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…
|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|
|Income Tax Expense||$0.45||$0.48||$0.50|
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
|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|
|Total Other Expenses||$1.06||$0.53||$0.05|
|Income Tax Expense||($0.13)||$0.52||$0.83|
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.