Starbucks
Starbucks is the largest coffeehouse chain and one of the most globally recognizable brands. They created the cafe culture by promoting coffee as a holistic experience through ambiance, community, lifestyle and function.
As of 2023, Starbucks has 30,038 stores worldwide accounting for the majority of revenue for the brand; company-operated stores sell coffee, food and beverages (including packaged products) to customers. The Starbucks App, which allows customers to earn points for rewards and store money used for payment is another main source of revenue for the brand. “According to company reports, the amount on Starbucks cards increased by $200 million from 2020 to 2021” (Rainey, 2023). To further promote the unique cafe culture that was created, Starbucks created Starbucks Reserves in 2010. Starbucks Reserve are rare company-operated stores that offer rare or limited coffee-beans and provide a multi-sensory coffeehouse experience. Customers have the luxury of a coffee bar, cocktail bar, and even areas to watch the roasting and brewing process.
Ultimately Starbucks makes money through the 38,137 company-operated stores and licensed stores; revenues from company-operated stores accounted for 82 percent of overall net revenues of 2023.
Timeline of the Company
Starbucks has transformed exponentially since it opened its first store in the early 1970s in Seattle’s Pike Place Market. Below is a timeline of the company (Stories and News, 2023).
1971: The first Starbucks store opened in Seattle, Washington
1982-1984: Howard Schultz is hired as director of retail operations and marketing. He travels to Italy and learns about their coffee house atmosphere and espresso beverages and wants to bring that culture to the U.S.
1985-1991: Il Giornale, coffee beverages created with Starbucks beans, is founded by Schutlz and is later acquired by Starbucks. Starbucks continues to grow and expand its headquarters, number of stores, employees numbers and benefits.
1992-1993: Starbucks presents an initial public offering (IPO) and a two for one stock split. Starbucks went public.
1994-2000: Starbucks expands with drive-thru locations, bottled beverages, branded coffee bars in grocery stores, a charitable foundation, additional two for one stock splits, and opens stores internationally.
2001-2007: The Starbucks card is introduced, wifi expands to their stores, investments in eco-friendly business practices.
2008-2013: Chairman Schutlz returns as CEO and focuses on an updated mission statement. He focuses on branding, social media presence, global aid, and ethical sourcing.
2014-2017: Starbucks offers their “college achievement plan” to assist employees with college and focuses on employing and helping military veterans and families. Starbucks continues to reach new environmental goals.
2018: Howard Schultz retires from Starbucks. At this point, Starbucks has 29,865 stores.
2019- 2021: Starbucks navigates through the COVID-19 pandemic and DEI commitments.
2022-2023: Howard Schutlz comes back as interim chief executive officer to help Starbucks through a new era. Laxman Narasimhan becomes the next CEO.
2024: Brian Niccol becomes new Starbucks CEO to help get the brand back on track. (Bariso, 2024)
Investor Relations
Starbucks continues to be a powerhouse in the coffee industry. As the world's largest coffeehouse chain, the operating income in fiscal 2023 was $5.9 billion, which is an increase from $4.6 billion in 2022. Total net revenue saw a 12% increase to $36 billion, compared to $32.3 billion in 2022. The upcoming Starbucks annual report will be for October 2024.
The company-operated stores and licensed stores generated the majority of revenue in 2023, accounting for 82% and 13% of net revenues. Starbucks strives to be the leading retailer and brand of coffee and tea by selling the finest quality coffee, tea, food, products and providing all customers with the Starbucks Experience. The Starbucks Experience entails superior customer service, convenience and digital experience, with safe, clean and well-maintained stores. In providing a high degree of service they build a high degree of customer loyalty. Higher revenues in 2023 from company-operated stores are partial from opening 1,339 new stores in high-traffic and high-visibility locations.
The “Reinvention Plan” announced in fiscal 2022, focused on increasing efficiency while elevating the partner and customer Starbucks Experience. As a result of this plan, there was a greater investment placed in technology to provide convenience and serve a more diverse customer base through online, e-commerce, delivery and mobile ordering and in-store experience. With that technology investment, the Starbucks Mobile App or Starbucks Delivers, as well as the Starbucks Card and Rewards Loyalty program have seen an increase in the customer base and frequency of store visits.
Figure 1: Net Profit and Net Profit Margin Calculations (SBUX, FY 2022 & 2023)
Source: Starbucks Investor Relations, author calculations (2024)
Figure 2: Price/Earnings Ratio Calculations (SBUX, Accurate as of 19 September 2024)
Source: Starbucks Investor Relations, Google Market Summary, author calculations (2024)
The annual basic earnings per share for Starbucks in fiscal year 2023 was $3.60, with a current stock price of $96.90, placing the current price/earnings ratio at 26.92. According to SmartAsset, a price/earnings ratio of 20-25 is generally considered good to investors and the business (Josephson & White, 2023). At 26.92, it is likely that Starbucks stock is slightly overvalued, but is very near the acceptable range, and should be worth its value. I personally would not recommend purchasing stock in Starbucks at this time because it appears to have been slightly inflated over the past few months due to the hiring of a new CEO (as will be explained in the next section). However, for lower risk large company stocks, this is a good value if the stock purchase is at a time where returns would be higher.
