By Jacob Wolinsky
Bill Ackman‘s presentation slides on Starbucks (SBUX), titled, “Doppio.”
- Leading global specialty coffee retailer and iconic brand
- 29,000 stores with over $32 billion in systemwide sales
- 50% U.S., 50% International
- 53% Owned (U.S. 60%,China 100%, RoW 30%), 47% Licensed
- Americas (primarily U.S.) = 67% of EBIT, Asia Pacific = 22%(1)
- Market capitalization and enterprise valuation of ~$77bn(2)
- Pershing Square owns 15.2 million shares at an average cost of $51 per share(3)
Long-Term Share Price Outperformance
Startbucks (SBUX) has generated an annualized TSR of 26% over the last ten years, twice the return of the S&P 500 over the same period.
Share Price Down Over the Last 3 Years
SBUX shares are down 6% over the last three years. Including dividends, shareholders have earned a 0% total return, despite EPS growth of ~50%
Current P/E at a Discount to Recent History
SBUX is trading at 22x consensus P/E today, a substantial discount to recent historical averages of ~26x
Investment Highlights
Category killer in away-from-home coffee with leading omnichannel presence
- Quality and innovation advantage over low-cost coffee and traditional QSR players
- Convenience, technological and cost advantage over high-end, boutique players
Premium coffee is a secularly growing and attractive category
- Frequent consumption creates loyal customer base and trade-up potential
- Aligned with health and wellness and sustainability trends
Attractive unit economics support owned business model in key markets
- Frequency, price point and high gross margins support profitability
- Build costs are lower than traditional restaurants due to the absence of kitchens
- New units in the U.S. generate ~30% cash EBITDA margins and ~65% pretax ROIC; new unit economics in China are even higher
- China will become an increasingly greater percentage of the total company over time
Long runway for unit growth in the high-single-digits
- Robust international unit growth led by China as well as other underpenetrated countries
- Incremental penetration opportunity in the S.
Track record of consistent growth in same-store sales and transactions
- Long-term average same-store sales (“SSS”) growth of 5% both in the U.S. and globally
- SSS historically driven ~50% by transactions, ~30% by pricing, and ~20% by mix
Recent acquisitions and divestitures suggest strong focus on core business
- Acquisition of East China JV and licensing of lower-performing or lower potential markets
- Sale of CPG business to Nestle for $7.2bn and ongoing royalties
- Closing of Teavana stores and divestiture of Tazo tea brand to Unilever
Share buybacks of ~$14bn over the next two years (~18% of market cap)
Best-in-Class Unit Economics
Continued store growth in Starbucks’ largest owned markets is supported by industry-leading unit economics
Exceptional Returns on New Unit Capex
We estimate that every dollar Starbucks spends building a new store in the U.S. or China is worth $10 to $15 shortly after the store opens