Starbucks (SBUX) 8-K Financial statements and exhibits

Exhibit 99.1

For Immediate Release

Contact: Mary Ellen Fukuhara

Starbucks Investor Relations

(206) 318-4025

Starbucks Reports Strong Third Quarter Fiscal 2003 Results
Net Revenues Up 24 Percent
Comparable Store Sales Grow 8 Percent
Net Earnings Increase 23 Percent
Company Sets Aggressive Targets for Fiscal Year 2004

SEATTLE; July 24, 2003 –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 revenuesincreased 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 revenuesincreased 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 occupancycosts 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.

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Store operating expensesas 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 expensesincreased 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 expensesincreased 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 investeeswas $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 incomeincreased 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 incomeincreased 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.

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Income taxesfor 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 53^rd week in fiscal 2004. The benefit from the 53^rd week will occur entirely in the fiscal fourth quarter of 2004.

In addition, Starbucks expects the effective tax rate to be 38.0 percent for fiscal 2004, which is lower than the current year rate of 38.5 percent. The Company is planning for capital expenditures to be in the range of $450 to $475 million.

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Starbucks will be holding a conference call today at 1:30 p.m. Pacific time, which will be hosted by Howard Schultz, chairman and chief global strategist, Orin Smith, president and chief executive officer and Michael Casey, 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://www.starbucks.com/aboutus/investor.asp. A replay of the call will be available from approximately 4:00 p.m. Pacific time today through 4:30 p.m. Pacific time on July 31, 2003, by calling 1-800-642-1687, reservation number 1622907, or by accessing it via the Company’s web site at http://www.starbucks.com/aboutus/investor.asp.

The Company’s consolidated financial statements, operating segment results, and other additional information have been provided on the following pages in accordance with current year classifications, and should be reviewed in conjunction with this press release.

STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)

		13 Weeks Ended							13 Weeks Ended
						%
		June 29, 2003		June 30, 2002		Change			June 29, 2003			June 30, 2002
		(in thousands, except per share data)
									As a % of total net revenues
									(unless otherwise indicated)
Net revenues:
	Retail	$	877,754	$	711,834		23.3	%		84.7	%		85.2	%
	Specialty		159,022		123,324		28.9	%		15.3	%		14.8	%
Total net revenues			1,036,776		835,158		24.1	%		100.0	%		100.0	%
Cost of sales and related occupancy costs			425,709		337,401					41.1	%		40.4	%
Store operating expenses			361,835		291,445					(a)41.2	%		(a)40.9	%
Other operating expenses			41,946		29,269					(b)26.4	%		(b)23.7	%
Depreciation and amortization expenses			59,764		50,873					5.8	%		6.1	%
General and administrative expenses			49,325		46,997					4.8	%		5.6	%
Income from equity investees			7,917		8,030					0.8	%		1.0	%
	Operating income		106,114		87,203		21.7	%		10.2	%		10.4	%
Interest and other income, net			5,115		1,456					0.5	%		0.2	%
	Earnings before income taxes		111,229		88,659					10.7	%		10.6	%
Income taxes			42,815		32,991					4.1	%		3.9	%
Net earnings		$	68,414	$	55,668		22.9	%		6.6	%		6.7	%
Net earnings per common share - diluted		$	0.17	$	0.14
Weighted average shares outstanding - diluted			402,664		401,191

(a)	Calculated as a percentage of retail revenues.
(b)	Calculated as a percentage of specialty revenues.

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)

