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Fiscal Update and Analysis for Starbucks Corporation

Starbucks Corporation continued its impressive growth after the close of the case, recording fiscal 1999 revenues and earnings of $1.7 billion and $101.7 million, respectively. The company’s 1999 revenues represented a 28% increase over fiscal 1998 revenues, while the earnings increase represented a 25% increase over 1998’s earnings before expenses related to the 1998 acquisition of the Seattle Coffee Company.

The chain’s Same store sales increased 6% during 1999. During its first 30 weeks of 2000, revenues increased 33% over the same period in 1999 to $1.2 billion. Same store sales increased 9% over the comparable 30-week period in 1999. Starbucks income statements for fiscal 1998 and 1999 and the first six months of fiscal 2000 are presented in Table 1.

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On April 6, 2000 Starbucks announced that effective June 1, 2000, Howard Schultz would step down as CEO to become the company’s new Chief Global Strategist. Schultz would remain the company’s chairman and Orin Smith, the current COO and President, would become the new CEO. The transition was said to allow Schultz to focus on global expansion and international brand development.

Starbucks undertook a number of initiatives in 1999 and 2000 to maintain its historical revenue and earnings growth. The company continued its domestic and international expansion, announced plans to make its premium home brewing equipment available through traditional retail outlets in addition to its own Starbucks locations, began an office coffee program, entered into a licensing agreement to open over 100 coffee bars in Albertson’s supermarkets, and introduced a line of chocolate confections that would be sold in Starbucks’ 2,498 locations. Starbucks also added organically grown coffees, extended its line of super-premium ice creams with six new flavours (including four non-coffee flavours), introduced two new flavors of Frappuccino blended coffee drinks, and added cool beverages for summer that included iced coffee and blended juiced teas. In addition, Starbucks added 484 coffee shop locations in North America, the United Kingdom, the Pacific Rim, and the Middle East during the first 30 weeks of fiscal 2000.

Starbucks’ stock experienced mediocre performance for the last half of 1999 and the first quarter of 2000 after the company announced in early June 1999 that its products and an array of non coffee products would be offered over the Internet to Starbucks’ customers.

Howard Schultz described a “canopy brand” site that would represent a single online destination for customers to purchase Starbucks coffee, tea and music as well as products ranging from gourmet foods to furniture. On June 30, 1999 the company announced that its revised earnings estimates for fiscal 1999 of $0.54 per share would fall below analysts’ consensus estimate of $0.60 per share.

In Starbucks’ after the market-close announcement, it blamed its disappointing sales and earnings on its non-coffee-related businesses and difficulties and cost overruns associated with the launch of its Internet initiative. The company’s stock traded in the $35-$40 range after a two-for-one split on March 19, 1999, but fell 28% on the first day of trading after the announcement to close at $26.9375.

Some analysts were critical of Schultz’s move to offer a wide variety of non-coffee-related products over the Internet. A restaurant analyst commented to The Wall Street Journal that “This Internet thing needs to go away. I don’t think it makes a lot of sense. I think they’ve lost their focus in an attempt to keep a growth rate up which ultimately is not supportable. Moving into the furniture business is straying an awfully long way from what they do extremely well.”

As of June 2000, it appeared that the company had scaled back its e-commerce efforts to sale of coffee and coffee-related products and that its shares had largely recovered and returned to their June 1999 trading range. Starbucks’ latest company news and financial market performance can be found at Yahoo! Finance.

 

Table 1 Starbucks Corporation Income Statements, 1998- Six Months Ended April 2, 2000 (in thousands, except per share amounts)
Six Months Ended April 2, 2000 Year-end 1999 Year-end 1998
Net revenues $1,031,680 $1,680,145 $1,308,702
Cost of sales and related occupancy costs 461,651 741,010 578,483
Store operating expense 333,457 543,572 418,476
Other operating expense 30,724 51,374 43,479
Depreciation and amortization 61,241 97,797 72,543
General and administrative 54,767 89,681 77,575
Merger expenses — — 8,930
Operating income 89,840 156,711 109,216
Interest and other income 3,656 8,678 8,515
Interest and other expense — 1,363 (1,381)
Earnings before income taxes 93,496 164,026 116,350
Income taxes 35,341 62,333 47,978
Net earnings $58,155 $101,693 $68,372
EPS–Basic $0.32 $0.56 $0.78
EPS–Diluted $0.30 $0.54 $0.75
Shares used in calculation–Basic 184,106 181,842 88,055
Shares used in calculation–Diluted 191,041 188,531 91,885

Sources: Starbucks Corporation 1998 10-K and Business Wire, April 27, 2000.

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Fiscal Update and Analysis for Starbucks Corporation. (2021, Jan 28). Retrieved March 1, 2021, from https://essayscollector.com/essays/fiscal-update-and-analysis-for-starbucks-corporation/