For each year a large majority averaging approximately 85

#4744
For each year, a large majority - averaging approximately 85 percent - of the revenues reported
by Starbucks are generated from specialty coffees and other products sold in company-
operated stores. (The firm generates additional revenues from (a) licensing fees charged to
stores that it does not own or manage, and (b) the sale of Starbucks products to grocery stores,
warehouse clubs, and food-service distributors.) As discussed in Integrative Case 1.1,
Starbucks opened a large number of new stores in each of these years, representing one of the
primary drivers of Starbucks' remarkable rate of growth in revenues. But Starbucks' revenue
growth is not just driven by opening new stores. On a consolidated basis, Starbucks generated
comparable store sales growth (that is, sales from stores in existence for at least two years) as
follows: 10 percent in Year 4; 9 percent in Year 3; and 8 percent in Year 2. For Year 1 (not
reported in Exhibit 1.25), Starbucks reported totalQuestion continue over next pagesales from
company-operated stores of $2,229.6 million, which included a 5 percent comparable store
sales growth over the previous year's total company-operated store sales of $1,823.6 million. 2.
Starbucks reported a peripheral gain in Year 2, specifically a $13.4 million "gain on sale of
investment" (see Exhibit 1.25). The gain was related to Starbucks' sale of 30,000 shares of
Starbucks Japan common stock.Requireda. In judging the quality of revenues for growth-
oriented firms such as Starbucks, the analyst is especially interested in knowing the revenues
generated through new store openings versus those generated by existing stores. Are both
revenue streams increasing at the same rate, for example, or is one increasing but at a
decreasing rate? Is one increasing while the other is decreasing? Calculate (1) company-
operated comparable store sales for Starbucks for Year 1, Year 2, Year 3, and Year 4, and (2)
new store sales for the same four-year period. Describe the trend of the sales breakdown over
the four-year period and discuss which revenue stream-new store revenues, or revenues from
existing stores-is the higher quality revenue stream for Starbucks going forward.b. Starbucks
reports a "gain on sale of investment" in Year 2, but doesn't report similar gains or losses in
Year 3 or Year 4. Discuss (1) whether you would eliminate it when using earnings to forecast
the future profitability of Starbucks and, if so, (2) the adjustment you would make to the income
statement, balance sheet and statement of cash flows. Note that Starbucks' financial statements
are presented in Integrative Case 1.1.View Solution:
For each year a large majority averaging approximately 85

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