Profit margins keep rising for Starbucks



Summary of Starbucks’ 4Q14 net income

In the fourth quarter of 2014, Starbucks (SBUX) reported a net income of $587 million compared to a net loss of $1.232 billion in the fourth quarter a year ago. The growth in net income was due to higher same-store sales and unit growth, as we saw earlier in this series. As you can see in the chart below, Starbucks’ net profit margins were also up to 14% compared to 12.3% in the second quarter and 11% in the first quarter of 2014. The company had a litigation charge of $2.742 billion in the fiscal year ended 2013, which is why it reported a net loss. Dunkin’ Brands (DNKN) had a profit margin of 28%, Tim Hortons (THI) had a profit margin of 10%, and McDonald’s (MCD) reported a profit margin of 15%.

Profitability Analysis 2014-11-30

Starbucks had an effective tax rate of 36.4%. McDonald’s (MCD) had an effective tax rate of ~44%, and Tim Hortons Inc. (THI), based in Ontario, Canada, had a much lower effective tax rate over the past four years, between 23% and 29%.

For a wider exposure to restaurant stocks, you might consider an exchange-traded fund (or ETF) like the Consumer Discretionary Select Sector Standard & Poors depositary receipt (or SPDR) fund (XLY), which includes some of the restaurant stocks mentioned above.

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Starbucks’ share repurchase program

Starbucks repurchased shares worth $10.5 million in the fiscal year 2014 and $10.8 million in fiscal year 2013. In dollar amounts, it was $769.8 million and $544.1 million, respectively. When a company repurchases shares, the number of outstanding shares in the market is fewer, which boosts the value per share. This is an alternate way of giving cash back to the shareholders.

The company disbursed $0.32 in dividends per share and has a yield of 1.3%. We’ll look at dividends in more detail in a later part of this series. Dividends are distributed from cash left after the company has made its obligation to its debt holders, after making capital expenditures. Next, let’s look at Starbucks’ debt position.


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