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Starbucks financial performance during fiscal years 2005 2009

The preparation of responses to the questions in these cases results in an integrated illustration of the six sequential steps in financial statement analysis discussed in this chapter and throughout the book. Kim, an investment fund manager for a large insurance firm, reflected on that observation and what it might mean for Starbucks as a potential investment opportunity.

Kim noted that in addition to the wide selection of hot coffees, French and Italian style espressos, teas, and cold coffee-blended drinks, Starbucks also offered food items and baked goods, packages of roasted coffee beans, coffee-related accessories and equipment, and even its own line of CDs.

Intrigued, Kim made a mental note to do a full-blown valuation analysis of Starbucks to evaluate whether its business model and common equity shares were as good as their coffee. The Starbucks Experience, or third place beyond home and work, is built upon superior service as well as clean and well-maintained Company-operated retail stores that reflect the personalities of the communities in which they operate, thereby building a high degree of customer loyalty.

Of that total, Starbucks owns and operates 9,217 stores 7,238 U. However, Starbucks was clearly not a company content to focus simply on the U.

  1. Starbucks sbux stock quote est current fiscal please note that this feature requires full activation of your account and is not permitted during the.
  2. Continued aggressive attempts at expanding in the United States by adding as many new store locations as in the past will inevitably act to cannibalize existing locations same store sales.
  3. On the basis of the profitability and solvency of the company, the stakeholders will determine their position regarding relationship with the company.

At the end of fiscal 2008, Starbucks owned and operated stores in a number of countries around the world, including 731 stores in Canada, 664 stores in the United Kingdom, and 178 stores in China. Kim Shannon wondered whether Starbucks could ultimately achieve that level of global penetration because she could name only a few such worldwide companies.

The most significant area of expansion of the Starbucks model in recent years has been the rapid growth in the number of licensed retail stores. At the end of fiscal 1999, Starbucks had only 363 licensed stores, but by the end of fiscal 2008, the number of licensed stores had mushroomed to 7,463.

She wondered whether it could generate the impressive growth in new stores and revenues it had created in the past. In fiscal year 2008, Starbucks opened 1,669 net new retail locations 681 net new company-owned stores and 988 new licensed storesbut this number was well below the initial target 2,500 new stores and well below the 2,571 new stores opened in 2007. Late in 2008, Starbucks announced a plan to close approximately starbucks financial performance during fiscal years 2005 2009 underperforming stores in the United States as well as 64 underperforming stores in Australia.

Early in fiscal 2009, it increased the restructuring plan to close a total of approximately 800 U.

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During fiscal 2008, Starbucks managed to close 205 U. The restructuring plans called for closing 595 stores in the United States and 100 international stores during fiscal 2009. Starbucks planned to open 100 new company-operated international stores in 2009 and 300 new licensed stores. Prior to 2008, Starbucks had generated impressive revenue growth rates of 20. Through 2007, Starbucks could boast of a streak of 16 consecutive years in which it achieved comparable store sales growth rates equal to or greater than 5 percent, but that string was broken with -3 percent comparable store sales growth in 2008.

In January 2008, Howard Schultz returned from retirement and resumed his role as president and CEO of Starbucks to restructure the business and its potential for growth. Focal points starbucks financial performance during fiscal years 2005 2009 his transformation plan included overseeing the restructuring efforts, taking a more disciplined approach to opening new stores, reinvigorating the Starbucks Experience, and developing and implementing even better service and quality while cutting operating and overhead costs.

In addition, the transformation plans included introducing new beverage and food offerings, including baked goods, breakfast items, and chilled foods. A key to Starbucks profit growth lies in increasing same store sales growth via new products. By the end of fiscal 2008, Starbucks whole bean and ground coffees were available throughout the United States in approximately 39,000 grocery and warehouse club stores.

In addition, Starbucks sells whole bean and ground coffee through institutional foodservice companies that service business, education, office, hotel, restaurant, airline, and other foodservice accounts. She noted that Starbucks had been profitable in 2008 despite the restructuring charges and falling revenues. The restructuring plan was expected to help Starbucks reduce costs, even during these difficult times. Perhaps Starbucks could weather the economic recession and its restructuring and look to better days ahead.

  • How does Starbucks create value for its customers?
  • She noted that Starbucks had been profitable in 2008 despite the restructuring charges and falling revenues.

Product Supply Starbucks purchases green coffee beans from coffee-producing regions around the world and custom roasts and blends them to its exacting standards. Although coffee beans trade in commodity markets and experience volatile prices, Starbucks purchases higher-quality coffee beans that sell at a premium to commodity coffees.

Starbucks purchases its coffee beans under fixed-price purchase contracts with various suppliers, with purchase prices reset annually. Starbucks also purchases significant amounts of dairy products from suppliers located near its retail stores. Starbucks purchases paper and plastic products from several suppliers, the prices of which vary with changes in the prices of commodity paper and plastic resin. Competition in the Specialty Coffee Industry After some reflection, Kim realized that Starbucks faced intense direct competition.

Starbucks financial performance during fiscal years 2005 2009

Kim could think of a wide array of convenient retail locations where a person can purchase a cup of coffee. Kim also identified a number of companies that were growing chains of retail coffee shops that could be compared to Starbucks, including firms such as Panera Bread Company; Diedrich Coffee; New World Restaurant Group, Inc. Kim recognized that despite facing extensive competition, Starbucks had some distinct competitive advantages.

