Starbucks Announces Record First Quarter Fiscal 2006 Results; Strong January 2006 Revenues Raises Earnings Target

Fiscal First Quarter 2006 Results:

-- First quarter consolidated net revenues increased 22 percent to a record $1.9 billion

-- Net earnings rose 20 percent to a record $174 million

-- Earnings per share increased to $0.22 from $0.17 in the comparable period in fiscal 2005

January 2006 Revenue Highlights:

-- January net revenues increased 23 percent

-- January comparable store sales rose 10 percent

Updated Fiscal 2006 Target:

-- Earnings per share target range increased by $0.05 per share to $0.68 - $0.70

For the 13 weeks ended January 1, 2006, consolidated net revenuesincreased 22 percent to $1.9 billion from $1.6 billion for the sameperiod in fiscal 2005, and net earnings increased 20 percent to $174million from $145 million for the same period in fiscal 2005. Fullydiluted earnings per share were $0.22 for the 13 weeks ended January1, 2006, compared to a split-adjusted $0.17 per share for thecomparable period in fiscal 2005. The Company adopted the newaccounting requirements related to expensing stock-based compensationin the first fiscal quarter of 2006, which reduced net earnings by$0.02 per share in the quarter.

"I am very pleased with our first quarter performance, whichdemonstrated focused execution at all levels of the business anddelivered the most successful first quarter in Starbucks history,"commented Howard Schultz, Starbucks chairman. "Our core beverages,coupled with a strong holiday promotion, drove results in our retailstores, while solid growth in licensed locations led to the increasein our specialty business revenues. We ended the first quarter with astrong foundation for Starbucks fiscal year 2006 which gave us theconfidence to raise our full year earnings per share target range by$0.05 per share to $0.68 to $0.70 per share."

"Building on the success of our first quarter, we are proud thatrevenue results for the month of January were just as impressive,"commented Jim Donald, Starbucks president and ceo. "Due to thestrength of the Starbucks brand and the exemplary execution of ourholiday promotion, a record number of Starbucks Cards were activatedduring the holiday season and are bringing valued customers, bothexisting and new, into Starbucks stores in record numbers. We are verypleased with 10 percent comparable store sales growth in January, butwe also recognize that same store sales growth at this level is notsustainable. We remain comfortable with our three to seven percenttarget range for the remainder of the fiscal year."

Consolidated Financial and Operating Summary

Company-operated retail revenues increased 20 percent to a record$1.6 billion for the 13 weeks ended January 1, 2006, compared to $1.4billion for the same period in fiscal 2005. The increase was primarilyattributable to the opening of 803 new Company-operated retail storesin the last 12 months and comparable store sales growth of sevenpercent for the quarter. The increase in comparable store sales wasdue to a six percent increase in the number of customer transactionsand a one percent increase in the average value per transaction.

Specialty revenues increased 33 percent to a record $306 millionfor the 13 weeks ended January 1, 2006, compared to $231 million forthe corresponding period of fiscal 2005. Licensing revenues increased39 percent to $219 million primarily due to higher product sales androyalty revenues from opening 1,049 new licensed retail stores in thelast 12 months and growth in the licensed grocery and warehouse clubbusiness. Foodservice and other revenues increased 18 percent to $87million due to growth in both new and existing U.S. and Internationalfoodservice accounts.

Cost of sales including occupancy costs decreased to 40.2 percentof total net revenues for the 13 weeks ended January 1, 2006, comparedto 40.8 percent in the corresponding 13-week period of fiscal 2005,primarily due to higher occupancy costs in the prior year resultingfrom store maintenance activities, as well as fixed rent costs in thecurrent year being distributed over an expanded revenue base.

Store operating expenses as a percentage of Company-operatedretail revenues decreased to 38.2 percent for the 13 weeks endedJanuary 1, 2006, compared to 38.3 percent for the corresponding periodof fiscal 2005. This decrease was primarily due to leverage gained onpayroll-related expenditures distributed over an expanded revenuebase, partially offset by recognition of stock-based compensationexpense in the first fiscal quarter of 2006 related to new accountingrequirements. Additional details on this new accounting standard canbe found on page 8.

Other operating expenses (expenses associated with the Company'sspecialty operations) increased to 19.3 percent of total specialtyrevenues for the 13 weeks ended January 1, 2006, compared to 19.2percent in the corresponding period of fiscal 2005. The increase wasprimarily due to the recognition of stock-based compensation expense.

