Archive for the 'NASDAQ' Category
Take-Two Interactive (Nasdaq: TTWO) announced record sales of Grand Theft Auto IV. Approximately six million units of the video game have sold globally since the Apr 29 launch. The estimated retail value of these sales is $500 million. Nearly 3.6 million units sold in the first day.
Shares of TTWO have been trading in a range as investors await the outcome of a takeover proposal by Electronic Arts (Nasdaq: ERTS). The fiscal 2008 consensus earnings estimate for TTWO had declined by two cents over the past 30 days, though it would seem the strong launch of Grand Theft Auto IV should cause brokerage analysts to revisit their forecasts.
A more broad way to take advantage of the video game space would be to buy shares of Gamestop (NYSE: GME), who profits regardless of which video game or system does well. GME likely accounted for a sizeable percentage of Grand Theft Auto IV sales and should benefit from the U.S. launch of Nintendo’s Wii Fit later this month.
Netflix Inc.’s profits rose 36 percent after its largest subscriber gains ever in its 10 year history. However Netflix Inc also foprojects a slowdown over their next quarter.
Netflix earned $13.4 million, or 21 cents per share, during the first three months of the year. That compared with net income of $9.9 million, or 14 cents per share, at the same time in 2007.
Revenue rose 7 percent to $326.2 million from $305.3 million.
Netflix Inc ended March with 8.24 million subscribers, a gain of 764,000 customers from the end of 2007. The company only expects between 60,000 to 260,000 new customers to sign up before the current quarter ends in June. This is due in part to the coming of summer and people spending more time out of doors than in. Fall and Winter are Netflix Inc.’s traditional high-water subscription months.
In after hours trading Netflix shares have fallen over $5.50 due to the expected spring/summer subscriber slowdown. Even though Netflix expects to close in on 9.7 million subscribers come the end of the year the projected slowdown has clearly caused investors some concern.
To make matters worse Netflix Inc. Chief Executive Reed Hastings has stated that they will soon be phasing in a special “Blu-ray surcharge” to defray some of its expenses for stocking its library with the more expensive, high-definition Blu-ray discs, Netflix plans to raise its fees later this year for those rentals by a “modest” amount. No clue what they mean by “modest”.
In other news Netflix Inc. has also announced that they are teaming up with three consumer electronics companies to bring the Netflix streaming service direct to consumer TVs. The only way to watch the Netflix movies on demand is via a PC running Microsoft Internet Explorer and a special Netflix plug-in. Having watched these movies myself I have to say that the selection is very poor and the video quality is even worse than standard definition TV.
The Netflix on demand service is great (a precursor service was first done by SNET in CT in the mid 90’s using technicians in a room full of VCRs) in that it allows the subscriber to pick from more than the usual 10 or 15 offerings on cable or satelite but unless they can improve the video quality and offer current movies as well as the old stuff I don’t see this going anywhere fast.
My advice? Hold off on Netflix stock until the summer ends. If you can buy right before the next quarter ends. I expect at the next quarterly meeting the CEO and board will announce that with summer nearing its end they expect to see even more subscribers signing up for the service.
The fall is also when more information on the consumer electronic devices will surface.
ENGELHARD, N.C.–(BUSINESS WIRE)–ECB Bancorp, Inc. (NASDAQ: ECBE), the parent holding company of The East Carolina Bank (the “Bank”), announced that on March 18, 2008, the Corporation’s Board of Directors declared a quarterly cash dividend of $0.1825 per share, payable April 14, 2008 to shareholders of record on April 1, 2008.
On an annualized basis, the Corporation’s 2008 dividend of $0.73 per share represents a 4.3% increase over the annual dividend in 2007 of $0.70 per share.
The Bank continues to expand its footprint in eastern North Carolina with a new full-service branch under construction in Leland (Brunswick County) scheduled to open in early third quarter, which will bring the total number of branches to 24.
REDWOOD CITY, Calif. –(Business Wire)– Feb. 24, 2008 Electronic Arts Inc. (”EA”) (NASDAQ: ERTS) today announced that it has proposed to acquire Take-Two Interactive Software, Inc. (”Take-Two”) (NASDAQ: TTWO) in an all-cash merger valued at approximately $2.0 billion.
EA’s proposal of $26 per share in cash represents a premium of 64 percent over Take-Two’s closing stock price on Feb. 15th, the last trading day before EA sent its revised proposal to Take-Two, and a 63 percent premium over Take-Two’s 30-day trailing average price over the thirty trading days ending on that date.
EA’s proposal was contained in a letter sent on Feb. 19th by EA Chief Executive Officer John Riccitiello to Strauss Zelnick, Executive Chairman of the Board of Directors of Take-Two. The Take-Two Board’s subsequent rejection of the EA proposal led to EA’s decision to release the letter and bring its proposal to the attention of all Take-Two shareholders.
Mr. Riccitiello said today: “Our all-cash proposal is a unique opportunity for Take-Two shareholders to realize immediate value at a substantial premium, while creating long-term value for EA shareholders. Take-Two’s game designers would also benefit from EA’s financial resources, stable, game-focused management team, and strong global publishing capabilities.”
The EA letter warned that further Take-Two delay in accepting EA’s proposal could prevent Take-Two’s shareholders and other constituents from realizing its benefits. “There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today,” Mr. Riccitiello wrote. The letter added that timely completion of the proposed transaction would allow EA’s strong publishing and distribution network to positively impact the ongoing post-launch sales of GTA IV and support the new Take-Two titles scheduled for launch later in the year and during the holiday selling season.
As noted in EA’s Feb. 19th letter, EA’s proposal is not conditioned on any financing requirement. It is, however, subject to certain customary conditions as set forth in the letter. EA’s $26 per share proposal is based on the current equity capitalization of Take-Two. Although EA indicated in the letter that its proposal was subject to negotiations commencing by Feb. 22nd, EA intends to keep its proposal open for the present to give Take-Two’s shareholders and Board of Directors further time to consider it.
The full text of EA’s letter to Take-Two follows: -0-
February 19, 2008
Mr. Strauss Zelnick
Executive Chairman of the Board of Directors
Take-Two Interactive Software, Inc.
622 Broadway
New York, NY 10012
Dear Strauss:
Thank you for your letter of February 15, 2008. While I appreciate its courteous tone and value our ongoing dialogue, I am disappointed that you have rejected Electronic Arts Inc.’s (”EA’s”) $25 per share cash offer to acquire Take-Two Interactive Software, Inc. (”Take-Two”) and declined to engage in the friendly negotiations we proposed. We continue to believe that an acquisition of Take-Two by EA is in the best interests of your shareholders, employees and other constituents, and we remain interested in acquiring Take-Two. So, to further demonstrate our seriousness and encourage you to move forward now, I am writing to increase EA’s offer to acquire all of the outstanding shares of Take-Two to $26 per share in cash. This offer is subject to Take-Two agreeing by February 22, 2008 to commence negotiation of a definitive merger agreement and to permit EA to commence a limited due diligence review of Take-Two.
Our revised all-cash offer represents a 64% premium over Take-Two’s most recent closing price and a 63% premium over Take-Two’s 30-day trailing average price (based on prices as of market close on Friday, February 15th). We believe our offer represents a unique and compelling opportunity for Take-Two shareholders to maximize the value of their investment in the company, with materially lower risk than if Take-Two proceeds on a stand-alone basis.
We also believe that the transaction we are proposing represents a uniquely attractive opportunity for Take-Two’s creative teams and key employees. EA is a diversified leader with well-established franchises and proven intellectual properties, global reach, and significant financial resources. I know we both agree that Take-Two’s talented creative teams deserve a permanent home within a stable and growing publisher that provides these teams an environment to do what they do best - create great games. EA is organized in a four-label model that provides our creative teams the autonomy they need to fully realize their creative ambitions, while also providing a stable and supportive corporate and publishing infrastructure which allows them to best address the global marketplace. We have the resources to make the significant investments in technology and infrastructure needed for the most creative and innovative games in the industry. In short, a combination with EA would provide Take-Two’s studios and employees a combination of the right resources for investment and global reach, and the right environment to do their best work.
We believe that Take-Two’s shareholders would not be well-served by any further delay in negotiating and completing the proposed merger. While the videogame industry remains an attractive, high-growth business, the challenges and risks in the business are escalating, and the need for scale is becoming more pronounced. Despite steps taken since March 2007, Take-Two remains dependent on a limited number of titles, and has limited capital resources. In addition, Take-Two faces ongoing financial, legal and operating issues and a very intense competitive environment. Given these factors, we believe it will be increasingly difficult for Take-Two to create sustainable shareholder value and that Take-Two remains exposed to considerable risk of value loss.
We also believe that any delay in this proposed transaction works against the interest of Take-Two’s shareholders, because:
– There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today. We place significant value on the ability to close the transaction relatively quickly so that EA’s strong publishing and distribution network, including our global packaged goods, online and wireless publishing organizations, can positively impact the catalogue sales of GTA IV and also the launch and sale of titles released later this year. We want to work with you and your team to complete the transaction in time to begin realizing its significant marketplace benefits in advance of this year’s holiday selling season.
– We believe Take-Two’s current share price already reflects investor expectations for a strong release of GTA IV as well as the longer-term issues that Take-Two faces. Once GTA IV ships, Take-Two will again be dependent on less-popular titles and face increasing challenges to compete with larger and better-capitalized competitors.
– With GTA IV shipping on April 29, development on this important title must now be essentially complete. We believe now is the right time to complete a transaction with minimal disruption for Take-Two.
We also believe the transaction we are proposing will create value for EA’s shareholders. In addition to the top-line benefits noted above, we can achieve bottom-line benefits by combining Take-Two’s and EA’s corporate and publishing infrastructures and by optimally supporting Take-Two’s creative teams and intellectual properties in EA’s decentralized label structure.
Considerable thought, time and resources have been put forth in developing this offer, and our Board of Directors unanimously supports it. Our offer is not conditioned on any financing requirement. It is subject to the satisfactory completion of a due diligence review of Take-Two, the negotiation and execution of mutually acceptable definitive transaction agreements, and the satisfaction of customary conditions to be set forth in such agreements. We are prepared to move forward immediately with formal due diligence and the negotiation and execution of a definitive merger agreement and believe that with adequate access to the necessary information and people, we can complete both in approximately two weeks. We believe that our due diligence review can be completed with minimal disruption, requiring only limited access to a small number of senior executives of Take-Two and its legal, accounting and financial advisors. We also have prepared a draft merger agreement that we can forward to you immediately.
