Just hearing the name Starbucks probably conjures up images of coffee and the company's swanky cafes that can be found in almost every corner of the world. The company had humble beginnings in the western part of the country, but has become a giant in the beverage world. But just how does it rank as an investment? In this article, we look at an analysis of the capital structure for Starbucks for the year-over-year (YOY) period from December 2017 to December 2018, with an update using 3Q 2018 data to see how the company has grown since.
Starbucks continues to dominate the coffee and beverage market, with more than 27,000 stores in 78 different countries.
The last time the company initiated a stock-split was in March 2015, with a two-for-one stock split for shareholders.
Starbucks continues to add to its long-term debt, announcing a $1 billion issue in 2019.
In 2019, the company bought back 23.5 million shares, paying out a quarterly dividend of 36-cent per share on Aug. 23, 2019.
Starbucks: A Brief History
Seattle-based Starbucks (SBUX) started its saga as a single store offering coffee beans and coffeemakers in 1971. Howard Schultz joined the company in 1982 and expanded distribution to include restaurants, coffee bars, and various retail outlets. Schultz left Starbucks in 1985 after failing to persuade owners to serve coffee and other beverages. After his departure, he formed a chain of coffee bars called Il Giornale throughout Seattle. These bars were modeled after those he visited in Italy. In 1987, Schultz purchased Starbucks and renamed all of his locations under the Starbucks banner.
The company popularized the specialty coffee genre, expanding into licensing and distribution. Starbucks also spawned some of the most popular beverage brands including Teavana, Tazo, Ethos, Frappuccino, and La Boulange. Starbucks has now grown into a global brand operating more than 27,000 stores in 78 countries.
The company's fiscal year generally runs between October 1 to September 30 each year. For the full year ending Sept. 30, 2019, Starbucks generated full-year annual revenues of $26.5 billion, with the majority of revenue coming from company-operated stores. This is a 7% increase from the same period in 2018. The company returned a total of $12 billion in dividends and share buybacks to shareholders.
Starbucks had 1.51 billion fully diluted shares outstanding, with a market capitalization of $61.88 billion on Dec. 31, 2014. The company implemented a two-for-one stock split for shareholders on record as of March 30, 2015—the last time the company initiated a stock split. Shares began trading on a split-adjusted basis on April 9, 2015. This caused the market cap to spike to $143.77 billion at the end of the first quarter. The diluted share count representing stock compensation nearly doubled from 11.3 million to 22 million shares at the end of the second quarter. The total equity market cap fell to $82.67 billion during that period.
Starbucks initiated a two-for-one stock-split for shareholders in March 2015.
Third-quarter diluted shares reached 30.5 million, representing $1.76 billion in stock compensation, at the end of September 2015. This raised the total equity market cap to $87.88 billion. The fourth-quarter diluted share count dropped to 9.4 million valued at $567 million by the end of December 2015, closing out the year with 1.49 billion total fully diluted shares outstanding valued at a $90.17 market cap, for a 45.7% YOY rise. Shares of Starbucks gained 47.98% for full-year 2015 compared to 1.38% for the Standard and Poor's (S&P 500) Index performance.
Starbucks' market cap was $98.57 billion by the end of trading on Nov. 1, 2019, with a trailing P/E of 28.40x based on diluted earnings per share of $2.93 for the 12-month period ending September 2019.
The company's debt load increased by net $2.08 billion to a total of $11.17 billion at the end of the 2019 fiscal year. In March 2019, the company announced a new bond issue worth $1 billion. The company also issued additional long-term debt during the 2018 fiscal year in the form of senior notes at three time periods:
- Two issues in November 2017: $500 million of 3-year 2.200% notes and $500 million of 30-year 3.750% notes
- Two issues in February 2018: $1 billion of 5- year 3.100% notes and $600 million of 10-year 3.500% notes
- Three issues in August 2018: $1.25 billion of 7- year 3.800% notes, $750 million of 10-year 4.000% notes, and $1 billion of 30-year 4.500% notes
These issues helped the company pay for general corporate expenses including repurchases of its common stock, as well as its share buyback program and dividend payments to shareholders. At fiscal year-end 2019, Starbucks had $11.17 billion in total debt divided by $19.22 billion in total assets for a debt-to-equity (D/E) ratio of 58.1%.
Enterprise Value Analysis
Starbucks started the 2019 fiscal year with $85.07 billion in enterprise value (EV). For full-year 2019, Starbucks saw global comparable same-store sales grow 5% year-over-year (YOY) on a 3% YOY increase in store traffic. Full-year earnings dropped 10% YOY to $2.92 per share. The company also bought back 23.5 million shares in 2019. Starbucks paid out a 36-cent per share dividend on Aug. 23, 2019. This resulted in a year-end 2015 EV of $110.89 billion.
As of Nov. 1, 2019, Starbucks commanded an enterprise value of $106.98 billion with an Enterprise Value/EBITDA ratio of 19.89x.