Starbucks (SBUX) common stock is currently outperforming the returns of the S&P 500 and its competitors in the coffee-making industry. Starbucks is really raking in the benefits from its acquisitions of Evolution Fresh, La Boulange and Teavana as well as its expansion into a more global playing field. The coffee giant is being highly rewarded by these changes as the shares are up about 15% since the beginning of the year.
Valuation and Fundamentals
During the second fiscal ending March 31, 2013, Starbucks reported yet another set of record results. The fiscal second quarter 2013 highlights reports:
· Total net revenues increased by 11% to $3.6 billion.
· Operating margin expanded 180 basis points to a Q2 record 15.3%.
· The consolidated operating income grew 26% to $544 million.
· Starbucks added 590 new stores globally, including 337 Teavana stores.
· The company raised its full-year EPS target range to $2.12 to $2.18 from the previous target range of $2.06 to $2.15.
|Market Cap: 46.6 B||P/E: 31.5||Dividend Yield: 1.4%|
|P/B: 9.10||P/S: 3.3||EV/EBITDA: 17.4|
|52 Week Low: 43.04||52 Week High: 62.53||EPS: 1.97|
The company reported fantastic results from its Americas segment. The company’s net revenues grew 10% in the second quarter based on strong comparable store sales growth of 7% in the U.S. The company reported in its conference call that it anticipates to open up 3,000 more Starbucks stores in the Americas with at least 1,500 in the U.S. in the next five years. The company also announced that for the new stores, it would be straying away from café stores and all new stores will be drive-thru stores.
SBUX data by GuruFocus.com
Giving Money Back to the Shareholders
Starbucks currently pays shareholders a quarterly dividend of $0.21, or 1.4% dividend yield. Along with this dividend, the company has authorized the repurchase of 26 million more shares in addition to the 3 million they bought in this most recent quarter. Since the beginning of the fiscal year 2013, the company has returned over $850 million to shareholders.
In the last quarterly report the company noted its strong global performance and improvement. The global comparable store sales grew 6% because of a 4% increase in traffic and a 2% increase in average ticket price. This marks the 13th consecutive quarter of global growth higher than 5%.
Starbucks reported the following goals for global expansion in 2013:
· Indonesia — plans to open more than 100 stores in the next three years
· China — plans on having over 1,000 stores in mainland China by the end of 2013 and more than 1,500 by 2015. China is the largest international market for Starbucks.
· Japan — plans to open 1,000 stores this quarter
· South Korea — plans to have opened over 500 stores by the end of 2013
· Philippines — plans to open more than 100 stores in the next four years
In addition to the coffee giant’s plans for expansion, it has also announced its focus on improving its performance in Europe. On May 2, Starbucks chairman, president and CEO Howard Schultz announced the promotion of John Culver, Jeff Hansberry, Cliff Burrows, Michelle Gass and Kris Engskov to global leadership positions.
The net revenues for the China/Asia Pacific segment were $213.6 million, in the second quarter as the company notes are due to the 516 net new store openings in the past 12 months and an 8% increase in comparable store sales. In the China and Asia market segments the company added 64 new stores and grew its revenue by 22% in the last quarter. Once only in the highest populated Chinese cities, the company is now branching into the less populated cities. China is currently the second largest market for the company. By 2015 Starbucks hopes to have opened 1,500 stores in over 70 different Chinese cities.
Starbucks has recently added three companies to its growing brand. The largest acquisition came when they bought the popular, high-end tea maker Teavana in November 2012. Starbucks bought the company for $650 million in cash. Starbucks is now planning on moving Teavana into their own freestanding stores. All but one of the 400 Teavana stores are currently located in malls. CEO of Starbucks, Howard Schultz said in an interview that he believes the key to Teavana’s success is putting them in “neighborhood locations.” Starbucks added 337 new Teavana stores in their most recent quarter.
Starbucks bought the Bay Area French Bakery, La Boulange Café & Bakery earlier in April. The coffee giant spent $100 million on this acquisition and has already introduced the café’s pastries to 440 locations (primarily stores on the West coast). The company plans to expand La Boulange to the entire U.S. by the end of 2014.
Starbucks acquired the popular juice company, Evolution Fresh, in November 2011. The company currently offers Evolution Fresh’s products in approximately 4,000 stores, but they hope to have expanded their products to more than 8,000 stores by the end of 2013.
Ready to Drink and Eat (RTD&E) Expansion
The company is currently targeting the non-coffee drinker through the expansion of their grab-and-go items. The company has expanded this section of their shops quite avidly with the promotion of new lunch items like sandwiches and bistro boxes. The company has also been strongly promoting their new energy drink-like beverage, Refreshers.
This year the company announced the release of their newest product: bottled iced coffee. The new line of bottled iced coffee will come out in four flavors: iced coffee and milk, low-calorie iced coffee and milk, iced coffee and milk and vanilla and caramel iced coffee. These iced coffees will be promoted both in Starbucks stores as well as grocery stores.
In its most recent conference call, Jeff Hansberry, president of Channel Development, announced that along with their promotion of bottled iced coffees, there would be other new innovations to the RTD&E market.
In the past year, Starbucks has achieved significant growth in the Americas as well as in their new global ventures to China and beyond. It should continue to reward its investors and customers with its international expansion and the utilization of its recent acquisitions
There are currently 14 gurus that hold a stake in Starbucks.
To view Starbucks’ second quarter fiscal 2013 financial release, click here.
Starbucks trades at $62.19 this morning.