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.
Will I invest in Dunkin Brands or McDonalds?
I do not have plans to buy shares of McDonald’s Corporation (NYSE:MCD), however, for anyone looking for solid and safe dividends, I believe this company qualifies as a good investment. Currently paying $3.08 (3.10%) annually, I expect McDonald’s Corporation (NYSE:MCD) to continue to increase their dividend payout as they slow their pace of new restaurant openings.
Dunkin Brands Group Inc (NASDAQ:DNKN) is officially on my watch list. I am intrigued by their strong net income margins and will be watching and studying them the next few quarters. If I get a good feel and understanding of the company, they could find a place in my portfolio.
What does this mean for Starbucks?
Starbucks Corporation (NASDAQ:SBUX) still has work to do on its bottom line, but I am not about to hit the panic button . As they remain on a major building project, I only expect small yearly improvements in net income. The future looks bright for Starbucks, take a quick look at some key growth drivers:
**Teavana: With tea one of the most consumed beverages around the world, this new purchase offers years of major expansion.
**La Boulange: Still in only a handful of stores, I believe, offers the most promising revenue and profit expansion the company has seen in years. When their delicious pastries and flaky croissants are introduced across the United States, La Boulange will have a huge impact on Starbucks Corporation (NASDAQ:SBUX) average ticket.
**Asian expansion will remain strong for years. Starbucks currently has 700 stores in China, with plains to open 800 more by 2015. This is just scratching the surface, however, in a country five times larger than the United States. This year also saw the first Starbucks Corporation (NASDAQ:SBUX) open in India and Vietnam, these two countries could easily add another 1,000 stores or so.
Foolish bottom line
Starbucks remains one of my top five holdings, one that I expect to own for many years to come. With these growth drivers, this company has a very bright future. Additionally, with a top notch management team, there is always the chance that they will introduce new growth drivers that today we can not even dream of.
Even after the stock price recently hit all time highs, if I did not own shares, I would still be happy to start a position today. I expect to be a proud owner for many years to come. In the mean time, I will be keeping a eye on Dunkin Brands Group Inc (NASDAQ:DNKN).
What say you? Please leave comments below.
The article Starbucks, Where Did My Money Go? originally appeared on Fool.com and is written by David Paxton.
David Paxton owns shares of Starbucks. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks Corporation (NASDAQ:SBUX). David is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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