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Starbucks: A Good Deal

March 30, 2014 | About:
mitu77

mitu77

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Starbucks (SBUX) an established brand for beverages and bakery products with global footprints and chain of franchisee network existing across the globe. The company has been very innovative in marketing strategy to attract more traffic to its retail stores.

Financials

Performance affirmed remarkable growth in sales including an increase in revenue as compared to the previous year

Startbux recently released its quarterly results for Q1-2014. The financial result was quite strong. It recorded revenue of $4.3 billion and showed a growth of 12% year over year. Increase sales revenue was mainly due to increased number of new stored opened globally.

Operating margins increased by 19.2% year ago quarter, this was also mainly driven by strong traffic to stores, better working efficient and the price of coffee decreasing has a major impact on the margin of Starbucks. Although in the same quarter last year, the margins were affected by litigation and not forgetting the natural weather catastrophe SANDY did effect the first quarter last year.

It recorded operating income of $814 million (19.2& growth) with and EPS of $0.71 per share.

The improvement in performance was due to the fact that the company employs robust strategies to grow its business and has a strong management team, while continually increasing its footprint globally.

Expansion strategies in Asian countries help to boost the sales of Starbucks further. This is exemplified as we see 25% growth in net revenue in the Asian market to records $268.9 million.

Growth ahead

Starbucks' strategy to grow its business is admirable. This has helped Starbucks to establish wider footprints globally. A mix of acquisitions, push into emerging markets along with the strength of its brand has helped to drive traffic to Starbucks. Starbucks is looking to increase its sales by offering more than just coffee. The company has been frequently innovating it menu with launch of various new brands to attract customers. The global expansion plan of Starbucks is commendable especially in Asian market where it is constantly increasing its franchise networks. Starbucks also expects a huge sales growth it its newly released La Boulange brands, and the company is looking to expand the bakery brand to all of its 7,000 stores in the U.S. by the end of this year. This will further helps Starbucks to influence its top and bottom line in the remaining quarters of the year.

Smart moves with acquisitions

Starbucks is adding on more variety in the beverages section and in the past it acquired specialty tea company Teavana for $620 million. With this acquisition, Starbucks was focusing to capture larger share of the flourishing tea market in countries such as India and China. The tea market is estimated to be worth $40 billion globally and the acquisition of Teavana is assisting Starbucks to gain share of this market. Starbucks eyes market in India where the potential is huge. The revenues from other noncore segment of Starbucks grew by 174% to records $159.2 million in the recent quarter. This is mainly due to strong performance Teavana which was not in the year ago quarter.

Competitors

Dunkin’ Brands(DNKN) comprises of Baskin-Robbins & Dunkin’ Donuts . The company has also been spreading its outlets globally through its franchise network. The global footprint of Dunkin’ brand is spread over 60 countries with around 17,000 outlets across the world.

Dunkin’ donuts restaurants, which serve coffee and baked food, offer considerable competition to Starbucks, whereas Baskin-Robbins, which specializes in ice cream, does not offer any major threat to the Seattle-based specialty coffee giant.

The company’s regular innovations to its menu to attract more customers and sales across the globe have resulted in attractive returns for its franchisees, who are gaining more confidence in this brand.

The company has been spreading its franchisee network at a high pace. It further plans to open six new restaurants through East Texas and this futher adds to competition to Starbucks in this regions with customers getting a wider choice of switching

Dunkin’ Brands posted revenue $183.2 million in the recent quarter a growth of 13.3% with the net income of $42.1 million. 13% growth of revenue was recorded. Diluted EPS increased by 26.5% to records $0.43. It also added 309 new restaurants world wide.

Conclusion

Starbucks has been performing well and its strategies indicate that the company's out-performance should continue. So even though the stock might be trading at close to 52-week highs price band of ($56.65 - $82.5) , I think that it has the potential to go higher from here and cross the higher band.


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