Depreciation and amortization expenses increased to $91 millionfor the 13 weeks ended January 1, 2006, compared to $79 million forthe corresponding period of fiscal 2005. The increase was primarilydue to the opening of 803 new Company-operated retail stores in thelast 12 months. As a percentage of total net revenues, depreciationand amortization expenses decreased to 4.7 percent for the 13 weeksended January 1, 2006, compared to 4.9 percent for the corresponding13-week period of fiscal 2005.

General and administrative expenses increased to $123 million forthe 13 weeks ended January 1, 2006, compared to $84 million for thecorresponding period of fiscal 2005. This increase was primarily dueto higher payroll-related expenditures from stock-based compensationand higher provisions for incentive compensation based on theCompany's strong operating results for the fiscal first quarter of2006, as well as increased charitable contributions. As a percentageof total net revenues, general and administrative expenses increasedto 6.4 percent for the 13 weeks ended January 1, 2006, compared to 5.3percent for the corresponding period of fiscal 2005.

Income from equity investees increased to $20 million for the 13weeks ended January 1, 2006, compared to $13 million for thecorresponding period of fiscal 2005. The increase was primarily due tovolume-driven results for The North American Coffee Partnership, whichproduces bottled Frappuccino(R) and Starbucks Doubleshot(R) coffeedrinks, and improved results from international investees primarily asa result of new licensed retail store openings.

Operating income increased 23 percent to $280 million for the 13weeks ended January 1, 2006, compared to $227 million for thecorresponding 13-week period of fiscal 2005. Operating marginincreased to 14.5 percent of total net revenues for the 13 weeks endedJanuary 1, 2006, compared to 14.3 percent for the corresponding periodof fiscal 2005. This increase was primarily due to lower cost of salesincluding occupancy costs and store operating expenses as a percentageof total net revenues, offset in part by higher general andadministrative expenses.

Interest and other income, net, decreased to $0.3 million for the13 weeks ended January 1, 2006, compared to $5.1 million for thecorresponding 13-week period of fiscal 2005, primarily due to interestexpense recognized on the borrowings under the Company's revolvingcredit facility, which was entered into in August of 2005.

Net earnings for the 13 weeks ended January 1, 2006, increased 20percent to $174 million from $145 million for the same period infiscal 2005. Earnings were $0.22 per share for the 13 weeks endedJanuary 1, 2006, compared to $0.17 per share for the comparable periodin fiscal 2005.

Updated Fiscal 2006 Targets

Looking ahead, Starbucks provided updated fiscal 2006 targets:

-- Starbucks plans to open 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. The Company 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 first quarter results along with its current outlook for the balance of year, Starbucks is raising its fiscal 2006 earnings per share target range by $0.05 per share to $0.68 - $0.70 per share. This target range is an increase from the previous target of $0.63 - $0.65 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 targeting earnings per share of $0.14 in the second quarter and is targeting a range of $0.16 - $0.17 per share for each of the third and fourth quarters;

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

-- Starbucks continues to target capital expenditures in the range of $700 million to $725 million in fiscal 2006.

Starbucks will be holding a conference call today at 1:30 p.m.Pacific Time, which will be hosted by Howard Schultz, chairman, JimDonald, president and ceo, and Michael Casey, executive vice presidentand chief financial officer. The call will be broadcast live over theInternet and can be accessed at the Company's web site address ofhttp://www.starbucks.com/aboutus/investor.asp. A replay of the callwill be available via telephone through 5:30 p.m. Pacific Time onWednesday, February 8, 2006, by calling 1-800-642-1687, reservationnumber 3728089. A posting of speaker remarks and a replay of the callwill also be available via the Investor Relations page onStarbucks.com through approximately 5:00 p.m. Pacific Time onThursday, March 2, 2006, at the following URL:http://www.starbucks.com/aboutus/investor.asp.

