Net Revenues Up 24 Percent
Comparable Store Sales Grow 8 Percent
Net Earnings Increase 23 Percent
Company Sets Aggressive Targets for Fiscal Year 2004

Starbucks Corporation (Nasdaq:SBUX) today announced revenues and earnings for its fiscal third quarter ended June 29, 2003.

For the 13 weeks ended June 29, 2003, consolidated net revenues increased 24 percent to $1.0 billion from $835 million for the same period in fiscal 2002. Net earnings for the 13-week period ended June 29, 2003 increased 23 percent to $68.4 million from $55.7 million for the same period in fiscal 2002. Diluted earnings per share were $0.17 for the 13-week period ended June 29, 2003, compared to $0.14 for the comparable period in fiscal 2002.

For the 39 weeks ended June 29, 2003, consolidated net revenues increased 24 percent to $3.0 billion from $2.4 billion for the same period in fiscal 2002. Net earnings for the 39-week period ended June 29, 2003 increased 28 percent to $198.9 million from $155.1 million for the same period in fiscal 2002. Diluted earnings per share were $0.50 for the 39-week period ended June 29, 2003, compared to $0.39 per share for the comparable period in fiscal 2002.

Consolidated Financial and Operating Summary

Retail revenues increased 23.3 percent to $877.8 million for the 13 weeks ended June 29, 2003. The increase was primarily attributable to the opening of new Company-operated retail stores and an increase in comparable store sales of 8 percent for the period. The increase in comparable store sales was due almost entirely to an increase in customer transactions.

Specialty revenues increased 28.9 percent to $159.0 million for the 13 weeks ended June 29, 2003. The increase was attributable to growth in the Company's domestic retail licensing channel, foodservice accounts and international licensees.

Cost of sales and related occupancy costs were 41.1 percent of net revenues for the 13 weeks ended June 29, 2003 as compared to 40.4 percent for the corresponding period of fiscal 2002. This increase was primarily due to higher green coffee costs, partially offset by lower food and packaging expenses. The Company's green coffee costs reached a seven-year low in the second and third fiscal quarters of 2002 and have increased gradually since then.

Store operating expenses as a percentage of retail revenues increased to 41.2 percent for the 13 weeks ended June 29, 2003, from 40.9 percent for the corresponding period of fiscal 2002. The increase was primarily due to higher marketing expenditures, and to a lesser extent, additional expenses incurred to support the Starbucks Card for North American Retail operations. Partially offsetting these increases were lower provisions recorded in the current quarter for asset impairment for international Company-operated retail operations, when compared to the corresponding period in the prior year.

Other operating expenses (expenses associated with the Company's specialty operations) increased to 26.4 percent of specialty revenues for the 13 weeks ended June 29, 2003, compared to 23.7 percent in the corresponding period of fiscal 2002. The increase is mainly attributable to continued infrastructure development of the domestic licensing and foodservice channels, including expanding field organizations, restructuring distribution channels and expanding marketing support of new and existing accounts.

Depreciation and amortization expenses increased to $59.8 million for the 13 weeks ended June 29, 2003, from $50.9 million in the corresponding period of fiscal 2002 due to the opening of additional North American and international Company-operated retail stores.

General and administrative expenses increased to $49.3 million for the 13 weeks ended June 29, 2003, from $47.0 million in the corresponding period of fiscal 2002. The increase was attributable to higher payroll-related expenditures. However, as a percentage of total net revenues, general and administrative expenses decreased to 4.8 percent from 5.6 percent.

Income from equity investees was $7.9 million for the 13 weeks ended June 29, 2003, compared to $8.0 million in the corresponding period of fiscal 2002. The decrease was mainly attributable to the Company's 40 percent share of the net losses of Starbucks Japan, Ltd., this year compared to a net profit last year, as well as losses sustained by the Switzerland and Austria equity investees, which are in the start-up phase. Partially offsetting these losses were continued strong results experienced by The North American Coffee Partnership, the Company's 50 percent owned ready-to-drink partnership with the Pepsi-Cola Company, and the Starbucks Ice Cream Partnership with Dreyer's Grand Ice Cream, Inc., from expanded product lines, lower direct costs and manufacturing efficiencies.

Operating income increased 21.7 percent to $106.1 million for the 13 weeks ended June 29, 2003, from $87.2 million in the corresponding period of fiscal 2002, mainly due to revenue growth. The operating margin decreased to 10.2 percent of total net revenues in the 13 weeks ended June 29, 2003, compared to 10.4 percent in the corresponding period of fiscal 2002, primarily due to higher green coffee costs.

Interest and other income increased to $5.1 million for the 13 weeks ended June 29, 2003, compared to $1.5 million in the corresponding period of fiscal 2002, primarily due to gains realized on market revaluations of the Company's trading securities, compared to realized losses on this portfolio in the same period last year.

Income taxes for the 13 weeks ended June 29, 2003 were based on an effective tax rate of 38.5 percent, compared to 37.2 percent in the corresponding period of fiscal 2002, as a result of a shift in the composition of the Company's pre-tax earnings in fiscal 2003.


Fiscal 2003 Targets

The Company reviewed the following fiscal 2003 targets:

-- Open approximately 1,200 new stores on a global basis. In continental North America, the Company continues to expect to open 525 Company-operated locations and 275 licensed locations. Internationally, the Company has targeted to open 75 locations in Company-operated markets and approximately 325 locations in licensed markets.

-- The Company believes it will continue to exceed its growth target for total revenues of approximately 20 percent for the remainder of fiscal 2003, and expects comparable store sales growth to continue to be at or above the high end of the 3-7 percent target range for the remainder of the year.

-- The Company is targeting earnings per share of $0.17 for the fiscal fourth quarter and, as a result of the strong fiscal third quarter, now expects earnings per share for fiscal 2003 to be $0.67. This full year target is at the high end of the previous estimate of $0.66-$0.67 per share, and above the original fiscal 2003 target range of $0.64-$0.66.


In addition, Starbucks expects capital expenditures for fiscal 2003 to be approximately $410 million.

Fiscal 2004 Targets

The Company set the following fiscal 2004 targets:

-- Open approximately 1,300 new stores on a global basis. In continental North America, the Company plans to open approximately 575 Company-operated locations and 375 licensed locations. Internationally, the Company plans to open approximately 50 locations in Company-operated markets and 300 locations in licensed markets.

-- The Company continues to target total revenue growth of approximately 20 percent, and comparable store sales growth in the range of 3-7 percent, with monthly anomalies.

-- The Company expects earnings per share of $0.83-$0.85 for fiscal 2004, including an approximate $0.02 per share benefit of a 53rd week in fiscal 2004. The benefit from the 53rd week will occur entirely in the fiscal fourth quarter of 2004.
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Source: Starbucks