The DL on the PSL: What’s the Pumpkin Spice Latte Worth?

Nothing says Fall like a crisp morning with a warm PSL, or Pumpkin Spice Latte, from Starbucks in hand. Don’t believe me, reference the more than 29,000 tweets that have featured the hash tag: #pumpkinspice since August of 2012.  With more than 200 million PSLs ever sold, it’s the company’s most popular seasonal beverage.  This year marks the 11th year of the PSL whereby it is estimated that approximately 20 million of these frothy autumnal delights are sold in each year.

As of October 10, 2014, Starbucks (SBUX) posted a price to earnings (P/E) ratio of 29.90.

Amateur speculative estimates of the cost Starbucks pays to produce one cup of regular coffee are between $0.20 to $0.75 (Source: Understanding Starbucks’ cost structure and operating expenses – Yahoo Finance).

[one_half][blockquote background=”#f6f6f6″]Note: For those of you who read this article because you are a coffee fiend without a financial background, what is a P/E ratio exactly?  This key performance indicator is the measure of a company’s market value per share (aka its publicly traded stock price) divided by its earnings per share.[/blockquote][/one_half]

Based on a $4.00 latte, each PSL is generating a gross profit of approximately $3.25.  Multiply that by the estimated 20 million sales per year and this one drink is contributing $65M to the coffee giant.  So let’s compare that to some other key metrics.  In 2013, SBUX had total revenue of $14.9B.  Gross profit margins have fluctuated around 57% over the last four fiscal year end periods equating to an estimated $8.5B.  The Pumpkin Spice Latte beverage alone accounted for 0.76% of total gross profit (keep in mind there are over 87,000 different drink combinations available at Starbucks and this is just one of them).

Multiplying the 29.90 P/E ratio by the gross profit contribution per year provides us with a total value of $1.94 Billion valuation.  Oh my Gourd!

(See how we arrived at this calculation below)


 

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The Fine Print: This article is all in good fun!  There are maybe a million or so other things that might impact the business valuation of the PSL.  For instance, if the PSL were a stand-alone item / brand, the cost structure would be totally different.  There are likely marketing costs not captured in our example.  Et cetera, et cetera.  But nonetheless, the PSL is a uniquely valuable cultural oddity!

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