April 17, 2015
Consumer Goods
Starbucks Corp.
Ticker: SBUX
Recommendation: Outperform
Current Price: $48.17
Price Target: $50.31
Investment Thesis
Key Statistics
52 Week Price Range
50-Day Moving Average

Same store growth and the continued opening of new stores will drive
revenue growth in the coming years

Expansion into emerging markets has exposed Starbucks to significant
growth in China and India where the company has downside protection
through its tea business

The purchase of remaining stake of Starbucks Japan will boost revenue as
well as allow the company to freely control and define the Starbucks
experience

An enhanced food menu and newly introduced mobile ordering system will
build customer loyalty and attract customers to stores beyond peak morning
selling hours
$33.97 - $49.60
$47.26
Estimated Beta
0.97
Dividend Yield
1.40%
Market Capitalization
$72.24B
3-Year Revenue CAGR
12.02%
Trading Statistics
Diluted Shares Outstanding
Average Volume (3-Month)
Institutional Ownership
Insider Ownership
EV/EBITDA (LTM)
Five-Year Stock Chart
1.52B
9.49MM
350,000,000
$50.00
73.91%
2.69%
19.9x
Margins and Ratios
300,000,000
$40.00
250,000,000
200,000,000
$30.00
150,000,000
$20.00
Gross Margin (LTM)
58.30%
EBITDA Margin (LTM)
21.42%
Net Margin (LTM)
12.57%
Debt to Enterprise Value
400,000,000
$60.00
100,000,000
$10.00
50,000,000
$0.00
Apr-10
0
Nov-10
0.03x
Jun-11
Volume
Jan-12
Aug-12
Adjusted Close
Mar-13
Oct-13
50-Day Avg
May-14
Dec-14
200-Day Avg
Covering Analysts:
Hayden Conrad - haydenc@uoregon.edu
John Roskos - jroskos@uoregon.edu
1
University of Oregon Investment Group
University of Oregon Investment Group
Figure 1: The Starbucks Experience
Business Overview
Founded in 1985, Starbucks Corporation is the world’s leading coffee roaster,
marketer and retailer of coffee. The company operates in 65 countries through
both company-owned and licensed stores. Through the company stores, Starbucks
sells roasted and handcrafted coffees and teas, along with gourmet food items and
other types of drinks. In addition to the Starbucks Coffee brand, the company also
sells products under the Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh,
La Boulange and Ethos brands. The business continues to grow, having its best
ever holiday season in 2014 with 1 in 7 Americans receiving a Starbucks gift card.
Americas – 73%
Source: Starbucks
Figure 2: Starbucks Revenue Composition by Region
As Starbucks’ most developed segment, this consists of the company’s operations
in the U.S., Canada, and Latin America. Revenues from the segment totaled $11B,
with 91.3% coming from company-operated stores, 8.3% from licensed stores,
and 0.4% coming from consumer packaged goods and foodservice. For the
company-owned stores in the segment, same store sales increased by 7%, while
404 net new licensed stores were opened in 2013.
Europe, Middle East and Africa (EMEA) – 8%
With less of a foothold in these regions, Starbucks has turned to licensed stores
for an increasing portion of its revenues. For the year ended 2013, 16.4% of
revenue came from these stores, with 129 net new store openings.
China/Asia Pacific (CAP) – 7%
Revenue from this segment increased 23% in 2013 thanks to the opening of 250
net new company-owned stores and a 7% increase in same store sales. In addition,
492 net new licensed stores were opened, now making up 23.9% of segment
revenue. Previously, Starbucks Japan had been a joint venture but within the next
quarter, Starbucks will have complete ownership. The company still has joint
ventures in China and Korea. As of September 2014, 76.1% of the segment
revenue originated from company-owned stores, but this is increasing as
Starbucks is shifting away from licensing and JVs as it builds its understanding
of the region.
Source: SEC Filings
Figure 3: Revenue Growth ($ in millions)
Channel Development – 9%
This segment is mostly driven by consumer packaged goods, making up 76.2% of
revenue, with the other 23.8% coming from foodservice. The most recent products
to be added to this segment are Starbucks Coffee Keurig K-Cups, helping drive
the 10% segment revenue growth in the first quarter of 2015. These K-Cups have
seen a recent expansion in grocery stores as Starbucks and Keurig Green
Mountain continue to invest in their successful partnership.
40000
35000
All Other Segments – 3%
30000
This segment includes all other non-reportable business segments, consisting of
Teavana, Seattle’s Best Coffee, Evolution Fresh, and the company’s Digital
Ventures business. This segment expanded more than 25% last year through the
acquisition of Teavana, adding revenues of nearly $100MM.
25000
20000
15000
10000
Kraft Arbitration Settlement
5000
0
Source: UOIG Projections
In 2013, Starbucks was ordered to pay $2.8B to Kraft Foods after terminating a
business partnership three years early. Starbucks had offered to buy Kraft out of
the partnership early in 2010 for $750MM after accusing of Kraft of failing to
promote their products, but Kraft refused. Starbucks then ended the agreement
UOIG 2
University of Oregon Investment Group
Figure 4: U.S. Coffee Consumption Per Capita (lbs)
anyway in 2011, to which Kraft filed for arbitration. To help finance this expense,
Starbucks issued a total of $750MM in senior notes to the public.
Industry
10.2
10
Overview
9.8
During the 2008 recession, the coffee shop and coffee production industries were
hit hard as consumer confidence plummeted. Starbucks was hit especially hard as
consumers eliminated premium food and beverages from their budgets. Since then
however, people have returned to work and demand for coffee and other
convenient snacks has increased. Coffee consumption has also been shifting to
more elaborate espresso style drinks as well as single cup brewing systems. The
convenience from single cup home brewing systems has made coffee more
popular and has helped drive coffee production.
9.6
9.4
9.2
9
8.8
8.6
Source: IBISWorld
Macro factors
Figure 5: Starbucks K-Cups
Consumer spending and the consumer confidence index are the two most
important economic factors driving industry revenue. This is especially important
for the more premium coffee roasters and shops such as Starbucks, which is a
luxury to many. With that, an increase in consumer spending increases luxury
good consumption, with more consumers stopping by Starbucks for their morning
buzz. Likewise, as the unemployment rate continues to drop, an increasing
number of people will be drinking coffee on their morning commute. This has
caused per capita coffee consumption to increase by 1.3% each year from 2009 to
2014, and is expected to increase by about 0.5% each year until 2019.
Competition
Competition for stores is comes from two different types of companies. The main
type of competition stores face is from other established chains, such as Dunkin
Donuts and Dutch Bros. These stores have brand equity and thus have a consumer
following in the same way that Starbucks does.
thecoffeedoge.com
Figure 6: World Price of Coffee ($ per lb)
$2.50
$2.00
The other main type of competition in the industry is from local coffee roasters
and shops. Many consumers prefer to support local companies and not
multinationals such as Starbucks and thus choose to support the smaller shops.
However, because the consumer bases for these companies have distinct
preferences, pricing pressure is not as prevalent for traditional coffee shops.
Companies instead compete on their sense of environment. McDonald’s has also
entered into the coffee business, advertising their mornings brews as a cheaper
alternative to the more established coffee houses.
According to IBISWorld, the most important key factor to success in this industry
is having a clear market position. Each of the major coffee chains has
differentiated itself from the competition in order to attract customers in one way
or another. Controlling costs is also key as margins are low within the industry,
with the average profit margin being estimated at 5.9%.
$1.50
$1.00
$0.50
$0.00
Source: IBISWorld
Competition within the industry is high and increasing, with many innovations
occurring in the home brewing market. Keurig K-Cups and Nespresso machines
have become extremely popular as people elect to invest in a machine that will be
less expensive in the long run. These machines offer greater quality coffee that
can compete with coffee shops as a cheaper alternative. Competition from nontraditional coffee shops is also increasing, as fast food chains see the coffee and
breakfast food industry as being very lucrative and can advertise themselves as a
cheaper alternative.
