10 Reasons to Invest in Starbucks

Starbucks (NASDAQ: SBUX  ) has dominated U.S. (and other countries') coffee sales for years. Sales have continued to grow since its initial public offering in the early 1990's, and it is one of the most respected and well-run businesses in the country. 

Here are ten reasons why you should add Starbucks to your portfolio:

1. The coffee chain has kept things fresh and inviting by changing its product offerings every few years, introducing new products, and expanding its menu. Starbucks plans to grow its evenings program, when it serves wine and alcoholic beverages, to about 1,000 stores this year . A company that can set the trend, instead of follow trends, is a company that will win in the long run.

2. The company will also launch 'Fizzio,' a bottled, cold-carbonated beverage, this summer throughout its stores in the U.S. sunbelt, Singapore, Korea, and China. This could see the company recording higher traffic in the next quarter.

3. Starbucks has mastered the art of the sale. It manages to make sales outside of its target demographic by attracting the general public that may not have been in the mood for coffee to the stores with its free Wi-Fi. Once in the store, even a non-coffee drinker will find something to buy. Starbucks is a unique large chain in that it isn't segmented by gender, age, or another demographic. 

4. Same-store sales, or comparable sales, is an important benchmark to measure a retail provider's performance since it excludes the effect of currency fluctuations and only includes stores operating for more than a year.

In a quarter plagued with difficult weather, keeping customers away, Starbucks still reported strong sales and revenue growth. This helps explain how the coffee purveyor continued its winning streak of strong quarterly earnings with its 17th consecutive quarter of above 5% comparable-sales growth in the most recent quarter . 

5. Quarterly net income leaped 9.4% to $427 million, or $0.56 a share. The company also put up global comparable-sales growth of 6% and revenue of $3.9 billion. 

6. The operating margin went up 130 basis points, primarily from "lower commodity costs and sales leverage."

7. Growth was particularly strong along the China and Asia Pacific regions, where "high traffic" in China drove growth rates up to 7% for the quarter. (Also, notably, where they were not plagued by multiple winter storms.)

8. Starbucks also reported great results in Europe, the Middle East, and Africa (EMEA) region, where sales rose by 6%.

9. Earnings per share grew to $0.56, up 17%, excluding a $0.03 non-routine gain in the prior year's second quarter related to the sale of the company's equity in its Mexico joint venture.

10. There are now more than 20,500 Starbucks stores. The company opened 335 new stores globally last quarter and aims to open 1,500 more in 2014.

Competitive landscape
Not even its closest competitor can come close to performing as well as Starbucks. Dunkin' Brands (NASDAQ: DNKN  ) operates more than 18,000 points of distribution in nearly 60 countries worldwide, including 11,000 Dunkin' Donuts and 7,300 Baskin-Robbins locations.

Dunkin' Brands' most recent quarterly earnings per share increased 26.5%, and revenue rose 13.3%. The company enjoyed comparable-store sales growth of 3.5% in the United States. Operating income increased 11.8% to $89.2 million, as the company expanded its operating margin 110 basis points to 48.7%. During the fourth quarter of FY 2013, 309 new restaurants were opened worldwide, which included 149 net new Dunkin' Donuts locations in the United States.

Dunkin' has seen consistent growth in average revenue per store at domestic Dunkin' Donuts locations for the last five years.

Foolish conclusion
Starbucks is one of the most respected companies in the world, and its second-quarter earnings prove why. The company is on a record-setting financial pace, but the stock has dropped 7% in 2014. It currently trades at around $71, with the potential to go much higher. Starbucks' stock is one of the most exciting investment opportunities around. If you haven't jumped on this stock already, now is the time to get in, while the stock is low, and take advantage of its continued successful run.

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Read/Post Comments (3) | Recommend This Article (6)

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 May 07, 2014, at 9:09 PM, bostontrip wrote:

    Dunkin's coffee is 10x better than Starbucks' coffee though. So i'm going Dunkin' all the way.

    Faster service, better coffee, lower prices,

  • Report this Comment On May 08, 2014, at 11:04 AM, RxPro wrote:

    I'm a coffee drinker and investor. I prefer Dunkin Donuts if I am going into a coffee shop as their selection is better and they have donuts!

    However, stock-wise SBUX is a far better pick. If you're like me, you might visit a starbucks once per year if that, however I find myself drinking maybe 50 SBUX drinks a year because they sell Iced Coffee, Frappucinos, and DoubleShot energy drinks in refrigerated sections of many stores, including the one I work at.

    They are the ONLY retailer of iced-coffee that most stores carry (check convenience stores, pharmacies, etc I'm not talking about grocers). That alone makes them a great stock pick.

    Their new iced coffee drink is well-priced, too, around $1.50 .

    I don't own SBUX shares but its a great pick I wish I got in on a long time ago.

  • Report this Comment On May 08, 2014, at 5:36 PM, bsahli wrote:

    Very convincing article. What about reasons not to buy, e.g. rising coffee bean costs?

    It's a bit discouraging to see the number of articles with titles such as "15 reasons to buy XYZ" or "The the 7 best stocks for 2014." Eye-catching perhaps, but TMF homepage is beginning to look like the cover of Cosmo magazine.

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