Chapter 10
Forecasting Financial Statements
10-31
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in whole or in part.
Text Exhibit 10.14
Starbucks Income Statements in Amounts, Common-Size Percentages,
and Rates of Change (Integrative Case 10.1)
Starbucks: Consolidated Statements of Income
(millions except per share amounts) 2010 2011 2012
Revenues $ 10,707 $ 11,700 $ 13,300
Cost of goods sold and occupancy expense –4,459 –4,916 –5,813
Gross Profit 6,249 6,785 7,486
Store Operating Expenses –3,551 –3,595 –3,918
Other Operating Expenses –293 –393 –430
Depreciation and Amortization –510 –523 –550
General and Administrative Expenses –570 –749 –801
Restructuring Charge / Nonrecurring Gain –53 30 0
Income from Equity Investees 148 174 211
Operating Profit 1,419 1,728 1,997
Interest income 50 116 94
Interest expense –33 –33 –33
Income before Tax 1,437 1,811 2,059
Income tax expense –489 –563 –674
Net Income 948 1,248 1,385
Net income attributable to noncontrolling interests –3 –2 –1
Net Income attributable to common shareholders $ 946 $ 1,246 $ 1,384
Earnings per share (basic) $ 1.27 $ 1.66 $ 1.83
Other comprehensive income items –8–11 –24
Comprehensive Income $ 940 $ 1,237 $ 1,361
Starbucks: Consolidated Statements Common Size Percentage Change
of Income 2010 2011 2012 2011 2012 Compound
Revenues 100.0% 100.0% 100.0% 9.3% 13.7% 11.4%
Cost of goods sold and occupancy expense –41.6% –42.0% –43.7% 10.2% 18.3% 14.2%
Gross Profit 58.4% 58.0% 56.3% 8.6% 10.3% 9.5%
Store Operating Expenses –33.2% –30.7% –29.5% 1.2% 9.0% 5.0%
Other Operating Expenses –2.7% –3.4% –3.2% 34.0% 9.4% 21.1%
Depreciation and Amortization –4.8% –4.5% –4.1% 2.5% 5.2% 3.8%
General and Administrative Expenses –5.3% –6.4% –6.0% 31.6% 6.9% 18.6%
Restructuring Charge / Nonrecurring Gain –0.5% 0.3% 0.0% –156.6% –100.0% –100.0%
Income from Equity Investees 1.4% 1.5% 1.6% 17.3% 21.3% 19.3%
Operating Profit 13.3% 14.8% 15.0% 21.8% 15.6% 18.6%
Interest income 0.5% 1.0% 0.7% 130.4% –18.6% 37.0%
Interest expense –0.3% –0.3% –0.2% 1.8% –1.8% 0.0%
Income before Tax 13.4% 15.5% 15.5% 26.0% 13.7% 19.7%
Income tax expense –4.6% –4.8% –5.1% 15.2% 19.8% 17.5%
Net Income 8.9% 10.7% 10.4% 31.6% 11.0% 20.8%
Net income attributable to noncontrolling
interests 0.0% 0.0% 0.0% –14.8% –60.9% –42.3%
Net Income attributable to common
shareholders 8.8% 10.6% 10.4% 31.7% 11.1% 21.0%
Chapter 10
Forecasting Financial Statements
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in whole or in part.
Text Exhibit 10.15
Starbucks Balance Sheets in Amounts, Common size Percentages
and Rates of Change (Integrative Case 10.1)
Starbucks: Consolidated Balance Sheets
(amounts in millions) 2010 2011 2012
ASSETS:
Cash and cash equivalents 1,164 1,148 1,189
Marketable securities 286 903 848
Accounts and notes receivable – net 303 387 486
Inventories 543 966 1,242
Prepaid expenses and other current assets 157 162 197
Deferred tax assets – current 304 230 239
Current Assets 2,756 3,795 4,200
Investments in noncontrolled affiliates 342 372 460
Property, plant, and equipment – at cost 5,889 6,163 6,903
Accumulated depreciation –3,472 –3,808 –4,244
Amortizable intangible assets (net) 417 410 386
Goodwill 262 322 399
Long-term investments 192 107 116
Total Assets 6,386 7,360 8,219
LIABILITIES AND EQUITIES:
Accounts payable 283 540 398
Current accrued expenses 936 941 1,134
Notes payable and short-term debt 00 0
Current maturities of long-term debt 00 0
Deferred Revenue 414 449 510
Insurance Reserves 146 146 168
Current Liabilities 1,779 2,076 2,210
Long-term debt obligations 549 550 550
Long-term accrued liabilities 375 348 345
Total Liabilities 2,704 2,973 3,105
Common stock + Additional paid in capital 146 41 40
Retained earnings (deficit) 3,471 4,297 5,046
Accum. other comprehensive income (loss) 57 46 23
Total Common Shareholders’ Equity 3,675 4,385 5,109
Noncontrolling interests 82 6
Total Equity 3,682 4,387 5,115
Total Liabilities and Equities 6,386 7,360 8,219
Chapter 10
Forecasting Financial Statements
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in whole or in part.
