Starbucks – Still Strong, Still Delivers

Serge is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Coffee in the morning, - something many of us can’t imagine our life without. Not a bare essential, as such, but it helps battling through the day.  And this has just been confirmed by latest results from Starbucks (NASDAQ: SBUX). Let’s have a closer look at what contributed to this coffee seller's growth after having a quick glimpse at figures delivered.

  • Total revenues increased by 11% to $3.8 billion, and consolidated operating income increased by 13% to a record of $630.6 million.
  • EPS increased by $0.07 to $0.57.
  • Number of net new stores dropped by 29 to 212.
  • More than 150,000 Versimo coffee machines were sold.
  • 1.4 million new Strabucks Rewards members in the U.S.

Let’s start from the fact that comparable or same store sales were actually up 6%. The additional increase in revenues was driven by new stores. As Starbucks expands rapidly it is important to look at same store sales to see a better performance picture.

The China and Pacific segment of the business has actually contributed an increase of 11%, followed by the Americas with a 7% increase in sales. Sales in Europe, the Middle East, and Africa were 1% down. This is a disappointing considering the EMEA segment is really important, and this decline is slightly worrying. However, I do remain optimistic, as has Starbucks done an amazing job by refurbishing shops in London, and looks like customers love it. So we might see some improvements in Europe in the longer term.

Both the EMEA and the Americas segments were down on new shop openings; however, China and Pacific new store openings increased by 4. This is a good sign and an indicator of where Starbucks sees its future. As Europe and America are saturated with Starbucks shops, the Chinese market provides plenty of room for expansion. Also there is a feeling out there that after a hard lesson of uncontrolled growth in the past and sacrificing quality for the sake of quantity, new store openings are much more controlled now.

Sales of Verismo coffee machines were impressive and got to over 150,000 units. However, Verismo faces tough competition from Green Mountain (NASDAQ: GMCR) which, let’s face it, is a hard nut to crack. In comparison Green Mountain sold on average 2.3 million brewers per quarter during fiscal year 2012. With the Keurig Vue machine already in place and Rivo hitting the shelves shortly, it might be difficult for Starbucks to continue pushing Verismo sales up. Possibly Starbucks will be powered by another aggressive advertising campaign, but I have to say Verismo did look kind of lonely and abandoned, covered in dust standing on display at my local Starbucks.

It will be very interesting to observe how Starbucks' Verismo sales impacted Keurig sales.  We don’t have to wait for much longer now before Green Mountain trading results are announced on Feb. 6.

Starbucks has to do well in many directions in order to sustain growth, and it is important to watch out for competitors like Dunkin Brands Group (NASDAQ: DNKN), which is expanding its presence in Southern California and looks like it's sticking to the plan of expanding in the U.S.  The share price of Dunkin Brands has recently been upgraded by Argus from $38 to $42, and Argus currently has a “buy” rating for the stock. Dunkin might not be a threat, but will still be taking away market share from Starbucks.

Starbucks recently acquired Teavana Holdings. Coffee is not the only interest anymore, but there is a desire out there to be a global leader in tea.  It's possible that Strabucks is over-stretching slightly by trying to enter new areas of business, expanding and buying other companies, but this is the only way it can achieve future growth and show strong results. Hopefully all these efforts will pay off, but for now Starbucks remains strong and yet again delivers.


Foolioiam has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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