UOIG 3
University of Oregon Investment Group
Figure 7: U.S. Consumer Confidence Index
120
100
80
60
40
The barriers to entry are low in the coffee shop industry, as it does not take much
to open a store. A large portion of the industry is made up of small, independent
shops. However, the coffee roasting industry is much harder to enter, as
economies of scale are key to keep production costs low. Pricing is key as people
chop for coffee grounds, because they are brewing their coffee at home to save
money. Thus, it is easy for the large roasters such as Starbucks and Dunkin Donuts
to maintain their market share because newly established roasters will not be able
to compete on price.
As for the coffee production industry, Starbucks has a much smaller market share
at 14.2%. Barriers to entry are much higher, with economies of scale being key.
20
0
Strategic Positioning
Source: IBISWorld
Figure 8: Inside a Teavana Store
The Starbucks Effect
As the largest coffee roaster and seller, Starbucks has access to economies of scale
that others don’t. As such, it also has the largest market share, with 42.4%.
Achieving such a dominant grip on the U.S. and global coffee markets is founded
in the company’s focus on the in-store experience. Each brick-and-mortar store is
unique, and is designed carefully to reflect the culture of the surrounding area.
A report by real estate group Zillow has found that the presence of a Starbucks
store increases the value of homes in the surrounding area. The value of homes
within a quarter-mile radius of a Starbucks increased in value by 96% compared
to 65% of all U.S. homes. The company closes only a fraction of stores each year
compared to new store openings. For every 1 store closed globally, 5 new ones
are opened. What this signals is a community adoption of Starbucks stores,
leading them to become a fixture in each community.
Customer Experience
Starbucks sells customers not only on their drinks and food, but the in-store
experience. Each store is carefully designed to reflect the unique characteristics
of the neighborhoods they are in. The company-operated stores are built by
sourcing local materials, and employing local craftsmen.
Source: aaronleitz.com
Figure 9: Starbucks Refreshers
The company first began the remodeling and new design process in 2009. Along
with enhancing the customer experience, management sought to benefit from
strategies that would control costs. The Leed certified stores would:



Derive half of the energy consumed from renewable sources
Enhance energy efficiency by 25%
Install LED bulbs in 100% of stores to cut down on energy costs
Business Growth Strategies
Be the Employer of Choice
Starbucks increasingly places emphasis on treating their employees better than
anybody in the business. The company has found that 47% of customers come to
Starbucks because they feel a connection with the barista. By investing heavily
into healthcare and education for their employees, Starbucks works to ensure that
their employees are being taken care of. Further, the company has found that 27%
of customers choose Starbucks because of the company’s reputation for fair
treatment of employees.
Source: greencoffeebreanreviews.com
UOIG 4
University of Oregon Investment Group
Figure 10: Total Store Count
Starbucks recently partnered with Arizona State University to provide 100%
coverage for four years to employees seeking an online Bachelor’s degree. This
program coupled with Bean Stock, which provides stock options for every single
employee, creates an employee experience that separates Starbucks from
competition.
Strategic Store Expansion
Over the next 5 years, the company plans to grow their store count to over 30,000
across all of their current markets. Further, there will be one Starbucks store
opening every 6 hours, 24 hours a day every day for the next 5 years. Contrary to
the common belief that the company has reached market saturation, the company
operates only 2,540 stores across Europe and 4,984 in Asian markets. Compare
this to 15,822 stores in the Americas as of 2014, there is ample room for store
expansion in foreign markets.
Source: UOIG Projections
Figure 11: Starbucks Mobile Pay App
Over the past two years, Starbucks has seen over 20% revenue growth in the
China, Asia Pacific (CAP) segment. China is the fastest growing market globally,
with 1,600 stores open in 90 cities. The company anticipates having 3,400 stores
in China by 2019 to capitalize on cultural tastes that are shifting towards favoring
coffee.
Each store is carefully designed to reflect characteristics of the surrounding area.
Beyond strictly brick and mortar stores, Starbucks is increasingly opening flexible
store formats like drive-through stores and mobile locations.
Expanding the CPG Segment
CPG (Consumer Packaged Goods) consists of products like K-cup packs and
brew-at-home ground coffee bags meant to be consumed outside of Starbucks
stores. Only 20% of total coffee consumption happens inside traditional café’s.
This leaves 80% of consumers purchasing and consuming coffee outside of brick
and mortar stores. CPG products represent a tremendous avenue for sales growth,
with K-cup single-serve products leading the way. Starbucks launched their Kcup packs in 2011, and has since sold over 2.3 billion units.
Source: UOIG Projections
The recent partnership with Tingyi, China’s leading beverage providers, allows
Starbucks to sell their ready-to-drink products in the Chinese mainland markets.
The company has predicted that this ready-to-drink segment will grow by over
20% in the next three years in China.
Customer Loyalty Programs
With the release of the Starbucks App across all smart-phone platforms, the
company has extended the Starbucks experience into the mobile realm. Through
a mobile order and pay system, customers can conveniently order outside of the
store can skip the hassle of waiting in line.
Figure 12: Channel Development Revenue ($ in
Millions)
In the U.S. alone, there are over 14 million Starbucks mobile app users, and 8
million mobile payment transactions are processed weekly. During the holiday
season, 1 in 7 adults in the U.S. received a Starbuck gift card. The intention of
the mobile payment system is to integrate customers into the “My Starbucks
Rewards” (MSR) program. MSR members can receive various benefits depending
on how many drinks they purchase during a 12-month period.
The MSR program provides a competitive advantage, as customers seeking to
earn rewards will purchase exclusively from Starbucks.
Growing the Food and Teavana Business
Source: UOIG Projections
UOIG 5
University of Oregon Investment Group
Figure 13: Starbucks Food Display
Peak sales for Starbucks occur during the morning hours, when coffee
consumption is at its highest. To spur growth, Starbucks is enhancing their food
and Tea products to attract customers at lunch and evening times. Food sales at
breakfast and lunch were up 14% during the fourth quarter of 2014, and Teavana
iced teas grew at 40% during the same period. Capturing customers during the
lunch hour is crucial to food sales growth, which the company expects to double
to $2B by 2019.
Management and Employee Relations
Howard Schultz – Founder, Chairman, President and CEO
Mr. Schultz has been with Starbucks since 1981. Setting out to cultivate an
environment that supports workers and customers, Mr. Shultz was behind the
implementation of full health coverage for full and part time workers. Mr. Schultz
commitment to leadership has been recognized by Fortune Magazine, awarding
him with the 2011 Businessperson of the year.
Source: agbeat.com
Michael Conway – Starbucks Global Channel Development
Figure 14: Total Cash Dividends Returned to
Shareholders ($ in Millions)
$1,800.00
$1,600.00
$1,400.00
Mr. Conway oversees business units like CPG and Licensed Stores management.
Prior to Starbucks, Mr. Conway worked for more than 20 years for McNeil
Nutritionals which marketed CPG products like Splenda and Campbell Soup. Mr.
Conway brings this experience is critical in helping the company expand their
CPG business. Mr. Conway holds a Bachelor of Arts degree from Duke
University and a Masters degree from the Wharton School of the University of
Pennsylvania.
$1,200.00
Deveral Maserang – EVP Global Supply Chain
$1,000.00
$800.00
$600.00
$400.00
$200.00
$0.00
2012
2013
2014
Mr. Maserang oversees the end-to-end supply chain operations of global
distribution and inventory management. Prior to joining Starbucks in 2013, Mr.
Maserang worked for more than two decades in supply-chain management of
Chiquita Brands. Starbuck’s turnaround in supply chain cost efficiencies can be
attributed to Mr. Maserang’s leadership.
Source: Starbucks Investor Relations
Recent News
Starbucks: 99% Ethically Sourced Java – USA Today –
4/10/2015
Figure 15: U.S. Consumer Spending ($ in Billions)
By investing more than $70 million in ethically sourcing its coffee, the company
makes sure their suppliers meet economic, environmental, and social farming
standards. This represents over 400 million pounds of coffee that is ethically
sourced.
