Teavana Pours Its Heart Out

Teavana (NYSE: TEA  ) continues to pour out growth. Will investors ever start caring?

The fast-growing retailer of high-end loose teas and artisanal tea-making gear posted better than expected results on Tuesday night.

Net sales soared 38% to $43.1 million. Even if you back out the performance of the 46 Teaopia stores that were acquired mid-quarter, Teavana would've landed ahead of the $40.5 million that Wall Street was forecasting.

Teavana's profit -- after backing out Teaopia-related loss of $0.03 a share -- would check in at $0.03 a share, just ahead of the $0.02 a share that analysts were targeting.

A reasonable 3.5% uptick in comps helps, but the real top-line growth catalyst is the retailer's aggressive expansion.

Teavana clearly senses an opportunity to give tea culture an upscale spin.

There are some pretty compelling precedents of high-end retailers succeeding in turning a common thing into something aspirational. Starbucks (Nasdaq: SBUX  ) did it to coffee. lululemon athletica worked its magic on yoga apparel. Chipotle Mexican Grill has made a burrito a culinary work of art.

No one was willing to fork over $3 for a coffee, $90 for a pair of yoga pants, or $6 for a burrito in a highly scalable manner until Starbucks, Lululemon, and Chipotle arrived on the scene.

This obviously doesn't mean that Teavana will succeed. Starbucks, for example, may have its own sights set on being the high-end tea ambassador of choice with its new Tazo tea store.

However, Teavana knows that the opportunity won't exist at all if it's not aggressive in building out its empire.

There are now 284 stores. There were just 179 Teavana locations open a year ago. Sure, nearly half of those stores are part of the Teaopia acquisition that closed in June, but this is still a company that plans on opening 60 of its namesake stores this year alone.

Teavana's guidance calls for a profit of $0.53 a share to $0.55 a share on $222 million to $231 million in net sales this year. Profitability would be $0.03 a share higher absent Teaopia transaction and integration costs. If you take out the one-time hits, the guidance compares favorably to Wall Street's projected of a profit of $0.57 a share on $220.1 million in net sales.

The market doesn't seem to notice. The stock is trading near last month's low. However, the company's brewing a compelling valuation of just 20 times this year's bottom-line guidance and just 16 times next year's analyst estimate.

A lot of things would have to go right for Teavana to turn tea into an upscale beverage the way that Starbucks, Lululemon, and Chipotle have succeeded with their flagship items, but its valuation alone is attractive enough to warm up to Teavana.

Tea time
Like many of last year's IPOs, Teavana's trading below last year's debut at $17. As part of our CAPScall initiative for accountability, I initiated a bullish call for Teavana on Motley Fool CAPS several months ago. It's not doing too well, but I like my chances of bouncing back with that call.

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The Motley Fool owns shares of Starbucks, Lululemon, Chipotle Mexican Grill, and Teavana Holdings. Motley Fool newsletter services have recommended buying shares of Lululemon, Starbucks, and Chipotle Mexican Grill. Motley Fool newsletter services have recommended writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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