SBUX Valuation and Analysis 2015 by DaniMariSea

Starbucks Valuation and Analysis | AU2015

Brittany Bowman / Mike Neiman / Bridget Haggerty / Austin Weng / Danielle Seamon

Table of Contents

Page

Exhibit(s)

Company Overview

Recent Activity

Industry Structure

B, C, D

Main Competitors

Historical Financial Analysis

F, G

Probability Ratio Analysis

Short-Term Liquidity Ratio Analysis

Efficiency Ratio Analysis

Monte Carlo Simulation

Tornado Chart and Sensitivity Analysis

Discount Cash Flow Valuation

Relative Valuation

Recommendations

Executive Summary The following report provides a valuation for Starbucks Corporation, including an industry analysis, historical financial analysis, evaluation analysis of current profitability, short-term liquidity, and efficiency. The methods of analysis include ratio analyses, discounted cash flow, and relative valuation. Additionally, five of its main competitors were compared alongside Starbucks Corporation to assess its overall financial performance over the past five years. A tornado chart, sensitivity analysis and Monte Carlo simulation were then conducted to further analyze the main drivers that lead to projected firm value. All supporting data for the analysis can be found in the report and its exhibits.

The Discounted Cash Flow model estimated an expected share price of $86.71. The relative valuation methods produced a projected average share price between $21.53 to $66.59.

To conclude, the following recommendations were made for Starbucks management:

â&#x20AC;˘

Carefully expanding delivery business

â&#x20AC;˘

Future development or acquisitions of new food options

â&#x20AC;˘

Continue slow expansion internationally

Starbucks report Company Overview It was the grand romanticism of the Italian coffee experience and his first cup of Sumatra that inspired Howard Schultz more than 30 years ago to join a small Seattle business named Starbucks. Later, with the help of investors, he would purchase the single store, located in the historic Pike Place Market, and soon multiply it to an international chain with over 23,000 locations. Today, Starbucks Corporation (SBUX) — now led by Schultz both as a chairman and CEO — boasts a portfolio of eight different beverage-specialized brands, including its flagship company, whose namesake derives from a character in Herman Melville’s “Moby Dick” and whose logo prominently features a sea siren of Greek mythology. Across all of its brands, Starbucks Corporation (hereafter SBUX or “the corporation”) holds a product portfolio that includes a range of coffee blends, assorted teas, smoothies, espressos, patented handcrafted beverages, fresh food and pastries, and name-branded coffee and beverage accoutrement. Additionally, SBUX — along with the Concord Music Group — owns Hear Music, which heads the corporation’s retail music concept that features big names like Carole King, James Taylor, Paul Simon, and Paul McCartney, among others. In all of its ventures, SBUX’s mission — “to nurture the human spirit — one person, one cup and one neighborhood at a time” — is underscored by its practices in ethical sourcing, environmental stewardship and community involvement and is a point of reference when lauded by business outlets and pop culture. Exhibit A presents a detailed timeline of SBUX’s history and its brand acquisitions.

Starbucks report Recent Activity Within the past five years, four major corporate developments at SBUX have served as talking points among investors. They are as follows, in chronological order:

Acquisition of Teavana — On Dec. 31, 2012, SBUX formally closed a deal to make Teavana, a specialty tea and tea accessory retailer, a wholly-owned subsidiary of the corporation. The acquisition, priced at approximately $620 million in cash, was an opportunistic move by SBUX to become an even bigger player in the $125 billion tea market and complemented the corporation’s pre-existing Tazo premium tea brand, which was bought in the late ‘90s and prominently featured in Starbucks’ beverage menus ever since. With Teavana under its brand umbrella, SBUX aimed for a 500-store expansion of the tea retailer by 2015 and to position it as a $3 billion-a-year brand before 2017 year-end. As of today, Teavana is still on track to meet those sales goals, but SBUX has managed to open only 360 stores. However, the corporation has shifted Teavana’s prospects for global brand awareness by planning, instead, to expand the offering of Teavana products in Starbucks stores worldwide.

