Starbucks (SBUX) 8-K Results of Operations and Financial Condition

Starbucks Contact, Investor Relations:	Starbucks Contact, Media:
JoAnn DeGrande	T. May Kulthol
206-318-7893	206-318-7100
jdegrand@starbucks.com	mkulthol@starbucks.com

Starbucks Announces Q2 2006 Results and April 2006 Revenues
Q2 Earnings per Share of $0.16, Up From Prior Year $0.12 per Share
Company Raises 2006 Earnings per Share Target

SEATTLE; May 3, 2006 —Starbucks Corporation (NASDAQ: SBUX) today announced record earnings for its fiscal second quarter for the period ended April 2, 2006, revenues for the four-week period ended April 30, 2006, and updated targets for fiscal 2006.

Fiscal Second Quarter 2006 Results:

• Record second quarter consolidated net revenues of $1.9 billion, an increase of 24 percent

• Record second quarter net earnings of $127 million, an increase of 27 percent

• Earnings per share of $0.16 compared to $0.12 in the second quarter of fiscal 2005

April 2006 Revenue Highlights:

• Net revenues increased 23 percent, to $597 million

• Comparable store sales rose six percent

Updated Fiscal 2006 Targets:

• Fiscal 2006 earnings per share target range raised to $0.71 – $0.72 from $0.68 – $0.70 per share

For the 13 weeks ended April 2, 2006, consolidated net revenues increased 24 percent to $1.9 billion from $1.5 billion for the same period in fiscal 2005, and net earnings increased 27 percent to $127 million from $100 million for the same period in fiscal 2005. Fully diluted earnings per share were $0.16 for the 13 weeks ended April 2, 2006, compared to a split adjusted $0.12 per share for the comparable period in fiscal 2005. The Company adopted the new accounting requirements related to expensing stock-based compensation at the beginning of its fiscal 2006 year, which reduced net earnings by $0.02 per share in the second quarter.

“Our outstanding quarterly results reflect diligent execution throughout our business,” commented Jim Donald, Starbucks president and ceo. “Continued innovation and an expanding retail footprint allowed us to reach more customers through more channels worldwide than any time in the history of Starbucks, and keeps the Company on track to achieve our long-term growth targets.”

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Donald added, “We started the third quarter with strong 23 percent revenue growth in April and six percent comparable store sales growth — near the top of our three to seven percent target range. These results were driven by continued customer demand for our handcrafted beverages, with particular strength in our spring line up of Green Tea beverages.”

“Our strong first half performance — and increased confidence in our second half forecast — has allowed us to raise our full year earnings per share target and narrow the range to $0.71 to $0.72 from the prior range of $0.68 to $0.70,” commented Michel Casey, Starbucks chief financial officer. “We are very pleased with our year-to-date results and believe that we have laid a solid foundation toward achieving our targets and delivering superior value to our shareholders.”

Consolidated Financial and Operating Summary

Company-operated retail revenuesincreased 25 percent to $1.6 billion for the 13 weeks ended April 2, 2006, from $1.3 billion for the same period in fiscal 2005. The increase was primarily attributable to the opening of 874 new Company-operated retail stores in the last 12 months and comparable store sales growth of ten percent for the quarter. The increase in comparable store sales was due to an eight percent increase in the number of customer transactions and a two percent increase in the average value per transaction.

Specialty revenuesincreased 22 percent to $286 million for the 13 weeks ended April 2, 2006, compared to $235 million for the corresponding period of fiscal 2005. Licensing revenues increased 25 percent to $202 million primarily due to higher product sales and royalty revenues from the opening of 1,090 new licensed retail stores in the last 12 months and growth in the licensed grocery and warehouse club business. Foodservice and other revenues increased 14 percent to $84 million primarily due to growth in the U.S. foodservice business.

Cost of sales including occupancy costsimproved to 40.3 percent of total net revenues for the 13 weeks ended April 2, 2006, compared to 41.4 percent in the corresponding 13-week period of fiscal 2005. This improvement was primarily due to fixed rent costs in the current year being distributed over an expanded revenue base, as well as higher occupancy costs in the prior year resulting from intensified store maintenance activities. These favorable items, together with other lesser improvements, offset higher green coffee costs in the second quarter.

