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Starbucks Isn't Slacking

By Alyce Lomax – Updated Apr 6, 2017 at 9:08PM

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Are the coffee giant's second-quarter results grounds for dismissal? Think twice.

Cut Starbucks (Nasdaq: SBUX) a little slack, because this company is hardly napping on the job. The java giant posted perfectly respectable second-quarter results, especially in a tricky environment for restaurant peers.

Starbucks' Q2 net income increased 20.4% to $261.6 million, or $0.34 per share. Revenue increased 9.9% to $2.79 billion. Same-store sales soared 7%, driven mostly by increased customer traffic; Starbucks comps in the U.S. rose by a similarly strong 7%.

Although investors may find Starbucks' outlook uninspiring, its fiscal 2011 earnings guidance for $1.46 to $1.48 per share (reflecting the high end of its 15%-to-20% earnings-growth forecast) doesn't sound too shabby. Remember, that guidance includes expected higher commodity costs for dairy, an important ingredient in Starbucks' beverages. Nonetheless, the guidance upset Wall Street analysts' expectations for fiscal 2011 earnings of $1.50 per share.

I recently wondered whether 40-year-old Starbucks had jumped the shark, particularly in light of its agreement to provide its own K-Cups for Green Mountain Coffee Roasters' (Nasdaq: GMCR) Keurig single-cup brewers. While that move carried a whiff of defeat at the time, Starbucks' quarterly results now make the company look pretty spry.

There's no questioning the coffee chain's maturity at this point. Recent data said Starbucks' domestic sales have vaulted it into the top three restaurant chains in the U.S., stealing the third-place crown from Burger King. McDonald's (NYSE: MCD) is currently No. 1, and Subway is No. 2. That's a pretty major accomplishment for Starbucks; not too long ago, a sizeable number of people loved to dismiss the company's gourmet, "expensive" coffee as a niche market. I bet those naysayers are eating their words now (with a mocha latte to wash them down).

Best of all, Starbucks has achieved its grown-up success -- and its grown-up dividend payments -- in a way that should make investors proud. As I read CEO Howard Schultz's new book, Onward, it reminds me of the elements that attracted me to Starbucks' stock in the first place. Years ago, innovations such as employee health care benefits and sustainable business practices seemed alien to Starbucks' industry. Now, they're welcome distinctions for those of us who value companies that do well by doing good.

At 20 times forward earnings, I wouldn't call Starbucks' shares dirt cheap or outrageously expensive in light of of fiscal 2012 growth estimates. Still, for a mature company that's coping well with rising commodity costs, Starbucks' second-quarter tidings definitely weren't grounds for dismissal from investors' portfolios.

Add the java giant to your watchlist, or discuss Starbucks' market position in the comments box below.

Starbucks is a Motley Fool Stock Advisor selection. McDonald's is a Motley Fool Income Investor choice. Green Mountain is a Motley Fool Rule Breakers pick. Alpha Newsletter Account, LLC has opened a short position on Green Mountain. Motley Fool Options has recommended a lurking gator position on Green Mountain. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. For more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy is endlessly amused by the concept of a "lurking gator" position.

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Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$84.17 (-0.63%) $0.53
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$245.95 (-0.80%) $-1.99
Keurig Green Mountain, Inc. Stock Quote
Keurig Green Mountain, Inc.
GMCR.DL

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