Our strong preference is to conduct a private negotiation. If you are unwilling to proceed on that basis, however, we may pursue other means, including the public disclosure of this letter, to bring our offer and the compelling value it represents to the attention of Take-Two’s shareholders.
I am available to meet and discuss any and all aspects of this proposal with you and your Board. Again, we believe this proposal represents a unique opportunity to maximize value for Take-Two’s shareholders, and that the combined enterprise would be extraordinarily well positioned to build value for our respective customers, employees, developers and other business partners. We hope that you and your Board share our enthusiasm, and we look forward to hearing back from you by February 22. -0-
Sincerely,
John Riccitiello
Chief Executive Officer
Conference Call
Electronic Arts will host a conference call on Monday, February 25, 2008 at 5:00 am PT (8:00 am ET) to discuss its proposal to acquire Take-Two Interactive and may disclose other material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number: (877) 795-3647, access code 220497, or via webcast at http://www.eatake2.com.
A dial-in replay of the conference call will be provided shortly after the call ends and remain available until March 3, 2008 at (719) 457-0820, access code 220497. A webcast archive of the conference call will be available shortly after the call ends at http://www.eatake2.com.
About Electronic Arts
Electronic Arts Inc. (EA), headquartered in Redwood City, California, is the world’s leading interactive entertainment software company. Founded in 1982, the company develops, publishes, and distributes interactive software worldwide for video game systems, personal computers, cellular handsets and the Internet. Electronic Arts markets its products under four brand names: EA SPORTS(TM), EA(TM), EA SPORTS BIG(TM) and POGO(TM). In fiscal 2007, EA posted revenue of $3.09 billion and had 24 titles that sold more than one million copies. EA’s homepage and online game site is http://www.ea.com. More information about EA’s products and full text of press releases can be found on the Internet at http://info.ea.com. For more information about EA’s proposal to acquire Take-Two, please visit http://www.eatake2.com.
Additional Information and Where to Find It
This communication is for informational purposes only and does not constitute an offer to buy any securities or a solicitation of any vote or approval or a solicitation of an offer to sell any securities. This material is not a substitute for the proxy statement Take-Two would file with the SEC if an agreement between EA and Take-Two is reached or any other documents which EA may file with the SEC and send to Take-Two stockholders in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS OF TAKE-TWO ARE URGED TO READ ANY SUCH DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain free copies of any documents filed with the SEC through the web site maintained by the SEC at http://www.sec.gov. Free copies of any documents filed by EA with the SEC can also be obtained by directing a request to EA, 209 Redwood Shores Parkway, Redwood City, CA 94065, telephone: (650) 628-1500.
EA and its directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding EA’s directors and executive officers is available in its Annual Report on Form 10-K for the year ended March 31, 2007, which was filed with the SEC on May 30, 2007, its proxy statement for its 2007 annual meeting of shareholders, which was filed with the SEC on June 20, 2007, and Forms 8-K, which were filed with the SEC on June 6, 2007 and July 17, 2007. Other information regarding the participants in a proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in any proxy statement filed in connection with the proposed transaction.
Forward-Looking Statements
Some statements set forth in this press release, including those regarding EA’s proposal to acquire Take-Two and the expected impact of the acquisition on EA’s strategic and operational plans and financial results, contain forward-looking statements that are subject to change. Statements including words such as “anticipate”, “believe”, “estimate” or “expect” and statements in the future tense are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements. Some of the factors which could cause results to differ materially from the expectations expressed in these forward-looking statements include the following: the possibility that EA’s proposal to acquire Take-Two will be rejected by Take-Two’s board of directors or shareholders; the possibility that, even if EA’s proposal is accepted, the transaction will not close or that the closing may be delayed; the effect of the announcement of the proposal on EA’s and Take-Two’s strategic relationships, operating results and business generally, including the ability to retain key employees; EA’s ability to successfully integrate Take-Two’s operations and employees; general economic conditions; and other factors described in EA’s SEC filings (including EA’s Annual Report on Form 10-K for the year ended March 31, 2007 and Quarterly Report on Form 10-Q for the quarter ended December 31, 2007). If any of these risks or uncertainties materializes, the proposal may not be accepted, the acquisition may not be consummated, the potential benefits of the acquisition may not be realized, EA’s and/or Take-Two’s operating results and financial performance could suffer, and actual results could differ materially from the expectations described in these forward-looking statements. All information in this press release is as of February 24, 2008. EA undertakes no duty to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Electronic Arts Inc.
Tricia Gugler, 650-628-7327
Director, Investor Relations
or
Jeff Brown, 650-628-7922
Vice President Corporate Communications
SEATTLE–(BUSINESS WIRE)–As part of the Company’s recently introduced Transformation Agenda, Starbucks (Nasdaq:SBUX) communicated several organizational structure changes to its partners (employees) that will better focus efforts on enhancing the customer experience. Additionally, at the Starbucks Annual Meeting on March 19, Howard Schultz, president, ceo and chairman, will outline five key strategic customer-facing initiatives that will continue to transform the customer experience.
Schultz sent the following email to all Starbucks partners earlier today:
__________________________________________________________________
Dear Partners,
Since I returned as ceo six weeks ago, we have experienced a lot of change in a very short period…with our renewed focus on the customer experience and the return to our core–all things coffee–as evidenced by our decision to discontinue warmed breakfast sandwiches in U.S. stores by the end of Fiscal ’08; unprecedented Art of Espresso three-hour training for U.S. store partners on February 26; free WIFI for partners and customers beginning in the Spring, and more to come. I hope you view these changes as positively as I do. Together, we have created a blueprint to transform the company, and I sincerely appreciate all that you have done and will continue to do every day on behalf of Starbucks.
I pledged to communicate with you about our efforts to improve the current state of our U.S. Business, reignite the emotional attachment with our customers and make foundational changes to our business; and I have done so in six previous emails. However, this is my most difficult communication to date.
As I have mentioned in previous communications, in order to reinvigorate our company we must continually analyze and review every part of our company operations. This rigorous look at our business will ensure that we are managing and optimizing our resources as effectively as we can in order to improve the Starbucks Experience.
We realize that we are operating in an intensely challenging environment, one in which our customers and partners have extremely high expectations of Starbucks. And we have to step up to the challenge of being strategic as well as nimble as our business evolves. Unfortunately, we have not been organized in a manner that allowed us to have a laser focus on the customer.
Over the last several weeks, we conducted a thorough organizational analysis, which was, at times, very emotional and extremely stressful. But as I sit at my desk and think about my responsibility to over 170,000 partners and their families who rely on me and others to preserve and enhance our company, I know that I am responsible for ensuring the success of the company for the long term, which means that difficult decisions must be made. Personally, I continue to struggle with the outcome, because I realize how painful it will be for some partners.
As the result of our review, which was done with great thoughtfulness and respect for everyone concerned, organizational changes have been made. These changes will restructure the company, but they will also result in a decrease of both the number of positions and partners by approximately 600. This total includes the elimination of existing positions and open headcount, as well as the reduction of our current workforce. Within this context, approximately 220 partners have separated from the company. Nearly all were U.S. partners serving in non-retail support roles. We are thankful and proud of the contributions our departing partners have made, and we are committed to treating them with respect and dignity.
Today, we are announcing the following modifications to our organizational structure that are designed to strengthen our focus on the customer in our U.S. field operations, and centralize and/or consolidate many of our support functions to drive functional excellence and reduce redundancies:
U.S. Field Operations
Effective Monday, February 25, the U.S. field organization will begin transitioning from two divisions to four, with full implementation completed by March 24. The new divisions are: Western/Pacific, Northwest/Mountain, Southeast/Plains and Northeast/Atlantic.
Not only will this organizational structure create more capacity for our field teams, it will enable the company to align our leaders closer to our customers and partners. This will ensure a stronger level of support in partner development, coaching and accountability in the field. Establishing a customer-centric field support structure in the U.S. Business enables our field teams to focus on our partners, customers and our coffee.
Each division will be led by a senior vice president, reporting directly to the U.S. president. Within each division, partners supporting Store Development, Marketing, Partner Resources and Finance will report directly to their respective functions while still being accountable for results at the divisional level. These teams are being centralized to create an infrastructure with global span, capability and effectiveness.
Support Functions
The reorganizations of Starbucks support functions are designed to consolidate functional activities into teams that have a shared vision and goals to support the business.
The following support functions are being reorganized and/or consolidated:
- U.S. Store Development
- U.S. Licensed Stores
- U.S. Finance
- Partner Resources
- Marketing
- In-Store Experience
- Global Supply Chain
- Global Communications
- Partner & Asset Protection
As a result of these organizational changes, some partners may have new roles or new managers.
Partner Care and Support
As I said earlier in this communication, while these decisions were necessary to move our business forward, I fully recognize the personal and professional impacts these actions have on individual partners, and we are committed to making the transitions as smooth as possible.
Once again, I would like to thank all of our dedicated and passionate partners for their numerous contributions to the company.
Onward,
Howard
SEATTLE–(BUSINESS WIRE)–Starbucks Corporation (NASDAQ:SBUX) today announced a new comprehensive communications agreement with AT&T that will enhance the enterprise networking capabilities for Starbucks by streamlining business operations and enhancing the customer experience. With this announcement, AT&T, which has provided Starbucks with network connectivity for point of sale and other store operating systems for more than 10 years, will offer consumer Wi-Fi service in more than 7,000 Starbucks locations in the U.S. beginning in spring of 2008.
“Now more than ever, Starbucks is focused on the in-store experience for our customers,” said Chris Bruzzo, chief technology officer, Starbucks. “As we continue to build our technology offerings in ways that both enhance and expand the Starbucks Experience for our customers, we made a strategic decision to expand our existing relationship with our longtime technology partner AT&T to include consumer Wi-Fi.”
In recognition of the many T-Mobile customers who enjoy visiting Starbucks, the Company is also announcing that T-Mobile HotSpot customers will be able to continue to access Wi-Fi services at no additional cost, through an agreement between AT&T and T-Mobile.