Store operating expensesas a percentage of Company-operated retail revenues increased slightly to 41.6 percent for the 13 weeks ended April 2, 2006, from 41.5 percent for the corresponding period of fiscal 2005, primarily due to higher payroll-related expenditures for incentive compensation based on the Company’s strong operating results in fiscal 2006 and the recognition of stock-based compensation expense. The increase was partially offset by higher costs in the prior year associated with the North American leadership conference held for retail management employees, as well as leverage gained from higher retail revenues. Regional leadership conferences in fiscal 2006 will be held during the Company’s third fiscal quarter.

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Other operating expenses(expenses associated with the Company’s specialty operations) increased to 22.3 percent of total specialty revenues for the 13 weeks ended April 2, 2006, compared to 19.7 percent in the corresponding period of fiscal 2005. The increase was primarily due to the recognition of stock-based compensation expense as well as higher payroll-related expenditures to support the expansion of U.S. and International licensed retail store businesses.

Depreciation and amortization expensesincreased to $95 million for the 13 weeks ended April 2, 2006, compared to $88 million for the corresponding period of fiscal 2005. The increase was primarily due to the opening of 874 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses decreased to 5.0 percent for the 13 weeks ended April 2, 2006, from 5.8 percent for the corresponding 13-week period of fiscal 2005.

General and administrative expensesincreased to $120 million for the 13 weeks ended April 2, 2006, compared to $82 million for the corresponding period of fiscal 2005. The increase was primarily due to higher payroll-related expenditures from stock-based compensation, additional employees to support continued global growth and higher provisions for incentive compensation based on the Company’s strong operating results in fiscal 2006. As a percentage of total net revenues, general and administrative expenses increased to 6.3 percent for the 13 weeks ended April 2, 2006, from 5.4 percent for the corresponding period of fiscal 2005.

Income from equity investeesincreased 23 percent to $20 million for the 13 weeks ended April 2, 2006, compared to $16 million for the corresponding period of fiscal 2005. The increase was primarily due to volume-driven results for The North American Coffee Partnership, which produces bottled Frappuccino^® and Starbucks DoubleShot^® coffee drinks, and improved results from international investees primarily as a result of additional licensed retail stores.

Operating incomeincreased 28 percent to $202 million for the 13 weeks ended April 2, 2006, compared to $157 million for the corresponding 13-week period of fiscal 2005. Operating margin increased to 10.7 percent of total net revenues for the 13 weeks ended April 2, 2006, compared to 10.4 percent for the corresponding period of fiscal 2005, primarily due to lower cost of sales including occupancy costs, offset in part by higher general and administrative expenses.

Net earningsfor the 13 weeks ended April 2, 2006, increased 27 percent to $127 million from $100 million for the same period in fiscal 2005. Earnings per share were $0.16 for the 13 weeks ended April 2, 2006, compared to $0.12 per share for the comparable period in fiscal 2005.

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Updated Fiscal 2006 Targets

Looking ahead, Starbucks provided updated fiscal 2006 targets:

• Starbucks continues to target opening at least 1,800 new stores on a global basis in fiscal 2006. In the United States, Starbucks plans to open approximately 700 Company-operated locations and 600 licensed locations. In International markets, Starbucks plans to open approximately 150 Company-operated stores and 350 licensed stores;

• The Company is targeting total net revenue growth of approximately 20 percent on a quarterly and full year basis. Starbucks continues to expect comparable store sales growth in the range of three percent to seven percent for the remainder of fiscal 2006, with monthly anomalies;

• Based on very strong second quarter results along with its current outlook for the balance of year, Starbucks is raising its fiscal 2006 earnings per share target range to $0.71 – $0.72 per share. This target range is an increase from the previous target range of $0.68 – $0.70 per share. Both the new target and the previous target ranges include stock-based compensation expense estimated at approximately $0.09 per share. On a quarterly basis the Company is now targeting earnings per share of $0.17 in the third quarter, which is at the high end of its previous range, and continues to target a range of $0.16 – $0.17 per share for the fourth quarter;

• The effective tax rate is expected to be approximately 38 percent in fiscal 2006, with quarterly variations; and,

• Starbucks is now targeting capital expenditures in the range of $750 million – $775 million in fiscal 2006, an increase from the Company’s previous target range of $700 million – $725 million.

