Financial Analysis: Starbucks Corporation
Introduction:
Our analysis of a company listed on US Stock Exchange is based on Starbucks Corporation, the concerned industry is of Speacility Eateries.
Starbucks Corporation is a leading marketer and retailer of coffee, having its outlets in 60 countries around the world. The stock of the company is listed on NASDAQ Stock Exchange with the tick symbol of ‘’SBUX’’. Apart from selling coffee, the company is also involved in tea, beverages and variety of fresh food items. Today, Starbucks is a leading and most recognized coffee brand in the world. The most popular brand of Starbucks, K- Cup sources 72% of the total revenue for the company alone.
Management of the Company:
i) Howard Schultz is the founder Chairman of the company and is serving in the organization since inception of Starbucks Coffe(1985). He resumed his services as CEO and President in 2008 while during the years he also served as Global Strategist.
ii) Cliff Burrows joined Starbucks Coffee in 2001 and serves as President for the regions of Americas and USA.
iii) John Culver is serving in the organization since August 2002 and at prsent is the president for EMEA and China Regions.
iv) Jeff Hansberry joined Starbucks in 2011
v) Michelle Gass is the third oldest person in the management after Howard Schultz and Troy Alstead. He joined the organization in 1996 and served as the president of EMEA region since 2011.
vi) Troy Alstead is the second most influential person in Starbucks Coffee and joined the organization in 1992 and is presently serving as CFO and Chief Administrative Officer since 2008.
vii) Lucy Lee Helm joined the company in 1999 and started serving as Executive Vice President, General Counsel and Secretary since May 2012.
Trend In Market value of Share Price: (One Year Analysis)
Starbucks:
At the time of writing, Starbuck Corporation Stock was trading at $81.07 with a 0.48% rise in price compared to previous closing day. The stock price have followed an increasing trend restraining our analysis to one year. From the level of $42, the stock is now trading at the level of $81.46, with 52 week range of 49.56-82.50. The Stock has been 6000% higher when compared to the price of its Initial Public Offering.
Starbucks Corporation:
As for the Brand- ‘’Starbucks’’, people see it as a big luxury brand in coffee industry. This indeed is a significant strength for Starbucks as this ideollagy gives it a competitive edge over other brands in the industry as people associate it with high quality and a company with popular existence.
Analyzing Financial Numbers:
The company in its recent annual report of 2012, declared a Total Revenue of $13.3 billion which was 14% more than previous year. During our 4 year of trend analysis of the company, the revenues of the company has shown upward trend on account of recent 7% growth in comparable stores sales and also in particular to 50% increase in revenue by Channel Development. Since primary strategy of the company is to expand its operations at a rate higher than its competitors, it was really important to analyze how the existing stores ar performing apart from looking up the performance of newly opened stores.
Reviewing comparable store sales growth of the company since 2008 that was hovering in -3%, the company in its SEC Filing declared that this decrease was on account of increase in value per transaction which was offset by decrease in total number of transactions. The condition went more worse when this multiple was reduced to -6%. However, the current scenario seems better with now store sales growth at 8% during 2011 and 7% during 2012.
Most interesting and appreciated factor from Starbucks Management was reduction in Common Size Factor Percentage of Selling and Distribution Expenses to Sales Ratio. As of 2012, the company reduced this percentage from 37.08% to 35.38% which was the main driver for increase in operating as well as net bottom line incomes. The graph below indicates how Starbucks has improved its revenue/share since 2008.
Operating Income of the company was $2 Billion as compared to $1.7 billion in 2011. As a result, the operating margins of the company improved from 14.8% to 15% during 2012. The expansion was result of increased revenue and also absence of charges relating to closure expenses of Seattle’s Best Coffee Store. The ever improving operating margins of the company where the company has made a big leap from 4.9% operating margins in 2008 to 15% margin in 2012 indicates efficiency of management where they have shifted their focus to cost management and strong pricing strategy. Even though, US market is suffering from tight consumer spending, Starbucks have managed to maintain growth in its fundamentals which was clear indication that profitability through consumer satisfaction was the core criteria of company’s policy. Also The company also outmatches its nearest competitors(Dunkin Donuts) with 24.54% return on investment and 29.16% return on equity.
Ratio Analysis- Starbucks:
In terms of analyzing the financial statements, the ratios tells us the same and more clear picture of current scenario of Starbucks Corporation. In terms of Solvency Ratios, the Debt/ Total Capital Ratio which is at 9.7% is in line with Eateries Industry and thus on healthy terms.
Further, the Current and Quick Ratios, confirms strong liquidity of the company and assure that company can indeed serve its short term obligations. Company during 2012 had a healthy current ratio of 1.9 and quick ratio of 1.1.
- Current Ratio: 1.7
- Quick Ratio: 1.1
Activity ratios:
Activity/Asset Management Ratios are also indicating good financial health of the company. To discuss a few, Accounts Receivable Turnover Period is also consistent for the company with the industry level at 12 days(Approx). Also the company is most efficient in managing its inventory as its Cost of Goods Sold tied up in inventory was only 69 days although the Process Period of Inventory has increased over last 4 years of our analysis.
- Total Assets Turnover: 1.7
- Fixed Assets Turnover: 5.3
- Inventory Turnover: 5.1
- Accounts Receivables Turnover: 30.8
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Profitability Analysis
- Return on Assets: 15.05%
- Return on Capital: 21.37%
- Return On Equity: 28.73%
- Net Margin: 10.4%
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Margin Analysis:
- Gross Margin: 57.07%
- EBITDA Margin: 18.83%
- SG & A Margin: 35.29%
Cash Flow Ratios:
Peer Review: Starbucks vs Dunkin Donuts
Past One Year Comparison of Starbucks vs Dunkin Donuts:
Starbucks:
Growth Over Prior Year - Starbucks Corp (SBUX)
Dunkin Donuts:
Growth Over Prior Year - Dunkin' Brands Group Inc (DNKN)
Our Rating: Buy
Future Multiples:
Earning Estimates:
PE Ratio:
Earning Estimate:
Why Starbucks is a lucrative Investment?
Although Dunkin Donuts is turning out to be a major competitor for Starbucks but the fundamental valuation and future growth prospects tell us the whole story and success mantra of Starbucks Corporation. Apart from strong fundamental valuation, Starbucks have lucrative grwoth prospects in Asia. Recent report of Starbucks reveals that company is investing heavily in China and India and has plans to open new stores. Starbucks recorded 29% growth in Asia-Pacific region during third quarter of this year and this makes the region second largest market in coming years. Also, sole reliance on coffee business was always considered to be weakness for company’s growth prospects, however, recently company filed for trademark on a beverage making machine called Fizzio which is also an indication for optimistic future prospects of the company.
Thus, i believe that Starbucks Corporation is a strong buy for the investors as apart from strong growth prospects in Asia, the company has huge opportunity coming up in soft drink industry that will boost its sales as well as profitability. In other words, the big brand name of Starbucks will help the company to introduce soft drinks at high margins and thus resukting in huge profits. Thus, the above factors and valuation indicate that this stock an attractive option for investment.
Works Cited
Corporation, Starbucks. "Annual Report 2012." Annual Report. 2012. PDF Document.
Millary, Dana. Starbucks CIF Recommendation. Research Report. Chicago, 2013. PDF Document.
Yahoo Finance. Starbucks Corporation (SBUX). 21 November 2013. Web. 21 November 2013.