Very few companies were implementing a business strategy comparable to that of Starbucks, with emphasis on the quality of the experience, the products, and the service.

  • Join other financial advisors receiving free personalized years of increases starbucks established its dividend in 2010 and has been increasing it;
  • Kim recognized that despite facing extensive competition, Starbucks had some distinct competitive advantages;
  • Lower Prices In order to reach more consumers who may shy away from Starbucks due to their high coffee prices Starbucks may want to think about slightly lowering their prices;
  • The percentage change statements report the annual percentage change in each account as well as the compound annual growth rate from 2005 through 2008;
  • Why do investments appear on the balance sheet under both current and noncur-rent assets?

In addition, only the fast-food chains and the doughnut chains operated on the same scale as Starbucks. Finally, Starbucks had developed a global brand that was synonymous with the quality of the Starbucks Experience.

Expert Answer

Financial Statements Exhibit 1 presents comparative balance sheets, Exhibit 2 presents comparative income statements, and Exhibit 3 see page 80 presents comparative statements of cash flows for Starbucks for the four fiscal years ending September 28, 2008.

Required Respond to the following questions relating to Starbucks. Industry and Strategy Analysis a. How would you characterize the strategy of Starbucks?

How does Starbucks create value for its customers? What critical risk and success factors must Starbucks manage? Describe how Cash differs from Cash Equivalents.

  1. At the end of fiscal 2008, Starbucks owned and operated stores in a number of countries around the world, including 731 stores in Canada, 664 stores in the United Kingdom, and 178 stores in China. Exhibit 2 illustrates the depth and width of the Starbucks familia, and how it has grown from a lone coffee roaster into an internationally acclaimed coffee empire.
  2. We see a steady increase in net revenue from USD 6.
  3. Starbucks case 1 what was full control strategy during 1987 through 1995 then, starbucks utilized both company financial performance during fiscal years.

Why do investments appear on the balance sheet under both current and noncur-rent assets? Accounts receivable are reported net of allowance for uncollectible accounts. Identify the events or transactions that cause accounts receivable to increases and decrease. Also identify the events or transactions that cause the allowance account to increase and decrease.

How does the account Accumulated Depreciation on the balance sheet differ from Depreciation Expense on the income statement? Deferred income taxes appear as a current asset on the balance sheet.

Under what circumstances will deferred income taxes give rise to an asset? Accumulated Other Comprehensive Income includes unrealized gains and losses from marketable securities and investments in securities as well as unrealized gains and losses from translating the financial statements of foreign subsidiaries into U.

Why are these gains and losses not included in net income on the income statement? When, if ever, will these gains and losses appear in net income? Starbucks reports three principal sources of revenues: Using the narrative information provided in this case, describe the nature of each of these three sources of revenue.

Starbucks reports Income from Equity Investees in its income statement. Using the narrative information provided in this case, describe the nature of this type of income.

  • The preparation of responses to the questions in these cases results in an integrated illustration of the six sequential steps in financial statement analysis discussed in this chapter and throughout the book;
  • Alternatively if the management does not feel comfortable in doing so, perhaps by offering new deals such as a buy one get one free, or hourly discounts during obscure hours for example, from 3-6pm on week days;
  • Also identify the events or transactions that cause the allowance account to increase and decrease;
  • Financial statements of Starbucks are used for analyzing the financial position of the organization for the years 2005, 2006, 2007, 2008, 2008 and 2009.

Statement of Cash Flows l. Why does net income differ from the amount of cash flow from operating activities?

Why does Starbucks add the amount of depreciation and amortization expense to net income when computing cash flow from operating activities? Why does Starbucks show an increase in inventory as a subtraction when computing cash flow from operations? Why does Starbucks show a decrease in accounts payable as a subtraction when computing cash flow from operations?

Starbucks includes short-term investments in current assets on the balance sheet, yet it reports purchases and sales of investment securities as investing activities on the statement of cash flows. Explain why changes in investment securities are investing activities while changes in most other current assets such as accounts receivable and inventories are operating activities.

Starbucks includes changes in Short-Term Borrowings as a financing activity on the statement of cash flows. Explain why changes in Short-Term Borrowings are a financing activity when most other changes in current liabilities such as accounts payable and other current liabilities are operating activities. Relations between Financial Statements r. You may need to deduce certain amounts that Starbucks does not disclose.

Starbucks financial performance during fiscal years 2005 2009

For simplicity, assume that all of the depreciation and amortization expense is depreciation. Interpreting Financial Statement Relations Exhibit 4 presents common-size and percentage change balance sheets and Exhibit 5 see page 84 presents common-size and percentage change income statements for Starbucks for 2005-2008.

The percentage change statements report the annual percentage change in each account as well as the compound annual growth rate from 2005 through 2008. Respond to the following questions.

The dollar amount shown for property and equipment net of accumulated depreciation see Exhibit 1 increased between the end of fiscal 2007 and the end of fiscal 2008, yet the percentage of total assets comprising these assets declined see Exhibit 4. What are the likely explanations for these changes?

How has the revenue mix of Starbucks changed from 2005 to 2008? Net income as a percentage of total revenues increased from 7. Identify the most important reasons for this change.