“As we continue to build upon our digital entertainment platform, our expanded partnership with AT&T will permit us to deliver a compelling in-store entertainment experience for Starbucks customers as well as AT&T’s customers,” said Ken Lombard, president, Starbucks Entertainment.
“We are committed to connecting people to their worlds wherever they live and work,” said Rick Welday, AT&T’s Chief Marketing Officer—Consumer. “For our more than 120 million customers, this is just another way we deliver their world of communications and entertainment – all from the comfort of Starbucks.”
Customer Wi-Fi services from AT&T will be rolled-out to Starbucks locations in the U.S. on a market-by-market basis beginning in the spring of 2008. Starbucks will work with AT&T to create a range of compelling Wi-Fi pricing structures for Starbucks and AT&T customers.
Sam’s Notes
Starbucks is one of my stock picks for 2008. I have written about them before and I will write about them again in the future.
Essentially Starbucks is dumping T-Mobile to go with AT&T for their Wi-Fi Internet offering in stores. Though this does sound good for their bottom line it is bad for their business.
There is a Starbucks in my town that my wife frequents. Often, my daughter goes with her. This store has not been charging for Wi-Fi for a long time. In fact, many business people go there because of the free Wi-Fi. As another point of fact all of the other coffee shops in town that offer Wi-Fi offer it for free. We had one small cafe that had wi-Fi for free and rental desktop machines along one wall but that is the only exception (they also went under).
Having Wi-Fi in your coffee shop is the equivalent of selling cheap DVDs at Walmart. It is a loss leader to get people in the door.
Where this might prove beneficial is in markets where both Starbucks and AT&T have a strong presence. I have AT&T DSL at home and knowing that I can use AT&T Wi-Fi at Starbucks is a nice selling point. With that said, I can also use Joey Joe Joe’s free Wi-Fi at his coffee shop a block away.
Wi-Fi in a coffee shop should be free and it more or less is as you get two hours worth when making a purchase. Well, you also have to type in some sort of code to get it to work so… is it worth the hassle? What of those Starbucks stores that already have free Wi-Fi, what will they do?
AGOURA HILLS, Calif.–(BUSINESS WIRE)–THQ Inc. (NASDAQ:THQI) today announced financial results for the third quarter of fiscal 2008, consistent with the company’s recently announced revised financial guidance. The company also reaffirmed its financial outlook for the fourth quarter of fiscal 2008.
For the third quarter of fiscal 2008, THQ reported net sales of $509.6 million, driven primarily by WWE® SmackDown® vs. Raw® 2008, Cars: Mater-National and MX vs. ATV™ Untamed, each across multiple game systems. For the same period a year ago, THQ reported net sales of $475.7 million.
For the third quarter of fiscal 2008, THQ reported GAAP net income of $15.5 million, or $0.23 per diluted share, which includes $0.01 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company reported net income of $16.4 million, or $0.24 per diluted share. Both GAAP and non-GAAP net income include a $0.02 per diluted share gain from the receipt of additional proceeds related to the sale of Minick AG in fiscal year 2007. For the same period a year ago, THQ reported GAAP net income of $62.1 million, or $0.91 per diluted share, which includes $0.09 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior-year period was $68.1 million, or $1.00 per diluted share. Both GAAP and non-GAAP net income include a $0.03 per diluted share gain from the receipt of proceeds related to the sale of Minick AG in fiscal year 2007. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
As previously reported by the company, fiscal 2008 third quarter results include approximately $27 million in non-cash charges related to the company’s decision to cancel certain projects in development and the write-down of the value of certain intellectual properties as part of its product quality initiatives, as well as approximately $20 million in accelerated amortization expense.
For the nine months ended December 31, 2007, THQ reported net sales of $843.4 million, compared with $854.8 million in the corresponding prior-year period. The company reported a GAAP net loss of $806,000, or $0.01 per share, which includes $0.13 per share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company reported nine-month net income of $8.1 million, or $0.12 per diluted share. Both GAAP net loss and non-GAAP net income include a $0.02 per share gain from receipt of additional proceeds related to the sale of Minick AG in fiscal year 2007. For the prior-year period, THQ reported GAAP net income of $61.5 million or $0.92 per diluted share, which included stock-based compensation expense of $0.18 per diluted share. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior-year period was $74.0 million, or $1.10 per diluted share. Both GAAP and non-GAAP net income include a $0.03 per diluted share gain from the receipt of proceeds related to the sale of Minick AG in fiscal year 2007. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.
“During the holiday quarter, we were pleased with the record performance of WWE SmackDown vs. Raw 2008 and the successful launch of our internally developed game MX vs. ATV Untamed,” said Brian Farrell, THQ president and CEO.
Farrell continued, “We continue to strengthen our product development capabilities to support our long-term strategy of creating new owned intellectual properties. We look forward to launching Frontlines: Fuel of War at the end of this month. In fiscal 2009, we are well positioned for increased sales and profitability with strong owned intellectual properties such as Red Faction and Saints Row and well-known licensed franchises including WWE, UFC, Disney/Pixar and Nickelodeon.”
Recent Developments:
- During the quarter, THQ shipped more than 5 million units of WWE SmackDown vs. Raw 2008, bringing total lifetime WWE franchise net sales to more than $1 billion.
- During the quarter, total lifetime Nickelodeon franchise net sales surpassed $1 billion, driven by Avatar, Nicktoons and SpongeBob SquarePants.
- For the nine months ended December 31, 2007, THQ’s international net sales increased significantly, to 50% of total global net sales from 40% a year ago, as THQ continued to execute on its international growth strategy.
- For the quarter and nine months ended December 31, 2007, THQ grew its Nintendo DS™ revenue 94% year-over-year, aided by the launch of Drawn to Life™, a newly established owned franchise created specifically for the Nintendo DS system.
- On January 18, 2008, the company acquired Big Huge Games, a veteran development studio focused on the multi-billion dollar Role-Playing-Games market.
- On January 23, 2008, THQ announced the appointment of two executives to newly-created product development positions to help drive new intellectual property creation.
- On February 4, 2008, THQ announced the appointment of technology industry veteran Colin Slade as executive vice president and chief financial officer.
Fiscal 2008 Guidance
THQ reaffirmed its recently issued guidance for the fourth quarter and full fiscal year ending March 31, 2008 as follows:
- For the fiscal year ending March 31, 2008, THQ expects net sales of approximately $1.04 billion and a GAAP loss per share of approximately $0.16, which includes approximately $0.21 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company expects to report net income of approximately $0.05 per diluted share.
- For the fiscal fourth quarter ending March 31, 2008, THQ expects to report net sales of approximately $200 million and a GAAP net loss of approximately $0.13, which includes approximately $0.07 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company expects to report a net loss of approximately $0.06 per diluted share.
Non-GAAP Financial Measures
In addition to results determined in accordance with GAAP, THQ discloses certain non-GAAP financial measures that exclude stock-based compensation expense and related income tax effects. The non-GAAP financial measures included in the earnings release have been reconciled to the comparable GAAP results and should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.
When evaluating the performance of its business, THQ does not consider stock-based compensation charges. Likewise, THQ excludes stock-based compensation expense from its short and long-term operating plans. In contrast, THQ’s management team is held accountable for cash-based compensation and such amounts are included in the company’s operating plans. In addition, the stock-based compensation charges are subject to significant fluctuation outside the control of management due to the variables used to estimate the fair value of a share-based payment, such as, THQ’s stock price, interest rates and the volatility of THQ’s stock price. Further, when considering the impact of equity award grants, THQ places a greater emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.
In the financial tables below, THQ has provided a reconciliation of the most comparable GAAP financial measure to each of the historical non-GAAP financial measures used in this press release.
Investor Conference Call
THQ will host a conference call to discuss fiscal third quarter results today at 5:00 p.m. Eastern/2:00 p.m. Pacific. Please dial 877.356.8075 or 706.902.0203, conference ID 31143285 to listen to the call or visit the THQ Inc. Investor Relations Home page at http://investor.thq.com. The online archive of the broadcast will be available approximately two hours after the live call ends. In addition, a telephonic replay of the conference call will be provided approximately two hours after the live call ends through February 7, 2008, by dialing 800.642.1687 or 706.645.9291, conference ID 31143285.
About THQ
THQ Inc. (NASDAQ:THQI) is a leading worldwide developer and publisher of interactive entertainment software. Headquartered in Los Angeles County, California, THQ sells product through its global network of offices located throughout North America, Europe and Asia Pacific. More information about THQ and its products may be found at www.thq.com and www.thqwireless.com. THQ, THQ Wireless, Big Huge Games, Drawn to Life, MX vs. ATV Untamed, Red Faction, Saints Row and their respective logos are trademarks and/or registered trademarks of THQ Inc.
All other trademarks are trademarks or registered trademarks of their respective owners.