Starbucks will be holding a conference call today at 1:30 p.m. Pacific Time, which will be hosted by Howard Schultz, chairman, Jim Donald, president and ceo, 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 via telephone through 5:30 p.m. Pacific Time on Wednesday, May 10, 2006, by calling 1-800-642-1687, reservation number 3728538. 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. Pacific Time on Wednesday, May 31, 2006, at the following URL: 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. This information should be reviewed in conjunction with this press release. Please refer to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 16, 2005, for additional information.

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)

	13 Weeks Ended							13 Weeks Ended
	April 2,		April 3,		%			April 2,			April 3,
	2006		2005		Change			2006			2005
	(in thousands, except per share data)
								As a % of total net revenues
Net revenues:
Company-operated retail	$	1,599,844	$	1,283,947		24.6	%		84.8	%		84.5	%
Specialty:
Licensing		202,354		161,292		25.5	%		10.7	%		10.6	%
Foodservice and other		83,624		73,477		13.8	%		4.5	%		4.9	%
Total specialty		285,978		234,769		21.8	%		15.2	%		15.5	%
Total net revenues		1,885,822		1,518,716		24.2	%		100.0	%		100.0	%
Cost of sales including occupancy costs		760,873		628,740					40.3	%		41.4	%
Store operating expenses(a)		665,273		532,944					35.4	%		35.1	%
Other operating expenses(b)		63,648		46,347					3.4	%		3.0	%
Depreciation and amortization expenses		94,508		87,772					5.0	%		5.8	%
General and administrative expenses		119,611		81,929					6.3	%		5.4	%
Subtotal operating expenses		1,703,913		1,377,732		23.7	%		90.4	%		90.7	%
Income from equity investees		19,985		16,294					1.1	%		1.1	%
Operating income		201,894		157,278		28.4	%		10.7	%		10.4	%
Interest and other income, net		3,063		4,014					0.2	%		0.2	%
Earnings before income taxes		204,957		161,292		27.1	%		10.9	%		10.6	%
Income taxes (c)		77,641		60,831					4.1	%		4.0	%
Net earnings	$	127,316	$	100,461		26.7	%		6.8	%		6.6	%
Net earnings per common share — diluted	$	0.16	$	0.12
Weighted average shares outstanding — diluted		794,613		828,062

(a)	As a percentage of related Company-operated retail revenues, store operating expenses were 41.6 percent for the 13 weeks ended April 2, 2006, and 41.5 percent for the 13 weeks ended April 3, 2005.
(b)	As a percentage of related total specialty revenues, other operating expenses were 22.3 percent for the 13 weeks ended April 2, 2006, and 19.7 percent for the 13 weeks ended April 3, 2005.
(c)	The effective tax rates were 37.9 percent for the 13 weeks ended April 2, 2006, and 37.7 percent for the 13 weeks ended April 3, 2005.

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)

	26 Weeks Ended							26 Weeks Ended
	April 2,		April 3,		%			April 2,			April 3,
	2006		2005		Change			2006			2005
	(in thousands, except per share data)
								As a % of total net revenues
Net revenues:
Company-operated retail	$	3,227,827	$	2,642,608		22.1	%		84.5	%		85.0	%
Specialty:
Licensing		421,504		318,505		32.3	%		11.0	%		10.3	%
Foodservice and other		170,583		147,147		15.9	%		4.5	%		4.7	%
Total specialty		592,087		465,652		27.2	%		15.5	%		15.0	%
Total net revenues		3,819,914		3,108,260		22.9	%		100.0	%		100.0	%
Cost of sales including occupancy costs		1,538,911		1,276,495					40.3	%		41.1	%
Store operating expenses(a)		1,287,439		1,053,950					33.6	%		33.8	%
Other operating expenses(b)		122,796		90,628					3.2	%		2.9	%
Depreciation and amortization expenses		185,796		166,331					4.9	%		5.4	%
General and administrative expenses		242,936		165,528					6.4	%		5.3	%
Subtotal operating expenses		3,377,878		2,752,932		22.7	%		88.4	%		88.5	%
Income from equity investees		39,705		29,105					1.0	%		0.9	%
Operating income		481,741		384,433		25.3	%		12.6	%		12.4	%
Interest and other income, net		3,411		9,136					0.1	%		0.3	%
Earnings before income taxes		485,152		393,569		23.3	%		12.7	%		12.7	%
Income taxes (c)		183,680		148,434					4.8	%		4.8	%
Net earnings	$	301,472	$	245,135		23.0	%		7.9	%		7.9	%
Net earnings per common share — diluted	$	0.38	$	0.30
Weighted average shares outstanding — diluted		793,936		829,352

