2006 in Review: Starbucks

Companies like Caribou (NASDAQ:CBOU), Peet's (NASDAQ:PEET), and Green Mountain Coffee Roasters (NASDAQ:GMCR) may feel a bit smug in the second half of this year, what with their most formidable rival having had a bit of a fall from grace. After all, Starbucks (NASDAQ:SBUX) has had a few uncharacteristic missteps.

This year started out with Starbucks (NASDAQ:SBUX) following its usual M.O. for the first quarter -- being so exceptional you could say it was boring, with revenues up 22%, net income up 20%, and same-store sales up 7%. The second quarter included quite similarly robust numbers.

The third quarter marked the moment when increased negativity really began to creep into many investors' outlooks. Not only were there macroeconomic concerns over the summer, but Starbucks really gave folks a jolt when it reported what many considered to be a lackluster same-store sales gain in July (4%, toward the low end of its internal goal) and placed blame on higher-than-expected demand for icy drinks during morning rush hours.

That brings us to the fourth quarter, when Starbucks reported much less caffeinated results than usual. Its profit actually fell -- of course it wasn't an apples-to-apples comparison, what with changes in stock-based compensation and asset-retirement liability. Still, it was a different type of a quarter for Starbucks, and management also said margins will be flat in 2007.

Overall, Starbucks hasn't had the greatest year, although I would argue that the negative sentiment has been overblown, considering the long term. However, Starbucks showed it's not infallible, that's for sure. For example, an Internet coupon debacle reminded us that the coffee giant isn't above making some silly mistakes despite its overall smarts. There has also been controversy regarding a trademark dispute between Starbucks and Ethiopia.

There's also been plenty of good news, despite the fact that Starbucks bears have found this to be a year where their arguments seem to hold more sway. Starbucks raised the price of its drinks and coffee beans for the first time in years, which many took as a sign of its confidence in customers' loyalty. And Starbucks also greatly increased its forecast for the number of stores it believes it can open the world over, and continued its expansion into exciting and promising international markets.

And of course, Starbucks' shares have been on a real roller-coaster ride this year. Although they have regained some strength, they're down 2.5% over the past six months, but up 13% for the year.

What the future holds for Starbucks is a hot topic. And in some respects, the Motley Fool CAPS community's rating reflects current pessimism -- Starbucks only rates two stars, although pessimism from high-rated all-star players surely drag down its rating. Here's how the overall sentiment stacks up, though, and it's much more optimistic:

We'll have to see whether all-star bears are right about Starbucks over the long haul. After all, there are still many people who feel optimistically about the coffee giant; any stroll through CAPS pitches illustrates the fact. I found this pitch from echofarmer interesting:

"I considered buying this stock years ago, but thought it was overpriced. I sat on the sidelines as it doubled, then doubled again. In March of 2004 I was in Vienna, where you can grab an excellent cup of coffee at any cafe. There, across the main square from the Vienna opera house, was a Starbucks, and there was a line 12 deep. I walked back to the hotel, got online and bought as much SBUX as I could afford. It's up 107% since then. What amazes me, as I travel the world, is how many places do NOT have a Starbucks. I'm in Colombia today ... no Starbucks. Italy? No. Most of Europe is still to be conquered!"

When it comes to 2006, some Starbucks shareholders might miss the boring old days. We'll have to wait and see if 2007 is going to provide similar "excitement" or the same-old, same-old dull (stellar) performance most people grew accustomed to from this coffee giant.

If Starbucks is your type of investment, David Gardner thinks so, too -- he recommended it in the March 2006 issue of Motley Fool Stock Advisor . Take a 30-day free trial and check out the companies David and his brother Tom Gardner have recommended to subscribers. As of Dec. 26, Stock Advisor's average return was 67.49% vs. 28.82% for the S&P.

Check out the other companies featured in "The Motley Fool's 2006 in Review and 2007 Preview" special.

Alyce Lomax owns shares of Starbucks but of none of the other companies mentioned. The Fool has a disclosure policy.