Starbucks: Monetizing Brand, Scale, and Habit

Starbucks is the world’s largest coffeehouse company, built on a strong global brand and a habit that millions of customers repeat every day. With thousands of stores, a growing digital platform, and an expanding international footprint, Starbucks combines premium coffee with convenience and scale. As the company works to improve execution, grow outside the U.S., and make its stores more profitable, it is focused on strengthening its long-term business. The question remains: Does Starbucks deserve a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Starbucks at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Starbucks, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Starbucks is the world’s leading roaster, marketer, and retailer of specialty coffee, operating nearly 41.000 stores across 89 markets. The company’s core business is built around selling high-quality coffee, handcrafted beverages, tea, and complementary food products through a global network of company-operated and licensed stores. The majority of Starbucks’ revenue is generated through company-operated stores, which accounted for roughly 83% of total net revenues in fiscal 2025. These stores give Starbucks direct control over pricing, operations, customer experience, and digital engagement. Locations are typically placed in high-traffic, high-visibility areas and span a wide range of formats, including urban cafés, drive-thru locations, travel hubs, campuses, and suburban retail centers. The aim is not only convenience but the delivery of the “Starbucks Experience,” which combines service quality, store atmosphere, and a seamless digital interface to drive customer loyalty and repeat visits. Licensed stores complement this model and play a particularly important role in international expansion. Under the licensed format, Starbucks partners with established local operators who provide capital, operating expertise, and access to desirable real estate. Starbucks earns revenue through product sales, royalties, and license fees, while avoiding direct operating costs. Although licensed stores generate lower reported revenue, they typically deliver higher operating margins and allow Starbucks to scale its brand globally with reduced capital intensity and risk. Beyond its store network, Starbucks has diversified its revenue streams through its Channel Development segment. This includes packaged coffee, tea, and ready-to-drink beverages sold outside Starbucks stores. Strategic partnerships are central to this approach. The Global Coffee Alliance with Nestlé enables global distribution of Starbucks-branded products in supermarkets and foodservice channels, while the partnership with PepsiCo supports the worldwide distribution of ready-to-drink beverages. These arrangements significantly extend the brand’s reach and provide high-margin, capital-light income. Starbucks maintains substantial control over its supply chain, particularly in coffee sourcing and roasting. The company purchases premium arabica coffee from multiple producing regions, controls most roasting and packaging, and manages global distribution for its stores. Starbucks’ competitive moat is anchored in brand strength, scale, and an integrated operating model that is difficult to replicate. The Starbucks brand is one of the most recognized and trusted consumer brands globally, allowing the company to command premium pricing. Central to this is the “Third Place” concept, which positions Starbucks stores as welcoming spaces between home and work. This focus on experience and connection differentiates Starbucks from competitors that emphasize speed, price, or convenience alone. Global scale further reinforces this advantage. With tens of thousands of stores worldwide, Starbucks benefits from economies of scale. This scale also allows Starbucks to operate simultaneously as the largest café-based coffee business, the largest drive-thru coffee chain, and the largest mobile-order coffee platform in the U.S., giving it unmatched reach across multiple customer access points. A critical component of the moat is Starbucks’ digital ecosystem and loyalty program. Starbucks Rewards and the mobile app drive customer engagement, increase visit frequency, and raise average transaction values through personalized offers. Mobile ordering and payment improve store throughput and convenience, while the underlying data provides Starbucks with deep insight into customer behavior. This creates a reinforcing loop in which data enables better personalization, personalization strengthens loyalty, and loyalty drives further data generation. Finally, Starbucks’ combination of company-operated stores, licensed stores, and global partnerships provides strategic flexibility. The company can prioritize control and profitability in mature markets while using licensed formats and alliances to expand efficiently in higher-growth regions.

