Transcript: Starbucks' Howard Schultz on Coffee Giant's Future

This is a partial transcript from "Your World with Neil Cavuto," February 2, 2006, that was edited for clarity.

NEIL CAVUTO, HOST: Starbucks (Starbucks eating earnings estimates in its later quarter — chairman Howard Schultz calling it an out-of-the-park home run. Apparently, investors agree.

Well, can Starbucks continue to hit these kind of home runs?

Joining me now, the man who created it, its founder, its chairman, Howard Schultz.


CAVUTO: I'm fine. Good to have you.

SCHULTZ: Thank you.

CAVUTO: We believe in a lot of razmataz and drums and music when we introduce big guests. So, good to have you on.


CAVUTO: Let's talk. What happened here? I mean, I remember, during the holidays, a lot of people were taking advantage of your gift cards and the special coffees. But what was it?

SCHULTZ: Well, I don't think it was one thing.

I think, when you have a quarter like this, coupled with January's results of 10 percent comps, you can sense that the underlying business is quite strong and the forward momentum, on a go-forward basis, is as well.

What I think is going on is that the relevancy of the Starbucks experience, coupled with the fact that we have become such an extension of people's lives, not only here at home, but now around the world, our international business had a 79 percent increase in operating income. Our business in China continues to do well on a unit level.

And, domestically, as you mentioned in your remarks, the Starbucks gift card really had the kind of reception that we didn't plan on. And that bodes significantly well for the balance of the year, because those cards are starting to come back to us now.

CAVUTO: Let me ask you this. The only thing I don't understand — I know there's a mystique and a cult status to Starbucks — but what do you think of the people who seem to sit in there all day long? They don't leave. They nurse a single latte. And you can't kick them out.


SCHULTZ: We love it. We love it, because Starbucks has become this third place between home and work, and, as I said, an extension of people's lives. And since coffee is such a social beverage...

CAVUTO: But Howard, come on. Come on. Some of these guys — come on. Some of them have to get lives. They love the coffee. And I can understand it's great stuff. But they don't leave. They nurse the same thing.


CAVUTO: And a lot of other people are looking for the same seat. What do you tell them?


SCHULTZ: No, we have not had that kind of problem there. I think you're going to too busy of a store. You should go across the street to Starbucks.

CAVUTO: OK. By the way, they're all pretty busy.

But let me ask you this. Your expansion plans, there are 560 new stores in the latest quarter. You're opening up, I think, 1,800 a year, 1,300 of them here, 500 abroad. Too much too fast?

SCHULTZ: Well, not at all.

I mean, if you go back to the history of the company, we have been a growth company for the last 20 years. And the hallmark of that growth has been our ability to invest ahead of the growth curve in people, systems, and infrastructure. And that's exactly what we have been doing.

We're opening five new stores a day. We are serving 40 million customers a week. And we're in a position right now to really capitalize on the investments we have made over the last couple of years. And you're seeing that in the kind of quarter which had record earnings. And we are very optimistic.

We advanced the cause for the balance of the year by raising estimates, and very optimistic about the balance of the year, and specifically what is going on internationally and in China.

CAVUTO: Are you dating Maureen Dowd?



CAVUTO: Well, she showed up at a Seattle event, a book-signing event at one of your stores, I guess. Everyone is saying that you and her are an item. Are you?

SCHULTZ: No. I'm a happily married man. And Maureen Dowd is a good friend of mine. I took her out to dinner on a book tour in Seattle, and there you have it.

CAVUTO: All right, because she was singing your praises, but there's nothing going on?

I don't want to get personal with you. I'm sorry I even mentioned it.

SCHULTZ: Hey, no problem, Neil.

CAVUTO: But that was out there. The other thing, too, with the crowds in the stores, they pay a lot for the coffee they get. It's good stuff and all of that. But do you think there's a limit to that? I know you're going to expand into warm sandwiches and all. Do you think there's a limit on that?

SCHULTZ: Well, I think the limit is based on whether or not any retailer is providing the kind of value, service and the experience that people think is consistent for value for their money.

When you look at the fact that, month over month, we have not only increased in comps, but increased significantly in traffic, what it demonstrates to you is that Starbucks is providing much more than a cup of coffee. And we're able to create experiences to compliment the core business. And I think our customers are voting very strongly, domestically and internationally, that Starbucks is such an important part of their lives.

CAVUTO: All right. Howard, great having you on. Thank you very much, and even for indulging the stupid personal questions.

SCHULTZ: No problem, Neil.

CAVUTO: Thank you, Howard Schultz of Starbucks.

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