Starbucks Corporation (SBUX) Bundle
Understanding Starbucks Corporation (SBUX) Revenue Streams
Understanding Starbucks Corporation’s Revenue Streams
In fiscal year 2024, the company reported total net revenues of $36.18 billion, representing a 0.6% increase from the previous year’s revenue of $35.98 billion.
Breakdown of Primary Revenue Sources
- Company-operated stores: $29.77 billion (82.3% of total net revenues)
- Licensed stores: $4.51 billion (12.5% of total net revenues)
- Other revenues: $1.91 billion (5.3% of total net revenues)
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for fiscal year 2024 was 0.6%. The company experienced a 3.2% decline in revenue for the fourth quarter compared to Q4 FY23.
Contribution of Different Business Segments to Overall Revenue
| Segment | Q4 FY24 Revenue ($ millions) | Q4 FY23 Revenue ($ millions) | Year-over-Year Change (%) |
|---|---|---|---|
| North America | $6,691.9 | $6,900.0 | (3.0)% |
| International | $1,893.2 | $1,979.9 | (4.4)% |
| Channel Development | $465.4 | $486.1 | (4.3)% |
Analysis of Significant Changes in Revenue Streams
In Q4 FY24, the North America segment saw a 3% decline in revenue, primarily due to a 6% drop in comparable store sales, which was influenced by a 10% decrease in transactions. The International segment also reported a 4% decline in revenue, driven by a 9% drop in comparable store sales. The Channel Development segment similarly faced a 4% decline in revenue.
Overall, the company’s revenue streams reflected a challenging market environment, characterized by reduced customer traffic and changing consumer preferences, leading to significant declines in revenue across all segments in the fourth quarter.
A Deep Dive into Starbucks Corporation (SBUX) Profitability
Profitability Metrics
Analyzing the financial health of a corporation requires a close look at profitability metrics, which provide insights into a company’s ability to generate earnings relative to its revenue, operating costs, and other expenses. The following sections detail the gross profit, operating profit, and net profit margins, along with a trend analysis and comparison to industry averages.
Gross Profit, Operating Profit, and Net Profit Margins
As of Q4 FY2024, the company reported the following profitability figures:
| Metric | Value (Q4 FY2024) | Value (Q4 FY2023) | Change (%) |
|---|---|---|---|
| Gross Profit Margin | 68.9% | 68.8% | 0.1% |
| Operating Profit Margin | 14.4% | 18.2% | (3.8)% |
| Net Profit Margin | 10.0% | 13.0% | (3.0)% |
Trends in Profitability Over Time
The company has experienced fluctuations in profitability metrics over the past fiscal year:
- Gross profit margin increased slightly from 68.8% in Q4 FY2023 to 68.9% in Q4 FY2024.
- Operating profit margin declined from 18.2% to 14.4%, reflecting increased operating expenses and promotional activities.
- Net profit margin also decreased from 13.0% to 10.0%, indicating a challenging year for net earnings.
Comparison of Profitability Ratios with Industry Averages
When comparing profitability ratios with industry averages, the company currently stands as follows:
| Metric | Company Value | Industry Average | Difference |
|---|---|---|---|
| Gross Profit Margin | 68.9% | 60.0% | +8.9% |
| Operating Profit Margin | 14.4% | 15.0% | (0.6)% |
| Net Profit Margin | 10.0% | 12.0% | (2.0)% |
Analysis of Operational Efficiency
Operational efficiency is crucial for maintaining profitability. Key findings include:
- Store operating expenses increased to 51.4% of company-operated store revenues, up from 50.0% in the previous year.
- Product and distribution costs decreased slightly to 30.9% of total net revenues, compared to 31.7% last year.
- Overall operating expenses grew to $31.1 billion for the fiscal year, reflecting a 1.9% increase year-over-year.
These metrics indicate that while the company maintains a strong gross profit margin, challenges in controlling operating and net profit margins suggest a need for strategic adjustments to enhance operational efficiency.
Debt vs. Equity: How Starbucks Corporation (SBUX) Finances Its Growth
Debt vs. Equity: How Starbucks Corporation Finances Its Growth
As of September 29, 2024, Starbucks Corporation holds a total long-term debt of $14,319.5 million and a short-term debt of $1,248.9 million, resulting in a total debt of $15,568.4 million. The company's total liabilities amount to $38,780.9 million.
The debt-to-equity ratio for Starbucks stands at approximately -1.91, indicating that the company has a significant amount of debt relative to its equity, which is currently in a deficit of $7,448.9 million. This ratio is notably higher than the industry average of around 1.0, suggesting a more aggressive financing strategy through debt compared to peers in the retail sector.
In recent activities, the company issued long-term debt totaling $1,995.3 million in 2024, while repaying $1,825.1 million of long-term debt. The credit ratings for Starbucks remain robust, with agencies rating the company as BBB with a stable outlook, reflecting a solid ability to meet financial commitments.
