Starbucks: The coffee goes cold

2. STARBUCK’S PERFORMANCE:
$ October 2006, after reaching a pick of $40, the share price declined
by more than 75% over the next two years.
$ The First ever decline in quarterly revenues:
Final quarter of 2008 showed that the net income decrease by 70%.
$ From a share price of $40, the share price decreased to $9.33
!
$ Compare to 2005 There was a decrease in net earnings, net cash,
and capital expenditures in 2008.
Net earnings 315.5 672.6 564.3 494.4 389.9
Net cash provided by operations activities 1258.7 1331.2 1131.6 922.9 862.9
Capital expenditure (Net) 984.5 1080.3 771.2 643.3 416.9

3. A BAD FINANCIAL SITUATION

4. THE DU PONT ANALYSIS:
The Starbucks’ ROA in 2008 :
!
(315.5 / 8771.9) x (8771.9/5672.6) = 5.5 %
The Starbucks’ ROE in 2008:
!
(315.5 / 2490.9) = 12.7 %
ROE:
! August!05’!! August!06’! August!07’! August!08’!!
Net!Income! 494# 564# 673# 316#
Equity! 2090# 2229# 2284# 2491#
ROE! 0.236# 0.253# 0.294# 0.126#
#
August 05 August 06’ August 07’ August 08’
Net income 494 564 673 316
Total assets 3514 4429 5344 5673
ROA 0.140 0.127 0.125 0.055
!
ROA:

5. THE REASONS OF THE DECLINE
1. Global Slow Down
2. Expansion of the stores
3. Growth of competition
4. Restructuration very costly

6. The Turnaround strategy:
300 stores closures
6700 job losses
Reduction of new-opening owned stores
Cut of CEO salary (Shultz) from 1.2M to 10000$

8. OUR RECOMMANDATION:
Advertising campaign, Host events at Starbucks
Diversification of the range with organic and green products
Decreasing coffee prices
Invest in the restoration market
Opening small outlets for takeaway coffee