Why Starbucks Is Like Miley Cyrus

Starbucks (NASDAQ: SBUX  ) is on a mission to take over the world. It has 19,767 stores in 60 countries as of its fiscal fourth-quarter earnings report. More astonishing is that, even at its ginormous size, the company has grown its store count 17% over the last three years. At this point, Starbucks is hard at twerk, opening new stores in new markets, because, like Miley, it can't stop, and it won't stop.

Saturation point? What's that?
Starbucks has well over 11,000 stores in the United States. Despite the fact that there's seemingly a Starbucks on every corner of any sizable city in the country, there's further room for expansion. Dunkin' Brands  (NASDAQ: DNKN  ) plans to expand its U.S. store count to nearly 14,000 over the next 20 years. Starbucks could certainly support just as many stores.

Many fear that opening new stores will decrease same-store-sales growth. In its fourth quarter, Starbucks opened another 340 net new stores in its Americas segment. At the same time, comparable-store sales increased a whopping 8%. Although a small price increase on some drinks (about $0.10) helped, the 5% increase in traffic was the real driving factor.

Not even Dunkin' put up as many stores and grew comps as fast in the "saturated" U.S. market. The company added 81 Dunkin' Donuts stores, and grew comps 4.2%.

Panera Bread (NASDAQ: PNRA  ) has had significantly less success. In its third quarter, the company added just 28 net stores and increased same-store sales by 1.3%. This was supported largely by price increases as traffic fell by 1% at company-owned stores.

It seems Starbucks will be able to support more stores than Dunkin' and may be taking some traffic from Panera with its introduction of La Boulange pastries and extremely efficient in-store operations.

International opportunities
Less than half of Starbucks' locations are outside the United States. The company has tons of room for expansion on just about every continent. In Asia, it plans to increase its store count in China to 1,500 by 2015 and add 100 new stores in Malaysia, and has huge opportunities in India and Vietnam. In Europe, there are tons of opportunities, with half of its European stores located in the U.K. Additionally, its Teavana acquisition caters to tea-drinking Asians and Europeans.

The company also has plenty of growth opportunity in South America. With just 240 stores located south of Mexico, Starbucks will expand into Colombia in 2014 with plans for 50 stores serving Colombians locally sourced coffee. Most Colombians drink low-grade beans from Ecuador and Peru, but there's a growing culture of premium coffee drinkers.

Starbucks is doing extremely well in Asia, where the company saw 9% same-store-sales growth in fiscal year 2013. In Europe and South America, its growth may be more difficult, as coffee culture is less of a novelty than an already ingrained habit. Starbucks needs to work on catering to European and South American coffee habits, which are much different from American coffee habits. It may take some time, but I believe the opportunity for growth is there; it just won't come as quickly as growth in Asia.

And it won't stop
Starbucks' stock trades for more than 30 times forward earnings. Its PEG is 1.5. These valuations are pricing in quite a bit of growth, and for good reason: Starbucks is capable of delivering. The company expects to add another 1,500 net new stores in 2014, or 7.6% growth, and it should be able to continue growing its store count for years to come while increasing traffic.

If someone tries to convince you Starbucks isn't worth investing in, listen to Miley: "Forget the haters, because somebody loves ya."

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