Starbucks Mobile Order & Pay Launch — In December 2014, SBUX launched its Starbucks Mobile Order & Pay feature on its Starbucks application for iPhone, first in Portland, Ore. and nationally in September 2015. The app — eventually developed for Android users as well — allows customers to locate their nearest Starbucks location using their mobile device’s GPS functionality and place food and beverage orders in advance of their visit. Customers can also choose to pay for their order and leave a digital tip via the app, as well as track and redeem My Starbucks Rewards (a 20-million-

Starbucks report member-strong program) and email Starbucks Card eGifts to friends. As of November 2015, Starbucks Mobile Order & Pay function can be used at any of Starbucks’ 7,500 U.S. stores. SBUX’s metrics for the feature have solidified the company as a strong player on the digital front: 9 million out of Starbucks’ 45 million weekly customers pay with their phone each week, and, as of October 2015, mobile payments accounted for 21% of all Starbucks U.S. transactions. Looking ahead, SBUX plans to rollout Starbucks Mobile Order & Pay in London and Toronto.

Digital Loyalty Ecosystem — Throughout 2015, SBUX made a series of strategic partnerships to develop their “digital loyalty ecosystem.” The concept of a digital loyalty ecosystem — seemingly developed by SBUX — serves as a customer-sharing method between different companies in different industries. In this mutualistic relationship, SBUX leverages its My Starbucks Rewards program to incentivize customers, allowing them to earn “loyalty Stars” for using the services of partnering companies. In 2015, SBUX struck such deals with music-streaming platform Spotify, The New York Times, and rideshare app Lyft.

Green Apron Delivery and Postmates — Cited as one of the company’s mostasked-for services, Starbucks began taking its first steps to fulfill prospects of a potential delivery system in 2015. In October 2015, the first Starbucks Green Apron Delivery service was launched inside the Empire State Building in New York City. Built to serve the building’s 12,000 employees, the system promises to deliver a select menu of food and beverages within 30 minutes after ordering on a dedicated website. Each company within the building (about 150 total) has a designated drop-off location, and Green Apron charges $2 per delivery. Additionally, SBUX announced a collaboration with on-

Starbucks report

demand delivery service Postmates that allows the San Francisco-based company to deliver Starbucks coffee and food to those in its Seattle region. The delivery pilot is set to begin at the end of 2015.

Industry Structure SBUX is considered one of the biggest players in the specialty eateries industry, which encompasses “limited service restaurants that serve specialty snack items or nonalcoholic beverages for consumption on-premises,” according to Hoovers. Examples of companies in this industry include coffee, doughnut, bagel, and smoothie shops, as well as ice cream parlors and juice bars. Together, specialty eateries have a market capitalization of $108B, with SBUX holding the majority at $92.3B. Because of high bargaining power among both customers and suppliers, as well as an imminent threat of substitutes and easy entrance into the market, the specialty eateries industry is very competitive and fragmented. After all, the top 50 companies in the industry only account for about 45% of revenue. However, SBUX’s core competencies — a socially-conscious and community-oriented corporate policy; ethical sourcing of sustainable products; an international presence; a broad brand portfolio; an extensive offering of benefits for employees; and high brand recognition — allow the corporation to stand out from its biggest competitors. A Porter’s Five Forces analysis for the specialty eateries industry can be found in Exhibit B, a VRIO analysis for SBUX can be found in Exhibit C, and a SWOT analysis for SBUX can be found in Exhibit D.

Starbucks report Main Competitors Although SBUX is considered a specialty eatery, it’s main competition is found in other industries. Listed below is a short description of SBUX’s five main competitors, which are analyzed alongside the corporation in this report. A more detailed overview of the competitors’ specs can be found in Exhibit E.

