Few companies have been as consistently productive as Starbucks
For its fiscal fourth quarter, the Seattle-based empire grew profits by 21% as sales rose from $1.5 billion to a record $1.7 billion. But -- get this now -- this year's fourth quarter was one week shorter than last year's final period. Stretch the fiscal segment to include the full 52-week run, and you get a clearer picture of Starbucks' dominance. Revenues and profits grew by 23% and 27%, respectively, in fiscal 2005.
Yes, net margins improved. That's important because, if margins simply held their own, Starbucks' growth would simply be the product of its expansion plans and comps gains. Then again, it's not as if Starbucks is smarting on either of those fronts. The company added 1,672 new units over the past year and grew same-store sales by 8% in its latest quarter.
2006 should be another year of growth. The company plans to expand its reach with 1,800 new units. Starbucks is guiding shareholders to expect earnings between $0.63 and $0.65 per share. That may not seem like much of an upgrade from the $0.61 it earned in fiscal 2005, but the corporate projection includes a $0.09-per-share hit for the expensing of stock options.
Naturally, that leads us to the question investors have been asking for years: Is Starbucks as overpriced as its lattes? Is it really worth 50 times trailing earnings? The future isn't really that much cheaper. Even if you go with the high end of its range and give the company the benefit of an extra $0.09 per share in stock-based compensation, you'll still have a company trading at better than 40 times forward earnings.
In the 1990s, Starbucks was a big winner in the real-money portfolio that inspired the Motley Fool Rule Breakers newsletter service. David Gardner was clearly right about the stock then, but how does he feel about it now? Well, I don't even need to ask him. His profile shows that he still owns a piece of the company.
Me? I certainly haven't had David's success with Starbucks, but I'm not about to badmouth it at this juncture, either. I'm in awe of the corporate culture at Starbucks. I love what the company created. I'm equally enthusiastic about deals Starbucks has made with companies more up my alley, like Jones Soda
The company is confident in 20% to 25% annual growth, but that's going to take a whole lot of expansion, not to mention faith in consistent comps growth. Maybe it'll happen, but at 50 times earnings, I don't want to be around if Starbucks ever slips.
Longtime Fool contributor Rick Munarriz will admit that he's not much of a coffee drinker, though he finds the company's Chantico chocolate beverages irresistible. He does own shares in Jones Soda. T he Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