(a)	As a percentage of related Company-operated retail revenues, store operating expenses were 39.9 percent for both the 26 weeks ended April 2, 2006, and April 3, 2005.
(b)	As a percentage of related total specialty revenues, other operating expenses were 20.7 percent for the 26 weeks ended April 2, 2006, and 19.5 percent for the 26 weeks ended April 3, 2005.
(c)	The effective tax rates were 37.9 percent for the 26 weeks ended April 2, 2006, and 37.7 percent for the 26 weeks ended April 3, 2005.

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

	April 2,		October 2,
	2006		2005
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	202,671	$	173,809
Short-term investments — available-for-sale securities		193,231		95,379
Short-term investments — trading securities		49,546		37,848
Accounts receivable, net of allowances of $4,627 and $3,079, respectively		190,452		190,762
Inventories		456,215		546,299
Prepaid expenses and other current assets		87,163		94,429
Deferred income taxes, net		87,477		70,808
Total current assets		1,266,755		1,209,334
Long-term investments — available-for-sale securities		37,639		60,475
Equity and other investments		214,780		201,089
Property, plant and equipment, net		1,963,701		1,842,019
Other assets		125,171		72,893
Other intangible assets		36,657		35,409
Goodwill		172,337		92,474
TOTAL ASSETS	$	3,817,040	$	3,513,693
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	230,060	$	220,975
Accrued compensation and related costs		283,342		232,354
Accrued occupancy costs		49,350		44,496
Accrued taxes		100,108		78,293
Short-term borrowings		95,000		277,000
Other accrued expenses		194,580		198,082
Deferred revenue		233,269		175,048
Current portion of long-term debt		755		748
Total current liabilities		1,186,464		1,226,996
Long-term debt		2,491		2,870
Other long-term liabilities		210,176		193,565
Shareholders’ equity:
Common stock and additional paid-in-capital — Authorized, 1,200,000,000 shares; issued and outstanding 769,274,760 and 767,442,110 shares, respectively, (includes 3,394,200 common stock units in both periods)		111,878		90,968
Other additional paid-in-capital		39,393		39,393
Retained earnings		2,240,459		1,938,987
Accumulated other comprehensive income		26,179		20,914
Total shareholders’ equity		2,417,909		2,090,262
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,817,040	$	3,513,693

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

	26 Weeks Ended
	April 2,			April 3,
	2006			2005
OPERATING ACTIVITIES:
Net earnings	$	301,472		$	245,135
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		198,633			179,857
Provision for impairments and asset retirements		9,153			6,554
Deferred income taxes, net		(57,131	)		(20,946	)
Equity in income of investees		(24,807	)		(15,947	)
Distribution from equity investees		16,393			11,287
Stock-based compensation		51,297			—
Tax benefit from exercise of non-qualified stock options		520			88,781
Excess tax benefit from exercise of non-qualified stock options		(54,872	)		—
Net amortization of premium on securities		1,209			7,112
Cash provided/(used) by changes in operating assets and liabilities:
Inventories		92,455			18,894
Accounts payable		7,611			(20,350	)
Accrued compensation and related costs		50,099			(5,488	)
Accrued taxes		76,716			12,322
Deferred revenue		58,250			47,061
Other operating assets and liabilities		34,994			23,272
Net cash provided by operating activities		761,992			577,544
INVESTING ACTIVITIES:
Purchase of available-for-sale securities		(356,681	)		(582,992	)
Maturity of available-for-sale securities		127,604			362,666
Sale of available-for-sale securities		154,250			196,395
Acquisitions, net of cash acquired		(90,219	)		(11,282	)
Net (purchases)/sales of equity, other investments and other assets		(19,103	)		12,676
Net additions to property, plant and equipment		(310,331	)		(311,454	)
Net cash used by investing activities		(494,480	)		(333,991	)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock		91,618			121,534
Excess tax benefit from exercise of non-qualified stock options		54,872			—
Net repayments of revolving credit facility		(182,000	)		—
Principal payments on long-term debt		(372	)		(366	)
Repurchase of common stock		(204,186	)		(334,749	)
Net cash used by financing activities		(240,068	)		(213,581	)
Effect of exchange rate changes on cash and cash equivalents		1,418			2,117
Net increase in cash and cash equivalents		28,862			32,089
CASH AND CASH EQUIVALENTS:
Beginning of period		173,809			145,053
End of the period	$	202,671		$	177,142
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the 26 weeks ended:
Interest	$	4,444		$	108
Income taxes	$	167,286		$	68,523