This press release contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, the company’s expectations for revenue and earnings per share for the quarter and fiscal year ending March 31, 2008, and for the company’s product releases and financial performance in future periods. These forward-looking statements are based on current expectations, estimates and projections about the business of THQ Inc. and its subsidiaries (collectively referred to as “THQ”) and are based upon management’s beliefs and certain assumptions made by management. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive and technological factors affecting the operations, markets, products, services and pricing of THQ. Unless otherwise required by law, THQ disclaims any obligation to update its view on any such risks or uncertainties or to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors and the information that could materially affect THQ’s financial results, described in other documents that THQ files from time to time with the Securities and Exchange Commission, including its Quarterly Reports on Form 10-Q and its Annual Report on Form 10-K for the fiscal period ended March 31, 2007, and particularly the discussion of risk factors that may affect results of operations set forth therein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.
| THQ Inc. and Subsidiaries |
| Unaudited Consolidated Statements of Operations |
|
(In thousands, except per share data)
|
| |
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
| |
|
December 31, |
|
|
December 31, |
| |
|
2007 |
|
2006 |
|
|
2007 |
|
|
2006 |
| |
|
|
|
|
|
|
|
|
|
|
| Net sales |
|
$ |
509,609 |
|
$ |
475,741 |
|
|
$ |
843,443 |
|
|
$ |
854,767 |
| |
|
|
|
|
|
|
|
|
|
|
| Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| Cost of sales – product costs |
|
175,568 |
|
162,110 |
|
|
306,732 |
|
|
288,117 |
| Cost of sales – software amortization and royalties |
|
126,270 |
|
71,417 |
|
|
177,179 |
|
|
140,364 |
| Cost of sales – license amortization and royalties |
|
50,420 |
|
49,759 |
|
|
86,250 |
|
|
86,903 |
| Cost of sales – venture partner expense |
|
19,207 |
|
13,503 |
|
|
21,241 |
|
|
14,985 |
| Product development |
|
41,311 |
|
21,912 |
|
|
94,504 |
|
|
73,834 |
| Selling and marketing |
|
65,499 |
|
51,213 |
|
|
135,495 |
|
|
116,849 |
| General and administrative |
|
15,528 |
|
24,100 |
|
|
52,269 |
|
|
59,271 |
| Total costs and expenses |
|
493,803 |
|
394,014 |
|
|
873,670 |
|
|
780,323 |
| Income (loss) from continuing operations |
|
15,806 |
|
81,727 |
|
|
(30,227 |
) |
|
74,444 |
| Interest and other income, net |
|
3,412 |
|
2,595 |
|
|
13,337 |
|
|
9,071 |
| Income (loss) from continuing operations before income taxes and minority interest |
|
19,218 |
|
84,322 |
|
|
(16,890 |
) |
|
83,515 |
| Income taxes |
|
5,224 |
|
24,367 |
|
|
(14,571 |
) |
|
24,215 |
| Income (loss) from continuing operations before minority interest |
|
13,994 |
|
59,955 |
|
|
(2,319 |
) |
|
59,300 |
| Minority interest |
|
─ |
|
(7 |
) |
|
─ |
|
|
136 |
| Income (loss) from continuing operations |
|
13,994 |
|
59,948 |
|
|
(2,319 |
) |
|
59,436 |
| Gain on sale of discontinued operations, net of tax |
|
1,513 |
|
2,107 |
|
|
1,513 |
|
|
2,107 |
| Net income (loss) |
|
$ |
15,507 |
|
$ |
62,055 |
|
|
$ |
(806 |
) |
|
$ |
61,543 |
| |
|
|
|
|
|
|
|
|
|
|
| Earnings (loss) per share – basic: |
|
|
|
|
|
|
|
|
|
|
| Continuing operations |
|
$ |
0.21 |
|
$ |
0.92 |
|
|
$ |
(0.03 |
) |
|
$ |
0.92 |
| Discontinued operations |
|
0.02 |
|
0.03 |
|
|
0.02 |
|
|
0.03 |
| Earnings (loss) per share – basic |
|
$ |
0.23 |
|
$ |
0.95 |
|
|
$ |
(0.01 |
) |
|
$ |
0.95 |
| Shares used in per share calculation – basic |
|
66,118 |
|
65,387 |
|
|
66,502 |
|
|
64,737 |
| Earnings (loss) per share – diluted: |
|
|
|
|
|
|
|
|
|
|
| Continuing operations |
|
$ |
0.21 |
|
$ |
0.88 |
|
|
$ |
(0.03 |
) |
|
$ |
0.89 |
| Discontinued operations |
|
0.02 |
|
0.03 |
|
|
0.02 |
|
|
0.03 |
| Earnings (loss) per share – diluted |
|
$ |
0.23 |
|
$ |
0.91 |
|
|
$ |
(0.01 |
) |
|
$ |
0.92 |
| Shares used in per share calculation – diluted |
|
67,815 |
|
68,101 |
|
|
66,502 |
|
|
67,150 |
| THQ Inc. and Subsidiaries |
| Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss) (a) |
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Three Months Ended
December 31, |
|
|
Nine Months Ended
December 31,
|
|
| |
|
|
|
|
2007 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2006 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) from continuing operations |
|
|
|
$ |
13,994 |
|
|
$ |
59,948 |
|
|
$ |
(2,319 |
) |
|
$ |
59,436 |
|
| Stock-based compensation expense (b) |
|
|
|
|
4,730 |
|
|
|
6,779 |
|
|
|
17,721 |
|
|
|
15,912 |
|
| Income tax adjustments (c) |
|
|
|
|
(3,804 |
) |
|
|
(724 |
) |
|
|
(8,844 |
) |
|
|
(3,458 |
) |
| Total non-GAAP adjustments |
|
|
|
|
926 |
|
|
|
6,055 |
|
|
|
8,877 |
|
|
|
12,454 |
|
| Non-GAAP income from continuing operations |
|
|
|
|
14,920 |
|
|
|
66,003 |
|
|
|
6,558 |
|
|
|
71,890 |
|
| Gain on sale of discontinued operations, net of tax |
|
|
|
|
1,513 |
|
|
|
2,107 |
|
|
|
1,513 |
|
|
|
2,107 |
|
| Non-GAAP net income |
|
|
|
$ |
16,433 |
|
|
$ |
68,110 |
|
|
$ |
8,071 |
|
|
$ |
73,997 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-GAAP earnings per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-GAAP continuing operations |
|
|
|
$ |
0.23 |
|
|
$ |
1.01 |
|
|
$ |
0.10 |
|
|
$ |
1.11 |
|
| Discontinued operations |
|
|
|
|
0.02 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.03 |
|
| Non-GAAP earnings per share – basic |
|
|
|
$ |
0.25 |
|
|
$ |
1.04 |
|
|
$ |
0.12 |
|
|
$ |
1.14 |
|
| Shares used in per share calculation – basic |
|
|
|
|
66,118 |
|
|
|
65,387 |
|
|
|
66,502 |
|
|
|
64,737 |
|
| Non-GAAP earnings per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-GAAP continuing operations |
|
|
|
$ |
0.22 |
|
|
$ |
0.97 |
|
|
$ |
0.10 |
|
|
$ |
1.07 |
|
| Discontinued operations |
|
|
|
|
0.02 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.03 |
|
| Non-GAAP earnings per share – diluted |
|
|
|
$ |
0.24 |
|
|
$ |
1.00 |
|
|
$ |
0.12 |
|
|
$ |
1.10 |
|
| Shares used in per share calculation – diluted |
|
|
|
|
67,815 |
|
|
|
68,101 |
|
|
|
68,560 |
|
|
|
67,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-GAAP Adjustments (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Three Months Ended
December 31, |
|
|
Nine Months Ended
December 31,
|
|
| |
|
|
|
|
2007 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2006 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales – software amortization and royalties |
|
(b) |
|
$ |
2,413 |
|
|
$ |
625 |
|
|
$ |
5,391 |
|
|
$ |
788 |
|
| Product development |
|
(b) |
|
|
1,262 |
|
|
|
1,470 |
|
|
|
3,434 |
|
|
|
3,587 |
|
| Selling and marketing |
|
(b) |
|
|
573 |
|
|
|
1,125 |
|
|
|
2,083 |
|
|
|
2,486 |
|
| General and administrative |
|
(b) |
|
|
482 |
|
|
|
3,534 |
|
|
|
6,813 |
|
|
|
8,990 |
|
| Interest and other income, net |
|
(b) |
|
─ |
|
|
|
25 |
|
|
─ |
|
|
|
61 |
|
| Income tax adjustments |
|
(c) |
|
|
(3,804 |
) |
|
|
(724 |
) |
|
|
(8,844 |
) |
|
|
(3,458 |
) |
| Total non-GAAP adjustments |
|
|
|
$ |
926 |
|
|
$ |
6,055 |
|
|
$ |
8,877 |
|
|
$ |
12,454 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Notes: |
|
| (a) See explanation above regarding the Company’s practice on |
| reporting non-GAAP financial measures. |
|
| (b) Stock-based compensation expense recorded under SFAS 123(R) in the |
| three and nine months ended December 31, 2007 and December 31, |
| 2006, and the payroll tax effects of our historical stock |
|
option grant practices investigation in the three and nine months
|
|
ended December 31, 2006.
|
|
|
(c) Income tax associated with stock-based compensation expense.