Starbucks College Plan Called Better Than a Wage Hike –
CNBC – 4/11/2015
$14,000.00
$12,000.00
$10,000.00
Starbucks partnered with Arizona State University to provide 100% coverage to
all employees seeking a 4 year online Bachelor’s degree. So far, 2,000 workers
have enrolled in the program. The company expects to spend $250 million or more
over the next decade on tuition.
$8,000.00
$6,000.00
$4,000.00
$2,000.00
$0.00
Source: IBISWorld
UOIG 6
University of Oregon Investment Group
Catalysts
Figure 16: US Disposable Income Per Capita
Upside




Expansive new store openings will spur growth in international markets
Increasing shelf-presence of Starbucks branded CPG and Ready-ToDrink products will supplement out-of-store sales
Growing adoption of Starbucks mobile app users will enhance loyalty
and sales
By enhancing the current food and Teavana selection, Starbucks will
draw customers to stores beyond just peak morning hours
Downside
Source: Federal Reserve Bank of St. Louis




Figure 17: Keurig Green Mountain Coffee
Roasters Logo
Source: wptz.com
Potentially sluggish cultural adoption of coffee in historically Tea
dominated Asian markets
Highly dependent on the success of CAP and EMEA regions
Increases in the costs of Arabica coffee beans could hinder cash flows
Opening too many stores could possibly over-saturate the domestic
market
Comparable Analysis
Comparable companies were chosen based off operating in a similar industry to
Starbucks, revenue growth rates, international presence, and margins. Size varies
among the comparable companies chosen, which in turn drastically affects the
multiples and leads to Starbucks trading at a premium. Judging Starbucks strictly
by comparable analysis understates the company’s brand equity and story behind
the investment. We believe that due to the unique position Starbucks is in, with
considerable growth remaining for such a large company, that comparable
analysis is a poor measure of value. This leads to the comparable analysis
receiving a 10% weighting in the overall valuation.
Keurig Green Mountain Inc. (GMCR) – 35%
Figure 18: Chipotle Mexican Grill Logo
”Keurig Green Mountain, Inc. produces and sells specialty coffee, coffeemakers,
teas, and other beverages in the United States and Canada. It sources, produces,
and sells coffee, hot cocoa, teas, and other beverages under various brands in KCup…portion packs. The company was formerly known as Green Mountain
Coffee Roasters, Inc. and changed its name to Keurig Green Mountain, Inc. in
March 2014. Keurig Green Mountain, Inc. was founded in 1981 and is based in
Waterbury, Vermont.” – Yahoo! Finance
GMCR received the highest weighting as they are the leading company in the
CPG market. Growth outlook is similar to Starbucks, as the company is well
positioned to capture the growth of the CPG market. Like Starbucks, GMCR faces
similar risks in the fluctuation of green coffee bean prices, and their success is
contingent on the expanding international ready-to-drink market.
Chipotle Mexican Grill, Inc. (CMG) – 30%
Source: brandprofiles.com
UOIG 7
University of Oregon Investment Group
Figure 19: YUM! Brands Logo
“Chipotle Mexican Grill, Inc., together with its subsidiaries, develops and
operates fast-casual and fresh Mexican food restaurants. As of February 3, 2015,
it operated approximately 1,780 restaurants, including 17 Chipotle restaurants and
9 ShopHouse Southeast Asian Kitchen restaurants. The company was founded in
1993 and is based in Denver, Colorado.” – Yahoo! Finance
Chipotle’s margins are the most similar to Starbucks in each category, and is also
in a period of rapid store expansion. Revenue growth expectations are in line with
Starbucks, as well are EBITDA and EPS growth outlook. Chipotle was weighted
lower than GMCR however because it operates in a different industry and is
exposed to greater input cost risks.
YUM! Brands, Inc – 25%
Source: bizjournals.com
Figure 20: Dunkin’ Brands Group Logo
“YUM! Brands, Inc., together with its subsidiaries, operates quick service
restaurants. It operates in five segments: YUM China, YUM India, the KFC
Division, the Pizza Hut Division, and the Taco Bell Division. The company
develops, operates, franchises, and licenses a system of restaurants, which
prepare, package, and sell various food items. As of February 4, 2015, it operated
approximately 41,000 restaurants in approximately 120 countries and territories.”
– Yahoo! Finance
YUM! Brands is the closest company to Starbucks in terms of size, and delivers
similar profitability margins. The company has a similar global presence, yet does
not offer premium quality products like Starbucks. The lower priced products
targets a different type of consumer than Starbucks, who are reliant on consumer
willingness to spend more for a higher priced coffee. Due to these differences,
YUM! Brands was the second lowest weighting, receiving only 25%.
Dunkin’ Brands Group, Inc. – 10%
Source: prnewswire.com
Figure 22: Starbucks Revenue By Segment
“Dunkin’ Brands Group, Inc., together with its subsidiaries, develops, franchises,
and licenses quick service restaurants under the Dunkin’ Donuts and BaskinRobbins brands worldwide. As of December 27, 2014, the company had
approximately 11,310 Dunkin' Donuts points of distribution; and 7,552 BaskinRobbins points of distribution, which are primarily owned and operated by
franchisees. It also leases franchised restaurant properties in Canada, as well as
office space in Brazil, China, Dubai, and the United Kingdom.” – Yahoo! Finance
Dunkin Brands was chosen as a comparable company because they compete with
Starbucks coffee products. The company also operates through a franchisor
franchisee store system, and has a similar international presence. Margins for
Dunkin’ Brands are higher than Starbucks, due to the lower quality inputs, and
lead us to weight DNKN 10%.
Discounted Cash Flow Analysis
Source: UOIG Projections
Revenue Model
Revenue was broken down by geographic region into company operated and
licensed stores. Company operated store revenue was calculated by finding
average same store revenue and adding it to average new store revenue. Average
UOIG 8
University of Oregon Investment Group
revenue was then grown by the projected growth rate and multiplied by the
existing store count to find total same store revenue. Existing store count is
defined as the number of stores at the end of the previous year, subtracting stores
closed throughout the year. Average new store revenue was multiplied by the
number of stores opened to find total new store revenue, which was projected by
expected number of store openings. For licensed stores, the data available only
allowed for an average revenue per store figure, which was then grown by a
projected percentage and multiplied by the estimated number of stores to find total
licensed store revenue. These were then added up to find total revenue per
geographic segment. Channel development and all other segments were projected
out using a growth percentage in line with management’s guidance. Each of these
revenue segments are expected to slow in growth going into the terminal year.
Figure 21: Starbucks Net Margin
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2011
2013
2015E
2017E
2019E
2021E
2023E
Source: UOIG Projections
Figure 23: COGS Including Occupancy Costs
(% of Revenue)
Cost of Goods Sold
As management continues to hone cost-saving strategies, COGS are expected to
decrease as a percentage of revenue going forward. Although prices of greencoffee beans are anticipated to increase, Starbucks operates six farmer support
centers designed to promote best practices and reduce production costs. This
combined with favorable transportation costs due to low oil prices will contribute
to leaner COGS.
COGS will directly reflect management’s push towards including higher margin
wine and beer products in stores. The favorable margins for wine and beer will
contribute to a decrease in COGS going forward.
Store Operating Expenses
Operating expenses are projected to decrease as a percentage of revenue as the
company develops operating efficiencies. This reflects the historical downward
trend.
45.00%
44.00%
43.00%
42.00%
41.00%
40.00%
39.00%
38.00%
2011
2013
2015E
2017E
2019E
2021E
2023E
Tax Rate
Management guidance stated an expected 2015 tax rate of 31%. Moving forward,
tax rate is projected to decrease to a terminal rate of 30.5%. As Starbucks
continues to move more into international markets, the company will benefit from
favorable foreign tax rates.
