Consumers are becoming more and more socially conscious, and want the goods and services they use to measure up. It doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer, and the company's bottom line.
Starbucks (SBUX 1.42%) has always been a leader in corporate social responsibility, but what's prompting me to write about the mighty green mermaid today in particular is something sure to warm the cockles of your holiday heart. Without further ado, then, let's have a look at The Bucks (as my wife affectionately calls it), and analyze the company in terms of its performance as a socially conscious enterprise, as a business, and as an investment.
Making hell just a little more tolerable
For anyone who's had to do it (like yours truly), you know already that working retail on Black Friday -- the day after Thanksgiving -- is a little bit of hell right here on Earth. You've just had a day off, one probably filled with too much food and drink, and the weekend is just one more day away, yet you're forced to shake the cobwebs out of your head and deal with the consumer hordes on the busiest shopping day of the year. This year, Seattle's Best Coffee, which is owned by Starbucks, is trying to make the situation for Black Friday workers just a bit better.
On Friday, Nov. 23, anyone working in retail -- as well as law enforcement, health care, or the military -- will be able to stop into a Seattle's Best cafe and get a free small cup of brewed coffee. Those who can't make it to a cafe will be able to visit the Seattle's Best Coffee Facebook page to request a free sample of the company's coffee.
This is a seemingly small effort on the part of Starbucks to reach out to the community, and arguably a self-serving one, but it's an important show of corporate care and concern nonetheless. And for the people who can look forward to sauntering down to their neighborhood Seattle's Best cafe to get a free cup of coffee on capitalism's most personally abusive day, trust me, it's a big deal -- one that will provide good PR, as well as good karma, for The Bucks.
A great-performing company at a great price
CSR cred established, now let's look at a few basic metrics and see how Starbucks measures up against its peers as a business and as an investment:
Revenue growth: In its most recent quarter, Starbucks grew its revenue by a very healthy 11% year over year. Rival Dunkin' Brands (DNKN +0.00%) grew its revenue at the solid if unexceptional rate of 5% YOY. Revenue for powerhouse food-retailer McDonald's (MCD 1.19%) actually contracted by 0.2% YOY, while Yum! Brands (YUM 2.84%) had healthy growth of 9% YOY.
Earnings growth: YOY earnings for Starbucks were just a little better than flat in the most recent quarter, with 0.1% growth. McDonald's YOY earnings were down in the same period by 3.5%. Yum did exceptionally well on this metric, with YOY earnings growth of 23%.
Cash-to-debt ratio: It's always good to see more cash than debt on the balance sheet, ideally at least 1.5 times more.
- With $2 billion in cash and $550 million in debt, Starbuck's C/D is a grand 3.64.
- With $166 million in cash and $1.9 billion in debt, Dunkin's C/D is a not-so-grand 0.09.
- $2.2 billion in cash and $13.3 billion in debt give McDonald's the similarly not-so-grand C/D of 0.16.
- Finally, $942 million in cash and $3 billion in debt also leaves Yum! in the C/D dumps: 0.31.
With money as cheap as it is, too many companies are in debt up to their corner offices, and it's a dangerous position to be in. Because when things go wrong (and they always do), the bigger the war chest a company has, the better chance it has of coming through the other side intact. Kudos to Starbucks, then, on this important metric.
Making money while making a difference
In terms of price-to-earnings ratio, McDonald's, at 16, is the cheapest priced of our four stocks, while Dunkin', at 77, is the most expensive. Both Starbucks and Yum! end up with P/Es in the 20s: 28 and 21, respectively. While 28 is higher than average for an American company, it's not radically so. And, as you can plainly see from its stellar performance on the metrics (excepting earnings growth), you're getting a lot of company for the money. They also want to give the hard-fighting soldiers of the retail army free coffee on Black Friday, which makes them tops in my book any day.
In terms of corporate social responsibility, Starbucks isn't perfect, but to paraphrase Voltaire, it's important to never let the quest for the perfect drive out the good.
