What Went Wrong with Starbucks? Financial Analysis and Business Evaluation Case Study
By Julia S. Kwok* Elizabeth C. Rabe Northeastern State University
* Corresponding author: Department of Accounting and Finance, College of Business and Technology, Northeastern State University, Broken Arrow, OK 74014; Email: kwok@nsuok.edu; Phone: 918-449-6516.
What Went Wrong with Starbucks? Financial Statement Analysis
Abstract After decades of grande growth based on the Starbucks experience, Starbucks Coffee Company experienced continuous drop of stock price since the beginning of 2007. Upon first glance of their financial statements, there was 20% increase in revenues and 9% increase in net income last year. Such growth could be counter
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Have you seen the latest financial report that should have come out two months ago? Let‘s start with 2006 to the most recent 2007 report. Company History Sandra had already collected some basic company information about Starbucks. The Starbucks Company, Inc. sold coffees, teas, and other drinks; foods items; accessories and equipment through retail outlets. It also sold coffee beans, teas, and cold drinks wholesale. The company began in 1971 in the Pikes Place area of Seattle, WA. It had expanded its number of retail stores to over 15,000 located in both the US and internationally by 2005. In 2005
Starbucks management announced its intention to double the number of retail stores and increase the number of customers to all stores. Starbucks had added 1672 stores during 2005. It continued to open new stores with 2199 openings in 2006 and 2571 openings in 2007. Earnings per share grew from 61 cents per share 87 cents per share over the period of 2005-2007. At the close of the 2007 fiscal year, the management was forecasting the opening of an additional 2500 stores in 2008.
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Starbucks Coffee Company Stock prices during this time span rose from the $30 per share in November 2005 to $35 per share a year later. The stock prices then began a steady downward slide to $23 per share as of November of 2007 (BUCX- Historical Prices for Starbucks Co –Yahoo! Finance 2009). Ronnie and Sandy both agreed that shareholders did not seem to agree with
Starbucks was founded in 1985 and is a global leader in premium coffee with locations in 68 countries. The company 's stock is traded on the NASDAQ under the symbol "SBUX". They sell packaged coffee and tea, as well as handmade beverages that include coffee and tea. In addition to coffee beverages, they sell pre-packaged food items such as sandwiches and snacks. Their products are not only sold in their own stores, but also in grocery stores. Along with the flagship brand, Starbucks has additional brands: "Teavana, Tazo, Seattle 's Best Coffee, Evolution Fresh, La Boulange and Ethos" (Starbucks Annual Report, 2015, p. 2).
Starbucks shares have gone up and down during the past 3 weeks. “The results, announced after markets closed, sent Starbucks shares down 3.5% in after-hours trading.”(Weise,E) I bought 100 stocks from Starbucks; it first started off at 55.37 and increased to 56.31. I expected for Starbucks performance to be the best, but its stocks are unreliable. Their percentage week change fluctuates. When I initially started doing research on Starbucks the week percentage was at -1.02% and has reach to 2.41%, but later went down to .66%. Their stocks have been unsteady and their weakness is that the prices of their coffee is expensive. “By contrast, a year of drinking at Starbucks, based on two $2 cups a day, will run more than $1,400--not including any snacks
Transition: Now that we understand how the company started let’s take a look at how it grew during the early
Starbucks is a worldwide coffee company that produces world-class coffee, pastries and beverages. They are known as one of the most productive global coffee companies. Starbucks began as a small coffee and was founded by Jerry Baldwin, Zev Siegl and Gordon Bowker in Seattle, Washington in 1971. It is now headquartered in Seattle, Washington and incorporated in Olympia, Washington. The company’s fiscal year end date is September 27th. Although Starbucks has its own audit and compliance committee, that puts together their financial statements and reviews all accounting and financial processes pertaining to the financial status of Starbucks Company, KPMG also audits their financial statements.
The determinants of Starbucks profitability over time are variable costs and fixed costs. “A variable cost is a cost that change in direct proportion to a change in the level of activity (dict). Variable costs for Starbucks would include labor, coffee beans, dairy, and plastic products. A fixed cost is indirect costs of business expenses that remain unchanged (dict). Fixed costs for Starbucks include rent, taxes, and insurance as well as advertising. In the figure below (fig 1) we have Starbucks financial data in millions for the year of 2015. This includes their operating expenses, net revenues, such as company-operated stores, licensed stores, CPG, food service. It also includes their total net revenues and their balance sheet. As we can see “Operating costs dropped in the fiscal year
Starbucks financial statements were analyzed for the fiscal year ended September 27, 2015. Like all public companies, annual and quarterly financial statements are required to allow regulators and other interested parties to analyze the financial status and management decision making of the company. This analysis focuses on the results of Starbucks most recent published annual report containing their balance sheets, statement of earnings and cash flows. These statements will be analyzed against the results of one of its competitors, Dunkin Donuts, to investigate how the two companies compare to each other. It was noted that Starbucks and Dunkin Donuts do not have corresponding fiscal year ends. The data therefore is not directly comparable since the reports do not reflect the same time period of data but should provide additional insight. The paper will attempt to provide a brief analysis of Starbucks operations in terms of its liquidity, leverage, activity, profitability and growth ratios used by analysts in the industry.