|
| THQ Inc. and Subsidiaries |
| Unaudited Consolidated Balance Sheets |
|
(In thousands)
|
| |
|
|
| |
|
|
| |
|
December 31, |
|
March 31, |
| |
|
2007 |
|
2007 |
| |
|
|
|
|
| ASSETS |
|
|
|
|
| Cash, cash equivalents and short-term investments |
|
$ |
325,344 |
|
$ |
457,958 |
| Accounts receivable, net of allowances |
|
270,740 |
|
67,586 |
| Inventory |
|
43,584 |
|
27,381 |
| Licenses |
|
27,346 |
|
41,406 |
| Software development |
|
148,822 |
|
130,512 |
| Income taxes receivable |
|
5,890 |
|
18,525 |
| Prepaid expenses and other current assets |
|
14,954 |
|
16,238 |
| Total current assets |
|
836,680 |
|
759,606 |
| Property and equipment, net |
|
49,359 |
|
45,095 |
| Licenses, net of current portion |
|
61,356 |
|
49,661 |
| Software development, net of current portion |
|
26,066 |
|
33,766 |
| Income taxes receivable, net of current portion |
|
14,104 |
|
2,163 |
| Deferred income taxes |
|
15,812 |
|
15,812 |
| Goodwill |
|
99,026 |
|
88,688 |
| Other long-term assets, net |
|
15,880 |
|
18,750 |
| TOTAL ASSETS |
|
$ |
1,118,283 |
|
$ |
1,013,541 |
| |
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| Accounts payable |
|
$ |
73,753 |
|
$ |
28,225 |
| Accrued and other current liabilities |
|
205,562 |
|
143,418 |
| Deferred income taxes |
|
24,161 |
|
25,647 |
| Total current liabilities |
|
303,476 |
|
197,290 |
| Other long-term liabilities |
|
39,979 |
|
47,294 |
| Total liabilities |
|
343,455 |
|
244,584 |
| Total stockholders’ equity |
|
774,828 |
|
768,957 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
1,118,283 |
|
$ |
1,013,541 |
| THQ Inc. and Subsidiaries |
| Unaudited Supplemental Financial Information |
| |
|
|
|
|
|
| |
Three Months Ended |
|
|
|
Nine Months Ended
|
| |
December 31,
|
|
|
|
December 31,
|
| |
2007 |
|
2006 |
|
|
|
2007 |
|
2006 |
| Platform Revenue Mix |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consoles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Microsoft Xbox 360 |
12.3 |
|
% |
|
12.5 |
|
% |
|
|
|
13.9 |
|
% |
|
14.5 |
|
% |
| Microsoft Xbox |
0.1 |
|
|
|
2.6 |
|
|
|
|
|
0.3 |
|
|
|
3.0 |
|
|
| Nintendo Wii |
10.4 |
|
|
|
5.1 |
|
|
|
|
|
8.1 |
|
|
|
2.8 |
|
|
| Nintendo Game Cube |
0.2 |
|
|
|
4.5 |
|
|
|
|
|
0.8 |
|
|
|
5.7 |
|
|
|
Sony PlayStation 3
|
11.8 |
|
|
|
─ |
|
|
|
|
|
8.7 |
|
|
|
─ |
|
|
| Sony PlayStation 2 |
25.6 |
|
|
|
38.2 |
|
|
|
|
|
25.9 |
|
|
|
31.3 |
|
|
| |
60.4 |
|
|
|
62.9 |
|
|
|
|
|
57.7 |
|
|
|
57.3 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Handheld |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nintendo Dual Screen |
20.2 |
|
|
|
11.2 |
|
|
|
|
|
20.4 |
|
|
|
10.4 |
|
|
| Nintendo Game Boy Advance |
2.9 |
|
|
|
10.1 |
|
|
|
|
|
3.8 |
|
|
|
11.9 |
|
|
| Sony PlayStation Portable |
8.5 |
|
|
|
5.9 |
|
|
|
|
|
8.1 |
|
|
|
6.5 |
|
|
| Wireless |
1.0 |
|
|
|
1.6 |
|
|
|
|
|
1.7 |
|
|
|
2.6 |
|
|
| |
32.6 |
|
|
|
28.8 |
|
|
|
|
|
34.0 |
|
|
|
31.4 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| PC |
7.0 |
|
|
|
8.3 |
|
|
|
|
|
8.2 |
|
|
|
11.3 |
|
|
| Other |
─ |
|
|
|
─ |
|
|
|
|
|
0.1 |
|
|
|
─ |
|
|
| |
100.0 |
|
% |
|
100.0 |
|
% |
|
|
|
100.0 |
|
% |
|
100.0 |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Geographic Revenue Mix |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic |
54.6 |
|
% |
|
61.9 |
|
% |
|
|
|
50.1 |
|
% |
|
59.6 |
|
% |
| Foreign |
45.4 |
|
|
|
38.1 |
|
|
|
|
|
49.9 |
|
|
|
40.4 |
|
|
| |
100.0 |
|
% |
|
100.0 |
|
% |
|
|
|
100.0 |
|
% |
|
100.0 |
|
% |
What has happened to the mighty Google? Over the last year their stock price has climbed to an incredible $747.24 and now they have fallen down to $530 in after hours trading. That is a mighty big swing for a tech giant. So, what happened?
All things tech have been headed South since just after Christmas of 2007 and Google (among others) has matched that fall. Looking at the NASDAQ numbers we can see that it is down about 18% since November 2007 while Google is down over 20% in the same time span. I have covered some of Google’s problems in the past but this time their problem is that they did not meet Wall Street expectations.
Make no mistake, Google is still making bucket loads of money, they are just not making the buckets Wall Street expects. Brace yourself, things are going to get much worse for the Internet Search and Advertising company before things get better.
Arstechnica recently reported that Google is stepping up the fight against domain tasters. This is clearly good news for Internet users but bad news for Google. Google makes many buckets of money off of people who throw AdSense onto a tasted domain. By changing their company policy so as to not allow they short lived domains to run their AdSense ads they are doing a good thing for the Adwords customers but a bad thing for their bottom line. I expect Google to lose millions (if not billions) over this one change in policy.
Domain Tasters are people who register a domain during the short 5-day grace period where a domain can be returned to ICANN at no cost. These people register millions of domains, slap some ads on them and look for ones that generate enough income to be worth buying. This is big business.
As Google stock slid down to the low $500 range I was thinking about amending my earlier “don’t buy” stance to a “buy” stance but now, with the above news I can’t see buying Google unless it falls into the low $400 range.
SEATTLE–(BUSINESS WIRE)–Fiscal First Quarter 2008 Highlights:
- Consolidated net revenues of $2.8 billion, a 17 percent increase from Q1 of 2007
- Operating margin contracted 160 basis points to 12.0 percent
- Earnings per share of $0.28, compared to $0.26 per share in Q1 of 2007
- Comparable store sales growth of one percent
Starbucks Corporation (NASDAQ:SBUX) today announced financial results for its fiscal first quarter ended December 30, 2007. Consolidated net revenues increased 17 percent to $2.8 billion for the first quarter of 2008, compared to $2.4 billion for the first quarter of 2007. For the 13-week period ended December 30, 2007, net earnings totaled $208.1 million versus $205.0 million for the same period a year ago, a two percent increase. The slight increase in net income includes the negative impact of incremental interest expense as a result of the company’s inaugural senior notes offering during the fourth quarter of fiscal 2007. Earnings per share for the quarter rose eight percent to $0.28 from $0.26 in the prior year period.
“Over the coming months, our management team will focus on building a long-term model to realize our transformation agenda, and drive long-term shareholder value,” said Howard Schultz, chairman, president and ceo. “We will do that by being laser focused on delivering what our customers want and expect, and providing our partners with the tools to help them exceed our customers’ expectations. Our actions will dramatically change the business, which will enable us to offer a renewed Starbucks Experience to our customers, while systematically building the foundation for strong, sustainable growth in fiscal 2009 and beyond.”
Schultz continued, “With a keen discipline around execution and profitability, we have already slowed the pace of store growth in the U.S. to approximately 1,175 stores for this fiscal year, down from a revised target of 1,600 stores, and increased the store opening target in International markets to approximately 975 stores. By reducing the number of openings, we expect to optimize our resources and potentially reduce cannibalization of our existing stores.”
Schultz went on to say, “We will unveil additional details of our transformation plan, including bold innovations that will reassert our coffee leadership, redefine the in-store experience and introduce core brand-building initiatives, on March 19, 2008, at the company’s Annual Meeting of Shareholders. Given all the work underway, we view 2008 as a year of refocus and renewal for Starbucks.”
The company said that in light of the ongoing implementation of its transformation agenda, and the continued macroeconomic weakness, it expects low double digit EPS expansion for this fiscal year. “We are confident that our actions will get us back on track in redefining the customer experience and further expanding the differentiation between us and others in the coffee business,” commented Schultz. “In addition, when Starbucks reports second quarter fiscal 2008 results on April 30, 2008, we plan to provide longer-term financial targets by which we and the financial community can measure our performance as we grow our business.”
In line with its announcement on January 7, 2008, Starbucks has reduced its fiscal 2008 global net new store opening target to approximately 2,150 stores, down from an adjusted 2,500 net new stores. This includes the closure of around 100 underperforming stores in the U.S. and the opening of approximately 75 additional net new stores in International markets. Net new store openings are expected to be approximately 650 company-operated locations and 525 licensed in the United States and approximately 975 stores in international markets. For 2009, Starbucks plans to open more than 1,000 stores internationally and less than 1,000 locations in the United States, approximately 500 of which will be company-operated stores.
Continued Solid Revenue Growth
The 17 percent growth in consolidated net revenues in the first quarter 2008 was primarily driven by the U.S. business, which contributed 77 percent of total net revenue. For the quarter, U.S. total net revenues increased by $266.3 million, or 14 percent, to $2.1 billion driven by the opening of 1,077 company-operated retail stores in the last 12 months. International total net revenues expanded 33 percent, or $135.7 million, to $540.8 million for the 13 weeks ended December 30, 2007 as the company continued to expand and strengthen its store presence in its 42 existing markets outside the U.S. The increase in International total net revenues resulted primarily from opening 285 new company-operated retail stores in the last 12 months, favorable foreign currency exchange for the Canadian dollar and the British pound sterling, and comparable store sales growth of five percent. For the Global Consumer Products Group (CPG), total net revenues increased by $9.9 million, or 11 percent, to $100.6 million for the first quarter fiscal 2008, primarily due to increased royalties and product sales in the international ready-to-drink business.
Consolidated company-operated retail revenues increased 17 percent to $2.4 billion in first quarter 2008, from $2.0 billion for the same period in fiscal 2007, primarily driven by new store openings in the U.S. and international markets. For the first quarter of fiscal 2008, United States company-operated retail revenues increased 14 percent to $1.9 billion, while International company-operated retail revenues increased 33 percent to $461.2 million in the period.
In the last 12 months, 1,362 new company-operated retail stores were opened, an increase of 16 percent over openings in the previous 12-month period. Company-operated store openings in the last 12 months were comprised of 1,077 in the U.S. and 285 in international markets.
Consolidated comparable store sales grew one percent in the first quarter, which included a two percent increase in the average value per transaction and a one percent transaction decline. The softness in consolidated comparable store sales growth was driven by the U.S. business. For the first quarter, U.S. comparable store sales contracted one percent, due to a three percent decline in transactions partially offset by a two percent rise in the average value per transaction, which included the impact of a price increase taken in late July 2007. The International segment continued to show strength, with comparable store sales growth for the first quarter of five percent, with a three percent increase in transactions and a two percent increase in the average value per transaction.
Specialty revenues in the first quarter 2008 increased 19 percent to $416.1 million, driven by licensing revenues, which increased 20 percent to $304.8 million. The growth in licensing revenues resulted from higher product sales and royalty revenues from the opening of 1,226 new licensed retail stores in the last 12 months, 690 of which were in the U.S. and 536 in international markets, and 11 percent revenue growth in the CPG segment, primarily due to increased royalties and product sales in the international ready-to-drink business.
Leveraging G&A Amid Higher Cost Environment
Cost of sales including occupancy costs increased 110 basis points to 42.9 percent of total net revenues for the 13 weeks ended December 30, 2007, compared to 41.8 percent in the corresponding period in fiscal 2007. The increase was primarily due to increased dairy costs and a shift in sales to higher cost products.
Store operating expenses as a percentage of related company-operated retail revenues increased 90 basis points to 39.4 percent in the first quarter 2008, from 38.5 percent for the prior year period. The increase was primarily due to higher payroll expenditures as a percentage of revenues in the U.S. segment, driven by softer sales from U.S. company-operated stores and wage increases, partially offset by the impact of labor optimization initiatives in the stores.
