The Hultian Spring 2017 | Page 52

these forecasts Starbucks is expanding towards more premium stores with the announcement of 25 to 30 new “Roastery” and “Reserve” stores including the highly-publicized Milan store that is planned to open in 2018. Also, the company plans to expand their “Channel Development” portfolio (all those Starbucks products you can buy at the supermarket), as this sector is expected to enjoy larger growth rates and Starbucks has the most powerful brand in world of coffee. In addition, Starbucks is looking to diversify its business to related products like high end experience store chain Teavana, Princi and juice brand Evolution Fresh. the company to go down 2% so far, this year. So, the question remains, does Starbucks still have the legs to grow and beat the market? To answer this question, we have to first read the income statement to see how much Starbucks’ sales have grown in recent years, how much of those sales have translated into earnings, and see how much of those earnings have translated into operating cash flows (earnings after adding non-cash expenses like depreciation back and subtracting all those cash expenses that don’t show in the income statement), and see how this will change in the future. Starbucks’ sales have grown at an average rate of 13% in the last three years (10.6% in 2014, 16.5% in 2015 and 11.2% in 2016) and an increase of 6.7% in year-to-year sales last quarter. Analysts are concerned with the growth of sales of retail coffee in the future as market experts forecast growth rates to slow down. To counter Another way Starbucks is trying to keep sales growing is by expanding their mobile app purchases, which represented 7% of all transactions last year. A significant proportion considering that it represented only 3% of all transactions just a year before. The volume of mobile transactions has increased so much, that in 1,200 stores they account for 20% of all transactions at peak time which puts a lot of pressure on baristas that see how demand exceeds capacity, which if we're being honest is a good problem to have. This modality of selling is important to consider as it also gives the company the option to open express stores in places with high traffic. All these considered, we are confident that Starbucks can maintain sales growth rates of at least 10% in the next five years. The second important set of metrics we are going to use to find the value of the company, are the operating income earnings. Earnings or net income refers to all the accounting profits generated by the company in a Starbucks: A Growth Story