Starbucks Corporation (NASDAQ:SBUX), where did my money go?
For this exercise, let’s assume that my wife and I visited our local Starbucks Corporation (NASDAQ:SBUX) and spent $10 buying a couple iced coffee’s. To help determine where my money went, I need Starbucks latest Income Statements from their 10Q and 10K.
To begin to answer my question I will divide each sub-category on the 10Q income statement by revenue. So, for example, Cost of Goods Sold (1530.4) / Revenue (3608.4) = .42412 x $10 = $4.24. In other words, it cost Starbucks $4.24 to pay for the coffee, cream, sugar, ice and cup that it sold to us for $10. Cool? Okay, let’s look at the other sub-categories.
**Note I added interest income to revenue to get $3608.4
$4.24 went to Cost of Goods Sold (42.412%)
$2.87 to pay Store Operating Expenses (28.777%)
$0.31 went to Other Operating Expenses (3.1066%)
$0.42 went to Depreciation Expense (4.2429%)
$0.64 went to General and Administrative (6.3823%)
$0.017 went to Interest Expense (.0169%)
$0.55 went to Income Taxes (5.49%)
$1.08 was Net Profit (10.819%)
So, how did Starbucks do?
Well, let’s see. After paying for all of the above expenses, Starbucks Corporation (NASDAQ:SBUX) management team was able to earn a net profit of $1.08 on our $10 purchase. So, it does appear that Starbucks is doing a fantastic job, but this is just one quarter, how is it doing over the long-term?
Take a look at their latest 10K…
| 2010 | 2011 | 2012 | |
| Cost of Goods Sold | $4.11 | $4.15 | $4.34 |
| Selling, General & Administrative | $4.14 | $4.00 | $3.84 |
| Non Recurring Expenses | $0.05 | NA | NA |
| Other Expenses | $0.47 | $0.44 | $0.41 |
| Interest Expense | $0.03 | $0.03 | $0.02 |
| Income Tax Expense | $0.45 | $0.48 | $0.50 |
| Net Income | $0.88 | $1.05 | $1.03 |
We can now see by comparing Starbucks Corporation (NASDAQ:SBUX) latest quarter to their last three full years, that indeed their last quarter was a strong one. Management has started to show that they have their eye on the bottom line and can return a handsome net income margin.
Next question. How handsome is their net income margin really?
Take a look at Dunkin Donuts
| 2010 | 2011 | 2012 | |
| Cost of Goods Sold | $1.96 | $1.98 | $1.84 |
| Selling, General and Administrative | $3.87 | $3.83 | $3.99 |
| Non Recurring Expenses | $0.12 | $0.03 | $0.02 |
| Others | $1.00 | $0.84 | $0.85 |
| Total Other Expenses | $1.06 | $0.53 | $0.05 |
| Interest Expense | $1.96 | $1.67 | $1.12 |
| Income Tax Expense | ($0.13) | $0.52 | $0.83 |
| Net Income | $0.47 | $0.55 | $1.65 |
Dunkin Brands Group Inc (NASDAQ:DNKN) has really turned the heat up on Starbucks, dropping $1.65 or 16.46% to their bottom line, compared to only $1.03 or 10.33% for Starbucks Corporation (NASDAQ:SBUX).
Dunkin Brands Group Inc (NASDAQ:DNKN) is doing an outstanding job, spending only 18.4% on COGS, compared to a whopping 43.4% for Starbucks. There must be some huge margins on glazed donuts, because the two company’s must be paying similar amounts for their coffee.
After viewing this difference, I am curious to see how the other large coffee purveyor is doing with their COGS. I am of course speaking of McDonald’s Corporation (NYSE:MCD). I realize that this is not a fair comparison for Starbucks Corporation (NASDAQ:SBUX), but I thought it was worth the effort none the less to take a look.
After viewing their latest 10Q, it is evident that McDonald’s Corporation (NYSE:MCD) is a very well run company, because over the last four quarters, management has turned in very consistent COGS figures…60.73% (6/29/12), 60.09% (9/29/12), 60.75% (12/30/12) and 63.4% (3/30/13). While these are higher numbers than either Dunkin Brands Group Inc (NASDAQ:DNKN) or Starbucks are producing, this consistency tells me that COGS is well managed and at productive levels.