Source: UOIG Projections
Recommendation
Figure 24: Final Valuation
Final Valuation
Intrinsic Valuation
Relative Valuation
Final implied Price
Current Price
% Undervalued
Implied Price
$54.02
$43.24
$52.94
$48.50
9.16%
Source: UOIG Projections
General and Administrative
As Starbucks continues to open a large amount of new stores, General and
Administrative is projected to increase as a percentage of revenue until 2019. This
captures costs associated with Starbucks partnership with ASU to provide
education for all employees, and the increase in company provided Healthcare
costs for employees.
Weighting
90%
10%
Starbucks is in a unique period of their company history. Despite being an
established global powerhouse, they are still in the early innings of a period of
expansion. The company plans to open 7,300 stores globally over the next 5 years,
CPG sales are expected to increase as the ready-to-drink market grows, and supply
chain strategies will contribute to higher margins. A 90/10 weighting favoring the
intrinsic valuation over the relative valuation sets a price target of $52.94. It is
recommended that SBUX will outperform and should be added to Svigals, Tall
Firs, and DADCO portfolios.
UOIG 9
April 17, 2015
University of Oregon Investment Group
Appendix 1 – Relative Valuation
Comparables Analysis
SBUX
Starbucks
Corporation
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$683.02
1.81
Min
$48.50
0.91
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
267.00
3,077.00
861.59
66.00
0.00
1,526.00
74,011.00
76,059.40
0.00
0.00
0.00
0.00
0.00
31.51
5,240.32
6,823.95
12.83
1,035.92
629.03
9.72
0.00
133.14
19,718.14
19,053.77
Growth Expectations
% Revenue Growth 2015E
% Revenue Growth 2016E
% EBITDA Growth 2015E
% EBITDA Growth 2016E
% EPS Growth 2015E
% EPS Growth 2016E
17.60%
15.20%
22.49%
18.73%
21.84%
19.91%
6.08%
6.94%
5.04%
8.77%
4.13%
11.23%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
72.82%
42.43%
48.51%
23.55%
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Median
Weight Avg.
$98.28
$270.63
1.23
1.36
GMCR
Keurig Green
Mountain, Inc.
CMG
Chipotle
Mexican Grill,
Inc.
YUM
YUM! Brands,
Inc.
DNKN
Dunkin' Brands
Group, Inc.
$48.50
0.91
35.00%
$116.54
1.04
30.00%
$683.02
1.81
25.00%
$80.02
1.41
10.00%
$49.26
1.05
74.64
1,040.73
678.21
21.55
0.00
189.22
22,237.57
22,696.28
0.00
2,048.40
0.00
1.70
0.00
1,526.00
74,011.00
76,059.40
21.30
257.18
861.59
12.44
0.00
159.57
18,899.27
18,328.60
0.00
0.00
758.06
0.00
0.00
31.51
20,537.00
19,778.94
267.00
3,077.00
500.00
66.00
0.00
453.00
35,750.76
38,660.76
4.36
1,814.66
242.38
6.99
0.00
106.71
5,240.32
6,823.95
6.33%
12.02%
6.37%
13.32%
9.38%
17.36%
9.67%
12.75%
10.89%
14.40%
11.62%
16.96%
17.33%
15.20%
9.41%
18.73%
10.81%
11.23%
6.21%
15.11%
5.04%
13.55%
4.13%
14.21%
17.60%
15.14%
22.49%
18.37%
21.84%
19.91%
6.45%
8.92%
7.37%
13.09%
11.64%
16.96%
6.08%
6.94%
5.37%
8.77%
7.12%
17.76%
24.52%
15.12%
19.97%
7.91%
32.22%
18.79%
23.13%
11.76%
34.60%
20.30%
25.02%
12.02%
57.00%
15.67%
19.97%
10.81%
38.56%
20.11%
25.58%
12.67%
24.52%
17.47%
20.16%
10.84%
25.88%
15.12%
20.69%
7.91%
72.82%
42.43%
48.51%
23.55%
$130.00
0.27
4.48
88.17
$0.00
0.00
0.00
0.00
$37.84
0.05
0.67
11.45
$42.99
0.05
0.81
35.69
$0.00
0.03
0.53
0.00
$11.69
0.02
0.22
88.17
$0.00
0.00
0.00
0.00
$130.00
0.09
1.13
16.91
$63.99
0.27
4.48
6.00
$19,298.93
$11,000.39
$3,024.14
$3,854.00
$2,086.66
$1,543.91
$794.21
$632.25
$383.80
$406.10
$182.27
$27.60
$4,915.55
$1,641.67
$956.61
$1,143.39
$603.45
$345.34
$6,812.61
$2,122.14
$1,213.45
$1,529.40
$792.29
$515.99
$19,298.93
$11,000.39
$3,024.14
$3,854.00
$2,086.66
$1,543.91
$4,999.96
$1,943.15
$1,030.81
$1,280.34
$666.39
$453.73
$4,831.13
$1,340.20
$882.41
$1,006.45
$540.50
$236.94
$14,135.46
$3,907.00
$2,198.26
$2,954.94
$1,514.69
$1,133.39
$794.21
$632.25
$383.80
$406.10
$182.27
$27.60
8.6x
14.8x
25.2x
19.7x
32.9x
38.0x
2.7x
6.9x
17.6x
13.1x
18.0x
23.6x
3.9x
10.3x
17.8x
15.6x
21.7x
28.6x
4.1x
11.3x
19.1x
15.9x
22.6x
30.1x
3.9x
6.9x
25.2x
19.7x
32.9x
35.5x
3.7x
9.4x
17.8x
14.3x
22.2x
28.4x
4.1x
14.8x
22.4x
19.7x
25.7x
38.0x
2.7x
9.9x
17.6x
13.1x
21.2x
23.6x
8.6x
10.8x
17.8x
16.8x
18.0x
28.8x
UOIG 10
April 17, 2015
University of Oregon Investment Group
Appendix 2 – Discounted Cash Flows Valuation
Discounted Cash Flow Analysis
($ in millions)
2015E
2016E
Total Revenue
$11,700.4
$13,276.8
$14,866.8
$16,447.8
$19,298.9
$22,233.3
$25,083.6
$27,941.4
$30,844.9
$33,155.2
$35,728.2
$38,324.8
$40,750.7
% YoY Growth
9.27%
13.47%
11.98%
10.63%
17.33%
15.20%
12.82%
11.39%
10.39%
7.49%
7.76%
7.27%
6.33%
6.16%
Cost of Sales including Occupancy Costs
4,915.5
5,813.3
6,382.3
6,858.8
8,298.5
9,492.4
10,632.7
11,758.7
12,886.3
13,750.2
14,708.1
15,660.0
16,526.7
17,412.3
% Revenue
2011A
2012A
2013A
2014A
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
$43,260.3
42.01%
43.79%
42.93%
41.70%
43.00%
42.69%
42.39%
42.08%
41.78%
41.47%
41.17%
40.86%
40.56%
40.25%
Gross Profit
$6,784.9
$7,463.5
$8,484.5
$9,589.0
$11,000.4
$12,740.9
$14,450.9
$16,182.7
$17,958.6
$19,405.0
$21,020.1
$22,664.9
$24,224.0
$25,848.0
Gross Margin
57.99%
56.21%
57.07%
58.30%
57.00%
57.31%
57.61%
57.92%
58.22%
58.53%
58.83%
59.14%
59.44%
59.75%
3,594.9
3,918.1
4,286.1
4,638.2