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Stock Compensation Expense

Effective October 3, 2005, the beginning of Starbucks first fiscal quarter of 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires all stock-based compensation, including grants of employee stock options, to be recognized in the statement of earnings based on their fair values. The Company adopted this accounting treatment using the modified prospective transition method, as permitted under SFAS 123R; therefore results for prior periods have not been restated. Prior to the adoption of SFAS 123R, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, stock-based compensation was included as pro forma disclosure in the financial statement footnotes. The Company is providing the table below because management believes it provides useful information to investors regarding the Company’s results of operations by separately identifying the stock-based compensation expense and providing reported amounts on a basis comparable to that used in prior periods. In addition, the Company’s internal reporting and budgeting, as well as the calculation of its incentive compensation payments, includes the use of reported amounts excluding stock-based compensation. The amounts shown in the column below entitled “Using Previous Accounting” are considered “non-GAAP financial measures” under applicable SEC rules because they exclude the stock-based payment expense that is included in the directly comparable measures calculated in accordance with generally accepted accounting principles (“GAAP”) in the United States, which are shown in the column entitled “As Reported.” These non-GAAP financial measures are not a substitute for the reported GAAP measures.

The application of SFAS 123R had the following effect on reported amounts for the 13 and 26 weeks ended April 2, 2006 relative to the amounts that would have been reported using the intrinsic value method under the Company’s previous accounting (in thousands, except earnings per share):

	Consolidated Statements of Earnings
	13 Weeks Ended April 2, 2006							26 Weeks Ended April 2, 2006
	Using							Using
	Previous		Stock-based			As		Previous		Stock-based			As
	Accounting		Compensation			Reported		Accounting		Compensation			Reported
Cost of sales including occupancy costs	$	758,090	$	2,783		$	760,873	$	1,533,606	$	5,305		$	1,538,911
Store operating expenses		658,595		6,678			665,273		1,274,603		12,836			1,287,439
Other operating expenses		60,470		3,178			63,648		117,423		5,373			122,796
General and administrative expenses		104,420		15,191			119,611		215,817		27,119			242,936
Operating income		229,724		(27,830	)		201,894		532,374		(50,633	)		481,741
Earnings before income taxes		232,787		(27,830	)		204,957		535,785		(50,633	)		485,152
Income taxes		87,217		(9,576	)		77,641		200,962		(17,282	)		183,680
Net earnings		145,570		(18,254	)		127,316		334,823		(33,351	)		301,472
Net earnings per common share—diluted	$	0.18	$	(0.02	)	$	0.16	$	0.42	$	(0.04	)	$	0.38

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Segment Results

Segment information is prepared on the basis that the Company’s management reviews financial information for operational decision-making purposes. The tables below present operating segment results net of intersegment eliminations for the 13 weeks ended April 2, 2006(in thousands):