Starbucks: Consolidated Balance Sheets Common Size Percentage Change
2010 2011 2012 2011 2012 Compound
ASSETS:
Cash and cash equivalents 18.2% 15.6% 14.5% –1.4% 3.5% 1.1%
Marketable securities 4.5% 12.3% 10.3% 215.9% –6.0% 72.3%
Accounts and notes receivable—net 4.7% 5.3% 5.9% 27.7% 25.7% 26.7%
Inventories 8.5% 13.1% 15.1% 77.8% 28.5% 51.2%
Prepaid expenses and other current assets 2.5% 2.2% 2.4% 3.2% 21.7% 12.1%
Deferred tax assets—current 4.8% 3.1% 2.9% –24.3% 3.6% –11.4%
Current Assets 43.2% 51.6% 51.1% 37.7% 10.7% 23.4%
Investments in noncontrolled affiliates 5.3% 5.1% 5.6% 9.0% 23.5% 16.0%
Property, plant, and equipment—at cost 92.2% 83.7% 84.0% 4.7% 12.0% 8.3%
Accumulated depreciation –54.4% –51.7% –51.6% 9.7% 11.5% 10.6%
Amortizable intangible assets (net) 6.5% 5.6% 4.7% –1.8% –5.8% –3.9%
Goodwill 4.1% 4.4% 4.9% 22.6% 24.1% 23.3%
Long-term investments 3.0% 1.5% 1.4% –44.2% 8.4% –22.2%
Total Assets 100.0% 100.0% 100.0% 15.3% 11.7% 13.4%
LIABILITIES AND EQUITIES:
Accounts payable 4.4% 7.3% 4.8% 91.1% –26.3% 18.7%
Current accrued expenses 14.7% 12.8% 13.8% 0.5% 20.5% 10.0%
Notes payable and short-term debt 0.0% 0.0% 0.0% na na na
Current maturities of long-term debt 0.0% 0.0% 0.0% na na na
Deferred Revenue 6.5% 6.1% 6.2% 8.5% 13.6% 11.0%
Insurance Reserves 2.3% 2.0% 2.0% –0.4% 15.2% 7.1%
Current Liabilities 27.9% 28.2% 26.9% 16.7% 6.5% 11.4%
Long-term debt obligations 8.6% 7.5% 6.7% 0.0% 0.0% 0.0%
Long-term accrued liabilities 5.9% 4.7% 4.2% –7.3% –0.7% –4.1%
Total Liabilities 42.3% 40.4% 37.8% 10.0% 4.4% 7.2%
Common stock + Additional paid in capital 2.3% 0.6% 0.5% –71.8% –2.7% –47.6%
Retained earnings 54.4% 58.4% 61.4% 23.8% 17.4% 20.6%
Accum. other comprehensive income (loss) 0.9% 0.6% 0.3% –19.1% –51.0% –37.0%
Total Common Shareholders’ Equity 57.5% 59.6% 62.2% 19.3% 16.5% 17.9%
Noncontrolling interests 0.1% 0.0% 0.1% –68.4% 129.2% –14.9%
Total Equity 57.7% 59.6% 62.2% 19.1% 16.6% 17.9%
Total Liabilities and Equities 100.0% 100.0% 100.0% 15.3% 11.7% 13.4%
Chapter 10
Forecasting Financial Statements
10-34
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in whole or in part.
