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... orld's coffee-growing regions. On October 20, 1995, Starbucks Coffee Company released their "Framework for a Code of Conduct" in response to a grassroots campaign demanding that Starbucks set minimum standards for working conditions at the plantations from which they buy. In addition to pledging to limit child labor and support workers' access to safe housing and healthy workplaces, Starbucks code states that "we believe in the importance of progressive environmental practices and conservation efforts, "wage and benefit levels should address the basic needs of workers and their families, " and "people have the right to freely associate with whichever organizations they choose. " However, there are important shortcomings to Starbucks' new code. It lacks any reference to possible enforcement mechanisms such as discontinuing purchases from non-compliant suppliers. There is no explicit support for the right to collective bargaining nor opposition to discrimination, and there is no reference to consulting with unions to develop a plan for implementing the code in Guatemala.
The important next step will be to ensure that the Framework translates into concrete improvements for coffee workers. U. S. /GLEP plans to monitor Starbucks' efforts in Guatemala; ask other specialty coffee companies to make similar commitments; and explore ways to increase the awareness of these new industry standards. In Guatemala, Starbucks will research coffee worker conditions and discuss the development of industry standards with Anacafe, the Guatemalan coffee producer organization. Also, the company will continue to support a rural water and sanitation services program in the country. In Indonesia, Starbucks will work with the Nature Conservancy and CARE to promote sustainable agricultural environments in communities adjacent to Lore Links National Park.
In Sulawesi, an island of Indonesia, Starbucks will continue work to provide children with shoes for school. In Kenya, Starbucks will continue to sponsor publication of the comic book style Pied Crow Magazine, which focuses on improving health, agriculture, employment, family planning, and environmental education. In Ethiopia, Starbucks plans to help restore coffee growing in northwestern Ethiopia. FINANCIAL PLAN AND DATA: In order to fully recognize the impact of the tremendous growth of the Starbucks business, a brief re-look at the history and growth of the business is necessary.
The Company was started in 1971 with the opening of its first store in Seattle's Pike Place Market, selling roasted coffee by the pound. Early growth of the company was slow, and by 1987, the company had less than 100 employees and only 11 stores. In 1984, Howard Schultz convinced the owners of Starbucks to open their first coffee bar in downtown Seattle and it became overwhelmingly successful, and in 1987 Schultz purchased Starbucks, which he renamed the Starbucks Corporation... Since that time, the Starbucks Corporation has grown by leaps and bounds, growing over 50 % in most categories in each year since 1987. The table below illustrates their phenomenal achievements. 1996 1995 1994 1993 1992 1991 Net Sales (in millions) 696. 4 465. 2 284. 9 176. 5 103. 2 65. 3 Net Earnings (in millions) 42. 1 26. 1 1 While the corporate headquarters has remained in Seattle, Washington, Starbucks now has approximately 1, 004 stores in North America. In addition, the Company has roasting plants in Seattle; Kent, WA; and York, PA. , and a mail order catalog through which it sells coffee and related products all over the United States.
Starbucks is also beginning to spread outside the United States with stores in Canada, and with a joint venture with a Japanese company called Salary, to spread its products in Japan. Starbucks has also entered into agreements with food, hotel, and other chains to exclusively sell its products with them and to develop joint projects, such as its venture with Pepsi-Cola. Starbucks has had two public stock offerings and are traded on the NASDAQ National Market System under the trading symbol "SBUX", and has sold convertible debentures which are traded on the NASDAQ System under the trading symbol "SBUXG." Most of the data presented here is from the Company's 1995 Annual Report, which is the latest available. Starbucks' fiscal year runs from the first of October to the last day in September, so that references to the year 1995 mean 1 October, 1994 through 31 September 1995. In addition, a short summary of how the Company did as of June 30, 1996 is presented at the end and is taken from a Securities and Exchange Commission quarterly report.
Overall, Starbucks has had phenomenal growth, and it continues to expand and serve more markets. Based on the 1995 Annual Report, Starbucks has below average return on assets (5. 5 %) and return on equity (8. 4 %). However, this is consistent with a relatively new company that is in the fast growth stages because much of its income is going to expand retail and distribution networks, and to advertise to its new customer base. Its profit margin on sales is a healthy 5. 6 % and its general and administrative expenses as a percentage of net sales continues to fall, which shows that when the Company ends its torrid growth pace, it has the potential for solid earnings and returns. Starbucks' retail stores accounted for approximately 87 % of net sales during the fiscal year ended October 1, 1995. In these stores, sales continue to grow at a healthy pace.
In 1991, sales increased by 17 %, and in 1992 and 1993, sales increased by 19 % each year. 1994 and 1995 saw increases of only 9 %, but this is high relative to the number of stores open by this time. In 1995, net sales totaled $ 465, 213, 000. 00 generated by $ 402, 665, 000 in retail sales, an increase of 62 % over 1994 levels, $ 48, 143, 000 in specialty sales, an increase of 81 %, and $ 14, 415, 000 in mail order sales, a 46 % increase. The total sales figure of $ 465, 213, 000 compares quite well with the 1994 sales figure of $ 284, 923, 000 and 1993 's sales figure of $ 176, 541, 000. The sales figure for 1995 represents a 63 % increase in sales over 1994 's level and a whopping 164 % increase in sales over 1993 's level. These numbers alone show the astounding growth of Starbucks over just the last two years. Another good indication of how well Starbucks is growing is the net earnings.
