Please ensure Javascript is enabled for purposes of website accessibility

Is Starbucks A Good Buy?

By Pratik Thacker - Feb 26, 2014 at 10:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Does Starbucks' strong quarter, expansionary moves, and many other efforts make it a buy right now?

Online business has taken a toll on brick-and-mortar stores. This was affirmed when ShopperTrak, a data firm, declared there was a decline of 14.6% in shopper traffic in the U.S. during the holiday season. On the other hand, online sales grew 9.3% during the holiday season, according to the National Retail Federation. Lower shopper traffic means fewer people visited malls, leading to lower footfall at restaurants and other eateries.

However, coffee retailer Starbucks (SBUX -1.17%) seems to be immune to such macroeconomic conditions. Its earnings were ahead of Mr. Market's expectations, sending its stock higher.

Starbucks' tale of success
Revenue surged 11.6% to $4.24 billion over last year's quarter. Lower shopper footfall at stores affected the top line as people preferred to relax at home. Nonetheless, the coffee company managed to register same-store sales growth of 5%, which helped boost total revenue.

Geographically, sales from Asia Pacific grew well, with same-store sales growth of 8%, since most of the newly opened Starbucks stores were in this region. Moving down to the bottom line, earnings for the quarter jumped north to $0.71 per share, compared to $0.57 per share in the year-ago quarter. This was way ahead of the Street's expectations of $0.69 per share.

In fact, Starbucks' CFO, Troy Alstead, said the company should not be much affected by growing online business since customers' experience at Starbucks cannot be duplicated online. Hence, the company does not fear burgeoning online purchases. Moreover, Starbucks has big plans for taking advantage of the popularity of online sales. It will be launching mobile ordering, which will enable people to place their orders at Starbucks through their mobile phones.

Some interesting moves
Starbucks has been trying to expand its product menu in order to give customers more reasons to visit its stores. The coffee company bought La Boulange, a bakery, in 2012, which expanded its list of offerings such as pastries. It also acquired Teavana, a tea retailer, adding tea to its product portfolio. Additionally, it plans to sell Greek yogurt parfaits through its partnership with Danone SA. These expansionary moves are in addition to new coffee products such as VIA lattes, launched recently, in vanilla and cafe mocha flavors. Starbucks' diversification into new and different product lines should help attract more customers.

A brighter future awaits
Starbucks also plans to open 1,000 new stores during the current year. The new stores will help boost its revenue further. Even Dunkin Brands (DNKN) plans to expand its footprint by adding new stores. In fact, it plans to open more stores over the next 20 years, taking its store count to 14,000 in the U.S. Dunkin Brands recently announced its plans for expansion onto university campuses in order to attract students, faculty, and other college staff in between classes. The company is expected to open around 800 stores in 2014, with a special focus on U.S. and China--Dunkin Donuts has entered into an agreement to add 100 locations in China. Thus, Starbucks faces stiff competition from this company's growing presence. 

Also, Starbucks' Verismo faces competition from Green Mountain Coffee Roasters' K-Cups and single-serve brewers. Green Mountain was the first to introduce single-serve brewers, and is now in 13% of U.S. households. Moreover, Green Mountain recently entered into partnership with Campbell Soup, which will give wider exposure to the company. 

The bottom line
Despite tough competition, Starbucks has been a commendable performer with growing sales at its existing stores. Its expansion into new regions as well as new products should be helpful in adding more customers. Moreover, its efforts such as new variations to its existing product line, a loyalty gift card program, and mobile ordering app should add to its advantages.

Pratik Thacker has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Keurig Green Mountain, Inc. Stock Quote
Keurig Green Mountain, Inc.
GMCR.DL
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$88.35 (-1.17%) $-1.05
Dunkin' Brands Group, Inc. Stock Quote
Dunkin' Brands Group, Inc.
DNKN

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
402%
 
S&P 500 Returns
129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.