5,403.7
6,163.6
6,884.1
7,590.7
8,293.9
8,823.0
9,408.4
9,985.7
10,504.6
11,031.4
30.72%
29.51%
28.83%
28.20%
28.00%
27.72%
27.44%
27.17%
26.89%
26.61%
26.33%
26.06%
25.78%
25.50%
392.8
407.2
431.8
457.3
584.8
673.7
760.0
846.6
934.6
1,004.6
1,082.6
1,161.2
1,234.7
1,310.8
3.36%
3.07%
2.90%
2.78%
3.03%
3.03%
3.03%
3.03%
3.03%
3.03%
3.03%
3.03%
3.03%
3.03%
523.3
550.3
621.5
709.6
829.9
960.5
1,086.1
1,215.4
1,347.9
1,455.5
1,554.2
1,667.1
1,772.7
1,881.8
4.47%
4.14%
4.18%
4.31%
4.30%
4.32%
4.33%
4.35%
4.37%
4.39%
4.35%
4.35%
4.35%
4.35%
749.3
801.0
937.9
991.3
1,157.9
1,327.8
1,491.1
1,653.2
1,816.4
1,943.3
2,084.1
2,225.0
2,354.5
2,487.5
6.40%
6.03%
6.31%
6.03%
6.00%
5.97%
5.94%
5.92%
5.89%
5.86%
5.83%
5.81%
5.78%
5.75%
-
-
2,784.10
(20.20)
-
-
-
-
-
-
-
-
-
-
0.00%
0.00%
18.73%
(.12%)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
$1,524.6
$1,786.9
($576.9)
$2,812.8
$3,024.1
$3,615.4
$4,229.7
$4,876.7
$5,565.8
$6,178.7
$6,890.8
$7,625.8
$8,357.5
$9,136.6
13.03%
13.46%
(3.88%)
17.10%
15.67%
16.26%
16.86%
17.45%
18.04%
18.64%
19.29%
19.90%
20.51%
21.12%
(203.9)
(210.7)
(251.4)
(268.3)
-
-
-
-
-
-
-
-
-
-
(1.74%)
(1.59%)
(1.69%)
(1.63%)
-
-
-
-
-
-
-
-
-
-
Store Operating Expenses
% Revenue
Other Operating Expenses
% Revenue
Depreciation and Amortization
% Revenue
General and Administrative
% Revenue
Litigation Charge (Credit)
% Revenue
Earnings Before Interest & Taxes
% Revenue
(Income) from Equity Investees
% Revenue
Interest (Income) and Other
% Revenue
Interest Expense
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Income (Loss) to Noncontrolling Interests
(115.9)
(94.4)
(123.6)
(142.7)
-
-
-
-
-
-
-
-
-
-
(.99%)
(.71%)
(.83%)
(.87%)
-
-
-
-
-
-
-
-
-
-
33.3
32.7
28.1
64.1
-
-
-
-
-
-
-
-
-
-
.28%
.25%
.19%
.39%
-
-
-
-
-
-
-
-
-
-
1,811.1
2,059.3
(230.0)
3,159.7
3,024.1
3,615.4
4,229.7
4,876.7
5,565.8
6,178.7
6,890.8
7,625.8
8,357.5
9,136.6
15.48%
15.51%
(1.55%)
19.21%
15.67%
16.26%
16.86%
17.45%
18.04%
18.64%
19.29%
19.90%
20.51%
21.12%
563.1
674.4
(238.7)
1,092.0
937.5
1,118.8
1,306.5
1,503.6
1,713.0
1,898.2
2,113.2
2,334.3
2,553.7
2,786.7
31.09%
32.75%
103.81%
34.56%
31.00%
30.94%
30.89%
30.83%
30.78%
30.72%
30.67%
30.61%
30.56%
30.50%
-
-
-
(0.4)
-
-
-
-
-
-
-
-
-
-
Net Income
$1,248.0
$1,384.9
$8.7
$2,067.7
$2,086.7
$2,496.6
$2,923.2
$3,373.1
$3,852.8
$4,280.4
$4,777.6
$5,291.5
$5,803.8
$6,349.9
Net Margin
10.67%
10.43%
.06%
12.57%
10.81%
11.23%
11.65%
12.07%
12.49%
12.91%
13.37%
13.81%
14.24%
14.68%
Add Back: Depreciation and Amortization
523.3
550.3
621.5
709.6
829.9
960.5
1,086.1
1,215.4
1,347.9
1,455.5
1,554.2
1,667.1
1,772.7
1,881.8
Add Back: Interest Expense*(1-Tax Rate)
22.9
22.0
(1.1)
41.9
-
-
$1,794.2
$1,957.2
$629.1
$2,819.2
$2,916.5
$3,457.1
$4,009.3
$4,588.5
$5,200.7
$5,735.9
$6,331.8
$6,958.6
$7,576.5
$8,231.7
15.33%
14.74%
4.23%
17.14%
15.11%
15.55%
15.98%
16.42%
16.86%
17.30%
17.72%
18.16%
18.59%
19.03%
1,744.2
2,162.6
2,237.6
2,324.9
3,154.0
3,654.6
4,136.7
4,623.2
5,120.5
5,522.0
5,970.0
6,424.8
6,836.9
7,288.8
14.91%
16.29%
15.05%
14.14%
16.34%
16.44%
16.49%
16.55%
16.60%
16.66%
16.71%
16.76%
16.78%
16.85%
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
-
-
-
-
-
-
-
-
2,075.8
2,209.8
5,377.3
3,038.7
4,118.3
4,722.4
5,297.5
5,867.4
6,439.9
6,882.3
7,373.3
7,862.9
8,304.0
8,574.3
17.74%
16.64%
36.17%
18.47%
21.34%
21.24%
21.12%
21.00%
20.88%
20.76%
20.64%
20.52%
20.38%
19.82%
-$331.6
-$47.2
-$3,139.7
-$713.8
-$964.3
-$1,067.8
-$1,160.8
-$1,244.1
-$1,319.4
-$1,360.2
-$1,403.2
-$1,438.1
-$1,467.2
-$1,285.6
% Revenue
(2.83%)
(.36%)
(21.12%)
(4.34%)
(5.00%)
(4.80%)
(4.63%)
(4.45%)
(4.28%)
(4.10%)
(3.93%)
(3.75%)
(3.60%)
(2.97%)
Change in Working Capital
(2,453.0)
284.4
(3,092.5)
2,425.9
(250.5)
(103.5)
(93.0)
(83.3)
(75.3)
(40.8)
(43.0)
(34.9)
(29.0)
531.9
856.2
1,151.2
1,160.9
1,543.9
1,735.4
1,909.1
2,072.3
2,227.7
2,330.1
2,441.4
2,544.3
2,626.2
2,703.8
4.55%
6.45%
7.74%
7.06%
8.00%
7.81%
7.61%
7.42%
7.22%
7.03%
6.83%
6.64%
6.44%
6.25%
55.8
129.1
610.4
-
-
-
-
-
-
-
-
-
-
-
.48%
.97%
4.11%
-
-
-
-
-
-
-
-
-
-
-
$687.5
$1,960.0
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
-$767.6
$1,623.1
$1,825.1
$2,193.1
$2,599.5
$3,048.3
$3,446.7
$3,933.4
$4,449.1
$4,979.4
UOIG
$1,543.3
$1,622.4
$1,822.7
$2,019.8
$2,214.4
$2,340.9
$2,497.6
$2,641.3
$2,763.7
181.6
11 $5,346.4
$2,774.3
April 17, 2015
University of Oregon Investment Group
Appendix 3 – Revenue Model
Geographic Revenue
2011A
Americas
2012A
2013A
2014A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
9065.0
9936.0
11000.8
11980.5
13423.0
15416.9
17358.9
19397.4
21529.4
23494.8
25438.3
27330.0
29186.2
30998.8
% Growth
19.91%
9.61%
10.72%
8.91%
12.04%
14.85%
12.60%
11.74%
10.99%
9.13%
8.27%
7.44%
6.79%
6.21%
% of Total Revenue
77.48%
74.84%
74.00%
72.84%
69.55%
69.34%
69.20%
69.42%
69.80%
70.86%
71.20%
71.31%
71.62%
71.66%
1046.8
1141.3
1160.0
1294.8
2020.3
2373.0
2703.8
3057.8
3433.9
3440.8
3760.8
4092.2
4326.0
4635.5
16.05%
9.03%
1.64%
11.62%
56.04%
17.45%
13.94%
13.09%
12.30%
.20%
9.30%
8.81%
5.71%
7.15%
8.95%
8.60%
7.80%
7.87%
10.47%
10.67%
10.78%
10.94%
11.13%
10.38%
10.53%
10.68%
10.62%
10.72%
EMEA
% Growth
% of Total Revenue
China/Asia Pacific
% Growth
% of Total Revenue
Channel Development