The Company's consolidated financial statements, operating segmentresults, and other additional information have been provided on thefollowing pages in accordance with current year classifications. Thisinformation should be reviewed in conjunction with this press release.Please refer to the Company's Annual Report on Form 10-K filed withthe Securities and Exchange Commission on December 16, 2005, foradditional information.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
13 Weeks
13 Weeks Ended Ended
------------------------------- -------------
Jan. 1, Jan. 2, % Jan. 1, Jan. 2,
2006 2005 Change 2006 2005
----------- ----------------- -------- ------
(in thousands, except per share
data)
As a % of
total net
revenues
-------------
Net revenues:
Company-operated retail $1,627,983 $1,358,661 19.8% 84.2% 85.5%
Specialty:
Licensing 219,150 157,213 39.4% 11.3% 9.9%
Foodservice and other 86,959 73,670 18.0% 4.5% 4.6%
----------- ----------- ------ ------
Total specialty 306,109 230,883 32.6% 15.8% 14.5%
----------- ----------- ------ ------
Total net revenues 1,934,092 1,589,544 21.7% 100.0% 100.0%

Cost of sales including
occupancy costs 778,038 647,755 40.2% 40.8%
Store operating expenses
(a) 622,166 521,006 32.2% 32.7%
Other operating expenses
(b) 59,148 44,281 3.0% 2.8%
Depreciation and
amortization expenses 91,288 78,559 4.7% 4.9%
General and
administrative expenses 123,325 83,599 6.4% 5.3%
----------- ----------- ------ ------
Subtotal
operating
expenses 1,673,965 1,375,200 21.7% 86.5% 86.5%

Income from equity
investees 19,754 12,847 1.0% 0.8%
----------- ----------- ------ ------

Operating income 279,881 227,191 23.2% 14.5% 14.3%

Interest and other
income, net 348 5,122 0.0% 0.3%
----------- ----------- ------ ------
Earnings before
income taxes 280,229 232,313 20.6% 14.5% 14.6%

Income taxes(c) 106,039 87,603 5.5% 5.5%
----------- ----------- ------ ------

Net earnings $ 174,190 $ 144,710 20.4% 9.0% 9.1%
=========== =========== ====== ======

Net earnings per common
share - diluted $ 0.22 $ 0.17
=========== ===========
Weighted average shares
outstanding -
diluted 792,949 830,655
=========== ===========

(a) As a percentage of related Company-operated retail revenues, store
operating expenses were 38.2 percent for the 13 weeks ended
January 1, 2006, and 38.3 percent for the 13 weeks ended January
2, 2005.

(b) As a percentage of related total specialty revenues, other
operating expenses were 19.3 percent for the 13 weeks ended
January 1, 2006, and 19.2 percent for the 13 weeks ended January
2, 2005.

(c) The effective tax rates were 37.8 percent for the 13 weeks ended
January 1, 2006, and 37.7 percent for the 13 weeks ended January
2, 2005.

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

January 1, October 2,
2006 2005
----------- -----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 251,435 $ 173,809
Short-term investments - available-for-sale
securities 240,250 95,379
Short-term investments - trading securities 46,845 37,848
Accounts receivable, net of allowances of
$3,766 and $3,079, respectively 197,765 190,762
Inventories 452,650 546,299
Prepaid expenses and other current assets 87,518 94,429
Deferred income taxes, net 77,046 70,808
----------- -----------
Total current assets 1,353,509 1,209,334

Long-term investments - available-for-sale
securities 55,659 60,475
Equity and other investments 207,470 201,461
Property, plant and equipment, net 1,870,793 1,842,019
Other assets 97,375 72,893
Other intangible assets 35,937 35,409
Goodwill 92,342 92,474
----------- -----------

TOTAL ASSETS $3,713,085 $3,514,065
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 208,591 $ 220,975
Accrued compensation and related costs 229,063 232,354
Accrued occupancy costs 49,049 44,496
Accrued taxes 181,585 78,293
Short-term borrowings 105,000 277,000
Other accrued expenses 187,380 198,082
Deferred revenue 310,868 175,048
Current portion of long-term debt 752 748
----------- -----------
Total current liabilities 1,272,288 1,226,996

Long-term debt 2,681 2,870
Other long-term liabilities 205,324 193,565

Shareholders' equity:
Common stock and additional paid-in capital
- Authorized, 1,200,000,000 shares; issued
and outstanding, 767,105,132 and
767,442,110 shares, respectively,
(includes 3,394,200 common stock units
in both periods) 61,431 90,968
Other additional paid-in-capital 39,393 39,393
Retained earnings 2,113,549 1,939,359
Accumulated other comprehensive income 18,419 20,914
----------- -----------
Total shareholders' equity 2,232,792 2,090,634
----------- -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,713,085 $3,514,065
=========== ===========

