To our Shareholders,
It has been 35 years since Starbucks opened its first store across from the Pike Place Market in Seattle, Wash., and we’re proud to say we’re still operating with the same enthusiasm, vigor and ambition that we expressed years ago. Our commitment to serving high-quality coffee in a comfortable, friendly atmosphere has never wavered. Starbucks’ coffee expertise, continual pursuit of beverage innovation, and dedication to corporate social responsibility are unparalleled. These tenants will propel us towards financial success as they have for the past 35 years. Each week, we serve more than 40 million devoted customers, and we expect this number to continue to rise in the upcoming year.
Fiscal year 2006 was the 15th consecutive year of 5 percent or greater comparable store sales growth. Our net revenues increased by 22 percent from approximately $6.35 billion in 2005 to $7.8 billion in 2006. With these revenues, Starbucks’ net earnings rose by 14.1 percent to $564,259 million. This has resulted in an earnings-per-share of $0.71 for 2006, up from $0.61 a year ago. Our operating income has grown by a substantial 14.5 percent in the past year and is now $893,952 million.
We boldly aimed to open 1,800 Starbucks stores globally 2006. Today we announce that we did not open 1,800 new stores – we opened 2,199. This growth rate averaged approximately six new Starbucks coffee shops per day, making an aggregate total of 12,440 stores in 37 countries. These countries now include Egypt and Brazil. In early 2007 we will expand into Russia as well.
Our expansion into the international market has been a lucrative enterprise for Starbucks, and we now view it as an essential capstone to our sustained long-term growth. In 2006, Starbucks International realized solid growth in every regional market and earned profits of $108 million. Considering the high rate of customer acceptance in major markets such as China, we see a limitless potential for international growth. Starbucks has increased its investments and equity in China to hasten our expansion into this one billion customer market.
At Starbucks, we believe that our continued growth and expansion cannot be supported by simply increasing the sheer number of Starbucks coffee shops alone. We believe with an expanded customer base comes an expanded set of customer demands. To meet this growing set of demands, we have positioned ourselves at the forefront of beverage innovation. Starbucks is developing rich, decadent foods and beverages, while creating low-calorie, low-fat menu options to ensure we can satisfy every Starbucks customer.
Starbucks is the world’s third largest music distributor behind Apple and Wal-Mart, and we plan to mimic that success in the film and book industries. In 2007 we will be commencing these strategies, as well as expanding our music distribution efforts in our international stores.
Starbucks’ corporate initiatives are not merely directed at increasing profits. We also stress adhering to our responsibilities as a major corporation. These responsibilities include minimizing our environmental footprint, creating sustainable coffee-farming practices, and combating climate change. In fact, we believe that in most cases, it is possible to reconcile environmental initiatives with increased revenues. For example, developing energy-efficient logistics will lead to long-term, cost-saving benefits. Maintaining the wellbeing of the international farming communities that yield Starbucks coffee crops will ensure the quality of our products. Fighting poverty and crime in our local communities will create environments that facilitate the strong economic conditions necessary for our corporate success.
Starbucks has received numerous humanitarian and environmental rewards since the millennium. For example, Starbucks was ranked ninth on Business Ethics magazine’s list of the “100 Best Corporate Citizens.” It has made the list every year since 2000. Starbucks has made Corporate Responsibility Officer magazine’s list of “100 Best Corporate Citizens” every year since 2000 as well. And Howard Schultz, Starbucks’ chairman, president and CEO, (chairman, president and CEO was a list) was awarded First magazine’s International Award for Responsible Capitalism in 2007.
We approach the future with the optimistic outlook that Starbucks will continue to increase in financial and societal value. We have set ambitious financial targets for the next three to five years: an approximate 20 percent increase in total revenue growth and an approximate 20 to 25 percent increase in annual earnings-per-share. We are confident in our innovative management, marketing and sales strategies, which will be implemented by the company’s 145,000 dedicated employees. It is this dedication and commitment to making Starbucks the most successful corporation it can be that will carry us into the limitless future.
Howard Schultz Jim Donald
Chairman President and CEO