McDonald’s Corp. (MCD) — An international fast-food franchise that offers a variety of American cuisine, including food products, soft drinks, coffee, and other beverages

Panera Bread Company (PNRA) — A North-American fast-casual food franchise with a limited brand portfolio that offers fresh-baked goods, made-to-order sandwiches, soups, salads, pastas, and custom-roasted coffees through both store sales and catering

Dunkin’ Brands Group, Inc. (DNKN) — An international fast-casual food franchise with a limited brand portfolio that offers a variety of breakfast fare, including hot and cold coffee, donuts, bagels, sandwiches, and muffins, as well as ice cream and frozen yogurt desserts

Yum! Brands, Inc. (YUM) — An international fast-food franchise with a broad brand portfolio that specialize in chicken, pizza, and Mexican-inspired food categories

Chipotle Mexican Grill, Inc. (CMG) — An international fast-casual food franchise with a limited brand portfolio that offers Mexican- and Asian-style cuisine

Starbucks report Historical Financial Analysis SBUX has performed financially well over the past five years, as illustrated in Exhibit F. From 2010 to 2015, SBUX saw an average yearly increase in revenue of 12.4% and an average yearly increase in operating income of 19%. SBUX also experienced a consistent average yearly increase in net income every year, excluding 2013, when a $2.76B legal settlement over bagged coffee distribution rights between SBUX and food and beverage conglomerate Mondelez International caused a 99% net decrease in SBUX’s net income. Nevertheless, SBUX has experienced a steady store sales growth of 7% within the past five years and now has more than 23,000 stores worldwide, about half of which are owned and operated by SBUX and the other half franchised (Exhibit G). SBUX has been able to maximize sales growth through high employee retention, growth in their brand portfolio, continued domestic store growth, international expansion, the sale of goods in other outlets (such as grocery stores), and strong customer loyalty. Even though the economic slowdown has affected disposable income, SBUX has been able to sustain constant growth and continue to be one of Americans’ favorite places to enjoy coffee. The perceived value of SBUX products have kept their customers coming back for more, even with the nearly $5 price tag for a latte. In order to get a deeper understanding of SBUX’s financial operations, several key ratios are examined in the following sections and compared to SBUX’s main competitors.

Starbucks report Probability Ratio Analysis To assess SBUX probability, the corporation’s ability to use current assets to generate net income (ROA) and its ability to return money to investors (ROE) were examined in Exhibit H. In 2015, SBUX’s ROA is 18.1%, which is the second highest among its competitors. CMG holds the highest ROA at 19.9%. Additionally, between 2010 to 2015, SBUX has trended a steady positive increase in ROA. In 2015, SBUX also has the second highest ROE compared to its competitors at 49.7%, falling short of DNKN at 115.3%. SBUX has also trended a steady positive increase in ROE between 2010 and 2015, excluding 2013.

Short-Term Liquidity Ratio Analysis To assess SBUX’s’ ability to pay short-term debt obligations with current assets, the corporation’s current ratio was examined using data from Sept. 27, 2015 (Exhibit I). The current ratio is equal to 1.2, which indicates that SBUX has 1.2 times more current assets than current liabilities. SBUX holds the second lowest current ratio among its competitors, showing that SBUX is not as capable as its competitors to pay off short-term debt obligations with its current assets. To assess SBUX’s ability to pay short-term debt obligations with current liquid assets, the corporation’s quick ratio was examined (Exhibit I). The quick ratio is 0.6, which indicates that SBUX would only be able to pay 60% of its short-term debt obligations with its current liquid assets. SBUX also has the second lowest quick ratio among its competitors. This might concern investors; however, SBUX has continually invested assets in new store expansion, acquisitions, and product development, which has led to success in continued revenue growth.

Starbucks report Efficiency Ratio Analysis To assess SBUX’s ability to manage assets and inventory to generate revenue, the asset turnover ratio and the inventory turnover ratio were examined (Exhibit J). In 2015, SBUX’s total asset turnover ratio is equal to 1.7, which indicates that SBUX is able to generate $1.70 in revenue for every $1 invested in assets. In 2015, SBUX tied with CMG as the second highest asset turnover ratio, falling short of PNRA at 1.9. The inventory ratio for SBUX is equal to 11, which indicates that for every $1 invested, inventory was able to generate $11 in revenue. This also means that SBUX was able to effectively turn inventory 11 times. SBUX has the lowest inventory turnover ratio among its competitors, indicating that it has high inventory cost in comparison to the revenue accumulated by selling inventory. Additionally, this also shows that SBUX would need to either lower its COGS significantly or generate more revenue to be competitive with its peers.