		39 Weeks Ended								39 Weeks Ended
							%
		June 29, 2003			June 30, 2002		Change			June 29, 2003				June 30, 2002
			(in thousands, except per share data)
											As a % of total net revenues
											(unless otherwise indicated)
Net revenues:
	Retail		$	2,536,557	$	2,058,361		23.2	%			84.7	%		84.9	%
	Specialty			457,951		365,349		25.3	%			15.3	%		15.1	%
Total net revenues				2,994,508		2,423,710		23.6	%			100.0	%		100.0	%
Cost of sales and related occupancy costs				1,236,968		994,511						41.3	%		41.0	%
Store operating expenses				1,016,423		822,921						(a) 40.1	%		(a) 40.0	%
Other operating expenses				123,885		93,137						(b) 27.1	%		(b) 25.5	%
Depreciation and amortization expenses				175,110		151,146						5.8	%		6.2	%
General and administrative expenses				150,770		155,440						5.0	%		6.4	%
Income from equity investees				21,165		21,085						0.7	%		0.9	%
	Operating income			312,517		227,640		37.3	%			10.4	%		9.4	%
Interest and other income, net				10,850		6,084						0.4	%		0.3	%
Gain on sale of Starbucks Japan shares				—		13,361						0.0	%		0.5	%
	Earnings before income taxes			323,367		247,085						10.8	%		10.2	%
Income taxes				124,496		91,974						4.2	%		3.8	%
Net earnings			$	198,871	$	155,111		28.2	%			6.6	%		6.4	%
Net earnings per common share - diluted			$	0.50	$	0.39
Weighted average shares outstanding - diluted				400,544		397,179

(a)	Calculated as a percentage of retail revenues.
(b)	Calculated as a percentage of specialty revenues.

The following reconciliation of net earnings and earnings per share is provided to assist the reader with understanding the financial impact of one-time items:

	39 Weeks Ended								39 Weeks Ended
						%
(unaudited and in thousands, except per share data)	June 29, 2003		June 30, 2002			Change			June 29, 2003		June 30, 2002
Net earnings, as reported above	$	198,871	$	155,111			28.2	%	$	0.50	$	0.39
Gain on sale of Starbucks Japan shares (net of tax)		—		(8,417	)					—		(0.02	)
Settlement charge included in general and administrative expenses (net of tax)		—		11,340						—		0.03
Net earnings, excluding one-time items	$	198,871	$	158,034			25.8	%	$	0.50	$	0.40

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STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

			June 29,		September 29,
			2003		2002
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	263,638	$	99,677
	Short-term investments - Available-for-sale securities			282,879		217,302
	Short-term investments - Trading securities			18,789		10,360
	Accounts receivable, net of allowances of $2,777 and $3,680, respectively			107,472		97,573
	Inventories			280,239		263,174
	Prepaid expenses and other current assets			62,291		42,351
	Deferred income taxes, net			47,584		42,206
		Total current assets		1,062,892		772,643
Equity and other investments				119,339		102,929
Property, plant and equipment, net				1,346,525		1,265,756
Other assets				44,167		43,691
Goodwill and other intangible assets				31,202		29,764
	TOTAL ASSETS		$	2,604,125	$	2,214,783
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	180,499	$	135,994
	Accrued compensation and related costs			136,094		105,899
	Accrued occupancy costs			51,529		51,195
	Accrued taxes			48,212		54,244
	Other accrued expenses			106,817		72,289
	Deferred revenue			74,648		42,264
	Current portion of long-term debt			719		710
		Total current liabilities		598,518		462,595
Deferred income taxes, net				23,298		22,496
Long-term debt				4,542		5,076
Other long-term liabilities				948		1,036
Shareholders’ equity:
	Common stock and additional paid-in capital - Authorized, 600,000,000; issued and outstanding, 391,596,947 and 388,228,592 shares, respectively, (includes 1,697,100 common stock units in both periods)			925,283		891,040
	Other additional paid-in-capital			39,393		39,393
	Retained earnings			1,000,599		801,728
	Accumulated other comprehensive income (loss)			11,544		(8,581	)
		Total shareholders’ equity		1,976,819		1,723,580
	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,604,125	$	2,214,783

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)

