Starbucks
-
Upload
ashish0207 -
Category
Documents
-
view
8 -
download
0
Transcript of Starbucks
TEAM NUMBER: 17
ADRIAN AIZENSTATMATT FLUHARTYWESLEY JONESJOHN LITHGOW
JARROD SCHILLING
Company Company AnalysisAnalysis
FINANCIAL MANAGEMENT (SECTION 2109)
AgendaAgenda
Economic Climate Economic Climate Industry analysisIndustry analysis Firm AnalysisFirm Analysis OverviewOverview
ManagementManagement Other IssuesOther Issues Detailed Financial AnalysisDetailed Financial Analysis Financial Comparison to IndustryFinancial Comparison to Industry Potential Consequences of Future Economic ConditionsPotential Consequences of Future Economic Conditions SWOT AnalysisSWOT Analysis
Intrinsic Value of StockIntrinsic Value of Stock Overall SummaryOverall Summary
Economic ClimateEconomic Climate
PastPast Dot-com and Tech Stock “Bubble”Dot-com and Tech Stock “Bubble” September 11September 11thth Attacks Attacks 2003 Tax Cuts2003 Tax Cuts
Economic ClimateEconomic Climate
PresentPresent National DebtNational Debt Increasing National Security CostsIncreasing National Security Costs $400 Billion Spent on Military efforts $400 Billion Spent on Military efforts
since 2003since 2003
Economic ClimateEconomic Climate
2007 Growth Rate – 2.2%2007 Growth Rate – 2.2% Lowest in 5 yearsLowest in 5 years
2008 Presidential Election2008 Presidential Election Tax PolicyTax Policy
War in IraqWar in Iraq
Industry analysisIndustry analysis
Operates within the Operates within the Specialty Eateries Specialty Eateries IndustryIndustry Composed of companies that “own, operate, Composed of companies that “own, operate,
and/or franchise limited menu eateries, including and/or franchise limited menu eateries, including gourmet coffee houses and bagel shops.” gourmet coffee houses and bagel shops.”
““Leisure” services Leisure” services often a useful measure of consumer confidence due to often a useful measure of consumer confidence due to
the impulsive, indulgent purchasing.the impulsive, indulgent purchasing. Highly cutthroat marketHighly cutthroat market
Pursuit of worldwide expansion for narrow profit points.Pursuit of worldwide expansion for narrow profit points.
Industry analysisIndustry analysis
Strategically position themselves in locations in Strategically position themselves in locations in order to capitalize on impulsive customers. order to capitalize on impulsive customers. high traffic areas such as malls, university campuses, high traffic areas such as malls, university campuses,
stadiums, big-box retail units, and street corners. stadiums, big-box retail units, and street corners. New challenges from rising health and obesity New challenges from rising health and obesity
concernsconcerns Seen in the past by its sister sector fast food and quick Seen in the past by its sister sector fast food and quick
services.services. Rising demand for low-carb dietingRising demand for low-carb dieting Participants in this industry hope diet are temporary Participants in this industry hope diet are temporary
trends and seek customer loyalty as their primary base. trends and seek customer loyalty as their primary base.
Industry analysisIndustry analysis
Snack and Nonalcoholic Beverage Bars722213
Prerecorded Tape, Compact Disc, and Record Stores451220
Household Appliance Stores443111
Other Home Furnishings Stores44229
Coffee and Tea Manufacturing311920
The North American Industry Classification System (NAICS) Codes
Eating places5812
Record & prerecorded tape stores5735
Household appliance stores5722
Misc. homefurnishings stores5719
Roasted coffee2095
The US Standard Industrial Classification (SIC) Codes
Generally, special eateries Generally, special eateries include:include: Coffee shopsCoffee shops
StarbucksStarbucks Tully'sTully's Peet'sPeet's Bad Ass CoffeeBad Ass Coffee
Doughnut stores (Dunkin' Doughnut stores (Dunkin' Brands' Dunkin Donuts, Krispy Brands' Dunkin Donuts, Krispy Kreme, and Tim HortonsKreme, and Tim Hortons
Smoothie stores (Jamba Juice, Smoothie stores (Jamba Juice, Smoothie King), ice cream Smoothie King), ice cream shops (Dairy Queen, Cold shops (Dairy Queen, Cold Stone Creamery)Stone Creamery)
Bagel stores (New World Bagel stores (New World Restaurant Group's Einstein Restaurant Group's Einstein Bros., Bruegger's)Bros., Bruegger's)
Bakery stores (Auntie Anne's, Bakery stores (Auntie Anne's, Mrs. Fields', and Cinnabon.)Mrs. Fields', and Cinnabon.)