	13 Weeks Ended									13 Weeks Ended
	April 2,			April 3,			%			April 2,			April 3,
	2006			2005			Change			2006			2005
										As a % of U.S. total net
United States										revenues
Net revenues:
Company-operated retail	$	1,338,118		$	1,084,737			23.4	%		85.2	%		85.0	%
Specialty:
Licensing		155,794			124,136			25.5	%		9.9	%		9.7	%
Foodservice and other		76,584			67,545			13.4	%		4.9	%		5.3	%
Total specialty		232,378			191,681			21.2	%		14.8	%		15.0	%
Total net revenues		1,570,496			1,276,418			23.0	%		100.0	%		100.0	%
Cost of sales including occupancy costs		609,168			504,076						38.8	%		39.5	%
Store operating expenses		562,429			456,838						42.0	%(1)		42.1	%(1)
Other operating expenses		51,439			38,841						22.1	%(2)		20.3	%(2)
Depreciation and amortization expenses		69,102			64,819						4.4	%		5.1	%
General and administrative expenses		23,201			24,350						1.5	%		1.9	%
Income from equity investees		10,761			8,564						0.7	%		0.7	%
Operating income	$	265,918		$	196,058			35.6	%		16.9	%		15.4	%
										As a % of International
International										total net revenues
Net revenues:
Company-operated retail	$	261,726		$	199,210			31.4	%		83.0	%		82.2	%
Specialty:
Licensing		46,560			37,156			25.3	%		14.8	%		15.3	%
Foodservice and other		7,040			5,932			18.7	%		2.2	%		2.5	%
Total specialty		53,600			43,088			24.4	%		17.0	%		17.8	%
Total net revenues		315,326			242,298			30.1	%		100.0	%		100.0	%
Cost of sales including occupancy costs		151,705			124,664						48.1	%		51.5	%
Store operating expenses		102,844			76,106						39.3	%(1)		38.2	%(1)
Other operating expenses		12,209			7,506						22.8	%(2)		17.4	%(2)
Depreciation and amortization expenses		16,745			14,128						5.3	%		5.8	%
General and administrative expenses		18,570			10,216						5.9	%		4.2	%
Income from equity investees		9,224			7,730						2.9	%		3.2	%
Operating income	$	22,477		$	17,408			29.1	%		7.1	%		7.2	%
										As a % of total net
Unallocated Corporate										revenues
Depreciation and amortization expenses	$	8,661		$	8,825						0.5	%		0.6	%
General and administrative expenses		77,840			47,363						4.1	%		3.1	%
Operating loss	$	(86,501	)	$	(56,188	)					(4.6	)%		(3.7	)%

(1)	Shown as a percentage of related Company-operated retail revenues.
(2)	Shown as a percentage of related total specialty revenues.

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The tables below present operating segment results net of intersegment eliminations for the 26 weeks ended April 2, 2006(in thousands):

	26 Weeks Ended							26 Weeks Ended
	April 2,		April 3,		%			April 2,			April 3,
	2006		2005		Change			2006			2005
								As a % of U.S. total net
United States								revenues
Net revenues:
Company-operated retail	$	2,708,805	$	2,234,367		21.2	%		84.9	%		85.4	%
Specialty:
Licensing		325,317		245,271		32.6	%		10.2	%		9.4	%
Foodservice and other		156,955		135,553		15.8	%		4.9	%		5.2	%
Total specialty		482,272		380,824		26.6	%		15.1	%		14.6	%
Total net revenues		3,191,077		2,615,191		22.0	%		100.0	%		100.0	%
Cost of sales including occupancy costs		1,237,531		1,025,789					38.8	%		39.2	%
Store operating expenses		1,091,204		900,899					40.3	%(1)		40.3	%(1)
Other operating expenses		98,581		75,944					20.4	%(2)		19.9	%(2)
Depreciation and amortization expenses		136,820		122,154					4.3	%		4.7	%
General and administrative expenses		44,734		45,973					1.4	%		1.8	%
Income from equity investees		22,460		17,272					0.7	%		0.7	%
Operating income	$	604,667	$	461,704		31.0	%		18.9	%		17.7	%

							As a % of International
International							total net revenues
Net revenues:
Company-operated retail	$	519,022	$	408,241	27.1	%		82.5	%	82.8	%
Specialty:
Licensing		96,187		73,234	31.3	%		15.3	%	14.9	%
Foodservice and other		13,628		11,594	17.5	%		2.2	%	2.3	%
Total specialty		109,815		84,828	29.5	%		17.5	%	17.2	%
Total net revenues		628,837		493,069	27.5	%		100.0	%	100.0	%
Cost of sales including occupancy costs		301,380		250,706				47.9	%	50.8	%
Store operating expenses		196,235		153,051				37.8	%(1)	37.5	%(1)
Other operating expenses		24,215		14,684				22.1	%(2)	17.3	%(2)
Depreciation and amortization expenses		31,754		27,217				5.0	%	5.5	%
General and administrative expenses		34,757		22,115				5.5	%	4.5	%
Income from equity investees		17,245		11,833				2.7	%	2.4	%
Operating income	$	57,741	$	37,129	55.5	%		9.2	%	7.5	%