% Growth
% of Total Revenue
All Other Segments
% Growth
% of Total Revenue
Total Revenue
% Growth
552.3
721.4
917.0
1129.6
1533.87
1912.7
2287.7
2561.7
2781.7
2964.6
3120.1
3332.3
3499.0
3709.4
29.65%
30.62%
27.11%
23.18%
35.79%
24.70%
19.60%
11.98%
8.59%
6.58%
5.24%
6.80%
5.00%
6.01%
4.72%
5.43%
6.17%
6.87%
7.95%
8.60%
9.12%
9.17%
9.02%
8.94%
8.73%
8.69%
8.59%
8.57%
860.5
1273.0
1398.9
1546.0
1700.6
1853.7
2001.9
2142.1
2270.6
2384.1
2503.3
2628.5
2759.9
2897.9
22.58%
47.94%
9.89%
10.52%
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
5.00%
5.00%
5.00%
5.00%
7.35%
9.59%
9.41%
9.40%
8.81%
8.34%
7.98%
7.67%
7.36%
7.19%
7.01%
6.86%
6.77%
6.70%
175.8
205.1
390.1
496.9
621.1
677.0
731.2
782.4
829.3
870.8
905.6
941.8
979.5
1018.7
22.94%
16.67%
90.20%
27.38%
25.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
4.00%
4.00%
4.00%
1.50%
1.54%
2.62%
3.02%
3.22%
3.05%
2.92%
2.80%
2.69%
2.63%
2.53%
2.46%
2.40%
2.35%
$11,700.4
$13,276.8
$14,866.8
$16,447.8
$19,298.9
$22,233.3
$25,083.6
$27,941.4
$30,844.9
$33,155.2
$35,728.2
$38,324.8
$40,750.7
$43,260.3
9.27%
13.47%
11.98%
10.63%
17.33%
15.20%
12.82%
11.39%
10.39%
7.49%
7.76%
7.27%
6.33%
6.16%
UOIG 12
April 17, 2015
University of Oregon Investment Group
Appendix 3 – Revenue Model
Same Store Sales
Sales Dollars in Millions
2011A
2012A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
Americas
$8,700.9
$9,397.0
$10,148.7
$10,862.2
$11,792.0
$13,785.9
$15,727.9
$17,766.4
$19,898.4
$22,096.8
$24,156.8
$26,165.0
$28,137.7
$30,066.8
8.00%
8.00%
7.00%
6.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
Sales Growth
Same Store Sales Growth
2014A
626
676
554
737
1765
1704
1796
1891
1989
1878
1859
1834
1800
$7,825.0
$9,657.1
$9,233.3
$9,787.3
$10,524.4
$12,289.7
$13,993.8
$15,790.0
$17,681.1
$19,670.1
$21,547.9
$23,407.4
$25,241.0
$27,041.0
Average Same Store Revenue Per Company Operated Stores
-
1.28
1.19
1.22
1.26
1.30
1.34
1.38
1.43
1.47
1.52
1.56
1.61
1.66
% Growth
-
-
-7.22%
2.40%
3.25%
3.22%
3.19%
3.17%
3.14%
3.11%
3.08%
3.06%
3.03%
3.00%
Total Licensed Store Revenue
-
-
$915.4
$1,074.9
$1,267.6
$1,496.2
$1,734.1
$1,976.5
$2,217.4
$2,426.8
$2,608.9
$2,757.6
$2,896.7
$3,025.8
Average Same Store Revenue Per Licensed Stores
-
-
0.17
0.19
0.20
0.21
0.23
0.24
0.25
0.26
0.26
0.26
0.27
0.27
% Growth
-
-
-
9.71%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
1.00%
1.00%
EMEA
$815.5
$840.0
$840.0
$882.0
$1,220.3
$1,573.0
$1,903.8
$2,257.8
$2,633.9
$2,840.8
$3,160.8
$3,492.2
$3,826.0
$4,135.5
Sales Growth
3.00%
-
-
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
24.47
-
42
338.34
352.62
330.88
353.95
376.06
206.96
320.02
331.32
333.86
309.46
$3,330.5
Total Company Operated Stores Revenue
-
2013A
Same Store Sales Growth
Total Company Operated Stores Revenue
$0.0
$0.0
$840.0
$882.0
$937.5
$1,235.7
$1,509.2
$1,802.7
$2,115.0
$2,267.6
$2,530.5
$2,801.9
$3,079.8
Average Same Store Revenue Per Company Operated Stores
-
-
1.00
1.10
1.17
1.23
1.30
1.36
1.43
1.38
1.44
1.49
1.54
1.58
% Growth
-
-
-
10.18%
6.00%
5.67%
5.33%
5.00%
4.67%
4.33%
4.00%
3.67%
3.33%
3.00%
Total Licensed Store Revenue
-
-
$190.3
$238.4
$282.9
$337.2
$394.6
$455.1
$518.9
$573.2
$630.3
$690.3
$746.3
$805.0
Average Same Store Revenue Per Licensed Stores
-
-
0.17
0.18
0.19
0.19
0.20
0.20
0.21
0.22
0.22
0.23
0.24
0.24
% Growth
-
-
-
8.23%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
$448.0
$546.6
$628.6
$672.6
$1,155.9
$1,534.7
$1,909.7
$2,183.7
$2,403.7
$2,649.6
$2,805.1
$3,017.3
$3,236.5
$3,446.9
22.00%
15.00%
9.00%
7.00%
6.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
5.00%
99
82
44
1155.87
378.87
374.94
274.01
220.00
245.92
155.46
212.23
219.23
210.32
$2,929.8
China/Asia Pacific
Sales Growth
Same Store Sales Growth
-
Total Company Operated Stores Revenue
-
-
$628.6
$672.6
$903.4
$1,256.0
$1,603.2
$1,848.1
$2,037.5
$2,254.8
$2,380.3
$2,561.1
$2,750.6
Average Same Store Revenue Per Company Operated Stores
-
-
1.00
0.77
0.80
0.84
1.00
1.08
1.12
1.17
1.18
1.22
1.25
1.29
% Growth
-
-
-
-22.22%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
Total Licensed Store Revenue
-
-
$232.2
$245.3
$252.4
$278.8
$306.5
$335.6
$366.2
$394.8
$424.8
$456.2
$485.9
$517.0
Average Same Store Revenue Per Licensed Stores
-
-
0.08
0.07
0.07
0.07
0.08
0.08
0.08
0.08
0.09
0.09
0.09
0.09
% Growth
-
-
-
-9.24%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
11.00%
7.67%
5.33%
6.00%
4.67%
4.33%
4.33%
4.33%
4.33%
4.33%
4.33%
4.33%
4.33%
4.33%
Consolidated Growth
UOIG 13
April 17, 2015
University of Oregon Investment Group
Appendix 3 – Revenue Model
Store Count
2011A
Americas
2012A
2013A
2014A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
12305
13598
13493
14191
15822
17453
19084
20715
22346
23744
25026
26191
27239
Company Operated Stores
7574
7802
8078
8395
9493
10472
11450
12429
13408
14246
15015
15714
16343
16903
% Growth
-
3.01%
3.54%
3.92%
13.08%
10.31%
9.35%
8.55%
7.87%
6.26%
5.40%
4.66%
4.00%
3.42%
61.55%
60.00%
% of Total Stores
28171
57.38%
59.87%
59.16%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
Company Operated Stores Closed
-
45
43
46
30
30
30
30
30
30
30
30
30
30
Existing Company Operated Store Count
-
7529
7759
8032
8365
9463
10442
11420