Text Exhibit 10.16
Starbucks Consolidated Statements of Cash Flows
(Integrative Case 10.1)
Starbucks: Statements of Cash Flows 2010 2011 2012
(amounts in millions)
Net Income 948 1,248 1,385
Add back depreciation and amortization expenses 541 550 581
Add back stock-based compensation expense 77 145 154
Deferred income taxes –42 106 61
Income from equity affiliates, net of dividends –17 –33 –49
(Increase) Decrease in accounts receivable –33 –89 –90
(Increase) Decrease in inventories 123 –422 –273
Increase (Decrease) in accounts payable –4 228 –105
Increase (Decrease) in other current liabilities 1 –82 24
Increase (Decrease) in deferred revenues 24 36 61
Other addbacks to (subtractions from) net income 52 –52 24
Other operating cash flows 35 –23 –20
Net CF from Operating Activities 1,705 1,612 1,750
Property, plant, and equipment acquired –441 –415 –851
(Increase) Decrease in marketable securities –338 –536 48
Investments acquired –12 –56 –129
Other investment transactions 1 –13 –42
Net CF from Investing Activities –790 –1,020 –974
Increase (Decrease) in short-term borrowing 0 31 –31
Increase (Decrease) in long-term borrowing –7 –4 0
Issue of capital stock 128 235 237
Proceeds from stock option exercises 37 104 170
Share repurchases—treasury stock –286 –556 –549
Dividend payments –171 –390 –513
Other financing transactions –48 –28 –59
Net CF from Financing Activities –346 –608 –746
Effects of exchange rate changes on cash –5 –1 10
Net Change in Cash 564 –16 40
Cash and cash equivalents, beginning of year 600 1,164 1,148
Cash and cash equivalents, end of year 1,164 1,148 1,189
Chapter 10
Forecasting Financial Statements
10-35
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in whole or in part.
Text Exhibit 10.17
Starbucks Sales Analysis and Store Operating Data
(Integrative Case 10.1)
Starbucks: Sales Analysis and Store Operating Data
(dollar amounts in millions except numbers of stores)
Revenues: 2010 2011 2012
Company-operated stores $ 8,963.5 $ 9,632.4 $ 10,534.5
Licensed stores 875.2 1,007.5 1,210.3
CPG, foodservice and other 868.7 1,060.5 1,554.7
Total Revenues $ 10,707.4 $11,700.4 $ 13,299.5
Growth rates 9.3% 13.7%
Sales by Segment and Type: 2010 2011 2012
Company-operated stores $ 8,963.5 $ 9,632.4 $ 10,534.5
Growth rates 7.5% 9.4%
Number of company stores 8,866 9,007 9,405
Sales/Average Store $ 1.007 $ 1.078 $ 1.144
Sales Growth /Average Store 7.0% 6.2%
Licensing $ 875.2 $ 1,007.5 $ 1,210.3
Growth rates 15.1% 20.1%
Number of company stores 7,992 7,996 8,661
Sales/Average Store $ 0.112 $ 0.126 $ 0.145
Sales Growth /Average Store 13.0% 15.3%
CPG, Foodservice and Other $ 868.7 $ 1,060.5 $ 1,554.7
Growth rates 22.1% 46.6%
Total Revenues $ 10,707.4 $ 11,700.4 $ 13,299.5
Starbucks: Store Operating Data: 2010 2011 2012
Americas
Net new stores opened (closed) during the year:
Company-operated: (33) 43 234
Licensed: 111 (268) 270
Total 78 (225) 504
Total stores
Company-operated: 7,580 7,623 7,857
Licensed: 5,044 4,776 5,046
Total 12,624 12,399 12,903
Revenues:
Company-operated: $ 8,365.5 $ 9,077.0
Revenues per store/year: $ 1.173
Growth rate: 8%
Licensed: $ 676.7 $ 825.8
Revenues per store/year: 0.168
Chapter 10
Forecasting Financial Statements
10-36
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in whole or in part.
Europe, Middle East, Africa (EMEA)
Net new stores opened (closed) during the year:
Company-operated: (64) 25 10
Licensed: 100 79 101
Total 36 104 111
Total stores
Company-operated: 847 872 882
Licensed: 807 886 987
Total 1,654 1,758 1,869
Revenues:
Company-operated: $ 905.5 $ 968.3
Revenues per store/year: $ 1.104
Growth rate: 0%
Licensed: $ 112.2 $ 139.5
Revenues per store/year: $ 0.149
China Asia Pacific (CAP)
Net new stores opened during the year:
Company-operated: 30 73 154
Licensed: 79 193 294
Total 109 266 448
Total stores
Company-operated: 439 512 666
Licensed: 2,141 2,334 2,628
Total 2,580 2,846 3,294
Revenues:
Company-operated: $ 361.4 $ 489.2
Revenues per store/year: $ 0.831
Growth rate: 15%
Licensed: $ 190.9 $ 232.2
Revenues per store/year: $ 0.094
CPG, Foodservice, and Other
(including Americas, EMEA, CAP)
Revenues: $ 868.7 $ 1,060.5 $ 1,554.7
Growth rates: 22.1% 46.6%
Chapter 10
Forecasting Financial Statements
10-37
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in whole or in part.
