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Is Starbucks Getting Watered Down?

Alyce Lomax
January 27, 2012

Starbucks' (Nasdaq: SBUX  ) first-quarter earnings hit a high note on many metrics, but its margins took a hit as commodity price pressures continue to be an issue. However, investors should refrain from cutting this twist on the caffeine habit from their portfolios.

First-quarter net income increased 10% to $382.1 million, or $0.50 per share. Total revenues increased 16.4% to $3.44 billion. Global same-store sales perked an impressive 9% higher, with a 7% traffic boost and a 2% jump in their average ticket.

If investors must search for something to fret about, it would be Starbucks' margins. Quarterly operating margin fell to 16.2% from 17% this time last year. The 80-basis-point decrease is attributed to the high price of commodities, particularly coffee.

On the other hand, Starbucks' recent partnership with Green Mountain Coffee Roasters (Nasdaq: GMCR  ) is alive and kicking pretty hard; Starbucks said it shipped more than 100 million Starbucks- and Tazo-branded K-Cups in the first quarter, helping drive its consumer product group sector's revenue 72% higher.

In addition, Starbucks' international expansion is progressing. The coff