Case 1 Starbucks: the coffee goes cold
Benjamin Seigler & Mark Meyerson
Q1) How is Starbucks performing? Is Starbucks in dire straits?
Du Pont analysis
ROE = Net Income / Shareholder Equity
3.ROA = Net income / total Assets
After reaching a peak of $40 in October 2006, Starbucks Share price declined by more than 75% over the next 2 years. Final quarter 2008 revenues showed net income was down by 70%. This was thefirst ever decline in quarterly revenues (down to 64.3 mill from 208.1 from Dec 30, 2007) The above announcement prompted a 33c decline in Starbuck’s share price to $9.33 During 2007, growth of same-store sales and operating profits slowed. From $1331.2 million in September 2007 to $1258.7 million in September 2008 Q1) How is Starbucks performing? Is Starbucks in dire straits? Q2) What are the sources of Starbucks’ declining performance? How far are Starbucks’ problems in February 2009 the inevitable consequences of the economic recession and to what extent are there other reasons for Starbucks’ declining performance 4.Trend Analysis (i)
Return on Equity
5.Trend Analysis (ii)
Net income 2005-2008
6.Trend Analysis (iii)
Financial Leverage 2005-2008
7.Trend Analysis (iv)
Return On Assets
Sources of declining Performance
1. Declining ‘Net margin ’ (slides 4 & 9)
2. Declining financial leverage (impaired ability to enhance profits) 2. Aggresive U.S expansion
3. Competition from above and below, (changing market)
Are these problems a result of the recession?
-competitors not following the same trends.
-Management decisions such as Expansion Policy, are internal Other Possible Reasons for Deteriorating performance
-Bad management decisions – Expansion, concentration Policy - Raw materials too highly priced, charging high prices, with low net margin? -poorly...