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

13 Weeks Ended
---------------------
January 1, January 2,
2006 2005
---------- ----------
OPERATING ACTIVITIES:
Net earnings $ 174,190 $ 144,710
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 97,744 85,332
Provision for impairments and asset disposals 4,206 2,889
Deferred income taxes, net (26,291) (13,623)
Equity in income of investees (12,485) (5,781)
Distributions from equity investees 5,769 5,743
Stock-based compensation 23,189 -
Tax benefit from exercise of non-qualified
stock options 110 71,050
Excess tax benefit from exercise of non-
qualified stock options (23,724) -
Net amortization of premium on securities 545 3,260
Cash provided/(used) by changes in operating
assets and liabilities:
Inventories 93,348 46,487
Accounts payable (8,180) (41,559)
Accrued taxes 127,118 23,819
Deferred revenue 135,785 100,658
Other operating assets and liabilities 17,993 (9,325)
---------- ----------
Net cash provided by operating activities 609,317 413,660

INVESTING ACTIVITIES:
Purchase of available-for-sale securities (232,000) (366,082)
Maturity of available-for-sale securities 14,734 129,491
Sale of available-for-sale securities 76,504 54,344
Acquisition, net of cash acquired - (11,282)
Net additions to equity, other investments and
other assets (4,893) 15,618
Net additions to property, plant and equipment (147,778) (162,132)
---------- ----------
Net cash used by investing activities (293,433) (340,043)

FINANCING ACTIVITIES:
Proceeds from issuance of common stock 44,412 91,423
Excess tax benefit from exercise of non-
qualified stock options 23,724 -
Net repayments of revolving credit facility (172,000) -
Principal payments on long-term debt (186) (183)
Repurchase of common stock (134,301) -
---------- ----------
Net cash (used)/provided by financing activities (238,351) 91,240
Effect of exchange rate changes on cash and cash
equivalents 93 4,610
---------- ----------
Net increase in cash and cash equivalents 77,626 169,467

CASH AND CASH EQUIVALENTS:
Beginning of period 173,809 145,053
---------- ----------

End of the period $ 251,435 $ 314,520
========== ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the 13 weeks ended:
Interest $ 2,918 $ 47
Income taxes $ 10,280 $ 10,356

Stock-based Compensation Expense

Effective October 3, 2005, the beginning of Starbucks first fiscalquarter of 2006, the Company adopted the fair value recognitionprovisions of Financial Accounting Standards Board Statement No.123(R), "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires allstock-based compensation, including grants of employee stock options,to be recognized in the statement of earnings based on their fairvalues. The Company adopted this accounting treatment using themodified prospective transition method, as permitted under SFAS 123R;therefore results for prior periods have not been restated. Prior tothe adoption of SFAS 123R, the Company accounted for stock-basedcompensation using the intrinsic value method prescribed in AccountingPrinciples Board ("APB") Opinion No. 25, "Accounting for Stock Issuedto Employees," and related interpretations. Accordingly, stock-basedcompensation was included as pro forma disclosure in the financialstatement footnotes. The Company is providing the table below becausemanagement believes it provides useful information to investorsregarding the Company's results of operations by separatelyidentifying the stock-based compensation expense and providingreported amounts on a basis comparable to that used in prior periods.In addition, the Company's internal reporting and budgeting, as wellas the calculation of its incentive compensation payments, includesthe use of reported amounts excluding stock-based compensation. Theamounts shown in the column below entitled "Using Previous Accounting"are considered "non-GAAP financial measures" under applicable SECrules because they exclude the stock-based payment expense that isincluded in the directly comparable measures calculated in accordancewith generally accepted accounting principles ("GAAP") in the UnitedStates, which are shown in the column entitled "As Reported." Thesenon-GAAP financial measures are not a substitute for the reported GAAPmeasures.

The application of SFAS 123R had the following effect on reportedamounts for the 13 weeks ended January 1, 2006 relative to the amountsthat would have been reported using the intrinsic value method underthe Company's previous accounting (in thousands, except earnings pershare):
Consolidated Statement of
Earnings
---------------------------------
Using
Previous Stock-based As
Accounting Compensation Reported
---------- ------------ ---------
Cost of sales including occupancy
costs $775,516 $ 2,522 $778,038
Store operating expenses 616,008 6,158 622,166
Other operating expenses 56,953 2,195 59,148
General and administrative expenses 111,397 11,928 123,325
Operating income 302,684 (22,803) 279,881
Earnings before income taxes 303,032 (22,803) 280,229
Income taxes 113,745 (7,706) 106,039
Net earnings 189,287 (15,097) 174,190
Net earnings per common share-
diluted $ 0.24 $ (0.02) $ 0.22
======== ========= ========

