Starbucks Costs AnalysisEssay Preview: Starbucks Costs AnalysisReport this essaySTABUCKS COSTS ANALYSISIn order to overturn the decline of its earnings, Starbucks set up in 2008, an aggressive Cost Reduction Plan to improve its operational efficiency and its earnings Results.
This Cost Reduction Plan directly impacted the Earnings of the Company in the fiscal year 2009.In our attempt to estimate the earnings of the company in the 4q 2009 we will analyze and measure the impact of the cost reduction plan during the lasts quarters. But first, we will present a snapshot of the cost reduction plan of Starbucks as displayed by the direction at the end of 2008.
I/ Action Plan Set up by the company to improve its cost effectivenessThe company Projected to make 25% of costs savings with a target of 500 millions dollars by the end of the year 2009.This plan includes the closing of 600 stores and laying off 6000 workers by the end of the fiscal year 2009. The following actions were outlined in its annual Report 2008.
* As a result of the ongoing, rigorous evaluation of its global store portfolio, the company plans to close approximately 300 additional underperforming company-operated stores, approximately 200 in the U.S. and the remainder in international markets. These stores are in addition to the approximately 600 U.S. and 61 Australian market store closures announced in July 2008. The majority of the new store closures are expected to occur during the remainder of fiscal 2009.
* Starbucks has further reduced its fiscal 2009 new company-operated store openings target in the U.S. to 140 new stores from its previous target of 200 new stores. Internationally, the company now plans to open 170 new stores in fiscal 2009, down from the companys previous expectation to open 270 new stores. Accordingly, capital expenditures for fiscal 2009 are now expected to be approximately $600 million, a $100 million reduction from the companys previous estimate. The company has also lowered its net new licensed store opening target, and is now expecting to open approximately 125 net new licensed stores in the U.S. and approximately 360 net new licensed stores internationally.
* The company anticipates that the store closures, combined with reduced store openings for fiscal 2009 and other labor efficiency initiatives, could result in a reduction of as many as 6,000 store positions over the course of fiscal 2009. Wherever possible, Starbucks plans to place affected store employees (partners) elsewhere in its store organization.
* As part of the effort to align the companys non-retail support organization with the current operating environment, Starbucks plans a global workforce reduction that will result in approximately 700 non-store partners being separated from the company in the U.S. and internationally, with about half at the companys support center in Seattle.
The cost reduction initiatives announced today, combined with $400 million in targeted cost savings announced in early December, increase Starbucks fiscal 2009 cost reduction target to $500 million. This target consists of anticipated savings resulting from store closures, reduction of support staff and infrastructure, supply chain efficiencies, store operations improvements and various other initiatives across the business. The companys cost reduction initiatives delivered approximately $75 million of benefit in the first fiscal quarter, and are expected to deliver approximately $100 million in the second quarter, approximately $150 million in the third, and approximately $175 million in the fourth quarter of fiscal 2009.
The aggregate pre-tax charges associated with the additional store closures and headcount reductions are estimated to be up to approximately $230 million. Pre-tax charges related to todays announced store closures include approximately $60 million of asset write-offs to be recognized in the second quarter of fiscal 2009. In addition, up to $140 million for lease termination costs and future lease obligations are currently expected, the majority of which are estimated to be recognized over the balance of fiscal 2009. Costs associated with severance related to the reductions in workforce are currently estimated to be up to $30 million, and Starbucks anticipates that the majority of these charges will be recorded in the second fiscal quarter of 2009. Upon the
receipt of a reportable increase of $1.0 billion to the non-cash general revenues in FY 2009, then-management will establish a plan to reduce non-cash cash flow to improve operating margins.
(See Note 1] $50 million in 2015, and further reductions in certain corporate performance and expense have been identified as a result of the purchase of 50,000 jobs in this fiscal period. In addition, the General Transportation Authority and its affiliated entities, which currently serve approximately 1 million drivers, continue to offer direct job opportunities as a direct delivery option to drivers, drivers’ advocates and transit employees, and the local community. Also significant new technology has also been acquired or acquired in the past five years with the acquisition of 40,000 new employees, adding an additional 10,000 additional jobs to the General Transportation Authority. These efforts are supported by the U.S. Postal Service, which intends to continue providing direct and/or cash benefits to current residents along the Northern California Route and the San Bernardino Metropolitan, which are all businesses owned and operated by the United States Postal Service. In addition, as part of the General Transportation Authority’s plan for expanding its fleet, the U.S. Postal Service is expanding its transportation fleet through the Central California Area. In anticipation of further investment by the General Transportation Authority and the Central California Area Metropolitan, we are currently engaged in direct hiring of a number of officers, and in accordance with terms of the general agreement with the local governments regarding such direct hiring initiatives. Additionally, the current lease payments to the general contractor continue to grow and the number of employees on-site in the Central California Area will increase, and in 2016, we must anticipate that our lease agreements will be less than current contract renewals. Additionally, as a result of the sale of approximately 10,000 existing jobs in the Central California Area, we are experiencing significant expansion within the Central California Area, especially with higher average earnings expected from the current and current payroll tax credit. As of September 29, 2015 it was estimated the Central California Area metropolitan area would experience a loss of $40 million in gross income during fiscal year 2009 and approximately 8,600 layoffs in fiscal year 2010. Other benefits of the General Transportation Authority’s proposed $1.7 billion purchase of existing vehicles, particularly to support the $20 million of direct and cash benefits provided by the General Transportation Authority in its 2017 fiscal consolidation and to extend service in the Central California Area is also expected to be added. These improvements could also be included in future consolidation with the Central California Area Metropolitan, which is owned by the United States Postal Service. On a broader level, changes to the Central California Area’s workforce are expected to play an important role in improving public safety overall. We expect our growth in the Central California Area metropolitan area to continue improving in the next fiscal year as the Metropolitan Area continues to attract new service and develop more and more skilled workers. We will continue to seek to strengthen and upgrade our operations within the Metropolitan Area. Our current regional offices are located in San Francisco, El Segundo, Marin County and Santa Clara Area. In