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Investing in Starbucks Should Make You Rich

April 28, 2014 | About:
Suravi Thacker

Suravi Thacker

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Severe winter weather hampered sales of most of the beverage companies as mall traffic decreased and cold weather forced people to stay home. However, there are some retailers who have still managed to buck the trend and post great quarterly numbers despite all the prevailing problems.

One of them is Starbucks (SBUX), one of the most popular coffee chains, which posted its second quarter results. Although it slightly missed on the revenue estimate, other numbers delighted its investors, pushing its share price north.

Mixed Results

Driven by higher store traffic and bigger transaction size, revenue jumped 9% to $3.87 billion, over last year. The growth in top line was helped by 6% growth in same store sales. Also, same store sales in the U.S. increased by 6%, higher than the expectation of 5.4%. Starbucks has been able to attract customers in hordes through its range of diversified offerings.

Its earnings stood at $0.56 per share, an increase of 17% over year-ago quarter. On the other hand, peer Dunkin' Brands (DNKN) recently reported first quarter numbers which failed to meet the estimates. Although its revenue climbed 6% and earnings rose 14%, it was below analysts’ expectations. Moreover, its same store sales inched up by 1.2% only as the retailer witnessed declining store traffic due to colder winter conditions.

Numerous Positives

Starbucks has been able to drive store traffic mainly through its numerous efforts which continue to attract customers. First, it has been expanding its presence globally. The company is eyeing new regions and continues to add new stores to its network. For example, it plans to open 750 new stores during this year, further strengthening its reach in the U.S. and the international market.

Moreover, it has expanded its product portfolio by adding a wide variety of products. For instance, it added fresh juices to its list of offerings which attracted health-conscious customers. Also, the inclusion of Teavana Tea was a great move.

The coffee retailer also provides bakery items under the banner of “La Boulange.” This has been a great attraction for customers, enabling the company to add more products at a premium price. In fact, it has also partnered with Oprah to add more flavors to its existing tea products.

Also, the retailer now plans to enter the carbonated soft drinks segment by launching new Fizzio carbonated beverages in the upcoming summers. However, these soft drinks will not be made of artificial sweeteners and preservatives and will be healthy for customers.

Digging Further

Starbucks has not only expanded its beverage segment, but also diversified into the food category. It recently announced the introduction of breakfast items which has been one of the most attractive segments for all the food retailers. Therefore, this move should help Starbucks lure more customers, driving its revenue even higher.

One of the greatest moves by Starbucks was the mobile payment app which made its customers’ lives easier. This app proved to be quite successful since it reduced the waiting time for customers.

The Obvious Conclusion

Starbucks has been a remarkable performer as it caters to the high-end customers on a global basis. With great quarterly numbers and expansionary moves on its cards, this retailer looks increasingly attractive. Further, the company revised its outlook upward, making its future look brighter. Hence, Starbucks is worth a bet.


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