12399
13378
14216
14985
15684
16313
Licensed Stores
4731
5796
5415
5796
6329
6981
7634
8286
8938
9498
10010
10476
10896
11268
% Growth
-
22.51%
(6.57%)
7.04%
9.19%
10.31%
9.35%
8.55%
7.87%
6.26%
5.40%
4.66%
4.00%
3.42%
38.45%
42.62%
40.13%
40.84%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
20
% of Total Stores
Net Licensed Stores Opened
-
36
21
71
20
20
20
20
20
20
20
20
20
Stores Closed
-
81
64
117
50
50
50
50
50
50
50
50
50
50
1869
1969
2140
2540
2940
3340
3740
4140
4440
4740
5040
5290
5540
EMEA
1758
Company Operated Stores
% Growth
% of Total Stores
855
826
817
1016
1176
1336
1496
1656
1776
1896
2016
2116
2216
-
845
1.18%
(3.39%)
(1.09%)
24.36%
15.75%
13.61%
11.98%
10.70%
7.25%
6.76%
6.33%
4.96%
4.73%
48.07%
40.00%
45.75%
41.95%
38.18%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
40.00%
Company Operated Stores Closed
-
17
13
24
13
13
13
13
13
13
13
13
13
13
Existing Company Operated Store Count
-
828
842
802
804
1003
1163
1323
1483
1643
1763
1883
2003
2103
Licensed Stores
% Growth
% of Total Stores
1014
1143
1323
1524
1764
2004
2244
2484
2664
2844
3024
3174
3324
-
913
11.06%
12.72%
15.75%
15.19%
15.75%
13.61%
11.98%
10.70%
7.25%
6.76%
6.33%
4.96%
4.73%
51.93%
54.25%
58.05%
61.82%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
60.00%
Net Licensed Stores Opened
-
21
19
17
19
19
19
19
19
19
19
19
19
19
Stores Closed
-
38
32
27
32
32
32
32
32
32
32
32
32
32
3294
3882
4624
4984
5344
5704
6064
6424
6724
7024
7324
7574
7824
China/Asia Pacific
2846
Company Operated Stores
% Growth
% of Total Stores
643
882
1132
1495
1603
1711
1819
1927
2017
2107
2197
2272
2347
-
491
30.96%
37.17%
28.34%
32.08%
7.22%
6.74%
6.31%
5.94%
4.67%
4.46%
4.27%
3.41%
3.30%
17.25%
30.00%
30.00%
30.00%
30.00%
30.00%
30.00%
30.00%
30.00%
30.00%
30.00%
-
-
-
-
-
-
-
-
-
19.52%
22.72%
24.48%
Company Operated Stores Closed
-
7.00
12.00
14.00
Existing Company Operated Store Count
-
484
631
868
Licensed Stores
2355
2651
3000
3492
3489
3741
3993
4245
4497
4707
4917
5127
5302
5477
% Growth
-
12.57%
13.16%
16.40%
(.09%)
7.22%
6.74%
6.31%
5.94%
4.67%
4.46%
4.27%
3.41%
3.30%
82.75%
% of Total Stores
1132
1495
1603
1711
1819
1927
2017
2107
-
2197
2272
80.48%
77.28%
75.52%
70.00%
70.00%
70.00%
70.00%
70.00%
70.00%
70.00%
70.00%
70.00%
70.00%
Net Licensed Stores Opened
-
296
349
492
(3.2)
3741
3993
4245
4497
1218
1176
1134
1057
980
Stores Closed
-
60
63
48
57
57
57
57
57
57
57
57
57
57
Total Stores
17003
18851
19767
21366
23346
25737
28128
30519
32910
34908
36789.5
38555
40103
41535
.86%
10.87%
4.86%
8.09%
9.27%
10.24%
9.29%
8.50%
7.83%
6.07%
5.39%
4.80%
4.02%
3.57%
% Growth
UOIG 14
April 17, 2015
University of Oregon Investment Group
Appendix 3 – Revenue Model
New Store Sales
Sales Dollars in Thousands
2011A
2012A
852
2014A
1118
2015E
1631
2016E
1631
2017E
1631
2018E
1631
2019E
1631
2020E
1398.00
2021E
1281.50
2022E
1165.00
2023E
2024E
364
Average Revenue Per New Store
8.5
2.3
2.7
2.2
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
2.3
Americas Stores Opened
43
233
319
498
700
700
700
700
700
600
550
500
450
400
500.0
EMEA New Store Revenue
539
2013A
Americas New Store Revenue
1048.50
932.00
231.3
301.3
320.0
412.8
800.0
800.0
800.0
800.0
800.0
600.0
600.0
600.0
500.0
Average Revenue Per New Store
9.3
30.1
9.4
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
EMEA Stores Opened
25
10
34
207
400
400
400
400
400
300
300
300
250
250
104.3
174.8
288.4
457.0
378.0
378.0
378.0
378.0
378.0
315.0
315.0
315.0
262.5
262.5
1.4
1.1
1.1
0.8
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
250
China/Asia Pacific New Store Revenue
Average Revenue Per New Store
CAP Stores Opened
73
154
252
540
360
360
360
360
360
300
300
300
250
Total New Stores Opened
141
397
605
1245
1460
1460
1460
1460
1460
1200
1150
1100
950
900
Total New Store Revenue
$699.6
$1,015.1
$1,460.5
$1,988.1
$2,809.0
$2,809.0
$2,809.0
$2,809.0
$2,809.0
$2,313.0
$2,196.5
$2,080.0
$1,811.0
$1,694.5
UOIG 15
April 17, 2015
University of Oregon Investment Group
Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)
2011A
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
Total Revenue
$11,700.4
$13,276.8
$14,866.8
$16,447.8
$19,298.9
$22,233.3
$25,083.6
$27,941.4
$30,844.9
$33,155.2
$35,728.2
$38,324.8
$40,750.7
$43,260.3
386.5
12.06
3.30%
965.8
30.13
8.25%
161.5
11.99
1.38%
230.4
1.97%
$1,744.2
14.91%
485.9
13.39
3.66%
1,241.5
34.22
9.35%
196.5
12.37
1.48%
238.7
1.80%
$2,162.6
16.29%
561.4
13.78
3.78%
1,111.2
27.28
7.47%
287.7
16.45
1.94%
277.3
1.87%
$2,237.6
15.05%
631.0
14.00
3.84%
1,090.9
24.21
6.63%
285.6
15.20
1.74%
317.4
1.93%
$2,324.9
14.14%
750.1
14.22
3.89%
1,275.3
24.19
6.61%
790.9
15.00
4.10%
337.7
1.75%
$3,154.0
16.34%
880.0
14.45
3.96%
1,471.8
24.16
6.62%
913.7
15.00
4.11%
389.1
1.75%
$3,654.6
16.44%
1,008.1
14.67
4.02%
1,658.9
24.14
6.61%
1030.8
15.00
4.11%
439.0
1.75%
$4,136.7
16.49%
1,139.9
14.89
4.08%
1,846.1
24.12
6.61%
1148.3
15.00
4.11%
489.0
1.75%
$4,623.2
16.55%
1,277.1
15.11
4.14%
2,036.0
24.09
6.60%
1267.6
15.00
4.11%
539.8
1.75%
$5,120.5
16.60%
1,392.9
15.33
4.20%
2,186.4
24.07
6.59%
1362.5
15.00
4.11%
580.2
1.75%
$5,522.0
16.66%
1,522.7
15.56
4.26%
2,353.8
24.05
6.59%
1468.3
15.00
4.11%
625.2
1.75%
$5,970.0
16.71%
1,656.7
15.78
