This summary is based on the second quarter fiscal 2008 earnings call conducted by Starbucks Corp. (SBUX: chart) on April 30, 2008.

Management:

- Chairman of the Board, President, Chief Executive Officer: Howard Schultz
- CFO, Executive Vice President, Chief Administrative Officer: Peter J. Bocian
- Director, Investor Relations: JoAnn DeGrande

Key Investors Issues

- Revenues were up 12% to $2.5 billion, from $2.3 billion in 2007.
- Earnings were $108.7 million or 15 cents a share, down 27.9%.
- The firm acquired the Coffee Equipment Company and its revolutionary Clover Brewing System.

Half Year Highlights:

- Consolidated net revenues increased 15% to $5.3 billion, compared to $4.6 billion for the same period a year ago.
- Net earnings totaled $316.8 million from $355.8 million in 2007, down 11%.
- EPS decreased 7% to 43 cents from 46 cents in 2007.

Second Quarter Highlights

Revenues were up 12% to $2.5 billion, from $2.3 billion in 2007, with the softness driven by a decline in U.S. comparable store sales, driven by decreased traffic, which is related to the challenging economic environment.

- Operating income decreased to $178 million from $241 million in the prior year, and operating margins contracted 360 basis points to 7.1% from 10.7% a year ago.
- This contraction was primarily driven by the U.S. business, although both the International and CPG businesses experienced margin pressure as well.
- Contributing to both the U.S. and International margin erosion was the negative impact of the changes being made with the implementation of the transformation agenda and charges related to the rationalization of the store portfolio.

Earnings were $108.7 million or 15 cents a share, down 27.9% from $150.8 million or 19 cents a share in 2007 as results were negatively impacted by 3 cents of costs associated with transformation and charges related to the rationalization of the store portfolio.

- Non-operating factors impacting net earnings included higher interest expense, driven by an increased level of debt which was used for share repurchases.
- The firm also had a lower share count year over year, based on prior share repurchase activity.

Segment Highlights:

- U.S. total net revenues increased by 8% to $1.9 billion as company-operated retail revenues, which represent 89% of total U.S. revenues, also rose 8% to $1.7 billion.
- Contributing to the slower growth in U.S. retail revenues was the softness in existing store sales, down mid-single digits in year-on-year comps, as well as a slower ramp of revenues from new stores.
- Cost of sales including occupancy costs as a percentage of total revenues increased 180 basis points to 41.4%, compared to 39.6% in 2007, chiefly driven by lower than expected sales coupled with occupancy costs from higher rent expense, driven by the new stores.

Store operating expenses increased 320 basis points to 44.2% of related U.S. retail revenues compared with 41% a year ago.

- Approximately half of the increase was related to soft revenues and the other half to transformation initiatives and the rationalization of the U.S. store portfolio.
- The firm wrote-off costs associated with terminating future site commitments, along with the associated inventory and store assets.
- Operating income declined to $194 million, from $268 million in 2007 as margins experienced significant compression to 10% of total revenues due to lower levels of traffic in stores, along with higher store operating expenses.

- International business revenues increased 27% to $493 million from $387 million in 2007.
- Company-operated retail revenues increased 27% to $417 million, primarily due to the opening of 314 new company-operated retail stores in the last 12 months and favorable foreign exchange primarily from the Canadian dollar.
- Operating income decreased 16% to $18 million compared to $21 million a year ago.
- Operating margins were about 4%, down 180-basis points from 2007 due to the related to the store portfolio rationalization activities and the transformation costs incurred in the quarter.

- Global Consumer Products Group net revenues increased 22% to $96 million, primarily driven by higher sales volumes of packaged coffee and tea in the U.S.
- Operating income for CPG rose 13% to $43 million, compared to $38 million in the same period a year ago.
- The operating margin compressed 350 basis points to 44.3% of related revenues, from the 47.8% reported in 2007, primarily driven by lower income from equity investees as a result of product write-offs within the NACP partnership.

Strategic Insights:

- The firm’s approach has been one of balance, recognizing current economic conditions and their impact on the operating environment while also remaining highly focused and committed to the long-term significant opportunities for the business.
- It has a very realistic view of the current and growing pressures on consumers in the U.S. and increasingly in other key markets around the world where it operates.