Management

Brian Niccol serves as the CEO of Starbucks, a role he assumed in September 2024. He brings more than 25 years of leadership experience across globally recognized consumer brands, with a career that spans brand building, operational execution, digital transformation, and restaurant-level economics. His appointment marked a pivotal moment for Starbucks as the company seeks to restore growth, improve execution, and reconnect with its core identity. Prior to joining Starbucks, Brian Niccol was the CEO of Chipotle Mexican Grill, where he led one of the most notable turnarounds in the global restaurant industry. During his tenure, Chipotle more than doubled its revenue and market value, strengthened unit-level economics, and rebuilt customer trust following earlier operational challenges. Under his leadership, Chipotle evolved into a category leader by sharpening its food quality positioning, expanding digital ordering and loyalty, improving restaurant throughput, and introducing disciplined menu innovation. Digital sales grew from a small portion of revenue to a core growth engine, supported by a highly effective rewards program and a streamlined operating model. Before Chipotle, Brian Niccol held senior leadership roles at Taco Bell and Pizza Hut, both part of Yum! Brands. In these roles, he was closely involved in brand revitalization efforts, marketing innovation, and operational improvements across large global store networks. He played a key role in modernizing brand messaging and improving customer engagement, experience that is directly applicable to Starbucks’ current need to balance scale, consistency, and brand relevance. Brian Niccol began his career in brand management at Procter & Gamble, where he developed a foundation in consumer insight, brand strategy, and disciplined execution. He currently serves on the board of directors of Walmart, providing additional exposure to large-scale retail operations, supply chains, and consumer behavior across income levels and geographies. He holds a bachelor’s degree from Miami University in Ohio and an MBA from the University of Chicago Booth School of Business. In his first earnings call as Starbucks CEO, Brian Niccol was direct about both the company’s strengths and its challenges. He emphasized the enduring power of the Starbucks brand, its coffee expertise, and its global scale, while acknowledging that recent financial performance had fallen short. He made it clear that the strategy he calls Back to Starbucks is focused on restoring what historically differentiated the company, including a great in-store experience, operational excellence, and stronger connections with customers and partners. Drawing on his experience at Chipotle, he highlighted the importance of empowering frontline employees and focusing on execution within the company’s control. While Brian Niccol is still early in his tenure at Starbucks, his track record suggests he is well suited to lead a large, complex consumer brand through a period of reset. His credibility with operators, focus on customer experience, and demonstrated ability to combine brand strength with digital and operational discipline have resonated with investors. The market’s reaction to his appointment, with Starbucks shares rising sharply following the announcement, reflects high expectations that Brian Niccol can help guide the company back toward sustainable growth and stronger long-term performance.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Starbucks has managed to earn high ROIC for most of the past decade because it runs a very strong and efficient business at the store level. Once a Starbucks store is up and running, it typically generates a lot of cash compared with what it cost to build and equip it. Drinks have high margins, customers come back frequently, and the brand allows Starbucks to charge more than many competitors. On top of that, Starbucks uses licensed stores and partnerships to grow in many markets without having to spend much of its own money, which keeps returns high. Another reason returns have been strong is that Starbucks has been good at growing sales without constantly needing to pour in large amounts of new investment. Digital ordering, the rewards program, and menu innovation increased sales per store and customer frequency, often without major new spending. Over time, this meant more profit coming from roughly the same base of stores and equipment. The sharp decline in ROIC in fiscal year 2025 was driven by lower earnings combined with a higher level of investment. Operating costs increased meaningfully, particularly labor costs in the U.S., as Starbucks invested in wages, staffing, training, and operational changes. These investments were aimed at improving service quality and employee retention, but they reduced profitability in the short term. At the same time, customer traffic was softer, meaning stores were less busy and fixed costs such as rent and labor weighed more heavily on results. Starbucks also continued to invest heavily for the future during this period. Spending on store renovations, new formats, equipment, technology, and international expansion increased the amount of capital tied up in the business. These investments tend to generate benefits gradually, while the cost is immediate. As a result, returns declined even though many of these projects are intended to support long-term growth. Fiscal year 2025 also coincided with a period of operational reset and leadership transition. Management acknowledged execution issues