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



Will Starbuck's Growth Continue?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

The coffeehouse chain giant Starbucks (NASDAQ: SBUX  ) keeps expanding its revenues and maintaining its profitability by opening new stores and extending its reach to Asia. Is the company's growth maintained solely by adding new coffeehouses? Does it also have organic growth, i.e. does its average coffeehouse sell more? How is the company performing in terms of growth in sales and profits compared to its global competitors? Let's analyze these issues. 

Starbucks' store growth
Starbucks continues to maintain its revenue growth by opening new stores and by improving revenue per store. In the second quarter, the company opened over 1,500 locations (company owned and franchised). The two main expansion areas are Asia (mainly China) and the U.S. The table below summarizes the data. 

Source: Starbucks' website

As seen, most of the growth in sales came from opening stores (8.8%), while sales per store also improved but only by 4.1%. In other words, two thirds of the company's growth in sales came from new stores and one third came from higher revenue per store. 

In comparison, Starbucks' main competitors such as Dunkin Brands Group (NASDAQ: DNKN  ) and McDonald's (NYSE: MCD  ) haven't done much better in improving their revenue per location. 

Source: McDonald's website

Based on the above, McDonald's revenue grew by only 2.4% in the past quarter. Moreover, the main driving force behind this growth is that the company opened new locations. On average, a McDonald's store had lower sales in the past quarter than it did a year ago. Despite these figures, the company was able to maintain its high profit margin, which was nearly unchanged at 31%. 

Dunkin Brands, much like Starbucks, expanded its revenue nearly 70%-through opening new locations. On the other hand, nearly 30% of its revenue growth came from higher sales per average store. 

Source: Dunkin Brands website

The main driving force behind Starbucks' growth is the high expansion in Asia including China. In the past quarter, the company expanded its sales by over 40%. Most of the growth in revenue, however, came from opening new stores as indicated in the table below. In the U.S, on the other hand, most of Starbucks' rise in revenue came from improving the sales per store. This means that the high growth in Asia will eventually slow down once the company reaches the same level of exposure that it has in the U.S. This also means that the company's rapid rise in Asia heavily relies on capital expenditure.

Source: Starbucks' website

But let's not reduce Starbucks' growth to opening stores; the company has also been collaborating with other leading companies to reach new clients and strengthen its brand name. Back at the end of last year, Starbucks acquired Teavana Holdings, a leading brand in Tea, for $620 million. The company also expanded its agreement with Green Mountain Coffee Roasters for manufacturing, marketing, distribution, and selling Starbucks single serve packs for use in Green Mountain Coffee Roasters' Keurig single serve brewing systems worldwide. This partnership, which started back in March 2011, has been mutually beneficial for these companies. In the past years, Starbucks has successfully sold more than 850 million Starbucks coffee K-Cup packs. By extending and expanding this deal both companies are likely to augment their revenue and profit.  

Starbucks continues to move on the right track toward a higher profit margin and steady sales growth. The company has done better than its leading competitors in terms of improving its sales per store. Finally, the company's collaborations with other leading brands and its sharp growth in Asia should keep this coffee chain giant a lucrative investment. 

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: 2685975, ~/Articles/ArticleHandler.aspx, 9/25/2016 10:22:54 PM

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 2 days ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

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

9/23/2016 4:00 PM
DNKN $50.11 Up +0.71 +1.44%
Dunkin' Brands Gro… CAPS Rating: ***
MCD $117.17 Down -0.19 -0.16%
McDonald's CAPS Rating: ***
SBUX $54.43 Up +0.04 +0.07%
Starbucks CAPS Rating: ****