Monte Carlo Simulation A Monte Carlo simulation was performed using Oracle Crystal Ball software to analyze the sensitivity of the estimated value per share and firm value for SBUX, given changes in underlying assumptions. These assumptions were based on SBUX’s performance over the past five years in its respective categories under a triangular distribution. These trials ran 1M times and returned an average firm value of $95,000M and an average value per share of $62. Additionally, it can be noted with 80% certainty that the firm value will be between $78,005.64M and $153,160.77M, and the value per share will fall between $48.07 and $98.69. These charts can be found in Exhibit K.

Starbucks report Tornado Chart and Sensitivity Analysis A tornado chart and sensitivity analysis were used to analyze the impact each assumption has in determining the forecasted variable. The tornado charts show that the WACC will have the biggest impact on both firm value and value per share when altered. When analyzing firm value, an increase to 11% will drive down value to $81,048.89M and a decrease to 8% would increase value up to $143,458.40M, giving firm value a potential range of $62,409.51M. When analyzing the impact this has on the value per share, it is seen that an increase to 11% will bring the price down to $50.12 and a decrease to 8% will raise the price to $92.15, giving value per share a potential range of $42.03. The analysis also shows that the second most significant assumption is the growth after the forecast period, with a range of $29,688.84M for firm value and $20 for value per share. The tornado charts can be found in Exhibit L, and the sensitivity analyses can be found in Exhibit M.

Discounted Cash Flow Valuation To find the value of the firm using the Discounted Cash Flow valuation model, the following assumptions were calculated using historical financial data for the past five years: growth during the forecast period, growth after forecast period tax rate, COGS/sales, SG&A/sales, and NWC/sales. SBUX has had an extremely high growth rate of 25.98% over the past five years, excluding 2014 due to major outlying changes in net working capital. SBUX has developed a strategic plan to continue this growth by expanding both domestically as well as internationally. A modest estimate for the growth during the forecast period is half of the growth for the previous five years of growth; therefore, the growth during the forecast period is 12.99%. A

Starbucks report modest figure for the growth after the forecast period would be 5% due to the fact that SBUX is a mature corporation. SBUX will still be growing internationally, but might not be growing at the same pace as before. After calculating the free cash flows for the forecast period, the results were a firm value of $135,378,220,000 and a value per share of $86.71. The DCF model can be found in Exhibit N.

Relative Valuation To find the relative valuation for SBUX, the following companies were selected as peer firms: McDonald’s (MCD), Panera Bread (PNRA), Dunkin Donuts (DNKN), Yum! Brands (YUM), and Chipotle (CMG). These companies are all well-diversified and very similar to SBUX in terms of products as well as customer bases. To calculate the valuation, current multiples from the peer firms were collected using the Morningstar program. The P/E, P/B, and P/S were used, and the minimum, maximum, and average for each multiple were found in a peer group table. Next, SBUX statistics, including EPS, book value per share, and sales per share, were multiplied by the values in the peer group table in order to find a range of prices for SBUX stock. The range in prices calculated was between $21.53 and $66.59, with the averages falling between $42.19 and $44.33 per share. The relative valuation for SBUX can be found in Exhibit O.

Recommendations Because the relative valuation fails to take SBUX’s future growth into consideration, we recommend using the DCF model as a more accurate assessment of the corporation’s value to shareholders. Looking into the future, we also believe that SBUX can sustain long-term growth

Starbucks report with its current strategy of cautious international expansion, future development or acquisitions of new food options, expanding its digital loyalty ecosystem, and embracing trends in technology. The launch of Starbucks Green Apron Delivery in the Empire State Building and SBUXâ&#x20AC;&#x2122;s collaboration with Postmates in Seattle are both exciting pilot programs and prospects for a potential delivery system rollout in the future. However, we recommend close study of how a delivery system might affect work-flow efficiency and in-store sales. It is very easy to jump the gun on a Starbucks delivery system, as it is often requested by customers and a prevalent trend in the food and beverage industry. However, moving too-fast-too-soon on such plans can be cause for disaster to profitability. In this particular venture, it is best to take it decaf.