Other operating expenses (expenses associated with the company’s specialty operations) rose 30 basis points to 20.6 percent of related total specialty revenues for the 13 weeks ended December 30, 2007, compared to 20.3 percent for the same period a year ago. The increase in expense was primarily due to higher international payroll-related expenditures as a percentage of related revenues in support of the continued expansion of the segment into new and existing markets.
General and administrative expenses as a percentage of total net revenues improved 50 basis points to 4.5 percent for the first quarter 2008, from 5.0 percent for the corresponding period of fiscal 2007. The company continues to focus on leveraging its scale and infrastructure, as well as implementing systematic changes that are expected to better position Starbucks back-end infrastructure to deliver more efficient service to the field.
Operating Income Impacted By Higher Costs in U.S. Business
Consolidated operating income increased four percent to $333.1 million for the 13 weeks ended December 30, 2007. Operating margin contracted 160 basis points to 12.0 percent of total net revenues in the first quarter, from 13.6 percent for the same period a year ago. Higher cost of sales including occupancy costs and store operating expenses as a percentage of total net revenues were only partially offset by lower general and administrative expenses as a percentage of revenues.
For first quarter fiscal 2008, United States operating income declined by four percent to $310.9 million. Operating margin contracted 290 basis points to 14.6 percent of related revenues from 17.5 percent in the corresponding period of fiscal 2007. The decrease was driven by higher cost of sales including occupancy costs and higher store operating expenses as a percentage of total net revenues, partially offset by lower general and administrative expenses as a percentage of revenues. Higher dairy costs contributed approximately 100 basis points to the decline.
International operating income grew 63 percent to $54.1 million for the first quarter 2008. Operating margin increased 180 basis points to 10.0 percent of related revenues from 8.2 percent in the first quarter of fiscal 2007. The primary reasons for this improvement were lower cost of sales including occupancy costs partially due to lower leasing costs in the United Kingdom and improved leverage on store operating expenses overall.
Operating income for the CPG segment increased to $50.6 million for the 13 weeks ended December 30, 2007, a 22 percent increase over first quarter 2007. Operating margin increased to 50.3 percent of related revenues from 45.9 percent for the prior year period, primarily due to a decrease in the cost of sales expense as a percentage of revenues.
Capital Structure Aligned With Strategy
For the 13 weeks ended December 30, 2007, net cash flow from operating activities totaled $807.6 million, compared to $678.4 million in the same period a year ago.
During the first quarter, the company repurchased a total of 12.2 million shares at a cost of $295 million, and had 1.3 million shares remaining available for repurchase under the authorization in place at the end of the period. On January 29, 2008, Starbucks Board of Directors authorized the repurchase of up to 5 million additional shares of the company’s common stock.
Comments on Recent Test of $1 Brewed Coffee Short Cup
In response to recent inquiries about the test of a $1 brewed coffee short cup, the company commented that Starbucks is built on premium coffee and a premium experience. Schultz observed, “Similar to other leading global consumer brands, we believe there are opportunities to create segmentation, provide an entry point for new customers, and generate trial in a way that will also maintain the value of the core brand proposition we offer. It also recognizes the economic pressures our customers are under. We intend to reaffirm our position as the coffee authority and maintain our leadership position while broadening our appeal. But this offering is just a test, and we will be listening intently to customer feedback, as well as evaluating whether such a product advances our business objectives, elevates further the premium coffee experience, and creates value for us.”
Conference Call
Starbucks will be holding a conference call today at 2:00 p.m. PST, which will be hosted by Howard Schultz, chairman, president and ceo, Martin Coles, chief operating officer, and Pete Bocian, executive vice president and chief financial officer. The call will be broadcast live over the Internet and can be accessed at the company’s web site address of http://investor.starbucks.com. A replay of the call will be available via telephone through 5:30 p.m. PST on Wednesday, February 6, 2008, by calling 1-800-642-1687, reservation number 22248459. A posting of speaker remarks and a replay of the call will also be available via the Investor Relations page on Starbucks.com through approximately 5:00 p.m. PST on Friday, February 29, 2008, at the following URL: http://investor.starbucks.com.
The company’s consolidated statements of earnings, operating segment results, and other additional information have been provided on the following pages in accordance with current year classifications. This information should be reviewed in conjunction with this press release. Please refer to the company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007 for additional information.
About Starbucks
Starbucks Coffee Company provides an uplifting experience that enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time. To share in the experience, visit www.starbucks.com.
Forward-Looking Statements
This release includes forward-looking statements about certain company initiatives and plans, as well as trends in or expectations regarding net new store openings, capital expenditures and earnings per share. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors including, but not limited to, coffee, dairy and other raw material prices and availability, successful execution of internal plans and initiatives, fluctuations in U.S. and international economies and currencies, the impact of competition, the effect of legal proceedings, and other risks detailed in the company’s filings with the Securities and Exchange Commission, including the “Risk Factors” section of Starbucks Annual Report on Form 10-K for the fiscal year ended September 30, 2007. The company assumes no obligation to update any of these forward-looking statements.
| STARBUCKS CORPORATION |
|
| CONSOLIDATED STATEMENTS OF EARNINGS |
|
| (unaudited) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
13 Weeks Ended |
|
13 Weeks Ended |
| |
|
|
|
|
|
Dec 30, |
|
Dec 31, |
|
% |
|
Dec 30, |
|
Dec 31, |
| |
|
|
|
|
|
2007 |
|
2006 |
|
Change |
|
2007 |
|
2006 |
| |
|
|
|
|
|
(in millions, except per share data) |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of total net revenues |
| Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Company-operated retail |
|
$ |
2,351.5 |
|
|
$ |
2,006.8 |
|
|
17.2 |
% |
|
85.0 |
|
% |
|
85.2 |
|
% |
| |
|
Specialty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Licensing |
|
|
304.8 |
|
|
|
253.9 |
|
|
20.0 |
|
|
11.0 |
|
|
|
10.8 |
|
|
| |
|
|
Foodservice and other |
|
|
111.3 |
|
|
|
95.0 |
|
|
17.2 |
|
|
4.0 |
|
|
|
4.0 |
|
|
| |
|
|
|
Total specialty |
|
|
416.1 |
|
|
|
348.9 |
|
|
19.3 |
|
|
15.0 |
|
|
|
14.8 |
|
|
| Total net revenues |
|
|
2,767.6 |
|
|
|
2,355.7 |
|
|
17.5 |
|
|
100.0 |
|
|
|
100.0 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales including occupancy costs |
|
|
1,186.0 |
|
|
|
984.8 |
|
|
20.4 |
|
|
42.9 |
|
|
|
41.8 |
|
|
|
Store operating expenses(a)
|
|
|
927.3 |
|
|
|
772.0 |
|
|
20.1 |
|
|
33.5 |
|
|
|
32.8 |
|
|
|
Other operating expenses(b)
|
|
|
85.7 |
|
|
|
70.9 |
|
|
20.9 |
|
|
3.1 |
|
|
|
3.0 |
|
|
|
Depreciation and amortization expenses
|
|
|
133.2 |
|
|
|
110.2 |
|
|
20.9 |
|
|
4.8 |
|
|
|
4.7 |
|
|
| General and administrative expenses |
|
|
125.9 |
|
|
|
116.8 |
|
|
7.8 |
|
|
4.5 |
|
|
|
5.0 |
|
|
| |
|
|
Subtotal operating expenses |
|
|
2,458.1 |
|
|
|
2,054.7 |
|
|
19.6 |
|
|
88.8 |
|
|
|
87.2 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from equity investees |
|
|
23.6 |
|
|
|
18.7 |
|
|
26.2 |
|
|
0.9 |
|
|
|
0.8 |
|
|
| |
|
|
Operating income |
|
|
333.1 |
|
|
|
319.7 |
|
|
4.2 |
|
|
12.0 |
|
|
|
13.6 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income and other, net |
|
|
10.7 |
|
|
|
13.5 |
|
|
|
|
|
0.4 |
|
|
|
0.6 |
|
|
| Interest expense |
|
|
(17.1 |
) |
|
|
(7.0 |
) |
|
|
|
|
(0.6 |
) |
|
|
(0.3 |
) |
|
| |
|
|
Earnings before income taxes |
|
|
326.7 |
|
|
|
326.2 |
|
|
0.2 |
|
|
11.8 |
|
|
|
13.8 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes(c)
|
|
|
118.6 |
|
|
|
121.2 |
|
|
|
|
|
4.3 |
|
|
|
5.1 |
|
|
| |
|
|
Net earnings |
|
$ |
208.1 |
|
|
$ |
205.0 |
|
|
1.5 |
|
|
7.5 |
|
% |
|
8.7 |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net earnings per common share - diluted |
|
$ |
0.28 |
|
|
$ |
0.26 |
|
|
7.7 |
% |
|
|
|
|
|
|
| Weighted avg. shares outstanding - diluted |
|
|
744.9 |
|
|
|
782.8 |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
As a percentage of related company-operated retail revenues, store operating expenses were 39.4 percent for the 13 weeks ended December 30, 2007, and 38.5 percent for the 13 weeks ended December 31, 2006. |
| (b) |
|
As a percentage of related total specialty revenues, other operating expenses were 20.6 percent for the 13 weeks ended December 30, 2007, and 20.3 percent for the 13 weeks ended December 31, 2006. |
| (c) |
|
The effective tax rates were 36.3 percent for the 13 weeks ended December 30, 2007, and 37.2 percent for the 13 weeks ended December 31, 2006. |
Segment Results
The tables below present reportable segment results net of intersegment eliminations (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| United States |
|
Dec 30, |
|
Dec 31, |
|
% |
|
|
Dec 30, |
|
Dec 31, |
|
| |
|
|
|
|
|
2007 |
|
2006 |
|
Change |
|
2007 |
|
2006 |
|
|
13 Weeks Ended
|
|
|
|
|
|
|
|
|
|
|
As a % of U.S. total net revenues |
| Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Company-operated retail |
|
$ |
1,890.3 |
|
$ |
1,660.3 |
|
13.9 |
|
% |
|
88.9 |
% |
89.3 |
% |
| |
|
Specialty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Licensing |
|
|
137.9 |
|
|
113.3 |
|
21.7 |
|
|
|
6.5 |
|
6.1 |
|
| |
|
|
Foodservice and other |
|
|
98.0 |
|
|
86.3 |
|
13.6 |
|
|
|
4.6 |
|
4.6 |
|
| |
|
|
|
Total specialty |
|
|
235.9 |
|
|
199.6 |
|
18.2 |
|
|
|
11.1 |
|
10.7 |
|
| Total net revenues |
|
|
2,126.2 |
|
|
1,859.9 |
|
14.3 |
|
|
|
100.0 |
|
100.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales including occupancy costs |
|
|
872.9 |
|
|
731.1 |
|
19.4 |
|
|
|
41.1 |
|
39.3 |
|
|
Store operating expenses(a)
|
|
|
764.9 |
|
|
648.4 |
|
18.0 |
|
|
|
36.0 |
|
34.9 |
|
|
Other operating expenses(b)
|
|
|
59.0 |
|
|
52.2 |
|
13.0 |
|
|
|
2.8 |
|
2.8 |
|
| Depreciation and amortization expenses |
|
|
98.4 |
|
|
81.4 |
|
20.9 |
|
|
|
4.6 |
|
4.4 |
|
| General and administrative expenses |
|
|
20.5 |
|
|
21.7 |
|
(5.5 |
) |
|
|
1.0 |
|
1.2 |
|
| |
|
|
Total operating expenses |
|
|
1,815.7 |
|
|
1,534.8 |
|
18.3 |
|
|
|
85.4 |
|
82.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from equity investees |
|
|
0.4 |
|
|
- |
|
|
|
|
- |
|
- |
|
| |
|
|
Operating income |
|
$ |
310.9 |
|
$ |
325.1 |
|
(4.4 |
) |
% |
|
14.6 |
% |
17.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
As a percentage of related company-operated retail revenues, store operating expenses were 40.5 percent for the 13 weeks ended December 30, 2007, and 39.1 percent for the 13 weeks ended December 31, 2006.
