3 Reasons Starbucks Could Surge in 2014

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.

Starbucks' (NASDAQ: SBUX  ) shares have pulled back off their highs of the year as analysts have begun to question whether the coffee giant can sustain its recent torrid pace of growth. While I certainly understand these fears -- CEO Howard Schultz has himself said it's highly unlikely Starbucks will be able to sustain its current 9% comparable-store sales growth in the U.S. -- it's important to understand that the comparable-store sales number is only one metric of business performance. Schultz and his team have a far broader perspective, and are building an enduring company that I believe will achieve long-term success and market-beating stock performance. With that in mind, here are three things that could potentially drive total sales -- and Starbucks' stock price -- higher in the year ahead.

Quality enhancements
By bringing in-house more of the products that it offers in its cafes, Starbucks is taking more control over the customer experience. Here I'm talking about items such as La Boulange bakery products, Evolution Fresh juices, and Teavana teas. Schultz and his team are obsessed with quality, and I fully expect them to ensure that these products not only meet but also exceed Starbucks' high standards. In fact, management has stated that they're seeing an enthusiastic customer response and substantial lift in sales compared with the baked goods that La Boulange is replacing, and that they've exceeded the aggressive growth plans they laid out for Evolution Fresh upon acquiring the business in November 2011. Best of all, with Teavana, management remains convinced that Starbucks can "do for tea what it's done for coffee" by growing and expanding the tea industry and the tea bar concept while introducing a wide array of handcrafted tea beverages and tea-inspired food. That's an exciting thought for Starbucks investors, as is the likelihood that a better selection of food and beverage items will continue to boost traffic, average ticket size, and same-store sales at Starbucks cafes.

The flywheel
Schultz has implemented a "strategic flywheel" strategy in which Starbucks leverages its global store base, its growing consumer packaged goods business, and its digital/mobile assets to reinforce each other and increase momentum across its product lines. For instance, by offering its La Boulange, Teavana, and Evolution Fresh products in its ubiquitous cafes, Starbucks creates consumer awareness for these brands and builds momentum for its consumer packaged goods business. And if shoppers are able to purchase Starbucks' products in the grocery store for use at home, that helps keep Starbucks and its growing collection of brands front and center in the minds of consumers, which in turn should benefit its cafes when those consumers are away from home. Digital and mobile applications help to inspire loyalty and make the purchasing experience faster and more convenient, further boosting store performance. In total, this flywheel effect creates a situation where the whole is greater than the sum of the parts, and it's this aspect of Starbucks business that I believe many investors are still underestimating.

Massive international opportunity
John Culver, the executive leading Starbucks' China and Asia-Pacific business, recently stated that "Starbucks is increasingly becoming a daily ritual for local Chinese." The numbers bear this out; the segment delivered strong comparable store sales growth of 8%, and stores opened in the past two years are averaging in excess of $700,000 in annualized sales. Starbucks opened 317 new stores in China in the past year and plans to open 750 new stores across the region in 2014.

Not to be overlooked is the accelerating growth that Starbucks is experiencing in other international markets, such as Japan, South Korea, Thailand, and Indonesia. Starbucks' management recently highlighted India as a country with massive potential and an extremely positive customer response to Starbucks' recent entry into the market.

Impressively, management is confident that it can not only continue to rapidly expand Starbucks' store count in these areas, but also drive strong same-store sales growth at the same time. If they're successful, that can be two powerful catalysts for strong stock price appreciation in the years ahead.

The Foolish bottom line
The sweet call of the green and white siren is growing even more tempting, as Starbucks improves its product offerings with La Boulange bakery products, Evolution Fresh juices, and Teavana teas. With a powerful flywheel effect building momentum across Starbucks' business segments, and massive opportunities in emerging markets, Starbucks can provide a jolt to Fools portfolios in 2014 -- and beyond.

Next steps
If you're looking for another stock that could surge in the year ahead, The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's completely free.

Read/Post Comments (0) | Recommend This Article (18)

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.

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: 2783405, ~/Articles/ArticleHandler.aspx, 9/3/2015 6:58:37 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...

Joe Tenebruso

Joe honed his investing skills as an analyst for Stock Advisor, Fool One, Supernova, Million Dollar Portfolio, and Income Investor. He battle-tested his investment philosophy and strategies as portfolio manager of Tier 1, a market-crushing Motley Fool real-money portfolio that delivered 24.58% annualized returns during its existence. Now, Joe’s mission is to pass on what he’s learned -- and what he continues to learn -- as a contributing writer to

Today's Market

updated 9 hours ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

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

9/2/2015 4:00 PM
SBUX $55.26 Up +1.76 +3.29%
Starbucks CAPS Rating: ****