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Valuation of Starbucks Using Residual Enterprise Income. Mitchell Schmitt. Relevant Facts. CEO is Howard Schultz (Highly Regarded) Headquartered in Seattle, WA $13.3 B in revenues in 2012 with operating margins of 15% Nearly 80% of stores are company-owned vs. franchised

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relevant facts
Relevant Facts
  • CEO is Howard Schultz (Highly Regarded)
  • Headquartered in Seattle, WA
  • $13.3 B in revenues in 2012 with operating margins of 15%
  • Nearly 80% of stores are company-owned vs. franchised
  • SBUX has paid a dividend for the past 12 quarters
strategy
Strategy

Mission Statement: To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

  • Product Differentiation; Sell premium products with large profit margins
  • Outstanding Marketing Campaigns
  • Repeat Business (Starbucks cards)
  • Keep Employees Satisfied
  • Make entering their stores an experience
  • Company Operated stores
products
Products

Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world

  • Frappuccino, Lattes, Iced Coffees, Espresso
  • Also sell tea, other beverages, and fresh food items
  • Sell packaged products through licensed stores, grocery stores, and other foodservice accounts
  • K-Cups and Coffee Grounds
competition
Competition
  • Premium coffee sales compete against quick service restaurants and specialty coffee shops
  • Main competitors for this segment include Dunkin Donuts, McDonald’s, and Caribou Coffee
  • Competes with all packaged coffee and tea products sold through supermarkets and other retailers
rei epat t r ent nea t 1
REI= EPATt- rent * NEAt-1
  • Valuation uses parsimonious forecasts previously calculated
  • REI is income in excess of that required given a company’s asset level and WACC
  • More accurate than FCF model due to predictions based on accounting information
two parts of value
Two parts of value
  • Present Value of Forecasted REI
  • Continuing Value

[REI *(1+g)/ (rent-g)]/ (1+rent)t

  • Sum is equal to enterprise value