Exhibits

Exhibit A SBUX Timeline

Source: Starbucks Corporate website

Exhibit B SBUX Porterâ&#x20AC;&#x2122;s Five Forces Analysis

Source: Starbucks Corporate website; Hoovers

Exhibit C SBUX VRIO Analysis

Source: Starbucks Corporate website

Exhibit D

SBUX SWOT Analysis

Source: Starbucks Corporate website

Exhibit E SBUX Main Competitors

Source: Starbucks, McDonaldâ&#x20AC;&#x2122;s and Panera Bread corporate websites

Exhibit E SBUX Main Competitors

18 Source: Dunkinâ&#x20AC;&#x2122; Brands, Yum! Brands and Chipotle corporate websites

Exhibit E

Exhibit F

Income Statement Net Changes

Net Change

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

13%

12%

11%

17%

12.40%

Cost Of Goods Sold

93%

14%

10%

15%

28%

Operating Income

10%

17%

24%

27%

20%

19%

Net Income

32%

11%

-99%

23397%

33%

4675%

Revenue

Source: Morningstar

Average

Exhibit G SBUX Restaurants 12 months Oct-032010

12 months Oct-022011

12 months Sep-302012

12 months Sep-292013

12 months Sep-282014

12 months Sep-272015

USD

16,635

21,366

320

2,085

337

1,092

408

1,092

16,858

17,003

18,066

19,767

21,366

23,043

8,933

10,713

731

337

1,009

135

8,866

8,972

9,314

10,143

10,713

12,235

14%

7,702

10,653

290

1,354

Franchise Restaurants Acquired

Franchise Restaurants Closed

273

Franchise Restaurants Sold

1,009

7,992

8,031

8,752

9,624

10,653

10,808

10%

11%

For the Fiscal Period Ending Currency

Average

20102015

Restaurant Properties

Restaurants at Beginning Restaurants Opened Restaurants Acquired Restaurants Closed Restaurants Sold Total Restaurants Total Restaurants Growth

Owned/Operated Restaurants at Beginning Owned/Operated Restaurants Opened Owned/Operated Restaurants Acquired Owned/Operated Restaurants Closed Owned/Operated Restaurants Sold Total Owned/Operated Restaurants Total Owned/Operated Restaurants Growth

Franchise Restaurants at Beginning Franchise Restaurants Opened

Total Franchise Restaurants Total Franchise Restaurants Growth

Restaurant Statistical Data

Owned/Operated Same Restaurants Sales Growth

7.00%

8.00%

7.00%

6.00%

7.00%

Operating Margin

13.30%

14.80%

15.00%

-2.20%

18.70%

18.80%

13.10%

Growth in Avg. Value Per Transaction

3.00%

2.00%

1.00%

2.00%

3.00%

4.00%

2.50%

Growth in Guest Counts

4.00%

6.00%

5.00%

3.00%

4.50%

Source: Morningstar

Exhibit H Probability Ratios Starbucks Ratios For the Fiscal Period Ending

12 months

Oct-03-2010

Oct-02-2011

Sep-30-2012

Sep-29-2013

Sep-28-2014

Sep-27-2015

Profitability

Return on Assets %

14.50%

13.90%

14.30%

14.00%

15.70%

18.10%

Return on Equity %

28.10%

30.90%

29.10%

0.20%

42.40%

49.70%

McDonald's Ratios For the Fiscal Period Ending

12 months

LTM

Dec-31-2010

Dec-31-2011

Dec-31-2012

Dec-31-2013

Dec-31-2014

12 months Sep-30-2015

Profitability

Return on Assets %

14.70%

16.00%

15.30%

14.80%

14.00%

13.30%

Return on Equity %

34.50%

37.90%

36.80%

35.70%

33.00%

40.30%

Panera Bread Ratios For the Fiscal Period Ending

12 months

LTM

Dec-28-2010

Dec-27-2011

Dec-25-2012

Dec-31-2013

Dec-30-2014

12 months Sep-29-2015

Profitability

Return on Assets %

13.10%

14.40%

15.40%

15.90%

13.50%

11.60%

Return on Equity %

18.70%

21.70%

23.50%

25.80%

25.00%

24.10%

Dunkin' Brands Group, Inc. Ratios 12 months For the Fiscal Period Dec-25-2010 Ending

