StarbucksStarbucks

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Presented by Neo, Julia, Judy, Sophia, ZacPresented by Neo, Julia, Judy, Sophia, Zac

Project II

Financial ConferenceFinancial

Conference

o Introduction

o Strategy Analysis

o Introduction

o Strategy Analysis

AgendaAgenda

• Financial forecasting : US, International, CPG, Other

• Conclusion

IntroductionIntroduction

•Fiscal 2010 Overview

•Fiscal 2010 Highlights

Fiscal 2010 Operating Performance Overview

Fiscal 2010 Operating Performance Overview

• Largest coffeehouse company globally

• Four major segments:

US, International, Consumer Products Group,

Other

• As of 2010, over 17,000 stores in 50

countries

Fiscal 2010Financial Highlights

Fiscal 2010Financial Highlights

Comparable Sales Growth

Comparable Sales Growth

Net RevenueNet Revenue

EPSEPS

Strategy EvaluationStrategy Evaluation

Diversifying Products and Services

Diversifying Products and Services

• Drip brewed coffee, espresso-based hot drinks

• Coffee beans, salads, sandwiches and snacks

• Starbucks Entertainment division: marketing books,

music, and film

Developing New Markets

Developing New Markets

• Emerging economies: China, Brazil, India

• New potential segments: Packaged coffee, VIA® Ready Brew

Fair Trade CampaignFair Trade Campaign

• Continue direct supply strategy

• Reduce intermediary suppliers

• Benefit both poor famers and Starbucks

• Build Starbucks’ brand equity

Financial ForecastingFinancial Forecasting

oU.S. Segment

oInternational

Segment

oCPG & Others

US SegmentUS Segment

---selling coffee and other beverages, complementary food, whole bean coffees and a focused selection of merchandise

•Around 70% of total sales

•11575 stores in 2009

•Most mature market segment

•Cash cow

---selling coffee and other beverages, complementary food, whole bean coffees and a focused selection of merchandise

•Around 70% of total sales

•11575 stores in 2009

•Most mature market segment

•Cash cow

Influencing factorsInfluencing factors

REVENUE

• Gradual recovery of economy

• New opening stores

COST

• Direct purchasing strategy

REVENUE

• Gradual recovery of economy

• New opening stores

COST

• Direct purchasing strategy

RevenueRevenue

(7.32%+ 6.60 % )/2 = 6.96%

$7,560.4 * (1=6.96%) = $8086.60

total net revenue

6600

6800

7000

7200

7400

7600

7800

8000

2007 2008 2009 2010

total netrevenue

7.32

%6.60

%

New opening stores

2010 2011

100 100

CostCost

DIRECT PURCHASING STRATEGY

2010 cost of sales as a percentage of total revenue 3.3%1. further research cost2. finding more farmers

Assumption: Further decrease 2.5%

DIRECT PURCHASING STRATEGY

2010 cost of sales as a percentage of total revenue 3.3%1. further research cost2. finding more farmers

Assumption: Further decrease 2.5%

8086.6*(79.9%-2.5%)= $6,259.03

The United States

2011 2010 2009

Sales Revenue $8086.60 $7560.4 $7061.7

Cost of sales 2903.09 2906.1 2941.4

Other operating expenses 57.69 55.6 66.6

Restruction expenses 32.35 27.2 246.3

Depreciation and Amortization 160.65 350.7 377.9

Store operating expense 2992.04 2831.9 2815.1

General and Administrative 113.21 97.8 84.8

Total cost $6259.03 $6269.3 $6532.1

Operating income $1827.57 $1291.1 $529.6

Budgeted I/S for US SegmentBudgeted I/S for US Segment

International Segment International Segment

Similar product categories as the U.S segment (20%)

Operate in nearly 40 countries, primarily in the UK and Canada (64%)

Strong international presence

Objective: pursue for sustainable growth and expand into key potential markets, e.g. China and Brazil

Similar product categories as the U.S segment (20%)

Operate in nearly 40 countries, primarily in the UK and Canada (64%)

Strong international presence

Objective: pursue for sustainable growth and expand into key potential markets, e.g. China and Brazil

• REVENUES:

-Global economies (consumers’ discretionary spending)

-New store openings

-Foreign exchange rates

COSTS & EXPENSES:

-Direct purchasing strategy

Influencing Factors Influencing Factors

1. Economic recovery

- higher consumer discretionary spending

2. 400 new shop opening plan

3. Favorable exchange rate trend

RevenueRevenue

Estimated Revenue:

Similar conditions as year 2007 and 2009,

Growth rate: take average of 24% (2007) and 19.56% (2009)

$2288.88*(1+22%)=$2792.43

RevenueRevenue

1. Continue direct purchasing strategy

- similar to the U.S segment, COGS reduces by 5.5%

* Therefore, assuming other expenses remain constant, budgeted total cost will be 87.9% of revenue, or $2,454.55 million in 2011.