STEP 1: PROJECT SALES AND OTHER REVENUES
Projecting Sales
Starbucks competes in the fast-food restaurant chain industry through its chain of coffee
shops and in the consumer foods industry through its sales of coffee beans and ground
coffee in grocery stores and foodservice accounts. Both of these industries are mature and
competitive in the United States. In consumer foods, for example, industry sales have
grown recently at the growth rate for the general population, approximately 2% per year.
Starbucks has defied the characteristics of firms in mature industries, generating an
average compounded sales growth rate of 11.4% between 2010 and 2012, as shown in
Text Exhibit 10.14. Starbucks’ total sales and sales growth rates for 2010–2012 are as
follows:
Total Sales Amounts and Growth Rates (amounts in millions)
2010 2011 2012
Total Sales ………………………………………. $ 10,707 $ 11,700 $ 13,300
Growth Rates …………………………………… +9.5% +9.3% +13.7%
Starbucks discloses information about sales and operating profits for its four major
operating segments, Americas, EMEA, CAP, and CPG, Foodservice, and Other channels.
The Americas, EMEA, and CAP segment revenues include revenues from retail sales of
coffee beverages and related products through Starbucks’ company-owned and operated
stores. Each segment also includes revenues from licenses of Starbucks stores and related
sales of products to store licensees. The CPG and Foodservice segment includes revenues
from product sales through its distribution of packaged products to grocery stores and
warehouse clubs as well as to foodservice distributors such as SYSCO.
Starbucks discloses information about new store openings and comparable store sales,
two key drivers of its sales growth in the company operated stores. Net sales amounts,
growth rates, new store openings, and growth rates by segment for Starbucks appear in
Text Exhibit 10.17 above. By analyzing these sales growth data, students can develop
more detailed and accurate sales forecasts for each segment. The Exhibits 10.K–10.M
present the Sales Forecast Development spreadsheets toward the end of this case
discussion.
Revenue Forecasts
The data in Text Exhibit 10.17 indicate that Starbucks’ company-operated stores generate
roughly 79% of total revenues. Between 2010 and 2012, the retail segment experienced a
compound sales growth rate of 8.4%, driven largely by increases in new company-
operated stores each year, coupled with increases in sales per average store-year. Fiscal
year 2012 was a relatively strong year for Starbucks’ company operated stores, because
Starbucks added 308 new stores and generated a 6.2% same-store sales growth rate. Most
of the new growth in stores occurred in the Americas and the CAP segments.
Text Exhibit 10.17 shows that from 2010 to 2012, Starbucks’ revenues from licensing
also grew very successfully. During that time, licensing revenues experienced a
compound growth rate of 17.6%, a result of 669 net new stores and double-digit same
Chapter 10
Forecasting Financial Statements
10-38
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in whole or in part.
store growth rates. Again, the Americas and the CAP segments produced the strongest
performance in terms of new licensed stores and sales growth. But the fastest revenue
growth segment during this period was the CPG, Foodservice and Other segment,
growing at a compound rate of 33.8% from 2010 to 2012. Starbucks has been very
successful during this time at expanding sales of its products through grocery stores and
foodservice accounts.
As the case reveals, Starbucks’ management provided guidance in 2012 and again at
the end of the first quarter in Year +1 (2013), on the expected number of new stores to be
opened by segment and by store type during Year +1. Management guidance, indicates
Starbucks is planning to open roughly 1,300 new stores during Year +1 (300 owned and
300 licensed stores in the Americas; 200 owned and 400 licensed stores in the China Asia
Pacific segment; and 34 owned and 66 licensed stores in the Europe, Middle East and
Africa segment). Starbucks management also indicated they expect to incur $1,200
million in capital expenditures during Year +1. Management did not provide guidance
beyond Year +1. Starbucks’ management guidance has proved to be quite reliable in the
past, so we will rely on it now to inform our expectations.
We will accept management’s expectations for Year +1 and assume that Starbucks
will open 300 new company-owned stores and 300 new licensed stores in the Americas.