12 months

LTM

Dec-31-2011

Dec-29-2012

Dec-28-2013

Dec-27-2014

12 months Sep-26-2015

Profitability

Return on Assets %

3.60%

4.10%

4.90%

5.40%

6.20%

6.90%

Return on Equity %

5.00%

6.50%

19.60%

38.40%

44.60%

115.30%

Chipotle Ratios For the Fiscal Period Ending

12 months

LTM

Dec-31-2010

Dec-31-2011

Dec-31-2012

Dec-31-2013

Dec-31-2014

12 months Sep-30-2015

Profitability

Return on Assets %

17.60%

17.50%

18.60%

18.30%

19.70%

19.90%

Return on Equity %

23.60%

23.20%

24.30%

23.50%

25.10%

24.60%

Yum! Brands Ratios For the Fiscal Period Ending

12 months

LTM

Dec-25-2010

Dec-31-2011

Dec-29-2012

Dec-28-2013

Dec-27-2014

12 months Sep-05-2015

Profitability

Return on Assets %

14.90%

14.60%

15.70%

14.40%

15.00%

14.60%

Return on Equity %

84.70%

74.50%

76.10%

46.50%

52.60%

40.20%

Source: Morningstar

Exhibit I Short-Term Liquidity Ratios Starbucks Ratios 12 months

12 months

Oct-03-2010

Oct-02-2011

Sep-30-2012

Sep-29-2013

Sep-28-2014

Sep-27-2015

Current Ratio

1.5x

1.8x

1.9x

1.0x

1.4x

1.2x

Quick Ratio

1.0x

1.2x

1.1x

0.7x

0.8x

0.6x

For the Fiscal Period Ending Short Term Liquidity

McDonald's Ratios For the Fiscal Period Ending

12 months

LTM

Dec-31-2010

Dec-31-2011

Dec-31-2012

Dec-31-2013

Dec-31-2014

12 months Sep-30-2015

Short Term Liquidity

Current Ratio

1.5x

1.3x

1.4x

1.6x

1.5x

Quick Ratio

1.2x

1.0x

1.1x

1.3x

1.2x

Panera Bread Ratios For the Fiscal Period Ending

12 months

LTM

Dec-28-2010

Dec-27-2011

Dec-25-2012

Dec-31-2013

Dec-30-2014

12 months Sep-29-2015

Short Term Liquidity

Current Ratio

1.6x

1.5x

1.7x

1.0x

1.2x

1.4x

Quick Ratio

1.3x

1.2x

1.4x

0.7x

0.9x

1.0x

Dunkin' Brands Group, Inc. Ratios For the Fiscal Period Ending

12 months

LTM

Dec-25-2010

Dec-31-2011

Dec-29-2012

Dec-28-2013

Dec-27-2014

12 months Sep-26-2015

Short Term Liquidity

Current Ratio

1.0x

1.3x

1.2x

1.3x

1.2x

1.9x

Quick Ratio

0.6x

0.9x

0.8x

0.9x

0.7x

1.2x

Chipotle Ratios For the Fiscal Period Ending

12 months

LTM

Dec-31-2010

Dec-31-2011

Dec-31-2012

Dec-31-2013

Dec-31-2014

12 months Sep-30-2015

Short Term Liquidity

Current Ratio

3.3x

3.2x

2.9x

3.3x

3.6x

4.4x

Quick Ratio

3.1x

3.0x

2.7x

3.0x

3.3x

4.1x

Yum! Brands Ratios For the Fiscal Period Ending

12 months

LTM

Dec-25-2010

Dec-31-2011

Dec-29-2012

Dec-28-2013

Dec-27-2014

12 months Sep-05-2015

Short Term Liquidity

Current Ratio Quick Ratio

0.9x 0.7x

0.8x 0.5x

0.7x 0.4x

0.7x 0.5x

22 Source: Morningstar

Exhibit J Efficiency Ratios Starbucks Ratios For the Fiscal Period Ending

12 months

Oct-03-2010

Oct-02-2011

Sep-30-2012

Sep-29-2013

Sep-28-2014

Sep-27-2015

Efficiency

Total Asset Turnover

1.8x

1.7x

1.5x

1.7x

Inventory Turnover

7.3x

11.3x

