenses, such as occupancy
costs, are spread across a greater revenue base, thereby
improving operating margins. But the reverse is also
true — sales de-leveraging creates downward pressure
on margins. The softness in US revenues during fiscal 2008
impacted nearly all consolidated and US segment operating
expense line items when viewed as a percentage of sales.


 



Since January 2008, when Company founder Howard Schultz
reassumed the role of president and chief executive officer in
addition to his role as chairman, Starbucks has taken steps to
address the deterioration in the US retail environment and
address its global support structure. These included the
development and implementation of several important strategic
initiatives as part of a transformation strategy designed to
reinvigorate the Starbucks Experience for the
Company’s customers, increase customer traffic in its US
stores, reduce infrastructure expenses, and improve the
Company’s results of operations. These significant actions
have been designed to structure the Company’s business for
long-term profitable growth.


 



As a result of the continued weak economy and decreased customer
traffic, as well as the costs associated with the store closures
and other actions in its transformation strategy, the
Company’s fiscal 2008 results were negatively impacted in
the following ways:


 


























  • 

Consolidated operating income was $503.9 million in fiscal
2008, and operating margin for the year was 4.9% compared with
11.2% in the prior year. Approximately 260 basis points of
the decrease in operating margin was a result of restructuring
charges, primarily related to the significant US store closures.
Softness in US revenues along with higher cost of sales
including occupancy costs and store operating expenses were also
significant drivers in the margin decline.
 
  • 

EPS for fiscal 2008 was $0.43, compared to EPS of $0.87 per
share earned in the prior year. Restructuring charges and costs
associated with the execution of the transformation agenda
impacted EPS by approximately $0.28 per share in fiscal 2008.





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Table of Contents





 




This excerpt taken from the SBUX 10-K filed Nov 29, 2007.
Fiscal 2007 — The Year in Review
 
Starbucks achieved solid performance in fiscal 2007 — meeting its targets for store openings, revenue growth, comparable store sales growth, and earnings per share — despite a challenging economic and operating environment, and significant cost increases from dairy. The Company completed the fiscal year with encouraging trends and momentum in its International business but faced increasing challenges in its U.S. business. While U.S. comparable store sales were within the Company’s stated target range, it was accomplished through two price increases which offset flat-to-negative transaction count trends in the U.S. business. The pressure on traffic is consistent with similar trends reported across both the retail and restaurant industry. Management believes that the combination of the economic slowdown and the price increases implemented in fiscal 2007 to help mitigate significant cost pressures have impacted the frequency of customer visits to Starbucks stores.
 
Consolidated net revenues for fiscal year 2007 increased 21% to $9.4 billion. Company-operated retail revenues in fiscal 2007 rose 21% to $8.0 billion, predominantly due to the opening of 1,342 stores and comparable store sales growth of 5%. The increase in comparable store sales was due to a 4% increase in the average value per transaction and 1% growth in the number of customer transactions. The Company opened a total of 2,571 new company-operated and licensed stores during the year, with 70% in the U.S. and 30% in International markets, to end the year with over 15,000 stores.
 
For fiscal 2007, operating income increased to $1.1 billion, while operating margin contracted 30 basis points to 11.2% of total net revenues. Margin compression was due to higher costs of sales including occupancy costs as a percentage of total net revenues due to a shift in sales to higher cost products and higher distribution costs, rent expense and dairy costs. These cost pressures were offset in part by leveraging general and administrative expenses, store operating expenses, and other operating expenses as a percentage of total net revenues.
 
Net earnings rose to $673 million in fiscal 2007 from $564 million for the previous year. Diluted earnings per share for fiscal 2007 increased to $0.87 compared to $0.71 a year ago. Excluding the cumulative effect of adopting FIN 47 in the fiscal fourth quarter of 2006, earnings grew 16% and diluted earnings per share increased 19%.
 

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