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Corporate Finance Starbucks Final Project

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MBA Corporate Finance Final Presentation Analysis of Actual vs. Sustainable Growth of Starbucks, inc.

MBA Corporate Finance Final Presentation Analysis of Actual vs. Sustainable Growth of Starbucks, inc.


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  • Good ___________ and welcome to our Executive breakfast/luncheon.My name is Brian Ramos and I am the CFO of Starbucks.Howard Shultz, our CEO, has asked me to provide you with some important financial information as we enter the second quarter.
  • Since some of you are relatively new to the Starbucks’ family, let me begin by providing you with some background about our company.We were founded in 1971 in Seattle, Washington.
  • After difficulties in FY2007 and FY2008, FY2009 ended with near record revenue.Shareholder’s equity is again on the rise and currently holds the highest rate in company history.Liabilities have dropped by $500m while assets have begun to rebound.Given these results, Mr. Shultz has asked me to address the following questions:Have we recovered enough to begin opening new stores?What is our future forecasted growth outlook?Essentially, is the coffee war over?
  • To answer those questions, our finance department has constructed a chart that shows sustainable growth compared to actual/projected growth for the FY 2007 – 2010.The sustainable growth rate is the maximum rate of growth in sales that can be achieved given our profitability, asset utilization, debt, and desired dividend payout.A closer look at 2007 indicates that we took the eye off the ball as actual growth exceeded sustainable growth by 6.25%. The store closures of 2009 were therefore a delayed response to this significant financial oversight.While the end of 2009 yielded a strong fourth quarter, actual growth for the year was barely 2%.Financial projections for 2010 suggest growth of 2.5% while the sustainable growth rate is projected at over 8%.
  • Transcript

    • 1. Is the Coffee War Over?
      Actual vs. Sustainable Growth
      Brian Ramos
    • 2. CompanyBackground
      Founded in 1971 in Seattle.
      Created a niche for specialty coffee shops.
      16,700 stores worldwide
      Average of two new stores every day! (1987-2007).
      Known for having a location “on every corner.”
      Increased revenue by $2.5b (5x) from 1999 to 2007.
    • 3. Lost Market Share
      Starbucks:
      74% decline in stock price (2006-2008).
      8% decrease in sales (2008).
      Competition:
      McDonalds: 8.2% increase in sales (2008).
      Caribou & Panera Bread enter market.
      2009 Response:
      Rehired Founder Howard Shultz as CEO.
      Closed 900 U.S. stores.
    • 4. CurrentFinancial Picture
      Is the Coffee War Over?
    • 5. Actual vs. Sustainable Growth
    • 6. Recommendations
      STAY THE COURSE
      Reasons:
      Market share continues to decline due to competitors.
      Economy still weak.
      Unemployment remains at 10%.
      Financial resources are not currently available.
    • 7. Questions?
      ?
    • 8. Sources
      Starbucks Annual Report 2009
      http://investor.starbucks.com/
      Morningstar
      http://quicktake.morningstar.com/stocknet/Profitability10.aspx?Country=USA&Symbol=SBUX
      Y Charts: Starbucks
      http://ycharts.com/companies/SBUX
      Starbucks vs. McDonald's: The Coffee War Begins to Percolate http://www.gurufocus.com/news.php?id=21677
      Newsweek: The Latte Wars
      http://www.newsweek.com/id/91497
      No Latte for Moody’s
      http://cfo.com/article.cfm/11691859?f=search
      Coffee Yes, Starbucks No
      http://www.forbes.com/2008/11/10/starbucks-mcdonalds-coffee-biz-commerce-cx_tvr_1110coffee.html