|
| (b) |
|
As a percentage of related total specialty revenues, other operating expenses were 25.0 percent for the 13 weeks ended December 30, 2007, and 26.2 percent for the 13 weeks ended December 31, 2006. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| International |
|
Dec 30, |
|
Dec 31, |
|
% |
|
|
Dec 30, |
|
Dec 31, |
| |
|
|
|
|
|
2007 |
|
2006 |
|
Change |
|
|
2007 |
|
2006 |
|
13 Weeks Ended
|
|
|
|
|
|
|
|
|
|
|
As a % of International total net revenues |
| Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Company-operated retail |
|
$ |
461.2 |
|
|
$ |
346.5 |
|
|
33.1 |
|
% |
|
85.3 |
|
% |
|
85.5 |
|
% |
| |
|
Specialty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Licensing |
|
|
66.3 |
|
|
|
49.9 |
|
|
32.9 |
|
|
|
12.3 |
|
|
|
12.3 |
|
|
| |
|
|
Foodservice and other |
|
|
13.3 |
|
|
|
8.7 |
|
|
52.9 |
|
|
|
2.5 |
|
|
|
2.1 |
|
|
| |
|
|
|
Total specialty |
|
|
79.6 |
|
|
|
58.6 |
|
|
35.8 |
|
|
|
14.7 |
|
|
|
14.5 |
|
|
| Total net revenues |
|
|
540.8 |
|
|
|
405.1 |
|
|
33.5 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales including occupancy costs |
|
|
260.0 |
|
|
|
200.1 |
|
|
29.9 |
|
|
|
48.1 |
|
|
|
49.4 |
|
|
|
Store operating expenses(a)
|
|
|
162.4 |
|
|
|
123.6 |
|
|
31.4 |
|
|
|
30.0 |
|
|
|
30.5 |
|
|
|
Other operating expenses(b)
|
|
|
20.8 |
|
|
|
14.1 |
|
|
47.5 |
|
|
|
3.8 |
|
|
|
3.5 |
|
|
| Depreciation and amortization expenses |
|
|
25.7 |
|
|
|
20.5 |
|
|
25.4 |
|
|
|
4.8 |
|
|
|
5.1 |
|
|
| General and administrative expenses |
|
|
29.9 |
|
|
|
21.7 |
|
|
37.8 |
|
|
|
5.5 |
|
|
|
5.4 |
|
|
| |
|
|
Total operating expenses |
|
|
498.8 |
|
|
|
380.0 |
|
|
31.3 |
|
|
|
92.2 |
|
|
|
93.8 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from equity investees |
|
|
12.1 |
|
|
|
8.0 |
|
|
51.3 |
|
|
|
2.2 |
|
|
|
2.0 |
|
|
| |
|
|
Operating income |
|
$ |
54.1 |
|
|
$ |
33.1 |
|
|
63.4 |
|
% |
|
10.0 |
|
% |
|
8.2 |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
As a percentage of related company-operated retail revenues, store operating expenses were 35.2 percent for the 13 weeks ended December 30, 2007, and 35.7 percent for the 13 weeks ended December 31, 2006. |
| (b) |
|
As a percentage of related total specialty revenues, other operating expenses were 26.1 percent for the 13 weeks ended December 30, 2007, and 24.1 percent for the 13 weeks ended December 31, 2006. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Global Consumer Products Group (CPG) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Dec 30, |
|
Dec 31, |
|
% |
|
Dec 30, |
|
Dec 31, |
| |
|
|
|
|
|
2007 |
|
2006 |
|
Change |
|
2007 |
|
2006 |
|
13 Weeks Ended
|
|
|
|
|
|
|
|
|
|
|
As a % of CPG
total net revenues
|
| Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Specialty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Licensing |
|
$ |
100.6 |
|
|
$ |
90.7 |
|
|
10.9 |
|
% |
|
100.0 |
|
% |
|
100.0 |
|
% |
| |
|
|
|
Total specialty |
|
|
100.6 |
|
|
|
90.7 |
|
|
10.9 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales |
|
|
53.1 |
|
|
|
53.6 |
|
|
(0.9 |
) |
|
|
52.8 |
|
|
|
59.1 |
|
|
| Other operating expenses |
|
|
5.9 |
|
|
|
4.6 |
|
|
28.3 |
|
|
|
5.9 |
|
|
|
5.1 |
|
|
| General and administrative expenses |
|
|
2.1 |
|
|
|
1.6 |
|
|
31.3 |
|
|
|
2.1 |
|
|
|
1.8 |
|
|
| |
|
|
Total operating expenses |
|
|
61.1 |
|
|
|
59.8 |
|
|
2.2 |
|
|
|
60.7 |
|
|
|
65.9 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from equity investees |
|
|
11.1 |
|
|
|
10.7 |
|
|
3.7 |
|
|
|
11.0 |
|
|
|
11.8 |
|
|
| |
|
|
Operating income |
|
$ |
50.6 |
|
|
$ |
41.6 |
|
|
21.6 |
|
% |
|
50.3 |
|
% |
|
45.9 |
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unallocated Corporate |
|
|
|
|
| |
|
|
|
|
|
Dec 30, |
|
Dec 31, |
|
% |
|
Dec 30, |
|
Dec 31, |
| |
|
|
|
|
|
2007 |
|
2006 |
|
Change |
|
|
2007 |
|
2006 |
|
13 Weeks Ended
|
|
|
|
|
|
|
|
|
|
|
As a % of total net revenues |
| Depreciation and amortization expenses |
|
$ |
9.1 |
|
|
$ |
8.3 |
|
|
9.6 |
|
% |
|
0.3 |
|
% |
|
0.4 |
|
% |
| General and administrative expenses |
|
|
73.4 |
|
|
|
71.8 |
|
|
2.2 |
|
|
|
2.7 |
|
|
|
3.0 |
|
|
| |
|
|
Operating loss |
|
$ |
(82.5 |
) |
|
$ |
(80.1 |
) |
|
3.0 |
|
% |
|
(3.0 |
) |
% |
|
(3.4 |
) |
% |
| STARBUCKS CORPORATION |
| CONSOLIDATED BALANCE SHEETS |
| (in millions, except per share data) |
| (unaudited) |
|
|
|
|
December 30, |
|
September 30, |
| |
|
|
|
2007 |
|
2007 |
| ASSETS |
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
| |
Cash and cash equivalents |
|
$ |
349.3 |
|
$ |
281.3 |
| |
Short-term investments - available-for-sale securities |
|
|
113.2 |
|
|
83.8 |
| |
Short-term investments - trading securities |
|
|
72.9 |
|
|
73.6 |
| |
Accounts receivable, net |
|
|
316.2 |
|
|
287.9 |
| |
Inventories |
|
|
580.9 |
|
|
691.7 |
| |
Prepaid expenses and other current assets |
|
|
144.7 |
|
|
148.8 |
| |
Deferred income taxes, net |
|
|
160.4 |
|
|
129.4 |
| |
|
Total current assets |
|
|
1,737.6 |
|
|
1,696.5 |
| |
|
|
|
|
|
|
|
|
| Long-term investments – available-for-sale securities |
|
|
- |
|
|
21.0 |
| Equity and other investments |
|
|
270.3 |
|
|
258.9 |
| Property, plant and equipment, net |
|
|
2,993.0 |
|
|
2,890.4 |
| Other assets |
|
|
247.0 |
|
|
219.4 |
| Other intangible assets |
|
|
42.4 |
|
|
42.1 |
| Goodwill |
|
|
216.1 |
|
|
215.6 |
| |
TOTAL ASSETS |
|
$ |
5,506.4 |
|
$ |
5,343.9 |
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
| |
Commercial paper and short-term borrowings |
|
$ |
529.5 |
|
$ |
710.3 |
| |
Accounts payable |
|
|
340.8 |
|
|
390.8 |
| |
Accrued compensation and related costs |
|
|
341.9 |
|
|
332.3 |
| |
Accrued occupancy costs |
|
|
78.1 |
|
|
74.6 |
| |
Accrued taxes |
|
|
187.6 |
|
|
92.5 |
| |
Other accrued expenses |
|
|
261.8 |
|
|
257.4 |
| |
Deferred revenue |
|
|
512.7 |
|
|
296.9 |
| |
Current portion of long-term debt |
|
|
0.8 |
|
|
0.8 |
| |
|
Total current liabilities |
|
|
2,253.2 |
|
|
2,155.6 |
| |
|
|
|
|
|
|
|
|
| Long-term debt |
|
|
550.0 |
|
|
550.1 |
| Other long-term liabilities |
|
|
450.0 |
|
|
354.1 |
| |
|
Total liabilities |
|
|
3,253.2 |
|
|
3,059.8 |
| |
|
|
|
|
|
|
|
|
| Shareholders’ equity: |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Common stock ($0.001 par value) - authorized, 1,200 million shares; issued and outstanding, 727.6 and 738.3 million shares, respectively, (includes 3.4 common stock units in both periods)
|
|
|
0.7 |
|
|
0.7 |
| |
Other additional paid-in-capital |
|
|
39.4 |
|
|
39.4 |
| |
Retained earnings |
|
|
2,148.6 |
|
|
2,189.4 |
| |
Accumulated other comprehensive income |
|
|
64.5 |
|
|
54.6 |
| |
|
Total shareholders’ equity |
|
|
2,253.2 |
|
|
2,284.1 |
| |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
$ |
5,506.4 |
|
$ |
5,343.9 |
| STARBUCKS CORPORATION |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (unaudited and in millions) |
|
|
|
|
|
13 Weeks Ended |
| |
|
|
|
|
Dec 30, |
|
Dec 31, |
| |
|
|
|
|
2007 |
|
2006 |
| OPERATING ACTIVITIES: |
|
|
|
|
|
|
| Net earnings |
|
$ |
208.1 |
|
|
$ |
205.0 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
| |
|
Depreciation and amortization |
|
|
139.9 |
|
|
|
116.1 |
|
| |
|
Provision for impairments and asset disposals |
|
|
4.9 |
|
|
|
3.5 |
|
| |
|
Deferred income taxes, net |
|
|
(22.1 |
) |
|
|
(21.3 |
) |
| |
|
Equity in income of investees |
|
|
(11.0 |
) |
|
|
(9.0 |
) |
| |
|
Distributions from equity investees |
|
|
9.2 |
|
|
|
18.8 |
|
| |
|
Stock-based compensation |
|
|
24.3 |
|
|
|
24.4 |
|
| |
|
Tax benefit from exercise of stock options |