				39 Weeks Ended
				June 29, 2003			June 30, 2002
OPERATING ACTIVITIES:
Net earnings				$	198,871		$	155,111
Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization			190,654			162,764
		Gain on sale of investment			—			(13,361	)
		Provision for impairments and asset disposals			5,007			19,324
		Deferred income taxes, net			(4,037	)		10,310
		Equity in income of investees			(7,689	)		(11,042	)
		Tax benefit from exercise of non-qualified stock options			23,328			43,260
		Net accretion of discount and amortization of premium on marketable securities			4,312			—
		Cash provided/(used) by changes in operating assets and liabilities:
			Inventories		(15,081	)		2,970
			Prepaid expenses and other current assets		(19,856	)		(17,367	)
			Accounts payable		40,248			(7,662	)
			Accrued compensation and related costs		28,638			25,628
			Accrued occupancy costs		(24	)		13,130
			Accrued taxes		(6,326	)		(51,501	)
			Deferred revenue		32,017			17,512
			Other operating assets and liabilities		17,517			20,637
Net cash provided by operating activities					487,579			369,713
INVESTING ACTIVITIES:
	Purchase of available-for-sale securities				(271,556	)		(272,646	)
	Maturity of available-for-sale securities				132,558			129,260
	Sale of available-for-sale securities				69,178			36,849
	Net additions to equity, other investments and other assets				(8,807	)		(9,015	)
	Proceeds from sale of equity investment				—			14,843
	Additions to property, plant and equipment				(259,179	)		(269,117	)
Net cash used by investing activities					(337,806	)		(369,826	)
FINANCING ACTIVITIES:
	Proceeds from issuance of common stock				72,298			100,111
	Principal payments on long-term debt				(525	)		(522	)
	Repurchase of common stock				(61,242	)		(1,829	)
Net cash provided by financing activities					10,531			97,760
Effect of exchange rate changes on cash and cash equivalents					3,657			1,282
Net increase in cash and cash equivalents					163,961			98,929
CASH AND CASH EQUIVALENTS:
Beginning of period					99,677			51,250
End of the period				$	263,638		$	150,179
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
	Interest			$	226		$	200
	Income taxes			$	112,381		$	91,486

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Segment Results

Starbucks Corporation is organized into a number of business units that correspond to the Company’s operating segments: North American Retail, Business Alliances, which includes North American store licensing and foodservice accounts, and All other business units, which includes international retail, international store licensing, grocery channel licensing, warehouse club accounts, interactive operations, equity investees and other initiatives.

North American Retail revenues increased 21.9 percent, to $803.2 million for the 13 weeks ended June 29, 2003, from $658.9 million for the corresponding period of fiscal 2002, primarily due to the opening of new retail stores and an increase in comparable store sales of 9 percent. The increase in comparable store sales was due almost entirely to higher transaction volume. Operating income increased 14.0 percent to $128.0 million for the 13 weeks ended June 29, 2003, from $112.3 million in the corresponding period in 2002. Operating margin decreased from a record third quarter high of 17.0 percent in the prior year, to 15.9 percent primarily due to higher green coffee costs, higher marketing expenditures and slight increases as a percentage of related revenues in most store operating expenses, except payroll-related expenditures. 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.

Business Alliances revenues increased 38.2 percent, to $77.9 million for the 13 weeks ended June 29, 2003, from $56.3 million in the corresponding period in fiscal 2002, primarily due to the opening of new licensed stores and the resulting increase in product sales to and royalty revenues from those licensees. Growth in the foodservice channel also contributed to the increase. Operating income increased 1.8 percent to $16.3 million for the 13 weeks ended June 29, 2003, from $16.0 million in the corresponding period in fiscal 2002. Operating margin decreased to 20.9 percent of related revenues from 28.4 percent in the prior year due to the change in sales mix to lower margin products and continued investments to restructure distribution channels and expand marketing support of new and existing accounts.

The tables below present net revenues, operating income by operating segment and operating income as a percentage of related revenues, net of intersegment eliminations for the periods indicated:

		North						All other
	(unaudited, in thousands)	American			Business			business			Unallocated
13 weeks ended		Retail			Alliances			units			corporate(b)			Total
June 29, 2003
Total net revenues(a)		$	803,201		$	77,851		$	155,724		$	—		$	1,036,776
Operating income			127,991			16,302			19,334			(57,513	)		106,114
Operating income as a percentage of related revenues			15.9	%		20.9	%		12.4	%		—			10.2	%
June 30, 2002
Total net revenue(a)		$	658,938		$	56,336		$	119,884		$	—		$	835,158
Operating income			112,320			16,009			13,201			(54,327	)		87,203
Operating income as a percentage of related revenues			17.0	%		28.4	%		11.0	%		—			10.4	%
	39 weeks ended
June 29, 2003
Total net revenues(a)		$	2,326,940		$	220,772		$	446,796		$	—		$	2,994,508
Operating income			393,791			45,503			46,886			(173,663	)		312,517
Operating income as a percentage of related revenues			16.9	%		20.6	%		10.5	%		—			10.4	%
June 30, 2002
Total net revenues(a)		$	1,909,411		$	163,685		$	350,614		$	—		$	2,423,710
Operating income			323,068			42,104			43,005			(180,537	)		227,640
Operating income as a percentage of related revenues			16.9	%		25.7	%		12.3	%		—			9.4	%