The net earnings for 1995 came in at $ 26, 102, 000, which is 156 % above the net earnings figure for 1994 of $ 10, 206, 000, and 215 % above 1993 's figure of $ 8, 282, 000. The net earnings per share (EPS) in 1995 was $ 0. 36, which was well above 1994 's EPS of $ 0. 17 and 1993 's EPS of $ 0. 14. The total shareholders' equity in the Company in 1995 was $ 312, 231, 000, a 184 % increase in total shareholders' equity of $ 109, 898, 000 in 1993. Starbucks has also managed to hold down costs while undertaking this tremendous growth. Cost of sales and related occupancy costs as a percentage of net sales decreased to 44 % for 1995 compared to 44. 7 % for 1994.
This decrease was due to increased prices on coffee beverages and whole bean coffees and lower distribution and packaging costs as a percentage of net sales, but the Company expects higher costs this year due to higher coffee bean prices. Store operating expenses as a percentage of retail sales increased to 38. 6 % for 1995 from 37. 5 % for 1994 as a result of higher retail advertising expense and a higher provision for store remodels. However, general and administrative expenses as a percentage of net sales was 6. 2 % for 1995 compared to 7 % for 1994. This decrease as a percentage of sales was due to the company's ability to increase sales without proportionally increasing overhead expenses. Interest expense for fiscal 1995 was $ 3, 800, 000, unchanged from 1994 numbers. Operating income for 1995 increased to $ 40, 100, 000 or 8. 6 % of net sales, up from $ 23, 300, 000 or 8. 2 % of net sales for 1994.
Operating income as a percentage of net sales improved due to higher gross margin and lower general and administrative expenses as a percentage of sales, partially offset by an increase in store operating expenses and depreciation and amortization as a percentage of sales. Interest income for 1995 was $ 6, 800, 000 compared to $ 2, 100, 000 for 1994. The increase in interest income was due to higher average investment balances resulting from the Company's public offering of common stock in November 1994. The Company ended 1995 with $ 62, 000, 000 in total cash and investments. Working capital as of October 1, 1995 totaled $ 134, 000, 000 compared to $ 44, 200, 000 on October 2, 1994. Higher green coffee and merchandise inventories as well as higher cash and investment balances were the primary reasons for the improved working capital position at the end of 1995.
Cash provided by operating activities totaled $ 11, 400, 00 for 1995. Cash used by investing activities for 1995 totaled $ 175, 600, 000. This included capital expenditures of $ 129, 400, 000 to open 230 new Company-operated stores, remodel certain existing stores, expand existing office space, enhance existing information systems, and purchase equipment for the company's roasting plants and distribution facilities, including the new facility in York, PA. Cash was also invested in equity investments and joint ventures including an $ 11, 300, 000 investment in newly-issued shares of Series B Preferred Stock of Noah's New York Bagels, Inc. , and 1, 200, 000 in its joint venture with Pepsi-Cola. Cash provided from financing activities for 1995 totaled $ 176, 800, 000. In November 1994, the Company completed a secondary public offering of 12, 050, 000 shares of newly-issued common stock which generated net proceeds of approximately $ 164, 000, 000.
Of note is that Starbucks has had two, two-for -one stock splits so far in its history, one on September 29, 1993 and one on December 1, 1995, to holders of record on November 1, 1995. Approximately $ 3, 700, 000 in cash was received in repayment of stock subscription notes receivable. Cash provided from financing activities also included cash proceeds from, and repayment on, the Company's $ 30, 000, 000 line of credit, as well as cash generated in connection with the exercise of options to purchase shares of the company's common stock and the related income tax benefit available to the Company upon exercise of such options. Excess cash was invested primarily in investment-grade marketable debt securities. In order to meet its planned capital expansion goals, the Company completed a public offering of $ 165, 000, 000 in principal amount of its 4 1 / 4 % Convertible Subordinated Debentures Due 2002 during the first quarter of 1996. Proceeds to the Company were approximately $ 161, 000, 000.
The Company's rapid expansion requires more cash than it currently generates from its operations, which has forced it to seek outside funds in order to pay for the capital improvements. In a quarterly report to the Securities and Exchange Commission for the period ended June 30, 1996, the Starbucks Corporation reported continued explosive growth in earnings and operations. For the 39 weeks ended June 30, 1996, as compared to the 39 weeks ended July 2, 1995, net sales increased 49 % to $ 500, 095, 000, up from $ 335, 833, 000. Retail sales increased 49 % to $ 431, 243, 000 from $ 288, 726, 000, due to the addition of new retail stores combined with an increase in comparable store sales of 6 %. Specialty sales increased 54 % to $ 54, 495, 000 as compared to $ 35, 356, 000 for the corresponding period last year. During the 39 weeks ended June 30, 1996, the company opened 211 new stores, converted six Coffee connections stores to Starbucks stores, and closed one store.
Licensees opened 17 new stores. A summary of the financial data on the Starbucks Corporation shows that the Company is in the fast growth stage, but it continues to produce good numbers and has unlimited potential for growth and earnings. The Company had the the resources for its growth for 1996, but it may need additional public funds for any other expansion beyond that. Also, the Company is struggling under the coffee bean shortage and resulting higher bean prices which has resulted is less operating profit than expected. But overall, the company has the strength to overcome these minor setbacks and is set to continue to expand and grow, both in the U.
S. and overseas. PACIFIC/INTERNATIONAL EXPANSION: Starbucks, the world's largest gourmet coffee retailer, is hesitant to enter international markets. Starbucks Corporation has rapidly become the United States' top coffee retailer, roaster, and brand of specialty coffee. After thrilling Vancouver coffee lovers for nearly a decade, the Company opened several retail locations in southern Ontario last winter. The company hired more than 100 Torontonians to staff its first five locations.
The company enlisted area residents who bring a wealth of enthusiasm, community involvement, and dedication to Sta...
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Research essay sample on Complete Analysis Of The Starbucks Coffee Company