							As a % of total net
Unallocated Corporate							revenues
Depreciation and amortization expenses	$	17,222		$	16,960			0.4	%	0.6	%
General and administrative expenses		163,445			97,440			4.3	%	3.1	%
Operating loss	$	(180,667	)	$	(114,400	)		(4.7	)%	(3.7	)%

(1)	Shown as a percentage of related Company-operated retail revenues.
(2)	Shown as a percentage of related total specialty revenues.

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United States
United States total net revenues increased by $294 million, or 23 percent, to $1.6 billion for the 13 weeks ended April 2, 2006, compared to $1.3 billion for the corresponding period of fiscal 2005. United States Company-operated retail revenues increased by $253 million, or 23 percent, to $1.3 billion, primarily due to the opening of 660 new Company-operated retail stores in the last 12 months and comparable store sales growth of ten percent for the quarter. The increase in comparable store sales was due to an eight percent increase in the number of customer transactions and a two percent increase in the average value per transaction.

Total United States specialty revenues increased by $41 million, or 21 percent, to $232 million for the 13 weeks ended April 2, 2006, compared to $192 million in the corresponding period of fiscal 2005. United States licensing revenues increased 26 percent to $156 million from $124 million in fiscal 2005, primarily due to higher product sales and royalty revenues as a result of opening 685 new licensed retail stores in the last 12 months and growth in the licensed grocery and warehouse club business. United States foodservice and other revenues increased to $77 million, or 13 percent, from $68 million in fiscal 2005, primarily due to growth in new and existing foodservice accounts.

United States operating income increased by 36 percent to $266 million for the 13 weeks ended April 2, 2006, from $196 million for the same period in fiscal 2005. Operating margin increased to 16.9 percent of related revenues from 15.4 percent in the corresponding period of fiscal 2005, primarily due to leverage gained from fixed costs, including occupancy, depreciation and general and administrative expenses, distributed over an expanded revenue base in the current year period, and to higher costs in the prior year period for intensified store maintenance activities in Company-operated retail stores.

International
International total net revenues increased by $73 million, or 30 percent, to $315 million for the 13 weeks ended April 2, 2006, compared to $242 million for the corresponding period of fiscal 2005. International Company-operated retail revenues increased by $63 million, or 31 percent, to $262 million, primarily due to the opening of 214 new Company-operated retail stores in the last 12 months and comparable store sales growth of nine percent for the quarter. The increase in comparable store sales resulted from a seven percent increase in the number of customer transactions coupled with a two percent increase in the average value per transaction.

Total international specialty revenues increased by $11 million, or 24 percent, to $54 million for the 13 weeks ended April 2, 2006, compared to $43 million in the corresponding period of fiscal 2005. The increase was primarily due to higher product sales and royalty revenues from opening 405 licensed retail stores in the last 12 months and expansion of the Canadian grocery and warehouse club business.

International operating income increased by 29 percent to $22 million for the 13 weeks ended April 2, 2006, compared to $17 million in the corresponding period of fiscal 2005. Operating margin decreased slightly to 7.1 percent of related revenues from 7.2 percent in the corresponding period of fiscal 2005. This decrease was primarily due to higher general and administrative expenses and an increase in other operating expenses for expanding infrastructure to support global growth, as well as increased retail store operating expenses related to higher provisions for incentive compensation. These were partially offset by lower costs of sales including occupancy costs due primarily to leverage gained from fixed costs distributed over an expanded revenue base, as well as improvements in the food program.

