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Starbucks: Coffee That Tastes Good For Investors

September 02, 2014 | About:
mitu77

mitu77

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Much to the delight of an investor, Starbucks (SBUX) posted records incomes and revenue for the quarter. Starbuck continues to influence its invertors with another quarter of terrific operating performance in which all the segments contributed to record results. Company had adopted various growth initiated strategies with strong management team that resulted in such an outperforming quarterly results. This happens to avow that Starbucks has been developing on a worldwide scale. Furthermore, it continues to broaden its horizon with a stronger foothold in the developing nations and raw Asian market. The brand name is becoming stronger and stronger with time as result of over 300,000 business associations providing Starbucks services to over 70 million global customers.

Overview of the quarter

Starbucks recently released its third quarter results for fiscal 2014 which demonstrated growth. Revenue was up by 11% to $4.2 billion as compared to the same quarter last year. Thus growth was primarily driven by a 6% rise in global comparable store sales and incremental revenues from 1,654 net new store openings over the past 12 months. Operating income was up 25%, to $768.5 million, compared to $615.2 million for the same period a year ago. Operating margin expanded 200 basis points to 18.5%, primarily driven by sales leverage and lower commodity costs.

Geographical performance ($ In millions)

 

America

EMEA

ASIA

Revenue(Q3-2014)

$323.5

$323.5

$287.6

Revenue (Q3-2013)

$287.2

$287.2

$233.7

Revenue (Change)

10% Growth

15% Growth

23%

Operating Income(Q3-2014)

$728.5

$29.2

$100.8

Operating Income(Q3-2013)

%619.3

$9.3

$84.7

Operating Income(Change)

18% Growth

214% Growth

19%

Operating Margin(Q3-2014)

$28.3

$9.0

35%

Operating Margin (Q3-2013)

$22.3

$3.2

36.2%

Operating Margin (Change)

Up 150 bps

Up 580 bps

Down 120 bps

New Stores (Q3-2014)

149

37

160

New Stores (Q3-2013)

158

43

119

New Stores (change)

9 Decline

6 decline

41 Growth

In the Asian region, operating margins now seem to be low as compared to year ago quarter. But if we analyze it closely, we can see that the number of new stores has grown by 41 as compared to same quarter last year. The setup and the branding cost associated with the new stores do offset the margin, since it's generally high if we compare it to the established stores. The brighter side is that it can be like a steroid for future revenue growth.

The global expansion plans and online ordering system has helped Starbucks to boost its performance. The marketing policy that involved with provided coupon helped Starbucks with repeat ordering and gift coupons did brought in new traffic to its outlets.

Teavana Acquisition leveraging growth

As a fact, Starbucks’ universal expansion strategy to build its foot print of its business is exemplary. A mix of acquisitions, push into developing markets alongside the quality of its brand has helped it to pull in clients. Starbucks is looking to expand its deals by offering more than simply espresso. Starbucks in the past acquired Teavana as a strategic move to establish its authority position in the $90 billion worldwide tea market. With Starbucks serving handmade Teavana® tea, fueled the growth as it also provided wider choice to its customer and not just limiting to coffee. The growth was also fueled by Starbucks' existing framework and brand name together with Teavana's established brand.

China market

Notwithstanding that, Starbucks still plans on proceeding with its development all through China and whatever remains of the Asia-Pacific district. The espresso chain is anticipating opening the turning point 1000th store in China before this present year's over. As of now intensely shown in enormous urban communities like the capital Beijing and business center point Shanghai, the organization is pushing to infiltrate the businesses of second- and third-level urban communities. Looking further later on, Starbucks says China will surpass Canada as the organization's second-biggest business, after the United States, in 2014.

Conclusion

So it appears that Starbucks is looking to enhance the normal ticket size and activities like these ought to help it enhance deals when clients purchase more than simply espresso. Likewise, what inspires me the most is its operations in China, a nation where the greater part of the sustenance business has encountered a lull, Starbucks accomplished healthier deals determined by its solid brand appreciation. Starbucks has been performing admirably and its methods show that the organization's out-execution ought to proceed. So despite the fact that the stock may be exchanging near 52-week highs, I feel that it can possibly go higher from here.


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