|
|
1.1 |
|
|
|
3.4 |
|
| |
|
Excess tax benefit from exercise of stock options |
|
|
(3.0 |
) |
|
|
(29.6 |
) |
| |
|
Net amortization of (discount)/premium on securities |
|
|
(0.1 |
) |
|
|
0.2 |
|
| |
|
Cash provided/(used) by changes in operating assets and liabilities: |
|
|
|
|
|
|
| |
|
|
Inventories |
|
|
111.9 |
|
|
|
91.3 |
|
| |
|
|
Accounts payable |
|
|
(42.6 |
) |
|
|
(64.2 |
) |
| |
|
|
Accrued taxes |
|
|
124.6 |
|
|
|
109.8 |
|
| |
|
|
Deferred revenue |
|
|
215.6 |
|
|
|
191.2 |
|
| |
|
|
Other operating assets and liabilities |
|
|
46.8 |
|
|
|
38.8 |
|
| Net cash provided by operating activities |
|
|
807.6 |
|
|
|
678.4 |
|
| |
|
|
|
|
|
|
|
|
|
| INVESTING ACTIVITIES: |
|
|
|
|
|
|
| |
Purchase of available-for-sale securities |
|
|
(41.9 |
) |
|
|
(148.4 |
) |
| |
Maturity of available-for-sale securities |
|
|
- |
|
|
|
115.2 |
|
| |
Sale of available-for-sale securities |
|
|
33.8 |
|
|
|
- |
|
| |
Acquisitions, net of cash acquired |
|
|
- |
|
|
|
(47.3 |
) |
| |
Net purchases of equity, other investments and other assets |
|
|
(2.1 |
) |
|
|
(15.7 |
) |
| |
Net additions to property, plant and equipment |
|
|
(263.6 |
) |
|
|
(270.6 |
) |
| Net cash used by investing activities |
|
|
(273.8 |
) |
|
|
(366.8 |
) |
| |
|
|
|
|
|
|
|
|
|
| FINANCING ACTIVITIES: |
|
|
|
|
|
|
| |
Repayments of commercial paper |
|
|
(21,910.3 |
) |
|
|
- |
|
| |
Proceeds from issuance of commercial paper |
|
|
21,729.5 |
|
|
|
- |
|
| |
Repayments of short-term borrowings |
|
|
- |
|
|
|
(359.0 |
) |
| |
Proceeds from short-term borrowings |
|
|
- |
|
|
|
24.0 |
|
| |
Proceeds from issuance of common stock |
|
|
21.6 |
|
|
|
65.5 |
|
| |
Excess tax benefit from exercise of stock options |
|
|
3.0 |
|
|
|
29.6 |
|
| |
Principal payments on long-term debt |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
| |
Repurchase of common stock |
|
|
(311.3 |
) |
|
|
(115.2 |
) |
| Net cash used by financing activities |
|
|
(467.7 |
) |
|
|
(355.3 |
) |
| |
|
|
|
|
|
|
|
|
|
| Effect of exchange rate changes on cash and cash equivalents |
|
|
1.9 |
|
|
|
2.0 |
|
| Net increase/(decrease) in cash and cash equivalents |
|
|
68.0 |
|
|
|
(41.7 |
) |
| CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
| Beginning of period |
|
|
281.3 |
|
|
|
312.6 |
|
| |
|
|
|
|
|
|
|
|
|
| End of the period |
|
$ |
349.3 |
|
|
$ |
270.9 |
|
| |
|
|
|
|
|
|
|
|
|
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
| Cash paid during the period for: |
|
|
|
|
|
|
| |
Interest, net of capitalized interest |
|
$ |
8.6 |
|
|
$ |
8.3 |
|
| |
Income taxes |
|
$ |
16.4 |
|
|
$ |
40.6 |
|
Fiscal First Quarter 2008 Store Data
The company’s store data for the periods presented are as follows:
|
|
|
Net stores opened during the
13 weeks ended
|
|
Stores open as of |
| |
|
|
Dec 30, |
|
Dec 31, |
|
Dec 30, |
|
Dec 31, |
| |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
| United States: |
|
|
|
|
|
|
|
|
| |
Company-operated Stores |
|
294 |
|
282 |
|
7,087 |
|
6,010 |
| |
Licensed Stores |
|
190 |
|
223 |
|
4,081 |
|
3,391 |
| |
|
|
484 |
|
505 |
|
11,168 |
|
9,401 |
| International: |
|
|
|
|
|
|
|
|
| |
Company-operated Stores |
|
84 |
|
76 |
|
1,796 |
|
1,511 |
| |
Licensed Stores |
|
177 |
|
147 |
|
2,792 |
|
2,256 |
| |
|
|
261 |
|
223 |
|
4,588 |
|
3,767 |
| |
|
|
|
|
|
|
|
|
|
| Total |
|
745 |
|
728 |
|
15,756 |
|
13,168 |
© 2008 Starbucks Coffee Company. All rights reserved.
Starbucks is the coffee company of choice of soccer moms all over the USA. Where people used to only drink Dunkin’ Donuts coffee now we have woman getting triple-double-mocha lattes and loving it. Unlike their competition Starbucks has gained an upper class air without succumbing to upper class prices.
The Starbucks stock price has been in trouble for about a year now. In December of 2006 the stock hit it’s peak near $40 a share and quickly dropped to the low $30 range in a matter of weeks. Most of 2007 was lack-luster for the Coffee company but Novemeber saw the gradual decline turn into a free-fall leaving the stock with a yearly low of $18.
Can this stock come back? Is there hope for Starbucks? I think so.
Recently Starbucks announced some changes in leadership at the company.
Howard Schultz, chairman, president and chief executive officer of Starbucks Coffee Company, today announced the Starbucks leadership team who will be directly responsible for executing the Company’s transformation agenda. The changes are designed to focus the organization on providing customers with a superior Starbucks Experience and building on Starbucks legacy of innovation.
Schultz will continue to work with Martin Coles, chief operating officer; Pete Bocian, chief financial officer and chief administrative officer; and Paula Boggs, executive vice president, Law and Corporate Affairs; as well as the following direct reports in new roles and/or positions:
- Terry Davenport will be promoted to senior vice president, marketing, and will lead a new Marketing and Brand Strategy function. Davenport and his team will be responsible for the Company’s overall marketing plan and calendar, product development, consumer insights and innovation for food and beverage and unifying Starbucks brand to the customer;
- Harry Roberts, a former Starbucks executive, is returning to the Company as senior vice president and chief creative officer. In this newly created role, Roberts and his team will be responsible for the customer in-store experience, including creative expression, merchandise strategy and the overall “look and feel” of the Company’s stores;
- Michelle Gass will assume the role of senior vice president, Global Strategy, office of the ceo, and will work to implement all aspects of the transformation plan;
- Chet Kuchinad has been promoted to executive vice president, Partner Resources, and will lead the Company’s development and execution of its innovative human resources strategy;
An executive will be hired to lead Global Real Estate Design and Architecture and an executive will be identified to head the Public Affairs function, which includes Global Communications and Corporate Social Responsibility.
With the Company’s renewed focus on customer engagement, Chris Bruzzo has been named to the newly created position of vice president, chief technology officer, and will also serve as acting chief information officer. Bruzzo will leverage technology to create innovative ways for Starbucks to connect with our customers and build loyalty programs. In this capacity, Bruzzo will report to Coles.
“As the leader of this talented senior executive team, I accept full responsibility for and am totally committed to the in-store customer experience,” Schultz said. “I will be directly engaged in ensuring a superior experience for our customers. Everything that touches the customer will be a priority. Change will not happen overnight. It will evolve over time, but I ensure you a positive change will occur. I, along with our dedicated partners (employees), will strive to exceed the expectations of our customers every day.”
Sam’s Notes
I see a bright future for Starbucks. They are making the hard choices at the top and I expect to see this stock rise over the next few months.
The only thing stopping this one from rising is the economy as a whole. If things begin to spiral downwards and consumers lose confidence in the economy than less people will be buying their coffee at Starbucks and more will be making it home.
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