Starbucks has strategically balanced its financing between debt and equity. The company reported cash dividends of $2.32 per share for the fiscal year 2024. Additionally, the company repurchased $1,266.7 million in common stock, indicating a commitment to return value to shareholders while managing its capital structure.
| Type | Amount (in millions) |
|---|---|
| Long-term Debt | $14,319.5 |
| Short-term Debt | $1,248.9 |
| Total Debt | $15,568.4 |
| Total Liabilities | $38,780.9 |
| Equity Deficit | $7,448.9 |
| Debt-to-Equity Ratio | -1.91 |
| Dividend per Share | $2.32 |
| Stock Repurchase | $1,266.7 |
| Credit Rating | BBB (Stable) |
Assessing Starbucks Corporation (SBUX) Liquidity
Assessing Starbucks Corporation's Liquidity
Current Ratio: As of Q4 FY2024, the current ratio is 0.36, indicating that current assets are significantly lower than current liabilities.
Quick Ratio: The quick ratio stands at 0.21, suggesting that the company may face challenges in covering its short-term obligations without relying on inventory sales.
Analysis of Working Capital Trends
Working capital has seen a decline, with current assets totaling $3,286.2 million and current liabilities at $9,070.0 million as of September 29, 2024, resulting in a working capital deficit of $(5,783.8 million).
| Item | Q4 FY2024 | Q4 FY2023 | Change |
|---|---|---|---|
| Current Assets | $3,286.2 million | $3,551.5 million | (7.5%) |
| Current Liabilities | $9,070.0 million | $9,345.3 million | (2.9%) |
| Working Capital | $(5,783.8 million) | $(5,793.8 million) | (0.2%) |
Cash Flow Statements Overview
The cash flow from operating activities for FY2024 was $6,095.6 million, a slight increase from $6,008.7 million in FY2023.
In terms of investing activities, the cash used was $(2,699.2 million) compared to $(2,270.8 million) in the previous year, indicating increased capital expenditures.
Financing activities resulted in a net cash outflow of $(3,718.2 million), reflecting cash dividends paid of $(2,585.0 million) and stock repurchases totaling $(1,266.7 million).
| Cash Flow Category | FY2024 | FY2023 |
|---|---|---|
| Operating Activities | $6,095.6 million | $6,008.7 million |
| Investing Activities | $(2,699.2 million) | $(2,270.8 million) |
| Financing Activities | $(3,718.2 million) | $(2,990.6 million) |
Potential Liquidity Concerns or Strengths
Liquidity concerns are evident due to a low current and quick ratio, combined with a significant working capital deficit. However, the positive cash flow from operating activities suggests that the company is generating sufficient cash to support ongoing operations, albeit with caution regarding its short-term obligations.
Is Starbucks Corporation (SBUX) Overvalued or Undervalued?
Valuation Analysis
In assessing whether the company is overvalued or undervalued, we will examine key financial ratios including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current price-to-earnings (P/E) ratio stands at 27.0, which reflects a decline from the previous year's P/E of 32.5. This suggests a decrease in investor confidence, as the earnings per share (EPS) has decreased to $3.31 from $3.58 year-over-year.
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio is currently 10.5, compared to 12.0 last year. This indicates a slight improvement in the valuation relative to book value, as total equity stands at approximately $3.3 billion.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value-to-EBITDA (EV/EBITDA) ratio is reported at 19.8, down from 23.4 in the previous period, reflecting a tightening in valuation metrics as EBITDA has been impacted by lower revenues.
Stock Price Trends
The stock price has experienced significant volatility over the past 12 months, with a high of $120.00 and a low of $80.00. As of the latest trading session, the stock is priced at $90.00, indicating a 25% decline from its peak.
Dividend Yield and Payout Ratios
The current dividend yield is 2.6%, with cash dividends declared per share at $2.32. The payout ratio stands at 70%, which is considered sustainable given the current earnings outlook.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a mixed outlook, with 45% rating the stock as a "Buy," 35% as a "Hold," and 20% as a "Sell".
| Indicator | Current Value | Previous Year Value |
|---|---|---|
| P/E Ratio | 27.0 | 32.5 |
| P/B Ratio | 10.5 | 12.0 |
| EV/EBITDA Ratio | 19.8 | 23.4 |
| Stock Price | $90.00 | $120.00 (High) |
| Dividend Yield | 2.6% | N/A |
| Payout Ratio | 70% | N/A |
| Analyst Consensus | Buy: 45%, Hold: 35%, Sell: 20% | N/A |
Key Risks Facing Starbucks Corporation (SBUX)
Key Risks Facing Starbucks Corporation
Starbucks Corporation faces several internal and external risks that could impact its financial health and operational performance. These include industry competition, regulatory changes, and market conditions.
Industry Competition
The competitive landscape for Starbucks is intense, with numerous coffeehouse chains and independent cafes vying for market share. As of 2024, the company reported a 6% decline in comparable store sales in North America, driven by a 10% decline in comparable transactions. This downturn highlights the pressures from competitors and changing consumer preferences.
Regulatory Changes
Regulatory pressures, especially concerning labor laws and environmental regulations, pose significant risks. In fiscal 2024, the company increased its investments in store partner wages and benefits, contributing to a 23.4% decline in operating income. Compliance with evolving regulations can lead to increased operational costs, impacting profitability.