We will also assume that average sales per store in the Americas will grow by 5%. In
addition, we will assume that Starbucks will continue to open the same number of new
stores and generate the same level of same store sales growth in Year +2 through Year
+5.
For the EMEA segment, we will again accept management’s expectations for Year
+1 and assume that Starbucks will open only 34 new company-owned stores and 66 new
licensed stores. We will also assume that average sales per store in EMEA will continue
to be anemic, and grow by only 1%. We will also assume that Starbucks will continue to
open the same number of new stores and generate 1% same store sales growth in Years
+2, and then 2% growth in Year +2 through Year +5.
The CAP segment has been growing revenues at the fastest rates. We will accept
management’s expectations for Year +1 and assume that Starbucks will open 200 new
company-owned stores and 400 new licensed stores in the CAP segment. We will also
assume that average sales per store in the CAP segment will grow by 12% in Year +1.
Further, we will assume that Starbucks will continue to open the same number of new
stores Years +2 through Year +5. However, it is unlikely that Starbucks can continue to
generate the same level of same store sales growth, so we assume slowing rates of
growth: 10%, 9%, 8%, and 7% in Year +2 through Year +5, respectively.
The CPG, Foodservice and Other segment has generated strong revenue growth
recently, and seems well positioned to continue to sustain strong growth. We assume this
segment’s revenues will grow 30% in Year +1. We assume slowing (but still strong) rates
of growth: 20%, 15%, 10%, and 10%, in Year +2 through Year +5, respectively.
Given these assumptions, our revenue projections are presented in Exhibit 10.H.
Chapter 10
Forecasting Financial Statements
10-39
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in whole or in part.
Exhibit 10.H
Starbucks
Revenue Forecasts
(Integrative Case 10.1)
Starbucks: Store Operating Data: Starbucks: Sales Forecasts by Segment and Type
2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
Americas
Expectations for net new stores to be opened each year:
Net new stores opened (closed) during the year:
Company-operated: (33) 43 234 300 300 300 300 300
Licensed: 111 (268) 270 300 300 300 300 300
Total 78 (225) 504 600 600 600 600 600
Total stores:
Company-operated: 7,580 7,623 7,857 8,157 8,457 8,757 9,057 9,357
Licensed: 5,044 4,776 5,046 5,346 5,646 5,946 6,246 6,546
Total 12,624 12,399 12,903 13,503 14,103 14,703 15,303 15,903
Revenues:
Company-operated: $ 8,365.5 $ 9,077.0 $ 9,859.6 $10,740.5 $11,684.8 $12,696.7 $13,780.5
Revenues per store/year: $ 1.173 $ 1.231 $ 1.293 $ 1.358 $ 1.425 $ 1.497
Growth rate: 8.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Licensed: $ 676.7 $ 825.8 $ 917.4 $ 1,018.9 $ 1,128.2 $ 1,246.0 $ 1,372.7
Revenues per store/year: $ 0.168 $ 0.177 $ 0.185 $ 0.195 $ 0.204 $ 0.215
Growth rate: 5.0% 5.0% 5.0% 5.0% 5.0%
Chapter 10
Forecasting Financial Statements
10-40
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in whole or in part.
EMEA 2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
Expectations for net new stores to be opened each year:
Net new stores opened (closed) during the year:
Company-operated: (64) 25 10 33 33 33 33 33
Licensed: 100 79 101 67 67 67 67 67
Total 36 104 111 100 100 100 100 100
Total stores:
Company-operated: 847 872 882 915 948 981 1,014 1,047
Licensed: 807 886 987 1,054 1,121 1,188 1,255 1,322
Total 1,654 1,758 1,869 1,969 2,069 2,169 2,269 2,369
Revenues:
Company-operated: $ 905.5 $ 968.3 $ 1,002.0 $ 1,049.1 $ 1,108.0 $ 1,168.9 $ 1,231.7
Revenues per store/year: $ 1.104 $ 1.115 $ 1.126 $ 1.149 $ 1.172 $ 1.195
Growth rate: 0.0% 1.0% 1.0% 2.0% 2.0% 2.0%
Licensed: $ 112.2 $ 139.5 $ 153.5 $ 165.2 $ 178.9 $ 193.1 $ 207.8
Revenues per store/year: $ 0.149 $ 0.150 $ 0.152 $ 0.155 $ 0.158 $ 0.161
Growth rate: 1.0% 1.0% 2.0% 2.0% 2.0%