Starbucks Corporation (NASDAQ:SBUX) has bowed to public outcry over its controversial tax affairs in Britain and agreed to pay an additional £10 million ($16.08 million) on top of the tax that it regularly pays. This additional £10 million will be paid through a voluntary annual offering to HMRC for the next two years, totaling the additional amount it will pay to £20 million ($32.16 million). This move comes after the company received heavy criticism over the meager amount that it had paid since it established a position in Britain, back in 1998. Since Starbucks was established in Britain, it has only paid £8.5 million ($13.67 million) in corporate tax. This is a mere sliver of the billions that it has raked in from its operations in the country- something that has prompted protest groups to call for boycotts.
Starbucks Corporation (NASDAQ:SBUX), Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOG) have been in the cross hairs of protestors, despite the fact that they all use legal measures to reduce their taxes. In its defense, Starbucks contends that its margins in the UK business are reduced by the high rent it pays for shops; meriting its move to pay low corporate tax.
Is Starbucks trying to regain a footing in the heart of U.K consumers?
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Research findings in a report by Bank of America Merrill Lynch show that Starbucks is positioned for growth. The report, which works a wide range of angles, incidentally places a lot of focus on China and the U.S., highlighting accelerating unit expansion in these markets. As such, the move by Starbucks to make voluntary annual offerings could very well be geared toward regaining a footing in the heart of U.K consumers. Stimulating growth in the U.K. could make things rosier for Starbuck’s already bullish outlook.
Merrill Lynch reiterated its buy recommendation on Starbucks Corporation (NASDAQ:SBUX) and placed a price objective of $60, which is about $10 higher than its current price. Similarly, Merrill lynch is convinced that EPS will grow at a rate of 20 percent over the next three years. This, coupled with the fact that coffee costs are expected to continue dipping through FY2015, provides a favorable backdrop for earnings.
In addition, Starbucks Corporation (NASDAQ:SBUX)’s recent biennial investor meeting- detailed in the report- gave fresh insights to the company’s growth prospects over the next three years. Among the factors that were highlighted were the company’s accelerating unit expansion, its wide footprint on social media, and the impressive underlying sales trends. In conclusion, it was noted that the coffee chain has slackened the pace on acquisitions in favor of existing opportunities.