and shifted focus toward restoring store experience and operational discipline. Periods like this often lead to temporarily lower returns as resources are directed toward fixing underlying issues rather than maximizing short-term profitability. Whether the decline is a concern depends on its persistence. The underlying drivers of Starbucks’ historical strength remain in place, including brand loyalty, attractive store economics, and a capital-light licensing and partnership model. Even at lower levels, returns remain positive and above what the company needs to justify continued investment. The key point going forward is whether recent investments translate into better store performance, higher traffic, and improved efficiency. If execution improves, returns should recover as the benefits of these investments materialize. If not, returns may remain structurally lower. At this stage, the decline appears more consistent with a temporary period of higher costs and heavy investment than with a fundamental weakening of Starbucks’ business.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. In Starbucks’ case, this metric needs to be interpreted a bit differently than for many other companies. Starbucks has reported negative equity for several years, not because the business has been unprofitable or destroyed value, but because management has consistently returned large amounts of cash to shareholders through share buybacks. When Starbucks repurchases its own shares, the cost of those shares is deducted directly from equity. Over many years, these buybacks have exceeded the amount of equity the company has built up through retained earnings, pushing equity into negative territory. This explains why equity has been negative in so many years and why the year over year changes can swing sharply. In fiscal years 2023 and 2024, equity temporarily improved because operating profits were relatively strong compared to the pace of share repurchases. In fiscal year 2025, equity declined again as profitability weakened while buybacks continued, reducing equity once more. For a mature, cash-generative business like Starbucks, negative equity is not automatically a sign of trouble. Starbucks does not rely on equity to fund its operations or store expansion, and the underlying business continues to generate substantial cash flow. In this context, shrinking equity mainly reflects a long-standing capital allocation choice rather than a deterioration in the business itself. That said, this metric still serves an important purpose. If equity continues to shrink because profits remain under pressure while buybacks stay aggressive, it can indicate that the balance between reinvestment and capital returns is off. For Starbucks, the recent weakness appears more tied to short-term operational challenges than to a broken business model, but it is something worth monitoring as the company works through its reset.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Over the past decade, Starbucks has generally been a strong free cash flow generator. With the exception of fiscal year 2020, free cash flow has remained solid and relatively stable, usually landing in the range of roughly $2,5 to $4,5 billion. This reflects the underlying strength of the business model. Once stores are built, they tend to generate steady cash, beverages are highly profitable, and ongoing capital needs are manageable. The unusually high free cash flow in fiscal year 2018 was driven by one-time tax-related cash benefits, favorable timing in payments and collections, and relatively low capital spending that year. These factors temporarily boosted cash flow but did not reflect a lasting improvement in the business, which is why 2018 should be viewed as a one-off spike rather than a sustainable level. The sharp drop in fiscal year 2020 is clearly pandemic-related. Store closures, lower traffic, and operational disruption drove free cash flow close to zero. What matters more is what happened afterward. Free cash flow rebounded quickly in 2021 and normalized again in the following years, which shows the resilience of the business. Fiscal year 2025 marks a different type of decline. Free cash flow fell to $2,4 billion, its lowest level outside the pandemic period. This was not caused by store shutdowns, but by pressure on profitability combined with higher spending. Operating margins fell meaningfully as labor costs rose, efficiency declined, and customer traffic softened. When margins fall, less cash is generated from each dollar of sales. At the same time, Starbucks continued investing heavily in wages, store upgrades, new formats, technology, and international expansion, which increased cash outflows. The result was lower free cash flow even though the business continued operating normally. As for how Starbucks uses its free cash flow, the priorities have been consistent. The largest use has historically been share buybacks, which have been aggressive and sustained over many years. Dividends are the second major use and have grown steadily, reflecting management’s commitment to returning cash to shareholders. Beyond capital returns, free cash flow is used to open new stores, renovate existing locations, invest in equipment and technology, expand digital capabilities, and support the supply chain and sustainability initiatives. Free cash flow is at its second lowest level of the past decade, which suggests that the shares may currently be trading at a premium valuation. However, valuation will be revisited later in the analysis.

