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 total
Question continue over next page

sales 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.
Required
a. 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.

Transcribed Image Text:

EXHIBIT 6.27 GlaxoSmithKline Reconciliation of U.K. and U.S. GAAP (amounts in millions) (Problem 6.18) June 30: Year 4 Year 3 Shareholders' Equity, U.K. GAAP Deferred Taxation 5,925 £5,059 (5,071) 15,652 (1,702) 17,986 808 91,384 £34,116 (4,204) 13,994 Postretirement Benefits Other Than Pensions Goodwill Dividends Other 17,982 683 949 834,042 CCOOc Shareholders Equity, US. GAAP Year Ended June 30: Year 3 £4,478 Year 4 Net Income, U.K. GAAP £4,302 Acquisition and Disposition of Product Rights.. Deferred Taxation (296) (210) 661 (372) (105) 787 Postretirement Benefits Other Than Pensions.... Amortization and Impairment of Intangible Assets Other (122) (2,292) (1,426) .137)46 £2,420 $2,732