Firm Analysis: OverviewFirm Analysis: Overview Founded in 1985 in Founded in 1985 in
Seattle, Washington.Seattle, Washington. 13,618 Retail Stores13,618 Retail Stores Operates in US, Canada, Operates in US, Canada,
UK, Ireland, China, UK, Ireland, China, Germany, Australia, and Germany, Australia, and others.others.
One of the Biggest Growth One of the Biggest Growth Companies of the 90’s.Companies of the 90’s.
Variety of beverages and Variety of beverages and baked goods.baked goods.
Also sells pre-made drinks.Also sells pre-made drinks.
Firm AnalysisFirm Analysis
Exceptionally strong and Exceptionally strong and enduring growth & enduring growth & performanceperformance Opened 2,199 new stores Opened 2,199 new stores
globally (ahead of original globally (ahead of original target of 1800) at an target of 1800) at an average pace of 6 new average pace of 6 new stores per daystores per day
Bringing total to 12,440 Bringing total to 12,440 stores in 37 countriesstores in 37 countries
Revenues increased 22% to Revenues increased 22% to $7.8 billion$7.8 billion
Net Earnings of %564 Net Earnings of %564 million or $0.71 earnings million or $0.71 earnings per shareper share
15 consecutive years of 5% 15 consecutive years of 5% or greater comparable store or greater comparable store sales growthsales growth
ManagementManagement
Howard SchultzHoward SchultzChairman of the Board Chairman of the Board
FounderFounder
James James DonaldDonaldPresident President
Chief Executive Chief Executive OfficerOfficer
Michael CaseyMichael CaseyChief Financial OfficerChief Financial Officer
Executive Vice PresidentExecutive Vice President
Chief Administrative Chief Administrative OfficerOfficer
OwnershipOwnership 635 institutions are currently holding 635 institutions are currently holding
shares of Starbucksshares of Starbucks The top institutional holders are Sands Capital The top institutional holders are Sands Capital
Management, Inc., Fidelity Management & Management, Inc., Fidelity Management & Research Corporation, and Capital Research Research Corporation, and Capital Research and Management Company, which hold and Management Company, which hold 44,517,978, 37,543,158, and 32,088,400 44,517,978, 37,543,158, and 32,088,400 shares, respectively shares, respectively
Chairman Howard Schultz remains on top Chairman Howard Schultz remains on top direct holder with 17,020,396 shares. direct holder with 17,020,396 shares.
Compensation Policy
The Board of Directors believes each non-employee director owns shares of Starbucks
Each current non-employee director is required to have invested at least $200,000 to purchase shares of the Starbuck’s common stock and must continue to hold this investment as long as such director serves on the Board.
The Board will review the compensation of the non-employee directors and committee members in relation to other comparable companies nationwide.
Financial AnalysisFinancial Analysis
““If you had put in $1000 into SBUX If you had put in $1000 into SBUX when company went public in 1992, when company went public in 1992, you’d have been $52,718.10 to the you’d have been $52,718.10 to the good at year-end 2006, v.s. good at year-end 2006, v.s. $3155.30 for S&P 500.$3155.30 for S&P 500.
ROE ROA Growth Price/Book Debt Equity
Starbucks 26.21% 14.17% 19.15% 9.56 13% 87%
Panera Bread 16.47% 12.62% 19.12% 4.46 0% 100%
Caribou Coffee Company -9.78% -2.67% n/a 1.56 0% 100%
Peet's Coffee and Tea Inc. 6.15% 5.83% 14.80% 2.93 0% 100%
Financial Comparison to IndustryFinancial Comparison to Industry
SBUX Pvt1 NSRGF.PK THI INDUSTRY
Market Cap: 23.78B N/A N/A 6.18B 6.18B
Employ ees: 145,800 9531 N/A 500 1.79K
Qtrly Rev Growth (yoy): 21.80% N/A N/A 15.50% 19.30%
Revenue (ttm): 8.21B 517.00M1 N/A 1.48B 1.48B
Gross Margin (ttm): 58.76% N/A N/A 27.64% 35.30%
EBITDA (ttm): 1.36B N/A N/A 404.44M 404.44M
Oper Margins (ttm): 10.24% N/A N/A 20.70% 12.78%
Net Income (ttm): 612.27M N/A N/A 231.41M 231.41M
EPS (ttm): 0.753 N/A N/A 1.248 1.25
P/E (ttm): 42.05 N/A N/A 26.01 27.30
PEG (5 yr expected): 1.53 N/A N/A 1.75 1.53
P/S (ttm): 2.82 N/A N/A 4.13 2.15
DIRECT COMPETITOR COMPARISON
Fair ComparisonFair Comparison
StarbucksStarbucks EPS: 0.71EPS: 0.71 EBITDA: 1.36 EBITDA: 1.36
BillionBillion NI: 612 MillionNI: 612 Million Share Price: -15%Share Price: -15%
IndustryIndustry EPS: 1.19EPS: 1.19 EBITDA: 375 MillionEBITDA: 375 Million NI: 220 MillionNI: 220 Million Share Price S&P Share Price S&P
500: 10%500: 10%
Potential Consequences of Future Potential Consequences of Future Economic ConditionsEconomic Conditions