CostCost

Budgeted I/S for International SegmentBudgeted I/S for International Segment

CPGCPG

• CPG: customer products group

• New products: VIA®

• Revenue of CPG just reduce 0.96%

during the financial crisis &

increased 4.66% in 2010

CPGCPG

• Main focus is to expand this new product

• Assume the growth rate may have a positive growth rate of 20%

• The total cost will again increase by 3%

• Main focus is to expand this new product

• Assume the growth rate may have a positive growth rate of 20%

• The total cost will again increase by 3%

OtherOther

• Revenues generate from the Seattle’s Best Coffee (1%)

• Will increase from 3,000 points of distribution to more than 30,000

• Grow 38% in 4th quarter of 2010

• Revenues generate from the Seattle’s Best Coffee (1%)

• Will increase from 3,000 points of distribution to more than 30,000

• Grow 38% in 4th quarter of 2010

OtherOther

• Keep the increasing trend and grow at approximately 40%

• Predict a 4% growth in operating loss for 2011

• Keep the increasing trend and grow at approximately 40%

• Predict a 4% growth in operating loss for 2011

CPG

2011 2010 2009

Sales Revenue 747 707.4 674.4

cost of sales 410.85 384.9 350.5

other operating expenses 126.99 117.0 95.3

Restruction expenses 0 0 1.0

Depreciation and Amortization 2.99 3.7 4.8

General and Administrative 26.89 11.0 8.8

Total cost 567.72 516.6 460.4

Income from equity investees 74.7 70.6 67.8

operating income 253.98 261.4 281.8

Budgeted I/S for CPG SegmentBudgeted I/S for CPG Segment

Others

2011 2010 2009

Sales Revenue 211 150.8 124.2

cost of sales 95 89.4 71.7

other operating expenses 39 34.9 31.3

Restruction expenses 0 0 58.1

Depreciation and Amortization 45 47.4 49.8

General and Administrative 506.4 334.1 254.4

Total cost 685.4 505.8 465.3

Loss from equity investees -4 -3.3 0

operating income -478.4 -358.3 -341.1

Budgeted I/S for Other SegmentBudgeted I/S for Other Segment

Consolidated Income Statement

Capital Expenditure

Budgeted Balance Sheet

Cash Budget

Consolidated I/SConsolidated I/S

Capital ExpenditureCapital Expenditure

New investments in PPE $ 575(Source: Annual report in fiscal 2010)

Budgeted Balance SheetBudgeted Balance Sheet

Assets LiabilitiesCash $ 2028 Current Liabilities $ 1548.6

Short-term investments-AFS securities

400 Long-term debt 549.5

Short-term investments- trading securities

50 Other long-term liabilities 360.8

A/R 300 Total liabilities $2458.9Inventory 685.6206

Prepaid expenses and other current assets

155Equity

Deferred income taxes, net 322.2 Shareholders' equityTotal current assets $3940.8 Common stock 0.7

Long-term investments-AFS securities

192 PIC 166

Equity and cost investments 346.9 Retained earnings 4549.9PPE, net 2356.5 Accumulated other

comprehensive income52.3

Other assets 69 Total Shareholders' equity 4768.9Other intangible asset 72 Noncontrolling interests 9.4Goodwill 260 Total equity $4778.28

Total assets $ 7237.2 Total equity and liabilities $ 7237.2

20082009

20102011

0

500

1000

1500

2000

2500

269.8599.8

1164

2028

Cash and Cash equivalentCash and Cash equiv...

Budgeted Balance SheetBudgeted Balance Sheet

2008 2009 2010 2011

Inventory 692.8 664.9 543.3 685.6

Cost of sales 4528 4459 3622 4570

250

750

1250

1750

2250

2750

3250

3750

4250

4750

Inventory

Cost of sales

Budgeted Balance SheetBudgeted Balance Sheet

Beginning cash balance $ 1164

Cash Collections 2762.46

Total cash available 3926.46

Less: Cash payments

Cash dividend(744*0.36) 267.84

Capital expenditure 575

Operating expense 350.4

Income taxes 705.16

Total cash payment (1898.46)

Ending cash balance $ 2028

Budgeted Cash BudgetBudgeted Cash Budget

ConclusionConclusion

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Q&A

Thank you!