Segment Results

Segment information is prepared on the basis that the Company'smanagement reviews financial information for operationaldecision-making purposes. The tables below present, by operatingsegment, total net revenues, operating income and operating income asa percentage of related revenues, net of intersegment eliminations forthe periods ended (in thousands):
% of % of
United Inter-
13 Weeks Ended January 1, United States Inter- national
2006 States Revenue national Revenue
---------------------------- ----------- --------- --------- ---------
Net revenues:
Company-operated retail $1,370,687 84.6% $257,296 82.1%
Specialty:
Licensing 169,523 10.5 49,627 15.8
Foodservice and other 80,371 4.9 6,588 2.1
----------- --------- --------- ---------
Total specialty 249,894 15.4 56,215 17.9
----------- --------- --------- ---------
Total net revenues 1,620,581 100.0 313,511 100.0

Cost of sales including
occupancy costs 628,363 38.8 149,675 47.7
Store operating expenses 528,775 32.6 (1) 93,391 29.8 (3)
Other operating expenses 47,142 2.9 (2) 12,006 3.8 (4)
Depreciation and
amortization expenses 67,718 4.2 15,009 4.8
General and administrative
expenses 21,533 1.3 16,187 5.2

Income from equity investees 11,699 0.7 8,055 2.6
----------- --------- --------- ---------
Operating income/(loss) $ 338,749 20.9% $ 35,298 11.3%
=========== ========= ========= =========


% of
Total
13 Weeks Ended January 1, Unallocated Net
2006 Corporate Revenues Consolidated
---------------------------- ----------- --------- ------------
Net revenues:
Company-operated retail $ - - % $1,627,983
Specialty:
Licensing - - 219,150
Foodservice and other - - 86,959
----------- --------- ------------
Total specialty - - 306,109
----------- --------- ------------
Total net revenues - - 1,934,092

Cost of sales including
occupancy costs - - 778,038
Store operating expenses - - 622,166
Other operating expenses - - 59,148
Depreciation and
amortization expenses 8,561 0.4 91,288
General and administrative
expenses 85,605 4.4 123,325

Income from equity investees - - 19,754
----------- --------- ------------
Operating income/(loss) $(94,166) (4.8)% $ 279,881
=========== ========= ============

% of % of
United Inter-
13 Weeks Ended January 2, United States Inter- national
2005 States Revenue national Revenue
---------------------------- ----------- --------- --------- ---------
Net revenues:
Company-operated retail $1,149,630 85.9% $209,031 83.4%
Specialty:
Licensing 121,135 9.0 36,078 14.4
Foodservice and other 68,008 5.1 5,662 2.2
----------- --------- --------- ---------
Total specialty 189,143 14.1 41,740 16.6
----------- --------- --------- ---------
Total net revenues 1,338,773 100.0 250,771 100.0

Cost of sales including
occupancy costs 521,713 39.0 126,042 50.3
Store operating expenses 444,061 33.2 (1) 76,945 30.7 (3)
Other operating expenses 37,103 2.8 (2) 7,178 2.9 (4)
Depreciation and
amortization expenses 57,335 4.3 13,089 5.2
General and administrative
expenses 21,623 1.6 11,899 4.7

Income from equity investees 8,708 0.7 4,139 1.7
----------- --------- --------- ---------
Operating income/(loss) $ 265,646 19.8% $ 19,757 7.9%
=========== ========= ========= =========


% of
Total
13 Weeks Ended January 2, Unallocated Net
2005 Corporate Revenues Consolidated
---------------------------- ----------- --------- ------------
Net revenues:
Company-operated retail $ - -% $1,358,661
Specialty:
Licensing - - 157,213
Foodservice and other - - 73,670
----------- --------- ------------
Total specialty - - 230,883
----------- --------- ------------
Total net revenues - - 1,589,544

Cost of sales including
occupancy costs - - 647,755
Store operating expenses - - 521,006
Other operating expenses - - 44,281
Depreciation and
amortization expenses 8,135 0.5 78,559
General and administrative
expenses 50,077 3.2 83,599

Income from equity investees - - 12,847
----------- --------- ------------
Operating income/(loss) $(58,212) (3.7)% $ 227,191
=========== ========= ============


(1) As a percentage of related Company-operated retail revenues,
United States store operating expenses were 38.6 percent for both
the 13 weeks ended January 1, 2006 and January 2, 2005.

