Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Weiyi Hao, Published: October 28, 2020 1:50pm Category: Earnings Preview (Fiscal 4Q2020)
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Model Description: This model predicts earnings and cash flows for Starbucks Corp (NASDAQ:SBUX) driven by estimates of comp-store sales and store count estimates. Ratio analysis is used to complete the financial statements. The Equity Risk Premium Model (ERP) uses the Fed Funds rate, 10-year U.S. Treasury rate, implied volatility, equity market returns, and the Constant Sharpe Approach, to estimate the Equity Risk Premium (ERP). The ERP and the Capital Asset Pricing Model (CAPM) are used together to calculate the required return on equity for the DCF-based share valuation within the Starbucks model.
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Modeling Notes From The Developer
Premise: As of 9.29.2019, stores opened in China counted as 70.36% total international stores. In my forecast, I have focused on China and adjusted the International Segment based on China's variation.
Evidence: The WeChat mini program was launched in May. The reward program was launched in June. Cooperation with Alibaba. Personally, I am well aware that China has completely recovered months ago.
Forecast Items of Note:
Premise: As of 9.29.2019, stores opened in China counted as 70.36% total international stores. In my forecast, I have focused on China and adjusted the International Segment based on China's variation.
Evidence: The WeChat mini program was launched in May. The reward program was launched in June. Cooperation with Alibaba. Personally, I am well aware that China has completely recovered months ago.
Forecast Items of Note:
- Row87: Based on management's guidance "International comparable store sales declines of 10% to 15% for Q4 and 20% to 25% for full year inclusive of a benefit from value-added tax exemption of approximately 3% and 1%, respectively (previously declines of 10% to 20% for Q4 and 20% to 30% for full year". I am modeling -5% here to recognize the fact that China has completely recovered from COVID and everyone is eager to go outside. That will boost coffee sales. I am modeling a 3% increase for 4 quarters in 2021 which is a significant decline from the base-case, as I do not believe China will experience a sudden increase in sales given that the country has already recovered from COVID.
- Row 113: Based on the call, expenses related to the international stores should be lower given the planned reduction in international licensee hardship assistance.
- Row 95: China has recovered from COVID in Q42020, plus the benefit of the royalty relief, I expect the average revenue per licensed store to be higher from Q4. The average number before COVID was around 0.033. People in China are so eager to get out so the number maybe higher than normal but since China is not the only global market, I expect the number to be 0.030 at Q42020.
- Row 43: I am modeling an increase in dividends of 10% starting from Q4 2020.
- Rows 206 & Row 209: Cash and equivalents keep decreasing, so starting from column AC, I decreased the payments for Current Portion of Debt and Long-term Debt.
Disclosure: The author of this article/model has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in the content represent the author’s opinions.