Starbucks Slowdown Will Shift Gears
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Expect a slowdown from Starbucks (NASDAQ: SBUX) for a season, but it won’t last, not with what the company has planned for the future. I expect a slow down for possibly a quarter or so, but before the year is over I expect the company to continue moving up.
While the stock was on a nice ride for some time, gaining about 60% in value over the last year (15 times what the S&P 500 did), that type of growth can only be sustained for so long before investors start taking profits on news that is not so good. Well, that finally caught up with Starbucks as sales did not meet expectations of analysts because of Western Europe’s economic demise. Europe's weak spot underwhelmed analysts who expected a 2.2 percent rise in sales but came away with a surprisingly negative 1 percent fall. This is the first such decline since 2009.
Well, investors saw the writing on the wall and decided to start taking profits, so the sweet bullish ride is over, right? I am not so sure about that. Europe is in an economic struggle right now and that will last for this year, coffee prices are also locked into higher prices through the year and that will eat into profits. But if one looks past this year, the future still looks hopeful as the company has ventured out into a couple news areas that are doing well.
VIA Instant Coffee (Starbucks' line of instant coffee) is a product the company has brought out and it has generated more than $250 million in sales last year with more than 80,000 points of distribution. VIA is the prototype for all Starbucks' new endeavors since it has been so successful. K-Cups, the single-serve cups you put into Keurig coffee machines. Keurig’s brewer parent Green Mountain Coffee Roasters is working with the coffee maker on this venture. Starbucks expects K-Cups to add as much as 5 cents to earnings per share in fiscal 2012. Still in a marketing stage but Starbucks is convinced we will build a second billion-dollar business within our single-serve portfolio.
The company may slow down for a period, but these two ventures should continue to offset Western Europe's stagnant growth. Long-term I expect it to continue to move up.
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