(2) As a percentage of related specialty revenues, United States other
operating expenses were 18.9 percent for the 13 weeks ended
January 1, 2006, and 19.6 percent for the 13 weeks ended January
2, 2005.

(3) As a percentage of related Company-operated retail revenues,
International store operating expenses were 36.3 percent for the
13 weeks ended January 1, 2006, and 36.8 percent for the 13 weeks
ended January 2, 2005.

(4) As a percentage of related specialty revenues, International other
operating expenses were 21.4 percent for the 13 weeks ended
January 1, 2006, and 17.2 percent for the 13 weeks ended January
2, 2005.

United States

United States total net revenues increased by $282 million, or 21percent, to $1.6 billion for the 13 weeks ended January 1, 2006,compared to $1.3 billion for the corresponding period of fiscal 2005.United States Company-operated retail revenues increased by $221million, or 19 percent, to $1.4 billion for the 13 weeks ended January1, 2006, compared to $1.1 billion for the corresponding period offiscal 2005, primarily due to the opening of 634 new Company-operatedretail stores in the last 12 months and comparable store sales growthof seven percent for the quarter. The increase in comparable storesales was due to a six percent increase in the number of customertransactions and a one percent increase in the average value pertransaction.

Total United States specialty revenues increased by $61 million,or 32 percent, to $250 million for the 13 weeks ended January 1, 2006,compared to $189 million in the corresponding period of fiscal 2005.United States licensing revenues increased 40 percent to $170 millionfrom $121 million in fiscal 2005, primarily due to higher productsales and royalty revenues as a result of opening 651 new licensedretail stores in the last 12 months and growth in the licensed groceryand warehouse club business. United States foodservice and otherrevenues increased to $80 million, or 18 percent, from $68 million infiscal 2005, primarily due to growth in new and existing foodserviceaccounts.

United States operating income increased by 28 percent to $339million for the 13 weeks ended January 1, 2006, compared to $266million for the same period in fiscal 2005. Operating margin increasedto 20.9 percent of related revenues from 19.8 percent in thecorresponding period of fiscal 2005, primarily due to store operatingand general and administrative expenses distributed over an expandedrevenue base. Although store operating expenses as a percentage ofU.S. Company-operated retail revenues remained at 38.6 percent forboth 13-week periods ended January 1, 2006 and January 2, 2005, theseexpenses as a percentage of U.S. total net revenues improved by 60basis points compared to the corresponding 13-week period of fiscal2005. This improvement was primarily due to the specialty revenuecomponent of total net revenues growing at a higher rate thanCompany-operated retail revenues, as noted above.

International

International total net revenues increased by $63 million, or 25percent, to $314 million for the 13 weeks ended January 1, 2006,compared to $251 million for the corresponding period of fiscal 2005.International Company-operated retail revenues increased by $48million, or 23 percent, to $257 million for the 13 weeks ended January1, 2006, compared to $209 million for the corresponding period offiscal 2005, primarily due to the opening of 169 new Company-operatedretail stores in the last 12 months and comparable store sales growthof eight percent for the quarter. The increase in comparable storesales resulted from a five percent increase in the number of customertransactions coupled with a three percent increase in the averagevalue per transaction.

Total international specialty revenues increased by $14 million,or 35 percent, to $56 million for the 13 weeks ended January 1, 2006,compared to $42 million in the corresponding period of fiscal 2005.International licensing revenues increased $14 million, or 38 percent,to $50 million, compared to $36 million for the corresponding periodof fiscal 2005. The increase was primarily due to higher product salesand royalty revenues from opening 398 new licensed retail stores inthe last 12 months and sales of ready-to-drink coffee beveragesintroduced in Japan and Taiwan in September 2005, and in Korea in lateOctober 2005. International foodservice and other revenues increased16 percent from the corresponding period of fiscal 2005 due to growthin new and existing foodservice accounts.

International operating income increased by 79 percent to $35million for the 13 weeks ended January 1, 2006, compared to $20million in the corresponding period of fiscal 2005. Operating marginincreased to 11.3 percent of related revenues from 7.9 percent in thecorresponding period of fiscal 2005. This increase was primarily dueto lower cost of sales including occupancy costs and store operatingexpenses as a percentage of total International net revenues. Alsocontributing to the margin expansion was an increase in income fromequity investees, particularly from Japan and Korea, due to anincrease in the Company's store base as well as improved comparablesame store sales. Partially offsetting these improvements was anincrease in other operating expenses for marketing and advertisingrelated to the recent launch of Starbucks ready-to-drink coffeebeverages in Japan, Taiwan and Korea.