8.8x

9.1x

10.4x

11.0x

12 months

LTM

Dec-31-2010

Dec-31-2011

Dec-31-2012

Dec-31-2013

Dec-31-2014

McDonald's Ratios For the Fiscal Period Ending

12 months Sep-30-2015

Asset Turnover

Total Asset Turnover Inventory Turnover

0.8x

0.7x

133.6x

144.0x

140.5x

140.2x

145.4x

155.5x

Panera Bread Ratios For the Fiscal Period Ending

12 months

LTM

Dec-28-2010

Dec-27-2011

Dec-25-2012

Dec-31-2013

Dec-30-2014

12 months Sep-29-2015

Efficiency

Total Asset Turnover Inventory Turnover

1.8x

1.9x

2.0x

1.9x

75.5x

75.6x

74.8x

74.1x

74.6x

87.4x

Dunkin' Brands Group, Inc. Ratios For the Fiscal Period Ending

12 months

LTM

Dec-25-2010

Dec-31-2011

Dec-29-2012

Dec-28-2013

Dec-27-2014

12 months Sep-26-2015

Asset Turnover

Total Asset Turnover Inventory Turnover

0.2x

Chipotle Ratios For the Fiscal Period Ending

12 months

LTM

Dec-31-2010

Dec-31-2011

Dec-31-2012

Dec-31-2013

Dec-31-2014

12 months Sep-30-2015

Asset Turnover

Total Asset Turnover Inventory Turnover

1.8x

1.7x

1.8x

1.7x

179.9x

178.5x

170.4x

166.7x

180.2x

168.7x

12 months

LTM

Dec-25-2010

Dec-31-2011

Dec-29-2012

Dec-28-2013

Dec-27-2014

Yum! Brands Ratios For the Fiscal Period Ending

12 months Sep-05-2015

Asset Turnover

Total Asset Turnover Inventory Turnover

Source: Morningstar

1.5x

1.6x

1.5x

52.9x

40.2x

34.1x

31.8x

33.1x

39.2x

Exhibit K Firm Value Monte Carlo Simulation

Value Per Share Monte Carlo Simulation

24 Source: Crystal Ball

Exhibit L Firm Value Tornado Chart

Firm value $60,000.00

$80,000.00

$100,000.00

$120,000.00

$140,000.00

11%

WACC

Growth after forecast period

10%

Growth during forecast period

16%

36%

SG&A/Sales

33%

42%

COGS/Sales

NWC/Sales

Upside

40%

Downside

Firm value Input Variable

Input Ex plained Variation 1

Dow nside

Upside

Base Case

Dow nside

Upside

Range

$143,458.40

$81,048.89

$62,409.51

69.64%

11%

Grow th after forecast period

$97,972.81

$127,661.65

$29,688.84

85.40%

Grow th during forecast period

$99,110.80

$123,169.44

$24,058.64

95.75%

10%

16%

13%

SG&A/Sales

$117,048.75

$104,086.38

$12,962.36

98.75%

33%

36%

34%

COGS/Sales

$113,780.25

$105,712.55

$8,067.70

99.91%

40%

42%

41%

NWC/Sales

$111,424.44

$109,238.30

$2,186.14

100.00%

WACC

Source: Crystal Ball

Exhibit L Value Per Share Tornado Chart

Value per share $20.00

$40.00

$60.00

$80.00

11%

WACC

$100.00 8%

Growth after forecast period

Growth during forecast period

10%

16%

36%

SG&A/Sales

42%

COGS/Sales

NWC/Sales

Upside

33%

40%

Downside

Value per share

Input Variable

$120.00

Dow nside

Upside

Range

WACC

$92.15

$50.12

$42.03

Grow th after forecast period

$61.52

$81.52

Grow th during forecast period

$62.29

SG&A/Sales

Input Ex plained Variation 1