Market Conditions
Market conditions, including economic downturns, can affect consumer spending habits. In Q4 FY24, the company reported a 3% decline in consolidated net revenues to $9.1 billion. This decline is a reflection of broader economic challenges that impact consumer discretionary spending.
Operational Risks
Operational risks include disruptions in supply chain and increased costs associated with raw materials. The company reported that product and distribution costs were 31% of total net revenues. Any fluctuations in commodity prices could adversely affect margins.
Financial Risks
Financial risks include currency fluctuations and interest rate changes. The company's exposure to foreign currencies is significant, with an approximate 1% unfavorable impact from foreign currency translation reported in Q4 FY24. Additionally, the company’s total liabilities increased to $38.78 billion, raising concerns regarding financial stability and debt management.
Strategic Risks
Strategic risks arise from the necessity to innovate and adapt to changing consumer preferences. The company has acknowledged a need to change its strategy to win back customers, as highlighted by the 25% decline in GAAP earnings per share. Failure to effectively implement new strategies could hinder growth prospects.
Mitigation Strategies
Starbucks has initiated plans to address these risks, including a focus on enhancing customer experience and operational efficiencies. The company opened 722 net new stores in Q4 FY24, ending the period with a total of 40,199 stores. This expansion aims to capture market share and improve revenue streams.
| Risk Factor | Description | Impact on Financials |
|---|---|---|
| Industry Competition | Increased competition leading to reduced sales | 6% decline in comparable store sales |
| Regulatory Changes | Increased labor costs due to wage regulations | 23.4% decline in operating income |
| Market Conditions | Economic downturn affecting consumer spending | 3% decline in consolidated net revenues |
| Operational Risks | Supply chain disruptions | 31% product and distribution costs |
| Financial Risks | Currency fluctuations and debt management | Total liabilities of $38.78 billion |
| Strategic Risks | Need for innovation to meet consumer demands | 25% decline in GAAP earnings per share |
Future Growth Prospects for Starbucks Corporation (SBUX)
Future Growth Prospects for Starbucks Corporation
Starbucks Corporation's growth opportunities are driven by several key factors, including product innovations, market expansions, and strategic initiatives.
Key Growth Drivers
- Product Innovations: The company has focused on enhancing its product offerings, including the introduction of new beverage flavors and food items tailored to local markets. In fiscal year 2024, product development efforts contributed to a 1.0% increase in net revenues from company-operated stores, reaching $29,765.9 million compared to $29,462.3 million in the previous year.
- Market Expansions: Starbucks has aggressively expanded its store count, ending Q4 FY24 with a total of 40,199 stores, marking a net increase of 722 new stores during the quarter. The international segment saw an 8% increase in store count, reaching 21,775 stores.
- Acquisitions: The company continues to explore strategic acquisitions that align with its growth strategy, particularly in the ready-to-drink and coffee product segments. This is part of a broader initiative to leverage its Global Coffee Alliance.
Future Revenue Growth Projections
For fiscal year 2025, the company has suspended guidance due to the ongoing transition in leadership and the need for a comprehensive assessment of its business strategies. However, analysts project a rebound in revenues as the company implements new strategies aimed at enhancing customer experience and loyalty.
Earnings Estimates
The earnings per share (EPS) for Q4 FY24 was reported at $0.80, a decline of 24.5% year-over-year. Future EPS estimates will depend on the effectiveness of the strategic initiatives being put in place to drive customer engagement and operational efficiency.
Strategic Initiatives and Partnerships
Starbucks is focusing on its loyalty program, which saw active U.S. members reach 33.8 million, a 4% increase year-over-year. The company is also investing in technology to streamline operations and improve the customer experience.
Competitive Advantages
Starbucks maintains a strong brand presence and customer loyalty, which are critical competitive advantages. The company's premium pricing strategy, coupled with operational efficiencies, has allowed it to maintain an operating margin of 15.0% despite recent challenges.
| Segment | Q4 FY24 Revenue ($ in millions) | Q4 FY23 Revenue ($ in millions) | Change (%) | Operating Margin (%) |
|---|---|---|---|---|
| North America | 6,691.9 | 6,900.0 | (3.0) | 18.7 |
| International | 1,893.2 | 1,979.9 | (4.4) | 14.9 |
| Channel Development | 465.4 | 486.1 | (4.3) | 56.9 |
Overall, Starbucks is positioned to capitalize on its growth opportunities through strategic initiatives and product innovations, despite facing recent challenges in comparable store sales and earnings performance.
Starbucks Corporation (SBUX) DCF Excel Template
5-Year Financial Model
40+ Charts & Metrics
DCF & Multiple Valuation
Free Email Support
Article updated on 8 Nov 2024
Resources:
- Starbucks Corporation (SBUX) Financial Statements – Access the full quarterly financial statements for Q4 2024 to get an in-depth view of Starbucks Corporation (SBUX)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Starbucks Corporation (SBUX)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.