What Drives Starbucks’ Margin?
As per Trefis analysis Starbucks‘ (NASDAQ: SBUX) margins are affected by the Cost of Sales and Store and Other Operating expenses, together which will form more than 80% of Total expenses in FY 2020 (FY ends in September). Total expenses have trended steadily higher from around $18.5 billion in 2016 to about $22.9 billion in 2019. As a percentage of Total revenues, Total expenses have remained around 86% except in 2018, primarily due to higher Non-operating Income in the year.
In our interactive dashboard Starbucks Expenses: How Does Starbucks Spend Its Money?, we take a look at the key drivers of Starbucks’ expenses and net margins.
Breakdown of Starbucks’ Total Expenses
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- Cost of Sales: Cost of Sales have increased from $8.5 Bil in 2016 to $10.2 Bil in 2018 but fell back. As Cost of Sales has grown at a faster rate than Revenues, the Gross Profit Margin fell from around 60.1% in 2016 to 58.8% in 2018 but went up in 2019 to 67.8%
- Operating Expenses:
- Store & Operating expenses have increased from $6.6 billion in 2016 to $11 billion in 2019. As a % of Revenues, it has increased from 31% in 2016 to 41.5% in 2019.
- Depreciation & Amortization costs have increased from $1 billion in 2016 to $1.4 billion in 2019. As a % of Revenues, it has increased from 4.6% in 2016 to 5.2% in 2019.
- General & Administrative expenses have increased from $1.4 billion in 2016 to $1.8 billion in 2019. As a % of Revenues, G&A has increased from 6.4% in 2016 to 6.9% in 2019.
- Non-Operating Expense / (Income): Starbucks’ Non-Operating Expense / (Income) Has decreased From -$0.3 billion in 2016 to -$2.2 billion in 2018 and increased to about -$0.7 billion in 2019. The high decrease in 2018 was primarily due to a Gain from an acquisition in Joint Venture.
- Tax Expense: Starbucks’ Income Tax Expense has declined from $1.4 billion in 2016 to about $0.9 billion in 2019, driven by U.S. Federal Income Tax Reforms, with Effective Tax rate declining from 32.9% in 2016 to 19.5% in 2019.
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