Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Starbucks Is Still a Winner

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Last week, Starbucks (NASDAQ: SBUX  ) handed in an excellent second quarter, emphasizing the strengths that it has as a business, and pointing out the road that it has ahead of it. Wall Street wasn't blown away, and the stock dropped about 1% over the course of Friday. That's OK, though, because Starbucks met expectations, and proved that its current strategy is going along just fine.

In fact, it was more than just an average quarter, and comparable sales extended their long run of big gains. Revenue, operating margin, and income were all up as well, and management increased its fiscal-year guidance based on that strength. There are still some challenges ahead, but it looks more and more like those will turn into new sources of revenue as the company continues to grow.

Starbucks' strategy
Start with 1,500 new stores in the U.S., and you have a good idea of what the plan looks like. Starbucks has no intention of slowing down its expansion. More than 300 of those locations will be open this year, and we're not even talking about China yet. The company had an 8% increase in comparable sales in China, last quarter. That result helped Starbucks to global comparable-store sales growth of 6%, which made it the 13th quarter that the company exceeded 5% growth globally.

The question for investors and management is, "How will Starbucks keep that level of growth up?" Retail sales, tea, and food all come to mind as potential answers. Recently, the company has brought its bagged retail coffee into its reward system, offering customers who buy Starbucks in the grocery stores a reason to come into the cafes.

Starbucks also purchased Teavana at the beginning of the year and has announced plans to expand the business, adding eight stores last quarter with more to come. At the end of the quarter, the company already had more than 325 Teavana locations. That business will open up new consumer markets and give Starbucks something to hold onto as it grows in the United States.

Finally, food made an impact in the quarter, lifting comparable sales. Starbucks is rolling out its La Boulange range and now has a presence in 439 stores in the United States. As that line grows, the company is going to see more and more of its income generated by food. That will not only help growth, but it should also eventually help balance out costs so that a smaller percentage of the business is subject to the broad swings in coffee prices.

Competitors to watch out for
While Starbucks could be said to be in competition with every cafe, I'm looking out for Panera Bread (NASDAQ: PNRA  ) and Kraft (UNKNOWN: KRFT.DL  ) . Panera is the cafe that has the best shot at making a dent in Starbucks' ironsides, with its extensive food menu and rapid growth. The company posted a comparable-sales increase of 3.3% last quarter, and the beginning of its current quarter was even stronger. If Starbucks makes a concerted push into food, Panera could be its biggest hurdle.

Kraft has taken a more aggressive tack with its Gevalia brand bagged coffee. The company has done taste tests likening it to Starbucks coffee, and has essentially launched a marketing campaign telling customers, "Think you like Starbucks? Then you'll love this!" That could be some stiff competition.

Even with the competition, I'm sticking with Starbucks. CEO Howard Schultz is a tiger, and the plan that the company has in mind for the next year looks solid. While the stock is trading near its all-time high, I still think it's worth a look.

Investors can be forgiven for thinking that a company that has returned almost 2,500% since going public probably has its best days behind it. But in the case of Panera, there's reason to believe that the best is still yet to come. The stock has been on an absolute tear over the past five years, and you're invited to find out why -- and what else there is to look forward to -- in The Motley Fool's brand-new premium report on Panera. Included are key areas that investors must watch, as well as opportunities and threats facing the company both today and in the long term. Don't miss out on this invaluable investor's resource -- simply click here now to claim your copy today.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2391765, ~/Articles/ArticleHandler.aspx, 10/1/2016 8:31:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
KRFT.DL $0.00 Down +0.00 +0.00%
Kraft Foods CAPS Rating: *****
PNRA $194.72 Up +2.42 +1.26%
Panera Bread CAPS Rating: ****
SBUX $54.14 Up +0.69 +1.29%
Starbucks CAPS Rating: ****