Unallocated Corporate
Unallocated corporate expenses increased to $87 million for the 13 weeks ended April 2, 2006, compared to $56 million in the corresponding period of fiscal 2005, primarily due to higher payroll-related expenses from stock-based compensation, higher provisions for incentive compensation based on the Company’s strong operating results for the quarter and additional employees to support continued rapid global growth. Total unallocated corporate expenses as a percentage of total net revenues increased to 4.6 percent for the 13 weeks ended April 2, 2006, compared to 3.7 percent for the corresponding period of fiscal 2005.

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Store Data

The Company’s store data for the periods presented are as follows:

	Net stores opened during the period
	13-week period				26-week period				Stores open as of
	April 2,		April 3,		April 2,		April 3,		April 2,		April 3,
	2006		2005		2006		2005		2006		2005
United States:
Company-operated Stores		157		131		318		232		5,185		4,525
Licensed Stores		132		98		330		241		2,765		2,080
		289		229		648		473		7,950		6,605
International:
Company-operated Stores(1)		55		22		115		73		1,310		1,096
Licensed Stores(1)		80		61		221		146		1,965		1,560
		135		83		336		219		3,275		2,656
Total		424		312		984		692		11,225		9,261

⁽¹⁾ International store data has been adjusted for the acquisitions of the Southern China, Chile, Hawaii and Puerto Rico operations by reclassifying historical information from Licensed Stores to Company-operated Stores.

April 2006 Revenues

Starbucks Corporation today also reported consolidated net revenues of $597 million for the four-week period ended April 30, 2006, an increase of 23 percent from consolidated net revenues of $487 million for the same period in fiscal 2005. On a comparable store sales basis (stores open for at least 13 months), sales at Company-operated stores increased six percent for the four weeks ended April 30, 2006, as compared to the same four-week period in fiscal 2005.

For the 30 weeks ended April 30, 2006, consolidated net revenues were $4.4 billion, an increase of 23 percent from consolidated net revenues of $3.6 billion for the same 30 week period in 2005. Comparable store sales increased eight percent for the 30 weeks ended April 30, 2006, as compared to the same 30 weeks in fiscal 2005.

April’s comparable store sales growth — near the top of the Company’s three to seven percent target range — was driven primarily by sales of handcrafted beverages, including new seasonal offerings as well as core beverages, and food. Strong customer demand for Starbucks Green Tea beverages led to robust blended beverage sales during the month.

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Fiscal YTD Store Data

The Company’s store data for the periods presented are as follows:

	Net stores opened during
	the 30 weeks ended		Stores open as of
	April 30, 2006		April 30, 2006
United States:
Company-operated Stores		364		5,231
Licensed Stores		391		2,826
		755		8,057
International:
Company-operated Stores		130		1,325
Licensed Stores		251		1,995
		381		3,320
Total		1,136		11,377

Through the dedication of our passionate partners (employees), Starbucks Coffee Company has transformed the way people in 37 countries enjoy their coffee, one cup at a time. Starbucks is the premier purveyor of the finest coffee in the world, with more than 11,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim. The Company is committed to offering its customers the highest quality coffee and human connection through theStarbucks Experience, while striving to improve the social, environmental and economic well being of its partners, coffee farmers, countries of coffee origin, and the communities which it serves. Through Ethos Water, Starbucks demonstrates its long history of integrating a social conscience into all aspects of its business. The Company surprises and delights its customers by producing and selling bottled Starbucks Frappuccino^® coffee drinks, Starbucks DoubleShot^® espresso drink and Starbucks^® superpremium ice creams through its joint venture partnerships, and Starbucks™ Coffee and Cream Liqueurs through a marketing and distribution agreement, in other convenient locations outside its retail operations. The Company’s brand portfolio includes superpremium Tazo^® teas, Starbucks Hear Music™ compact discs, Seattle’s Best Coffee and Torrefazione Italia. These brands’ unique and innovative personalities allow Starbucks to appeal to a broad consumer base.

This release includes the following forward-looking statements: anticipated store openings, comparable store sales expectations, trends in or expectations regarding the Company’s net revenue, estimated stock based compensation expense, capital expenditures, effective tax rate, and earnings per share results. 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 performance and expansion plans, fluctuations in U.S. and international economies and currencies, the impact of initiatives by competitors, 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 October 2, 2005. The Company assumes no obligation to update any of these forward-looking statements.

^© 2006 Starbucks Coffee Company. All rights reserved.

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