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# Starbucks Corporation (SBUX), Where Did My Money Go?

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Reporting periods are exciting times for most investors, how did my stocks do? Did they beat or miss earnings? Are prices up or down? Should I sell my shares or buy more? What is an investor to do after the adrenalin rush of reporting season is over? I find this a perfect time to take a step back and ask the following question…

Starbucks Corporation (NASDAQ:SBUX), where did my money go?

For this exercise, let’s assume that my wife and I visited our local Starbucks Corporation (NASDAQ:SBUX) and spent \$10 buying a couple iced coffee’s. To help determine where my money went, I need Starbucks latest Income Statements from their 10Q and 10K.

To begin to answer my question I will divide each sub-category on the 10Q income statement by revenue. So, for example, Cost of Goods Sold (1530.4) / Revenue (3608.4) = .42412 x \$10 = \$4.24. In other words, it cost Starbucks \$4.24 to pay for the coffee, cream, sugar, ice and cup that it sold to us for \$10. Cool? Okay, let’s look at the other sub-categories.

**Note I added interest income to revenue to get \$3608.4

\$4.24 went to Cost of Goods Sold (42.412%)

\$2.87 to pay Store Operating Expenses (28.777%)

\$0.31 went to Other Operating Expenses (3.1066%)

\$0.42 went to Depreciation Expense (4.2429%)

\$0.64 went to General and Administrative (6.3823%)

\$0.017 went to Interest Expense (.0169%)

\$0.55 went to Income Taxes (5.49%)

\$1.08 was Net Profit (10.819%)

So, how did Starbucks do?

Well, let’s see. After paying for all of the above expenses, Starbucks Corporation (NASDAQ:SBUX) management team was able to earn a net profit of \$1.08 on our \$10 purchase. So, it does appear that Starbucks is doing a fantastic job, but this is just one quarter, how is it doing over the long-term?

Take a look at their latest 10K…

 2010 2011 2012 Cost of Goods Sold \$4.11 \$4.15 \$4.34 Selling, General & Administrative \$4.14 \$4.00 \$3.84 Non Recurring Expenses \$0.05 NA NA Other Expenses \$0.47 \$0.44 \$0.41 Interest Expense \$0.03 \$0.03 \$0.02 Income Tax Expense \$0.45 \$0.48 \$0.50 Net Income \$0.88 \$1.05 \$1.03

We can now see by comparing Starbucks Corporation (NASDAQ:SBUX) latest quarter to their last three full years, that indeed their last quarter was a strong one. Management has started to show that they have their eye on the bottom line and can return a handsome net income margin.

Next question. How handsome is their net income margin really?

Take a look at Dunkin Donuts

 2010 2011 2012 Cost of Goods Sold \$1.96 \$1.98 \$1.84 Selling, General and Administrative \$3.87 \$3.83 \$3.99 Non Recurring Expenses \$0.12 \$0.03 \$0.02 Others \$1.00 \$0.84 \$0.85 Total Other Expenses \$1.06 \$0.53 \$0.05 Interest Expense \$1.96 \$1.67 \$1.12 Income Tax Expense (\$0.13) \$0.52 \$0.83 Net Income \$0.47 \$0.55 \$1.65

Dunkin Brands Group Inc (NASDAQ:DNKN) has really turned the heat up on Starbucks, dropping \$1.65 or 16.46% to their bottom line, compared to only \$1.03 or 10.33% for Starbucks Corporation (NASDAQ:SBUX).

Dunkin Brands Group Inc (NASDAQ:DNKN) is doing an outstanding job, spending only 18.4% on COGS, compared to a whopping 43.4% for Starbucks. There must be some huge margins on glazed donuts, because the two company’s must be paying similar amounts for their coffee.

After viewing this difference, I am curious to see how the other large coffee purveyor is doing with their COGS. I am of course speaking of McDonald’s Corporation (NYSE:MCD). I realize that this is not a fair comparison for Starbucks Corporation (NASDAQ:SBUX), but I thought it was worth the effort none the less to take a look.

After viewing their latest 10Q, it is evident that McDonald’s Corporation (NYSE:MCD) is a very well run company, because over the last four quarters, management has turned in very consistent COGS figures…60.73% (6/29/12), 60.09% (9/29/12), 60.75% (12/30/12) and 63.4% (3/30/13). While these are higher numbers than either Dunkin Brands Group Inc (NASDAQ:DNKN) or Starbucks are producing, this consistency tells me that COGS is well managed and at productive levels.

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