At the time of the Q3 2024 earnings release, the chief executive officer at the time, Laxman Narasimhan, commented “our three-part action plan is beginning to work and driving operational improvements that we expect to improve financial performance” and that company leaders are “helping return the business to sustainable growth” (Starbucks Investor Relations, 2024). These remarks from Narasimhan seem to paint a picture of growth and returns to prosperity for investors, after initial Starbucks boycotts began . The boycotts began in October of 2023 and continued for months; it ultimately stemmed from disputes with the labor union, and extended to long-term environmental concerns, and social/ethical issues, and pricing. Although Starbucks took action and made statements to combat the boycotts, there were financial implications. “The situation underscores the importance of aligning corporate actions with public expectations and the need for continuous improvement in corporate governance (Peterson, 2024)
However, despite these optimistic remarks, news outlets like the Wall Street Journal, Forbes, and CNBC say that Starbucks appears to miss the mark in earnings, reporting that “Traffic to its U.S. stores fell again this quarter, dropping 6%” (Lucas, 2024). Wall Street Journal also reported that Starbucks is evaluating the possibility of expanding its business ties in China, which was also cited in the Q3 earning release (Haddon, 2024). Although not completely optimistic, the overall news reporting matched the tone and information contained in Starbucks’ communications with shareholders and investors.
Stock Prices
According to Google Finance, Starbucks has been struggling financially in 2024 compared to 2023. For example, in June 2024, compared to June 2023, Starbucks’ revenue was down .59%, and net income was down 7.61%. The net profit margin was down 7.07%, and operating income was down 5.11%. September quarterly financials for 2024 have not been posted yet.
In Figure 1, it’s evident that Starbucks Corps struggled in June of 2024. This matches Starbucks' struggling financials for this time period. SBUX hit the lowest point in June with shares for $72.51. A month prior, in May, shares were up to $92.
On August 13, 2024, Starbucks announced a new Chairman and Chief Executive Officer, Brian Niccol. Niccol was previously the Chairman and CEO of Chipotle and completely transformed the business, and most importantly, increased total revenue (Starbucks, 2024).
On the same day Starbucks announced Niccol, stock shares increased to $95.90. On September 12, it hit $99.28. As of this week, it’s at $96.90. This shows the market’s confidence in Niccol’s leadership and his proven track record of transforming Chipotle.
Figure 3: Market Summary for Starbucks Corp., NASDAQ: SBUX, August-September 2024
Source: Google Market Summary (Google, 2024)
On September 18, 2024, the North America CEO resigned after six months on the job and eleven years with the company. This came after new leadership changes aimed to improve the organization’s efficiency and structure (Rajkumari, 2024). In Figure 2, shares dropped to $95.53 on September 18 with his departure news. There are significant changes at Starbucks, but stock prices continue to be higher than before Niccol became Chairman and Chief Executive Officer.
Figure 2: Market Summary for Starbucks Corp., NASDAQ: SBUX, September 16-19, 2024
Source: Google Market Summary (Google, 2024)
Overall, a company's positive and negative news directly correlates to its performance in the stock market. Starbucks's CDP 52-week high was $107.66, and its 52-week low was $71.55. Starbucks has significantly improved and bounced back from the low and is working to increase its cost per share.
State of the Company and Recommendations
Starbucks continues to be the dominant global coffee shop (Preuss, 2023). The financials and stock market analysis presented in this report shows growth improvements.
The financials and stock market dips show the importance of leadership needed to make the right decisions for the business, employees, investors, and customers. The move to name Brian Niccol as the Chairman and CEO of Starbucks was smart and beneficial for the company (Starbucks, 2024). The rapid increase in Starbucks share prices are proof that it was a step in the right direction.
Niccol should continue to make the organization more efficient and streamline processes. He should also continue to address current issues at Starbucks such as mobile order pickups, ensuring a coffee house vibe, and enhancing coffee and food selections (Durbin, 2024). In also addressing labor, environmental, social/ethical issues head-on and creating strategic plans, Starbucks can avoid future boycotts and reinstall the trust of consumers lost in the most recent one.
Starbucks, like every business, is also dealing with inflation. Coffee has increased in price by 23% over the last three years (Baio, 2024). Starbucks would benefit from finding innovative ways to decrease costs in the store. They should also market ways to get more customers in the door through coupons and incentives. This will help increase overall sales.
Starbucks should also continue to invest in their employees, after all the employees are the backbone to company-operated stores. The Starbucks College Achievement Plan covers 100% of tuition at Arizona State University for Starbucks employees that meet the requirements (ASU Starbucks, 2024). Investments (including better labor practices) made in employees improve team and organization morale, which inevitably helps grow the company.
Lastly, Starbucks should continue their social impact investments in people, the planet, and environmental and social aspects (Starbucks Homepage, 2024). The brand has taken a pledge towards sustainability and ethical sourcing, and must uphold its promise to consumers. Public relations and perceptions of an organization is imperative to their overall success, especially for investors and stakeholders.
Appendix
Starbucks’s Income Statement and Balance Sheet Report: https://s203.q4cdn.com/326826266/files/doc_financials/2024/ar/fy23-annual-report.pdf
References
ASU Starbucks (2024). Starbucks College Achievement Plan. Retrieved September 20, 2024, from https://starbucks.asu.edu
Baio, A. (2024, July 15). Feel like you’re spending more on coffee than ever? You are. The Independent. Retrieved September 20, 2024, from https://www.independent.co.uk/news/world/americas/coffee-prices-cost-inflation-starbucks-b2580038.html
Bariso, J. (2024, September 11). Starbucks's New CEO Just Announced 2 Very Big Changes. They Could Completely Change the Company. Inc. Retrieved September 14, 2024, from https://www.inc.com/justin-bariso/starbucks-new-ceo-just-announced-2-very-big-changes-they-could-completely-change-company.html