4.32%
2,522.4
24.02
6.58%
1575.0
15.00
4.11%
670.7
1.75%
$6,424.8
16.76%
1,781.5
16.00
4.37%
2,672.2
24.00
6.56%
1670.1
15.00
4.10%
713.1
1.75%
$6,836.9
16.78%
1,909.4
16.11
4.41%
2,844.5
24.00
6.58%
1777.8
15.00
4.11%
757.1
1.75%
$7,288.8
16.85%
2,417.0
531.9
55.8
523.3
$2,481.4
$4,225.6
36.12%
2,481.4
856.2
129.1
550.3
$2,916.4
$5,079.0
38.25%
2,916.4
1,151.2
610.4
621.5
$4,056.6
$6,294.2
42.34%
4,056.6
1,160.9
709.6
$4,507.9
$6,832.8
41.54%
4,507.9
1,543.9
829.9
$5,221.9
$8,375.9
43.40%
5,221.9
1,735.4
960.5
$5,996.9
$9,651.4
43.41%
5,996.9
1,909.1
1,086.1
$6,819.9
$10,956.6
43.68%
6,819.9
2,072.3
1,215.4
$7,676.8
$12,300.0
44.02%
7,676.8
2,227.7
1,347.9
$8,556.5
$13,677.0
44.34%
8,556.5
2,330.1
1,455.5
$9,431.1
$14,953.1
45.10%
9,431.1
2,441.4
1,554.2
$10,318.3
$16,288.4
45.59%
10,318.3
2,544.3
1,667.1
$11,195.5
$17,620.3
45.98%
11,195.5
2,626.2
1,772.7
$12,049.0
$18,885.9
46.34%
12,049.0
2,703.8
1,881.8
$12,871.0
$20,159.8
46.60%
540.0
40.10
4.62%
940.9
8.04%
145.6
1.24%
449.3
3.84%
$2,075.8
17.74%
398.1
25.06
3.00%
1,133.8
8.54%
167.7
1.26%
510.2
3.84%
$2,209.8
16.64%
491.7
28.12
3.31%
2,784.1
18.73%
1,269.3
8.54%
178.5
1.20%
653.7
4.40%
$5,377.3
36.17%
533.7
28.40
3.24%
1,514.4
9.21%
196.1
1.19%
794.5
4.83%
$3,038.7
18.47%
1,474.4
27.96
7.64%
1,592.2
8.25%
231.6
1.20%
820.2
4.25%
$4,118.3
21.34%
1,676.4
27.52
7.54%
1,834.2
8.25%
266.8
1.20%
944.9
4.25%
$4,722.4
21.24%
1,861.1
27.08
7.42%
2,069.4
8.25%
301.0
1.20%
1,066.1
4.25%
$5,297.5
21.12%
2,039.4
26.64
7.30%
2,305.2
8.25%
335.3
1.20%
1,187.5
4.25%
$5,867.4
21.00%
2,214.1
26.20
7.18%
2,544.7
8.25%
370.1
1.20%
1,310.9
4.25%
$6,439.9
20.88%
2,340.0
25.76
7.06%
2,735.3
8.25%
397.9
1.20%
1,409.1
4.25%
$6,882.3
20.76%
2,478.5
25.32
6.94%
2,947.6
8.25%
428.7
1.20%
1,518.4
4.25%
$7,373.3
20.64%
2,612.4
24.88
6.82%
3,161.8
8.25%
459.9
1.20%
1,628.8
4.25%
$7,862.9
20.52%
2,721.2
24.44
6.68%
3,361.9
8.25%
489.0
1.20%
1,731.9
4.25%
$8,304.0
20.38%
2,844.5
24.00
6.58%
3,471.6
8.03%
441.3
1.02%
1,816.9
4.20%
$8,574.3
19.82%
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Prepaid Expenses
Days Prepaid Expense Outstanding
% of Revenue
Deferred Income Taxes
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Litigation Charges
% of Revenue
Accrued Liabilities
% of Revenue
Insurance Reserves
% of Revenue
Deferred Revenue
% of Revenue
Total Current Liabilities
% of Revenue
2012A
2013A
2014A
UOIG 16
April 17, 2015
University of Oregon Investment Group
Appendix 5 – Discounted Cash Flow Assumptions
Considerations
Considerations
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
30.50% Terminal Growth Rate
3.00%
1.84% Terminal Value
119,952
Avg. Industry Debt / Equity
0.00%
62,245
Avg. Industry Tax Rate
0.00%
22,240
Current Reinvestment Rate
97.31% Firm Value
84,485
Reinvestment Rate in Year 2020E
15.80%
% Debt
2.69% Total Debt
2,048
Implied Return on Capital in Perpetuity
18.98%
Cost of Debt
3.28% Net Debt
CAPM
7.09% Market Capitalization
82,437
WACC
6.96% Fully Diluted Shares
1,526
Terminal Risk Free Rate
2.49% Implied Price
$54.02
Terminal CAPM
7.74% Current Price
$48.50
Terminal WACC
7.59% Undervalued
11.38%
Beta
Market Risk Premium
% Equity
0.91 PV of Terminal Value
5.75% Sum of PV Free Cash Flows
191
Beta
SE
Weighting
1 Year Daily
0.83
0.08
10.00%
3 Year Daily
0.96
0.06
40.00%
5 Year Daily
1.02
0.04
25.00%
3 Year Weekly
0.76
0.14
0.00%
5 Year Weekly
0.88
0.08
10.00%
Blended Comp Hamada
0.67
Analysis Company Beta
141.70%
Terminal Value as a % of Total
73.7%
Implied 2015E EBITDA Multiple
21.9x
Implied Multiple in Year 2024E
5.6x
Free Cash Flow Growth Rate in Year 2024E
7%
Final Valuation
Intrinsic Valuation
Relative Valuation
Final implied Price
Current Price
% Undervalued
Implied Price
$54.02
$43.24
$52.94
$48.50
9.16%
Weighting
90%
10%
15.00%
0.91
UOIG 17
April 17, 2015
University of Oregon Investment Group
Appendix 6 – Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
54
2.0%
2.5%
3.0%
3.5%
4.0%
0
2.3%
2.3%
3.0%
3.8%
0.71
60.10
66.14
73.92
84.31
98.91
1.11
(20.86%)
(20.86%)
(13.37%)
(3.62%)
0.32%
0.81
52.48
56.97
62.57
69.77
79.33
1.01
(11.87%)
(11.87%)
(2.36%)
10.39%
15.66%
0.91
46.40
49.84
54.02
59.23
65.89
0.91
(0.95%)
(0.95%)
11.38%
28.54%
35.85%
1.01
41.45
44.14
47.35
51.25
56.10
1.01
(11.87%)
(11.87%)
(2.36%)
10.39%
15.66%
1.11
37.35
39.50
42.01
45.02
48.65
1.11
(20.86%)
(20.86%)
(13.37%)
(3.62%)
0.32%
Adjusted Beta
Adjusted Beta
Terminal Growth Rate
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
Terminal Growth Rate
54
2.0%
2.3%
3.0%
3.8%
4.0%
0
2.3%
2.3%
3.0%
3.8%
4.0%
8.96%
$39.45
$40.82
$45.81
$52.76
$55.72
8.96%
(15.84%)
(15.84%)
(5.54%)
8.78%
14.88%
7.96%
$42.76
$44.26
$49.72
$57.32
$60.56
7.96%
(8.75%)
(8.75%)
2.52%
18.19%
24.86%
6.96%
$46.40
$48.04
$54.02
$62.34
$65.89
6.96%
(0.95%)
(0.95%)
11.38%
28.54%
35.85%
5.96%
$50.40
$52.20
$58.76
$67.87
$71.76
5.96%
7.63%
7.63%
21.15%
39.95%
47.96%
4.96%
$54.81
$56.78
$63.97
$73.98
$78.24
4.96%
17.08%
17.08%
31.91%
52.53%
61.31%
WACC
WACC
4.0%
UOIG 18
University of Oregon Investment Group
April 17, 2015
Appendix 6 – Sources
BusinessWeek
Consumer Reports
FactSet
Federal Reserve Bank of St. Louis
Forbes
IBIS World
Sec.gov
Starbucks Investor Relations
Yahoo! Finance
UOIG 19