The very nature of consumer discretionary brands makes their growth uncertain, especially given changing consumer preferences over time. But when it comes to coffee, Starbucks Corporation (SBUX, Financial) has far outpaced its rivals Krispy Kreme Doughnuts (KKD, Financial) and Dunkin’ Brands Group Inc. (DNKN, Financial). Its share value has soared by close to 300% in the last five years, as opposed to 200% for Krispy Kreme (but that starts from a low base of less than $5) and just about 60% for Dunkin’. The company looks poised for strong growth in the years to come, offering value to investors who are looking to walk the road with the coffee-maker.
Stock split coming
The company has announced last month its sixth two-for-one stock split effective from April 9. According to Starbucks Chairman and CEO Howard Schultz, “This split is a direct reflection of the past seven years of increasing shareholder value, enhancing the liquidity of our shares and building an attractive share price.” While the news gave an immediate push to the stock price, its real importance is for investors who are looking to buy the stock which is trading near its all-time high but have been holding back due to the high price tag.
Delivering the caffeine kick
In the same shareholder meeting where it announced the stock split, Starbucks also spoke of testing a coffee delivery service in New York and Seattle later this year. Both cities have different delivery models but there will definitely be a flat delivery charge that hasn’t yet been disclosed. Orders will be placed through the Starbucks mobile app which has seen success among customers, partly for its pickup order feature.
Delivery of goods provides three clear benefits. The first is the obvious comfort provided to customers who can order their food and beverage without having to leave the comfort of their homes or offices. The second is accruals from margins, however small, that Starbucks will keep from every delivery made. And the third is the shortening of long queues and reduction in the number of people waiting to be served in stores.
New big markets
The bulk of sales for Starbucks still comes from the U.S. market (about 73% in 2014) but when looking at growth, the American business of the company has grown just about 40% since 2010, as opposed to the China/Asia Pacific segment which has grown by close to 180% in the same time period, with a higher operating margin to boot. Given its high popularity and increasing spending power, China makes for a very obvious growth target for the company. For similar reasons, another very big potential market for Starbucks is India where it began operations only in late 2012 and still has less than 70 outlets in the country. At the end of September 2014, Starbucks had close to 14,200 stores in the American region as opposed to just over 4,600 in the China/Asia Pacific region which has a substantially bigger population and higher growth potential. The company’s focus on this region is sure to keep it growing.
Conclusion
The stock has rewarded investors richly for years now, and there is every indication that it will continue to do so in the years to come. The stock split in a week is a very good opportunity to BUY in to the stock.