Negotiates independently of commodities Negotiates independently of commodities marketmarket
Enters into long-term contracts with Enters into long-term contracts with farmersfarmers ““For years it has paid fair-market prices to 3For years it has paid fair-market prices to 3rdrd
world coffee farmers and helped develop world coffee farmers and helped develop ecologically sound growing practices” ecologically sound growing practices” [Forbes][Forbes]
Builds direct relationships with farmersBuilds direct relationships with farmers
SWOT AnalysisSWOT Analysis
StrengthsStrengths Reputation for having the finest products and services in Reputation for having the finest products and services in
the worldthe world Has expanded into 40 countries and has over 9000 cafes Has expanded into 40 countries and has over 9000 cafes
worldwideworldwide Fortune’s Top 100 Companies To Work For in 2005Fortune’s Top 100 Companies To Work For in 2005 Forbe’s Most Admired Companies 2007 (#2)Forbe’s Most Admired Companies 2007 (#2) An organization based on quality products, with strong An organization based on quality products, with strong
ethical valuesethical values WeaknessesWeaknesses
Some analysts predict that their creativity and innovation may Some analysts predict that their creativity and innovation may weaken in the futureweaken in the future
Needs to increase the company’s globalization in order to fully Needs to increase the company’s globalization in order to fully exploit untapped markets exploit untapped markets
May have tough time diversifying into other sectorsMay have tough time diversifying into other sectors
SWOT cntd.SWOT cntd. OpportunitiesOpportunities
Product Line ExtensionsProduct Line Extensions CD burning service with Hewlett CD burning service with Hewlett
Packard and Fair Trade productsPackard and Fair Trade products International expansionInternational expansion
Pacific Rim nations and India.Pacific Rim nations and India. Co-branding and brand Co-branding and brand
franchising opportunities with franchising opportunities with other food and drink other food and drink manufacturersmanufacturers
PEPSI COPEPSI CO Product PlacementProduct Placement
SWOTSWOT
ThreatsThreats Substitutes for coffeeSubstitutes for coffee CannibalizationCannibalization Rising cost of coffee Rising cost of coffee
and dairy products and dairy products ““Watering-down of the Watering-down of the
Starbucks experience” Starbucks experience” and “commoditization and “commoditization of our brand”of our brand”
Internal memo that Internal memo that surfaced in February surfaced in February warning executiveswarning executives
Intrinsic ValueIntrinsic Value Discounted Cash Flow AnalysisDiscounted Cash Flow Analysis EBIT GrowthEBIT Growth
Years 1-5: Upper end of analysts consensus, Years 1-5: Upper end of analysts consensus, 24%24%
Years 6-10: Reduced domestic growth, Years 6-10: Reduced domestic growth, continuing international growth, 20%continuing international growth, 20%
Years 11-Infinity: Assumed rate of inflation, Years 11-Infinity: Assumed rate of inflation, 3%3%
Intrinsic ValueIntrinsic Value
Steady State NOWC and NFA through Steady State NOWC and NFA through infinity.infinity.
Beta EstimateBeta Estimate Scottrade, Thomson One, Yahoo Scottrade, Thomson One, Yahoo
Finance, S&P.Finance, S&P. Used 4 betas to compute 4 WACCS and Used 4 betas to compute 4 WACCS and
4 intrinsic values.4 intrinsic values.
Intrinsic ValueIntrinsic Value
Other AssumptionsOther Assumptions Market Risk Premium: 5%Market Risk Premium: 5% Long-term Treasury Yield: 4.82%Long-term Treasury Yield: 4.82% Tax Rate: 37%Tax Rate: 37% Equity Weight: 87%Equity Weight: 87% Debt Weight: 13%Debt Weight: 13%
Overall SummaryOverall Summary
The resulting intrinsic value per share The resulting intrinsic value per share ranged between $37.13 to $48.10, with an ranged between $37.13 to $48.10, with an average of $40.99average of $40.99
Current price (as of 4/22/07) of $31.66. Current price (as of 4/22/07) of $31.66. As a result, we believe the stock price is As a result, we believe the stock price is
slightly under priced and can expect slightly under priced and can expect adjustments.adjustments.
This price will increase directly to investor This price will increase directly to investor expectations and the continued pursuit of expectations and the continued pursuit of international growth strategy while international growth strategy while maintaining “the Starbucks experience.”maintaining “the Starbucks experience.”