Is Starbucks A Good Buy?

Online business has taken a toll on brick-and-mortar stores. This was affirmed when ShopperTrak, a data firm, declared there was a decline of 14.6% in shopper traffic in the U.S. during the holiday season. On the other hand, online sales grew 9.3% during the holiday season, according to the National Retail Federation. Lower shopper traffic means fewer people visited malls, leading to lower footfall at restaurants and other eateries.

However, coffee retailer Starbucks (NASDAQ: SBUX  ) seems to be immune to such macroeconomic conditions. Its earnings were ahead of Mr. Market's expectations, sending its stock higher.

Starbucks' tale of success
Revenue surged 11.6% to $4.24 billion over last year's quarter. Lower shopper footfall at stores affected the top line as people preferred to relax at home. Nonetheless, the coffee company managed to register same-store sales growth of 5%, which helped boost total revenue.

Geographically, sales from Asia Pacific grew well, with same-store sales growth of 8%, since most of the newly opened Starbucks stores were in this region. Moving down to the bottom line, earnings for the quarter jumped north to $0.71 per share, compared to $0.57 per share in the year-ago quarter. This was way ahead of the Street's expectations of $0.69 per share.

In fact, Starbucks' CFO, Troy Alstead, said the company should not be much affected by growing online business since customers' experience at Starbucks cannot be duplicated online. Hence, the company does not fear burgeoning online purchases. Moreover, Starbucks has big plans for taking advantage of the popularity of online sales. It will be launching mobile ordering, which will enable people to place their orders at Starbucks through their mobile phones.

Some interesting moves
Starbucks has been trying to expand its product menu in order to give customers more reasons to visit its stores. The coffee company bought La Boulange, a bakery, in 2012, which expanded its list of offerings such as pastries. It also acquired Teavana, a tea retailer, adding tea to its product portfolio. Additionally, it plans to sell Greek yogurt parfaits through its partnership with Danone SA. These expansionary moves are in addition to new coffee products such as VIA lattes, launched recently, in vanilla and cafe mocha flavors. Starbucks' diversification into new and different product lines should help attract more customers.

A brighter future awaits
Starbucks also plans to open 1,000 new stores during the current year. The new stores will help boost its revenue further. Even Dunkin Brands (NASDAQ: DNKN  ) plans to expand its footprint by adding new stores. In fact, it plans to open more stores over the next 20 years, taking its store count to 14,000 in the U.S. Dunkin Brands recently announced its plans for expansion onto university campuses in order to attract students, faculty, and other college staff in between classes. The company is expected to open around 800 stores in 2014, with a special focus on U.S. and China--Dunkin Donuts has entered into an agreement to add 100 locations in China. Thus, Starbucks faces stiff competition from this company's growing presence. 

Also, Starbucks' Verismo faces competition from Green Mountain Coffee Roasters' K-Cups and single-serve brewers. Green Mountain was the first to introduce single-serve brewers, and is now in 13% of U.S. households. Moreover, Green Mountain recently entered into partnership with Campbell Soup, which will give wider exposure to the company. 

The bottom line
Despite tough competition, Starbucks has been a commendable performer with growing sales at its existing stores. Its expansion into new regions as well as new products should be helpful in adding more customers. Moreover, its efforts such as new variations to its existing product line, a loyalty gift card program, and mobile ordering app should add to its advantages.

Is Starbucks one of the best growth stocks on the market?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (1) | Recommend This Article (2)

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.

  • Report this Comment On February 27, 2014, at 10:50 AM, crmds wrote:

    Your title suggests a Yes or No answer will be offered but your article only hints at a possible yes. Disappointing and not very helpful!

    At SBUX current price is your answer Yes or No???

Add your comment.

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: 2848903, ~/Articles/ArticleHandler.aspx, 9/1/2015 2:03:03 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...

Pratik Thacker

Today's Market

updated 4 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

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

8/31/2015 3:59 PM
DNKN $50.16 Down -1.53 -2.96%
Dunkin' Brands Gro… CAPS Rating: ***
GMCR $56.60 Up +2.49 +4.60%
Keurig Green Mount… CAPS Rating: **
SBUX $54.71 Down -0.92 -1.65%
Starbucks CAPS Rating: ****