Debt

Another important aspect to examine is the level of debt, specifically whether a business carries a manageable amount that could reasonably be paid off within a three-year period. I calculate this by dividing total long-term debt by annual earnings. Based on this approach, Starbucks currently has 7,88 years’ worth of earnings in debt, which is higher than I would normally like to see. However, this number is distorted by the fact that earnings fell sharply in fiscal year 2025. Earnings were nearly halved compared to prior years, making the debt burden appear much heavier than it would under more normal conditions. The decline in earnings was driven mainly by higher labor costs, operational inefficiencies, softer customer traffic, and increased investment in wages, store operations, and infrastructure during a period of strategic reset. These factors pressured margins in the short term but were largely deliberate and not the result of financial distress. As a result, debt looks worse today than it would if earnings were closer to their historical level. Starbucks continues to generate solid cash flow and does not appear to face near-term issues. While the current debt level would not by itself prevent me from investing in Starbucks, it is clearly an area worth monitoring. A sustained recovery in earnings would quickly improve this metric.

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Risks

Macroeconomic factors is a risk for Starbucks because the company is highly exposed to consumer spending patterns that are largely outside management’s control. Starbucks sells premium, discretionary products, which means demand is sensitive to changes in employment, inflation, interest rates, and overall consumer confidence. When economic conditions weaken, customers may visit less frequently, spend less per visit, or trade down to cheaper alternatives. Even modest declines in traffic or transaction size can pressure profitability if costs do not fall at the same pace. Economic slowdowns in key markets such as the United States and China pose particular risks. These regions account for a large share of Starbucks’ revenue and future growth. During periods of uncertainty, consumers may change daily routines, work from home more, or permanently reduce discretionary spending. History shows this risk is real. During the global financial crisis, Starbucks experienced a sharp decline in profits and was forced to close hundreds of stores, demonstrating how prolonged economic pressure can materially affect the business. Inflation and interest rates add another layer of risk. Higher living costs reduce disposable income. For Starbucks, inflation has been especially challenging because it affects both sides of the income statement. Customers become more price-sensitive at the same time as Starbucks faces higher labor, rent, and input costs. If Starbucks cannot fully pass these costs on through pricing without hurting demand, margins come under pressure, as seen in fiscal year 2025. Macroeconomic risks also extend beyond consumer demand. Climate change has become a more immediate macroeconomic risk, particularly through its impact on coffee prices. Extreme weather events in major coffee-producing regions have increased volatility and pushed coffee prices higher. Coffee prices have remained elevated and continue to act as a headwind to margins, with management expecting pressure to persist at least through the near future.

Preserving brand value is a key risk for Starbucks because the company’s economic model depends heavily on trust, perception, and emotional connection rather than price or convenience alone. Starbucks sells a premium, largely discretionary product, and its ability to charge higher prices rests on customers believing they are paying for quality, consistency, and an experience that goes beyond the beverage itself. If that perception weakens, the financial impact can be meaningful. Starbucks’ brand is global, but it is also fragile because it must be delivered consistently across tens of thousands of stores, many of them operated by different teams or licensees. Any decline in service quality, store cleanliness, speed, or atmosphere can erode the customer experience. This risk is especially pronounced in newer or rapidly growing markets, where brand expectations are still being formed. Inconsistent execution in these regions can slow expansion and weaken long-term brand equity. Labor issues have also posed reputational risks in the past and remain a sensitive area. Starbucks has faced public scrutiny over unionization efforts, employee relations, scheduling practices, and wage disputes, particularly in the United States. These issues can damage the brand’s image as a responsible employer and conflict with its stated values around employee well-being. Negative headlines or prolonged labor disputes can influence consumer sentiment, especially among younger and more socially conscious customers, and may lead some to reduce or avoid spending at Starbucks. Operational incidents represent another brand risk. Issues such as food safety concerns, product quality lapses, or employee misconduct can quickly attract widespread attention, particularly through social media. Even isolated incidents can be amplified and shape public perception far beyond their actual scale. In a brand built on trust and routine, perceived lapses in quality or safety can have outsized consequences.

Competition is a significant risk for Starbucks because the company operates in a highly fragmented and dynamic global coffee market where competitors attack from multiple angles at once. Starbucks does not compete only with other specialty coffee chains, but also with quick-service restaurants, independent cafés, convenience formats, and ready-to-drink beverage companies. These competitors differ in cost structures, pricing strategies, and customer value propositions, which limits Starbucks’ ability to rely solely on brand strength. In the United States, Starbucks faces intense pressure from large quick-service restaurant chains such as McDonald’s and Dunkin’. These competitors have steadily improved the quality of their coffee offerings while maintaining lower prices and faster service. For more price-sensitive customers, especially during periods of economic stress, this can reduce visit frequency or shift demand away from Starbucks. At the other end of the spectrum, independent and third-wave coffee shops compete on craftsmanship, authenticity, and local appeal. While these operators are smaller, they can be highly influential in shaping consumer preferences, particularly among younger and urban customers. This forces Starbucks to continuously innovate and improve quality and experience in order to remain relevant, increasing operational complexity and costs. Internationally, competition can be even more challenging due to local players that are better adapted to regional tastes, pricing expectations, and digital behavior. China illustrates this risk clearly. Luckin Coffee has expanded rapidly using a mobile-first, low-cost model focused on convenience and aggressive pricing. Its dense store network, app-based ordering, and localized promotions contrast with Starbucks’ more experience-driven format. This has enabled Luckin to gain significant market share and put pressure on Starbucks’ same-store sales, demonstrating how quickly competitive dynamics can shift in key growth markets. Competition also extends beyond cafés into packaged coffee and ready-to-drink beverages. In these channels, Starbucks competes with large, well-funded global brands that can invest heavily in marketing, pricing promotions, and distribution. This can squeeze margins and reduce the profitability of Starbucks’ Channel Development segment, even as volumes grow.

