Just hearing the name "Starbucks" may conjure up images and aromas of coffee, with 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. The question is, how does Starbucks 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 2020 to 2021 to see how the company has grown since.
- Starbucks continues to dominate the coffee and beverage market, with more than 33,250 stores in 78 different countries.
- Starbucks continues to add to its long-term debt, nearly doubling the amount issued between 2019 and 2021.
- In 2021, the company pledged to pay dividends and engage in share buybacks totaling more than $20 billion over three years.
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 33,250 stores in some 78 countries.
The company's fiscal year generally runs between Oct. 1 to Sept. 30 each year. For the full year ending Sept. 30, 2021, Starbucks generated full-year annual revenues of $29.1 billion, with the majority of revenue coming from company-operated stores. This is a 23.5% increase from the same period in 2020—but of course, in 2020 with COVID-19 lockdowns around the world revenues took a hit (compared to $26.5 billion in FY2019 revenues).
As of FY2021, Starbucks had 1.18 billion fully diluted shares outstanding, with a market capitalization of $137.85 billion on Nov. 8, 2021. Given its fully diluted earnings per share (EPS) of $3.54 and shares trading at $117, this gives the company's shares a forward P/E of 34x (and a trailing P/E of 33x).
After reporting its 2021 earnings, the company announced it would initiate a share buyback program, as well as raise its dividends, returning more than $20 billion to shareholders through 2024.
The company's debt burden has increased dramatically since the 2019 fiscal year. Prior to 2020, Starbucks' short-term debts were relatively modest. Amid the COVID-19 pandemic, however, these levels grew dramatically in 2020 and remained high in 2021 (from just $5 million in 2019 to $2.3 billion in 2021).
Long-term debts similarly rose over the same period, doubling from $11.2 billion in 2019 to $22.4 billion in 2020—and remaining elevated at $21.5 billion through 2021.
As a result of this, the company has faced a negative equity situation since 2020, with total liabilities exceeding total assets. This gives a book value per share (BVPS) of -$4.51.
Enterprise Value Analysis
For FY2021, Starbucks maintained $154.84 billion in enterprise value (EV), driven by its increased debt and relatively high stock valuation. As of Nov. 8, 2021, Starbucks showed an enterprise value to revenue (EV/R) multiple of 5.33x and EV/EBITDA multiple of 21.06x.