The next ten years of the Starbucks timeline will conclude events from the years 1990-2000. In the year 1990, according to starbucks.com, Starbucks had expanded its headquarters in Seattle and unveiled its Starbucks Mission Statement. The company had closed the year totaling in 84 stores throughout the United States. In 1991, Starbucks became the first privately owned company to offer a stock option program to its part-time employees alongside with their full-time employees. It also opened its first licensed airport store at the Sea-Tac International Airport in Seattle. The following year, Starbucks completed its initial public offering and is was longer a privately owned company. In 1993, the company announced its first two for one stock split and closed the year with a total of 272 stores
Starbucks is known for their Frappuccino’s; unfortunately they are on a downward spiral in sales due to competitors such as McDonalds. In 2008 Starbucks admits to its losses due to their competitors. “Company executives now freely admit that such thinking is largely to blame for the woes that led to Tuesday’s announcement that Starbucks will close 600 U.S. stores and eliminate thousands of jobs. The coffee giant’s missteps have come at a spectacularly bad time, hitting as the economic slump deepens and consumers are seeing their discretionary spending eaten up by rising gas prices and grocery bills (Linn).”
The determinants of Starbucks profitability over time are variable costs and fixed costs. “A variable cost is a cost that change in direct proportion to a change in the level of activity” (Pearson, 2016) . Variable costs for Starbucks would include labor, coffee beans, dairy, and plastic products. A fixed cost is indirect costs of business expenses that remain unchanged (Pearson, 2016). Fixed costs for Starbucks include rent, taxes, and insurance as well as advertising. In the figure below (fig 1) we have Starbucks financial data in millions for the year of 2015. This figure includes their operating expenses, net revenues, such as company-operated stores, licensed stores, CPG, food service. It also includes their total net revenues and their balance sheet. As we can see “Operating costs dropped in the
In this paper, I will talk about Starbucks Company. I will define the influence of the vision, and mission of the company and primary stakeholders along with their overall success. An examination will be conducted to categorize five forces of struggle and their effect on the corporation. I will carry out a SWOT analysis to determine the opportunities, threats, strengths, and weaknesses. Founded on the SWOT analysis, a technique of opportunities and advantages will be exploited while threats and weaknesses will be diminished. Several types and levels of techniques will be talked over to operate the profitability and competitiveness. I will outline a plan of communication to make approaches known to all investors. Two corporate authorities will be designated to assess the efficiency of the regulating managers. I will also assess the effectiveness of management within the Company and come up with sanctions for upgrading.
Brian J. Franklin, BBA Accounting ‘12, College of Business and Public Policy, University of Alaska Anchorage, 3211 Providence Drive, Anchorage, AK 99508, 907-268-4233 Ext. 401, bfranklin@frontiertutoring.com
In this report, the performance of Starbucks over the past few years has been analyzed. The financial statements have been obtained from the years of 2003 up to 2007, and have been analyzed using the horizontal analysis, vertical analysis, and the ratio analysis (depending on what exactly is being analyzed).
The coffee company has capitalized on the new found popularity of specialty coffee with its addition of coffee bars globally. Starbucks Common Stock increased from $3.31 per share in 1994 to $10.00 per share by the mid 1990’s. Despite the success of Starbucks, the company is
Starbucks’ shares have grown more than 1500% over the past decade. Financially, it has been an oak tree in an ever changing economy with customers that have ever changing demands. However, there has been increased concern for the financial viability of the coffee shop a recently announced plan to close down over 600 stores that were said to be underperforming domestically. That means that more than 1,000 jobs will be eliminated. As scary as that is on the local front to top management, the executive staff feels that it is the only way to recover from it’s shocking $108.7M loss for the 2nd quarter this fiscal year.
The Starbucks Company is a purveyor of gourmet coffee that was founded in 1971 at Seattle’s Pike Place Market (Retrieved March 10, 2015, from http://www.starbucks.com/about-us/company-information). At that time Starbucks was a single storefront that offered premium, fresh roasted whole bean coffees. Since opening that single store Starbucks has grown to an international presence with branding that is recognizable worldwide. In addition, Starbucks has increased their product line beyond hot and cold coffee beverages to include hot and cold teas, packaged whole bean and ground coffees, high quality, fresh foods and coffee making equipment and supplies. Starbucks operates a total of 19,767 company operated and licensed stores and operates in 62 countries. In addition to the Starbucks’ brand the company also owns and operates other well-known brands such as Teavana and Seattle’s Best Coffee. (Retrieved March 10, 2015, from http://news.starbucks.com/uploads/documents/Starbucks_Fiscal_2013_Annual_Report_-_FINAL.PDF)