Dow nside

Upside

Base Case

69.64%

11%

$20.00

85.40%

$78.49

$16.20

95.75%

10%

16%

13%

$74.37

$65.64

$8.73

98.75%

33%

36%

34%

COGS/Sales

$72.17

$66.73

$5.43

99.91%

40%

42%

41%

NWC/Sales

$70.58

$69.11

$1.47

100.00%

26 Source: Crystal Ball

Exhibit M Firm Value Sensitivity Analysis

Value Per Share Sensitivity Analysis

Source: Crystal Ball

Exhibit N Discounted Cash Flow Assumptions Growth during forecast period WACC Growth after forecast period Tax rate COGS/Sales SG&A/Sales NWC/Sales

Sales COGS (excl. depreciation) SG&A EBITDA Depreciation EBIT Interest expense Pre-tax income Income taxes Net income

13% 9% 5% 29% 41% 34% 4%

Actual 2015 $19,163.00 $7,788.00 $6,608.00 $4,767.01 $5.00 $4,762.01 $4.00 $4,758.01 $1,394.10 $3,363.91

EBIT(1-tax rate) Add depreciation NWC Changes in NWC Minus Changes in NWC Minus Cap. Expenditures

$699.01

$6.00

FCFF Terminal value Total FCFF Firm value Less debt Equity value Number of shares Value per share Current price EPS (2003)

2016 $21,652.27 $8,799.66 $7,466.38 $5,386.24 $5.00 $5,381.24 $4.00 $5,377.24 $1,575.53 $3,801.71

2017 $24,464.90 $9,942.73 $8,436.26 $6,085.91 $5.00 $6,080.91 $4.00 $6,076.91 $1,780.54 $4,296.38

Projected 2018 $27,642.90 $11,234.29 $9,532.13 $6,876.47 $5.00 $6,871.47 $4.00 $6,867.47 $2,012.17 $4,855.30

2019 $31,233.71 $12,693.63 $10,770.35 $7,769.73 $5.00 $7,764.73 $4.00 $7,760.73 $2,273.89 $5,486.83

2020 $35,290.97 $14,342.53 $12,169.42 $8,779.02 $5.00 $8,774.02 $4.00 $8,770.02 $2,569.61 $6,200.40

$3,804.54 $5.00

$4,299.21 $5.00

$4,858.13 $5.00

$5,489.66 $5.00

$6,203.23 $5.00

$789.81 $90.80

$892.41 $102.60

$1,008.33 $115.92

$1,139.31 $130.98

$1,287.31 $148.00

$90.80 $7.50

$102.60 $6.30

$115.92 $6.00

$130.98 $7.20

$148.00 $8.60

$3,711.24

$4,195.31

$4,741.21

$5,356.48

$3,711.24

$4,195.31

$4,741.21

$5,356.48

$6,051.63 $176,505.95 $182,557.58

$135,378.22 $6,628 $128,750.22 1484.8 $86.71 $10.00 $2.27

Source: Morningstar

Exhibit O Relative Valuation

P/Forward E P/B P/S EV/EBITDA EV/Sales

M CD 20.80 12.30 4.10 12.25 4.28

Competitor High Low Average P/Forward E P/B P/S EV/EBITDA EV/Sales Starbuck s Statistics EPS Book Value/Share Sales/share EBITDA Sales (millions) Shares Outstanding (millions) Net Debt (Total Debt-Cash)

High 26.50 16.90 5.10 16.17 7.97

Source: Morningstar

DNKN 19.00

19.50 16.90 2.40 11.84 2.51

Low 19.50 7.60 1.70 11.36 1.81

Average 23.18 11.18 3.50 14.01 4.11

Low 35.49 29.94 21.53

Average 42.19 44.03 44.33

3.94 12.67 4907.00 19163.00 1513.00

YUM

5.10 16.17 7.97

1.82

M ultiply by Current Starbuck s Statistics High P/Forward E*EPS 48.23 P/B*BV PS 66.59 P/S*Sales/S 64.59

PNRA 26.50 7.60 1.70 11.36 1.81

CM G 30.10 7.90 4.20 18.41 3.96

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