2004 Starbucks Comprehensive Valuation - Essay Example

A strategic analysis will review how Starbucks is moving towards achieving the company's mission and vision.The company's objective in the 2004 report of making Starbucks "the most recognized and respected brand in the world, to continue rapid expansion of retail operations and selectively pursue opportunities to leverage the brand through new products andnew channels of distribution" (SCC 13) is almost the same as the 1997 vision and mission, and show that Starbucks remains strategically focused and have clear, measurable targets.

One target Starbucks finds achievable (SCC 17) is "to operate 15,000 retail locations in the United States and at least 15,000 stores in International markets." The company had 8,569 stores by October 3, 2004, up by 18.6% from 7,225 in 2003 (SCC 12-13). This is 25.8% of the target and if they continue growing 18.6% a year, they will reach 30,000 by 2012.In 2004, Starbucks tapped high traffic areas by opening drive-thru stores and specialty coffee shops (SCC 13), increased store licensing activities (SCC 14) in the U.S. and abroad, and ventured with Kraft, Jim Beam, Visa, and XM Satellite Radio to leverage brand strength, invent new products, tap new distribution channels, and sell other products like music CDs and specialty teas (SCC 15).

Strategically, Starbucks is on the right path as it makes the right moves on the way to achieving its mission and vision.Financial analysis will focus on sales and profit growth and managing financial risks to see if its strategy of increasing stores leads to higher sales and profits. After all, part of their strategy is to leverage their competitive advantage: the unique Starbucks brand of coffee experience that can be enjoyed only in their stores (Schultz 249-254).Financial data (SCC 19-23) showed that as the number of stores grew 18.

9%, so did Starbucks's sales (up 29.9%), operating income (up 43.8%), earnings before income tax (up 43.1%), and net earnings after tax (up 46.2%), which proves that increasing the number of stores increased Starbucks's sales and profits. The first part of our financial analysis proves that Starbucks's strategy is sound and consistent: sales and profit growth will generate the capital needed to put up new stores and create the momentum for ever higher sales and profits.There are two reasons for analyzing how Starbucks manages financial risks.

Starbucks is a global corporation, doing business outside the U.S. (buying raw materials from and having stores in other countries), so it has to manage risks that can affect sales and profits. Second, its vision is to have the same number of stores in and outside the U.S. Although U.S. stores currently outnumber international stores by 2.5 to 1 (SCC 16) and U.S. revenues account for 85% of net revenues (SCC 20), as the company grows to 30,000 stores, their revenues outside the U.S. will grow and make risk management important.

The report (SCC 24-25 and 34-35) shows that Starbucks is managing its foreign currency (exchange rate fluctuations), equity security price (investments in mutual funds, though minimal), and interest rate (investment-grade fixed income instruments, also minimal) risks with the right financial instruments. It also manages other risks like cost of raw materials, product warranties (espresso machines), and off-balance sheet transactions (SCC 24).