Reasons to invest

The Back to Starbucks strategy is a reason to invest in Starbucks because it directly addresses the root causes behind recent operational underperformance while reinforcing the company’s core competitive strengths rather than chasing short-term fixes. At its core, Back to Starbucks is about restoring what historically differentiated the brand: high-quality coffee, genuine human connection, and welcoming community coffeehouses. Management has been explicit that Starbucks drifted off strategy in recent years, particularly as mobile ordering and operational complexity began to undermine in-store execution, drive-thru performance, and partner engagement. Instead of simplifying the experience for customers and employees, the system became stretched, leading to slower service, weaker connection, and declining customer satisfaction. The strategy’s most important pillar is Green Apron Service, which establishes a clear, consistent standard for how Starbucks operates its coffeehouses across all access points, including café, drive-thru, mobile order, and delivery. This is not a cosmetic change. Starbucks made deliberate investments in staffing levels, hours, training, and scheduling so partners could focus on customers rather than constantly managing overload. As a result, stores are better staffed at peak times, service is faster, and partners are more present and engaged. Early results suggest these changes are working. Partner engagement improved, hourly turnover reached record lows, and customer experience scores strengthened. Importantly, customers noticed the difference quickly. Simple improvements such as being greeted when entering a store, receiving orders on time, and experiencing smoother handoffs have had an outsized impact in a business with extremely high customer frequency. This led to positive transaction-driven comparable sales growth, which is one of the strongest indicators that the strategy is gaining traction. From an investment perspective, Back to Starbucks is compelling because it creates a self-reinforcing flywheel. Better staffing and clearer standards improve service and partner morale. Better service improves customer satisfaction and traffic. Higher traffic improves throughput and sales, which allows Starbucks to earn its way into additional labor hours rather than relying on ongoing margin sacrifice. Over time, this supports both growth and profitability.

International expansion is a reason to invest in Starbucks because it provides a long runway for growth beyond the mature U.S. market while leveraging the company’s strongest asset: a globally recognized premium brand. Starbucks’ international business demonstrates that the brand travels well across cultures and geographies. In many key markets, Starbucks continues to grow despite challenging economic conditions, showing that demand for premium coffee experiences is not limited to North America. Markets such as Japan, the U.K., Mexico, and China have shown resilience, supported by localized menus, strong digital adoption, and growing delivery capabilities. This geographic diversification reduces reliance on any single market and adds stability to long-term growth. A key advantage of international expansion is the amount of remaining white space. Outside the U.S., coffeehouse penetration is still relatively low in many regions compared to population size and urban density. China remains central to the international investment case. While competition is intense, Starbucks continues to see strong long-term potential driven by urbanization, rising incomes, and a growing culture of out-of-home coffee consumption. Starbucks has adapted its offerings to local tastes, expanded delivery, and maintained healthy store-level economics. Management’s openness to partnering while retaining a meaningful stake highlights a capital-efficient way to unlock future growth while preserving brand control and long-term upside. Beyond China, Starbucks is well positioned to benefit from structural trends in emerging markets. Rising middle classes, increased urbanization, and evolving consumer lifestyles in regions such as Southeast Asia, India, the Middle East, and parts of Europe are driving demand for premium, aspirational brands. Starbucks’ combination of quality, consistency, and experience aligns well with these trends. As disposable incomes grow, consumers increasingly spend on affordable luxuries and social experiences, which plays directly into Starbucks’ strengths.

