Coffee lovers are growing in number, on a global basis, as evident from growing coffee sales. Additionally, coffee retailers are witnessing a continuous surge in revenue. Also, each of the players is making a number of moves to expand their product portfolio and get into other similar alternatives. However, first quarter is relatively weak for the coffee giants as compared to the fourth quarter, which is the best time for the coffee sales.
The best example of a coffee retailer is Starbucks (SBUX), the largest provider of coffee. This player has grown manifolds in the last few years and plans to double it in the next five years. The company is slated to report its third quarter results this week. Let’s see what is expected from the coffee maker.
What to expect?
According to Yahoo Finance, analysts expect revenue of $4.14 billion, an increase of 10.7% over last year. The bottom line is expected to be at $0.66 per share. This is quite higher than the earnings of $0.55 per share. Moreover, the company has managed to beat the estimates in all the last four quarters. Also, Starbucks’ PE ratio is lower (29.19) than the industry average (30.85).
The coffee retailer’s prospects look good since it is making all the right moves. Looking at the past performances, it is expected that the results would be in line with the analysts’ expectations. In fact, in the previous quarter, the company also posted a 9 % increase in top line, helped by same store sales growth of 6%. Bigger transaction size and more number of transactions had been the key factors. Further, its bottom line jumped 17% over the prior year.
In fact, Starbucks still continues to look attractive with plans to expand into new markets such as Colombia. It opened its first store in the region this month, marking its first move in the region. The coffee maker plans to add 1,500 more stores this year to its existing network of 20,000 stores.
Also, one of the key focus areas for the retailer will be expanding in China, where it plans to open 400 new stores by the end of this year. It has been able to get Chinese people addicted to coffee by adding variants according to the Chinese tastes and preferences. Moreover, it has made its stores designed according the local theme.
Starbucks has also got into the soda segment. It has recently launched Fizzio, hand crafted sodas, in three flavors to capture the growing soda market. This diversification is in addition to the expansionary measures made by the company recently. It has added tea, juices and bakery products to gain more customer attention. Also, it has introduced new breakfast items in the menu to attract customers in the morning time.
Keurig Green Mountain (GMCR) is one of the toughest competitors of Starbucks, which is doing equally well. In fact, both the companies have got into an agreement to sell Starbucks’ coffee in Keurig’s single serve K-Cups. However, this is not the only deal for Keurig. It has entered into deals with several companies such as Dunkin Brands, JM Smucker, Peet’s Coffee and many more. In fact, the most recent deal is that with Nestle USA to provide Nestle’s coffee to customers with creamer. Now, Nestle’s coffee K-Cups will be available at Green Mountain’s online stores from this year itself. The product will be available at the retail stores by spring of 2015.
A great bet
Although this deal might give a boost to Keurig’s top line, Starbucks has been sizzling with growth. It has been growing remarkably from quite some time. Also, its expansion and diversification efforts should add to its growing stature. Further, with these points in mind, the coffee maker should be able to deliver sound Q3 numbers. Hence, investors should keep an eye on this company.