Starbucks (NASDAQ: SBUX) - the world famous chain of coffee shops, which serves about 100 million customers worldwide. In addition to sales in own stores, Starbucks partners with Nestle to supply food retailers with coffee and tea products under its own brand.
About company
Starbucks business can be divided according to the following principles: sources of revenue, geography and sales of finished products.
Sources of revenue. Starbucks highlights three revenue streams:
- Brand stores - coffee shops under direct control.
- Licensed stores - licensed coffee houses - an analogue of a franchisee.
- Other revenue - this includes sales outside of stores of both types: packaged coffee, tea, food and beverages in retail stores, as well as royalties from Nestle.
The revenue structure is as follows:
- Company stores - 85%.
- Licensed stores - 9%.
- Other revenue — 6%.
Sales geography. Starbucks highlights three key sales regions in report:
- USA.
- China.
- The rest of the world.
The structure of the company's revenue by geography is as follows:
- USA - 70%.
- China - 13%.
- The rest of the world - 17%.
Sale of finished products. Consists of three areas: sale of drinks, food sales and other proceeds, which also includes income from subsidiaries. In addition to the main Starbucks brand, the company owns the following brands:
- Teavana - tea company.
- Seattle's Best Coffee - coffee retailer and wholesaler.
- Evolution Fresh is a manufacturer of natural fruit juices.
- Ethos is a manufacturer of bottled water.
- Princi is an Italian chain of bakeries..
The structure of revenue from sales of finished products is as follows:
- Sale of drinks - 80%.
- Selling food - 10%.
- The rest of the proceeds 10%.
Current results and forecasts
Starbucks has shown solid financial results over the past few years. Average earnings for the year on EBITDA is about 5-6 billion dollars. But there was an exception 2020 year, when the company faced a decrease in visitor traffic and the closure of some of its outlets due to the coronavirus pandemic.
Based on the results of 4 quarter 2021 Starbucks management published its forecast for 2022 year. Let's start with an ambiguous decision: management announced plans to increase from 1 January 2022 year for 5-10% of the salary of employees, whose work experience exceeds 2 of the year. This will result in additional costs, which will amount to a billion dollars a year.
IN 2022 year the company expects to open 2 thousands of new stores - against 1173 stores in 2021 year. The main increase in the network will be in China and the "rest of the world" - 75%, or 1500 coffee houses, and the rest 25%, or 500 coffee houses, open in the USA.
The company's revenue and earnings per share 2022 will amount to 32.5-33 billion dollars and 3,1 $, which implies an increase of 8-10% compared to last year.
Operating margin in 2022 year will come under pressure due to payroll investment and will amount to 17%, in 2023 will recover to target values of 18-19%.
Capital costs will increase by 33% — with 1,5 to 2 billion dollars compared to 2021 year.
Financial results of the company at the end of the period, billion dollars
| Revenue | EBITDA | Net profit | net debt | |
|---|---|---|---|---|
| 2016 | 21,316 | 5,202 | 2,818 | 1,322 |
| 2017 | 22,387 | 5,146 | 2,885 | 1,241 |
| 2018 | 24,719 | 5,130 | 4,518 | 0,502 |
| 2019 | 26,508 | 5,455 | 3,599 | 8,409 |
| 2020 | 23,518 | 2,993 | 0,928 | 11,559 |
| 2021 | 29,061 | 6,314 | 4,199 | 8,160 |
Comparison with competitors
| EV / EBITDA | P / E | net debt / EBITDA | |
|---|---|---|---|
| Starbucks | 22,89 | 32,48 | 1,29 |
| McDonald’s | 18,81 | 26,63 | 2,58 |
| Chipotle Mexican Grill | 47,68 | 68,82 | −0,71 |
| Yum! Brands | 21,42 | 24,49 | 4,49 |
| Domino’s Pizza | 26,66 | 38,41 | 5,26 |
| Papa John’s | 25,89 | 44,79 | 1,55 |
Dividends
Starbucks started its dividend history with 2010 year and gradually increase payments. On average, a company spends 50% net profit on dividends. The next scheduled payout is 0,49 $ - dividend for 1 neighborhood 2022 of the year, which Starbucks will pay to its shareholders 11 February 2022 of the year.
In addition to dividend payments, the company carries out buyback of shares. With 2010 Starbucks reduced the number of shares outstanding by 21%: with 1482 to 1173,2 million securities. Also worth mentioning, what in 2015 Starbucks has passed split Shares 2 to 1.
Arguments for
Market growth. According to Bloomberg, the global coffee market in the next three years will grow on average by 9% and c 2024 year will exceed the value 400 billion dollars. Asia will show the largest growth in consumption, namely China, India and Indonesia, against the background of increasing incomes of the population.
Network development. Starbucks coffee shop chain 2010 almost doubled in a year: with 16 858 to 33 833 points of sale. In the future, the company does not intend to stop: for example, already next year, according to management forecasts, the number of points will increase by another 6% - almost to 36 thousand.
Dividends and buyback. Against the backdrop of a low debt burden, the “net debt / EBITDA» per thread 2021 year is 1,29 - Starbucks management announced, what it will pay its shareholders over the next three years 20 billion dollars through dividends and buybacks. Taking into account the current capitalization of the company in 133 billion dollars this corresponds to the profitability 15%.
Hi-tech. Starbucks is constantly looking for new directions. The company recently partnered with Amazon for joint development of Amazon Just Walk Out technology. The company also announced, that he plans to use blockchain technology for his loyalty program.
The power of the brand. Starbucks is ranked 29th in the world by brand value., and if you look only at the sectoral breakdown, then in the food and beverage industry the company ranks fourth after McDonald’s, Moutai и Coca-Cola. The current value of the Starbucks brand is estimated at 60,3 billion dollars.
Brand value, billion dollars
| A place | Name | The cost |
|---|---|---|
| 1 | Amazon | 683,9 |
| 2 | Apple | 612 |
| 3 | 458 | |
| 4 | Microsoft | 410,3 |
| 5 | Tencent | 240,9 |
| 6 | 226,7 | |
| 7 | Alibaba | 196,9 |
| 8 | Visa | 191,3 |
| 9 | McDonald’s | 154,9 |
| 10 | Mastercard | 112,9 |
| … | … | … |
| 29 | Starbucks | 60,3 |
Arguments against
Negative news background. Starbucks employees try to form their first union - Starbucks Workers United, with which they want to put pressure on the company, to improve working conditions. Management opposes the merger, as it can damage the image of the network.
Growth at market level. Even taking into account the large dividend payments from 2017 year on 2021 year, Starbucks stock performance still loses to the market.
What's the bottom line?
Starbucks is one of the largest in the restaurant sector with the world's largest coffee chain. Which investors the company might be interested in? Those, who are looking for a relatively inexpensive sector leader with growing performance and high payouts: Over the next three years, Starbucks shareholders will receive an average return 5%. These are very good results for the company., whose growth rate is increasing in double digits.
