Starbucks increases leverage in 2014



Debt position

As of the quarter ended September 2014, Starbucks (SBUX) had a total debt of $2.048 billion, which increased from $1.299 billion year-on-year. This also increased the company’s interest obligation from $9 million to $16 million over the same period, as we can see in the chart below.

Total Debt 2014-11-30

Starbucks issued new long-term debt in the last quarter of 2013 and first quarter of 2014. The company issued four notes with $400 million expiring in 2016, $525 million expiring in 2017, $353 million expiring in 2018, and $786 million expiring in 2023. Starbucks (SBUX), the parent of Teavana, paid $35 million of long-term debt on Teavana’s balance sheet during the year. When we speak about debt, it is important to look at it in terms of ratios.

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Ratio analysis

As of the fourth quarter ended September 2014, Starbucks’ total debt-to-equity ratio was 0.38, which is calculated as total long-term and short-term debt over equity on the balance sheet. Total debt-to-asset ratio for the company was 0.19, which means that the company has five times more assets than debt to cover its obligation. Dunkin’ Brands (DNKN) had a debt-to-asset ratio of 0.58, and Tim Hortons (THI) had a debt-to-asset ratio of 0.57. This indicates that Brinker International (EAT), which runs casual restaurants, has a debt-to-asset ratio of 0.60. Starbucks (SBUX) doesn’t have as much leverage compared to these three restaurant stocks, which is good for investors since debt holders have the first obligation over the company compared to equity holders.

Some of the stocks mentioned above are included in the exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector Standard & Poors depositary receipt (or SPDR) fund (XLY), which can give give investors exposure to multiple restaurant companies. Let’s next look at the dividend payout.


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