More profitable stores in North America are a reason to invest in Starbucks because they strengthen the foundation of the company’s largest and most important market while improving long-term returns rather than chasing store count growth for its own sake. North America is Starbucks’ earnings engine, and management’s decision to reassess the entire store portfolio reflects a shift toward quality over quantity. By closing coffeehouses that lacked a clear path to profitability or failed to deliver the desired customer experience, Starbucks is removing underperforming assets that diluted margins and distracted operational focus. While these closures reduce reported store count and revenue in the short term, they improve the overall health of the store base and are expected to be positive for operating margins. This portfolio cleanup also highlights a more disciplined approach to capital allocation. Starbucks is now applying both an experience filter and a financial filter before committing capital. Stores must be able to deliver a warm, welcoming coffeehouse environment and generate attractive returns. This reduces the risk of building stores that look good on paper but fail to generate sufficient sales once opened. The focus on higher average unit volumes is particularly important. Management has emphasized that the biggest driver of store viability is top-line performance. By prioritizing locations with strong traffic, density, and sales potential, Starbucks increases the likelihood that each new store generates healthy profits even in a higher-cost environment. The fact that sales from closed stores are partially transferring to nearby locations further supports the idea that Starbucks is preserving demand while concentrating it in stronger units. Store profitability is also being addressed through smarter design. Starbucks is piloting new coffeehouse prototypes with lower build costs and more efficient use of space while still delivering the full brand experience. Lower upfront investment combined with similar sales potential improves returns on new stores and shortens payback periods.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 1,63, which is from the fiscal year 2025. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 24,2 % in the next five years, but 15% is the highest I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on Starbucks' historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $48,90. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Starbucks at a price of $24,45 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 4.747, and capital expenditures were 2.305. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 1.614 in our calculations. The tax provision was 651. We have 1.137 outstanding shares. Hence, the calculation will be as follows: (4.747 – 1.614 + 651) / 1.137 x 10 = $33,28 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Starbucks' free cash flow per share at $2,15 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $33,94

Conclusion

I believe Starbucks is an intriguing company, and I like the direction under the new management team. The company has built a moat through its brand strength, scale, and an integrated operating model that is difficult to replicate. Starbucks has consistently achieved a high ROIC and strong free cash flow but has been challenged by higher labor costs, declining efficiency, and softer customer traffic. These pressures have weighed on ROIC and free cash flow but appear tied to execution issues rather than a broken business model. Macroeconomic factors are a risk for Starbucks because its premium, discretionary products make demand highly sensitive to changes in consumer confidence, employment, inflation, and interest rates, especially in key markets like the U.S. and China. Economic slowdowns and rising costs can reduce customer traffic while simultaneously increasing labor and input expenses, pressuring margins if higher costs cannot be passed on through pricing. Preserving brand value is a risk for Starbucks because its ability to charge premium prices depends on consistently delivering quality, service, and a trusted experience across a vast global store base. Any erosion in customer experience, labor relations, or perceived integrity, especially when amplified by social media, can weaken consumer trust and directly impact traffic, pricing power, and long-term growth. Competition is a risk for Starbucks because it faces pressure from a wide range of rivals with different cost structures and value propositions, limiting pricing flexibility and increasing the need for constant innovation. From low-priced quick-service chains to local specialty cafés and aggressive international players like Luckin Coffee, competitors can erode traffic, margins, and market share across both stores and packaged beverage channels. The Back to Starbucks strategy is a reason to invest because it refocuses the company on its core strengths of coffee quality, human connection, and in-store experience while fixing execution issues that hurt recent performance. Early signs of improved service, partner engagement, and transaction-driven sales growth suggest the strategy can create a self-reinforcing cycle that supports both long-term growth and profitability. International expansion is a reason to invest in Starbucks because it extends the company’s growth runway beyond the mature U.S. market while leveraging a globally recognized premium brand. With significant white space, rising middle classes, and increasing demand for premium coffee experiences across many regions, international markets offer long-term growth and diversification opportunities. More profitable stores in North America are a reason to invest in Starbucks because the company is strengthening its core earnings base by focusing on higher-quality, higher-return locations rather than expanding store count at any cost. By closing underperforming stores, improving average unit volumes, and reducing build costs on new locations, Starbucks is improving margins and returns in its most important market. I believe there are many things to like about Starbucks, but I also believe there are better opportunities in the market. Hence, I will not be investing in Starbucks at this time.

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