Unallocated Corporate

Unallocated corporate expenses increased to $94 million for the 13weeks ended January 1, 2006, compared to $58 million in thecorresponding period of fiscal 2005, primarily due to higherpayroll-related expenses from stock-based compensation and higherprovisions for incentive compensation based on the Company's strongoperating results for the quarter, as well as increased charitablecontributions. Total unallocated corporate expenses as a percentage oftotal net revenues increased to 4.8 percent for the 13-weeks endedJanuary 1, 2006 compared to 3.7 percent for the corresponding periodof fiscal 2005.

Fiscal First Quarter 2006 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
------------------ -----------------
Jan. 1, Jan. 2, Jan. 1, Jan. 2,
2006 2005 2006 2005
-------- -------- -------- --------
United States:
Company-operated Stores 161 101 5,028 4,394
Licensed Stores 198 143 2,633 1,982
-------- -------- -------- --------
359 244 7,661 6,376
International:
Company-operated Stores (1) 55 47 1,188 1,019
Licensed Stores (1) 146 89 1,952 1,554
-------- -------- -------- --------
201 136 3,140 2,573
-------- -------- -------- --------
Total 560 380 10,801 8,949
======== ======== ======== ========

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

January 2006 Revenues

Starbucks Corporation today also reported consolidated netrevenues of $555 million for the four-week period ended January 29,2006, an increase of 23 percent from consolidated net revenues of $452million for the same period in fiscal 2005. On a comparable storesales basis (stores open for at least 13 months), sales atCompany-operated stores increased ten percent for the four weeks endedJanuary 29, 2006, as compared to the same four-week period in fiscal2005. Handcrafted espresso beverages continued to drive comparablestore sales results, including a strong contribution from the newCinnamon Dolce offerings.

For the 17 weeks ended January 29, 2006, consolidated net revenueswere $2.5 billion, an increase of 22 percent from consolidated netrevenues of $2.0 billion for the 17 weeks ended January 30, 2005.Comparable store sales increased eight percent for the 17 weeks endedJanuary 29, 2006, as compared to the same 17 weeks in fiscal 2005.

Fiscal YTD Store Data

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


Net stores opened
during the 17
weeks ended Stores open as of
January 29, 2006 January 29, 2006
------------------- -----------------
United States:
Company-operated Stores 189 5,056
Licensed Stores 208 2,643
------------------- -----------------
397 7,699
International:
Company-operated Stores(1) 74 1,269
Licensed Stores (1) 156 1,900
------------------- -----------------
230 3,169

Total 627 10,868
=================== =================

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

Starbucks Corporation is the leading retailer, roaster and brandof specialty coffee in the world, with more than 10,500 retaillocations in North America, Latin America, Europe, the Middle East andthe Pacific Rim. The Company is committed to offering the highestquality coffee and the Starbucks Experience while conducting itsbusiness in ways that produce social, environmental and economicbenefits for communities in which it does business. In addition to itsretail operations, the Company produces and sells bottledFrappuccino(R) coffee drinks, Starbucks DoubleShot(R) espresso drink,and a line of superpremium ice creams through its joint venturepartnerships. The Company's brand portfolio provides a wide variety ofconsumer products--innovative superpremium Tazo(R) teas andexceptional compact discs from Starbucks Hear Music(TM) enhance theStarbucks Experience through best-of-class products. The Seattle'sBest Coffee(R) and Torrefazione Italia(R) coffee brands enableStarbucks to appeal to a broader consumer base by offering analternative variety of coffee flavor profiles.

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, net earnings and earnings per share results. Theseforward-looking statements are based on currently available operating,financial and competitive information and are subject to various risksand uncertainties. Actual future results and trends may differmaterially depending on a variety of factors including but not limitedto, 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, theimpact of initiatives by competitors, the effect of legal proceedings,and other risks detailed in the Company's filings with the Securitiesand Exchange Commission, including the "Risk Factors" section ofStarbucks Annual Report on Form 10-K for the fiscal year ended October2, 2005. The Company assumes no obligation to update any of theseforward-looking statements.

(C) 2006 Starbucks Coffee Company. All rights reserved.