(a)

Included in all other business units are revenues for the Company’s international retail business unit of $74,553 and $52,896 for the 13 weeks ended June 29, 2003 and June 30, 2002, respectively, and $209,617 and $148,950 for the 39 weeks ended June 29, 2003 and June 30, 2002, respectively. Revenues for both North American Retail and international retail are reflected in “Retail” revenues, and all other revenues are included in “Specialty” revenues on the accompanying consolidated statements of earnings.

(b)

Unallocated corporate includes general and administrative expenses and certain depreciation expenses on general and administrative related assets.

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Systemwide Retail Store Sales

Systemwide retail store sales are used by industry analysts and by management to measure global penetration of Starbucks retail stores. However, this measure excludes revenues generated in non-retail-store channels, such as foodservice accounts, warehouse club accounts, interactive operations, distribution through the Company’s grocery channel, or any of the external sales of bottled Frappuccino®, Starbucks DoubleShot™, or Tazo® tea products.

Systemwide retail store sales, which include net sales for both Company-operated and licensed retail stores, net store openings per respective period and ending store counts were as follows:

		13 Weeks Ended								39 Weeks Ended
		June 29, 2003				June 30, 2002				June 29, 2003						June 30, 2002
				Net				Net				Net		Ending				Net		Ending
				Stores				Stores				Stores		Store				Stores		Store
(sales amounts in millions)		Sales		Opened		Sales		Opened		Sales		Opened		Count		Sales		Opened		Count
Continental North America:
	Company-operated(a)	$	803		131	$	659		116	$	2,327		358		3,854	$	1,909		423		3,394
	Licensed Stores(b)		121		80		90		33		338		231		1,309		245		186		995
			924		211		749		149		2,665		589		5,163		2,154		609		4,389
International:
	Company-operated(a)		75		15		53		17		210		48		432		149		72		367
	Licensed Stores(b)		207		57		170		74		590		218		1,146		474		218		852
			282		72		223		91		800		266		1,578		623		290		1,219
Total Stores		$	1,206		283	$	972		240	$	3,465		855		6,741	$	2,777		899		5,608

(a)	Company-operated retail store sales are reflected as “Retail” revenues on the accompanying consolidated statements of earnings.
(b)	Includes retail store sales as reported by domestic and international licensees. Portions of these sales may be estimated due to timing of periodic reporting by licensees.

The increases in systemwide retail store sales of 24 and 25 percent for both the 13-week and 39-week periods ended June 29, 2003, respectively, compared to the same periods in fiscal 2002 were primarily due to the opening of 1,133 stores in the last 12 months and strong comparable store sales growth for Company-operated retail stores.

Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world, with more than 6,500 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim. The Company is committed to offering the highest quality coffee and theStarbucks Experiencewhile conducting its business in ways that produce social, environmental and economic benefits for communities in which it does business. In addition to its retail operations, the Company produces and sells bottled Frappuccino® coffee drinks, Starbucks DoubleShot™ coffee drink, and a line of superpremium ice creams through its joint venture partnerships. The Company’s other brands enhance theStarbucks Experiencethrough best-of-class products: Tazo Tea Company offers a line of innovative premium teas, and Hear Music produces and distributes a line of exceptional compact discs.

This release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, including anticipated store openings, comparable store sales expectations, trends in or expectations regarding the Company’s revenue growth, capital expenditures, effective tax rate, net earnings and earnings per share results, are all 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 and other raw material prices and availability, successful execution of internal performance and expansion plans, fluctuations in U.S. and international economies, ramifications from the war on terrorism, or other international events or developments, the impact of competition, the effect of legal proceedings, and other risks detailed in the Company’s filings with the Securities and Exchange Commission.

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