Financial Analysis of Starbucks Corporation's 10k Report

Financial analysis of Starbucks Corporation's 10K Report

Part I. Background

Starbucks is a premier roaster, marketer, and retailer of specialty coffee in the world, presently operating in more than 50 countries. It is with no doubt, one of the best known and fastest growing coffee companies in the world. The original coffee company was established in 1971 in Seattle, the corporation formed in 1985, which grew initially slowly but expanded rapidly in the late 1980's and 1990's. By the early 2000 there were 2600 Starbucks stores in 13 countries and the company's retail target was to open additional 30,000 outlets.

However by the year 2003, due to its sudden growth, Starbucks began to slip toward mediocrity, losing its point of view. The company's management started to compromise too much to the increasing size, "celebrating the velocity of sales instead of what they were selling" (SCHULTZ, 2001) and killing the coffeehouse atmosphere. In 2008 Howard Schultz, the creator of the Starbucks idea, returned to the company as chief executive officer, to restore the passion and the commitment that everyone (partners, shareholders, employees) at Starbucks needed to have for customers. His role also was to lead his company through the worldwide recession starting in 2008, that has caused customers to save more and spend less on what was called the "affordable necessity" (coffee) before. Ever since then the company seem to be stabilized and financially improving.

The corporation's common stocks are traded on the NASDAQ (Global Select Market) under the symbol "SBUX". The corporation's main business activities are: purchasing and roasting high quality coffee, selling handcrafted coffee/tea beverages and food, (through diverse channels like convenience stores, hotels etc.) Starbucks generates revenue through company-operated stores, license stores, consumer packaged goods and foodservice operations.

The corporation has three reportable operating segments:

1. United States ("US") 69%, 2. International 22%, 3. Global Consumer Products Group ("CPG) 7%

Starbucks coffee company stands on the higher price end of the coffee market, fact indicating the sale of the finest quality of coffee and related products plus providing a unique "Starbucks Experience", built upon superior customer service. These features help Starbucks differentiate from its competitors, that are quick service restaurants and specialty coffee shops like Dunkin Donuts, Tim Horton's, Mc. Donald's.

Future perspectives of the corporations are: expanding the store base, concentrating on countries outside the U.S., introducing new coffee products in multiple forms across new categories and through new channels.

The company's aspiration to be an employer of choice as well as the high degree of social responsibility (Starbucks always was an extremely responsible company in social and community life, ex. supporting youth and literacy programs, giving back to farmers by Fair trade Certification, prompting people to vote) makes it very attractive for future creditors, entrepreneurs, and employees.

SWOT Analysis:

STARBUCKS COMPANY

STRENGHTS brand equity quality products service reputation/loyalty

WEAKNESSES price seasonal fluctuation in sales reliance on innovation over saturation of the market

OPPORTUNITIES international market diverse workforce coffee trends specialty equipment

THREATS competitors economy increase in the cost coffee partners' performance

Part II. Financials

Overall

The management team of Starbucks, including chief executive officer and chief financial officer are responsible for establishing and maintaining adequate control over financial reporting. This management conducted several evaluations, based on the framework and criteria established in Internal Control - Integrated Framework, issued by a Committee Sponsoring Organizations of the Treadway Commission, resulting that the internal control was effective. This team is in process of implementing new and upgraded financial information technology systems as well. The Internal Control over financial reporting as of October 2, 2011 has been audited by /s/ Deloitte & Touche LLP, an independent registered public accounting firm from Seattle, Washington. Since the auditor is an outside organ, being uninfluenced by the direction or board of the company, they provided a clean and reliable opinion about the financial transactions of Starbucks Corporation. This report was published on the 18th of November, 2011 and since then nothing has happened to the company that could have affected the corporation.

A. Income Statement

a) Revenue

The company's revenue sources are broken down to three sections: company operated stores, licensed stores and CPG foodservice plus other. From these, the company operated stores bring constantly the most revenue to the company. This revenue (11.700.4) seems fairly stable, with minor changes in total net revenues during the past three years. Starbucks has over 60 million customers a week, which is a reassurance for future business. However the company's threats (one example competitors) presented above can risk this revenue to continue.

The Horizontal Analyses indicate that the company's revenue increased $993 from 2010. Dividing this increase by the 2009 year balance yields a minor percentage change of 9%

Dollar Change: $11,700.4 - $10,707.4 = $993

Percentage Change: $993/$10,707.4 = 9 %

b) Cost of Sales

The major components of cost in Starbucks's operation are: Cost of Sales including occupancy cost, Store Operating Expenses, General and Administrative Expenses and Income Taxes. In the Notes to Financial Statement there is no mention regarding Cost of Sales. Costs of Sales have been slightly rising in the last three years, but with no significant amount. This must be due to outside factors like economy, increasing labor cost, increasing cost of coffee etc.

Horizontal Analysis regarding Cost of Sales shows an increase of $490.7 since year of 2010. Dividing this increase by the 2010 year balance yields a minor percentage change of 0.11%. Previous years this increase was smaller.