One Company Everyone Is Talking About
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When was the last time you grabbed a coffee at Starbucks (NASDAQ: SBUX) on your way to work? Chances are it was today. What is it that makes this brand America's favorite coffee? All those who swear by Starbucks' coffee, read on to find out what makes this brand tick.
The last quarter
In its last quarter, Starbucks' comparable-store sales grew 6%, driven by increased traffic and the average transaction amount. Net revenue for the quarter climbed 11% from the same period a year ago to $3.6 billion. Net earnings increased 26% to $390.4 million. Diluted earnings per share were up $0.11 from last year to $0.51 for the quarter. This included a $0.03 one-time gain from the equity sale in a Mexican joint venture.
In the US, Starbucks saw its same-store sales advance by 7%. Contrary to popular belief, Starbucks is far from reaching its saturation point in the US, where more than 70% of the company's revenue is generated. The company plans to add 1,500 new cafes in the country over the next five years.
The highest driver of sales in Starbucks' last quarter was in the China and Asia Pacific region, where the company generated 8% sales growth as compared to the previous year. Comparatively, Europe, the Middle East and Africa (EMEA) didn't fare as well, and saw sales decline by 2%.
Overall, Starbucks' results were impressive, to say the least. According to CFO Troy Alstead, the reason behind the performance was that Starbucks is relatively "insulated" from the issues troubling its peers, which includes setbacks such as severe winter conditions and a payroll-tax hike.
Dunkin' Brands Group (NASDAQ: DNKN)), parent company of Dunkin' Donuts and Baskin-Robbins, for example, saw its last-quarter results significantly affected by severe weather this winter. The company's US comparable-store sales grew by a modest 1.7% as compared to the previous year.
Internationally, the company did better, however, and reported 4.7% growth in international system sales. Major drivers of sales growth were South Korea and Southeast Asia. For the next few quarters, Dunkin' plans to toy with innovative products and ideas, such as a singing birthday cake at Baskin-Robbins, a wider breakfast and bakery menu at Dunkin', and the use of mobile technology to drive sales globally.
The path ahead
For the future, Starbucks' main focus is expansion in China and Asia Pacific. The recent addition of local favorites such as Peach Blossom Tea Latte and Chestnut Macchiato to its menu combined with further development of its membership-rewards program have helped the company gain ground in the region. Starbucks plans to continue with the above initiatives as it wants to develop China as the biggest market after the US. By 2015, the company plans to open 1,500 cafes in China.
Strong performance in the second quarter makes Starbucks confident about the remainder of 2013. The company increased its expectations for its full-year earnings per share to a range of $2.12 to $2.18 from its previous expectation of $2.06 to $2.15.
What to expect?
While Starbucks remains at the top of its game, it may face competition from its peer Green Mountain Coffee Roasters (NASDAQ: GMCR). In its last quarterly results, the company reported some great numbers. Revenue for the quarter grew 14%, while earnings per share increased by an astounding 50% to $0.87. Keurig Single Cup Brewers and related accessories contributed the majority of the sales for the quarter.
With good numbers flowing in, Green Mountain looks all set for growth in the quarters to come. Not surprisingly, the company expects sales growth of between 15% and 20% in 2013. Earnings per share are expected to between $3.05 and $3.15 as compared to $2.40 in the previous fiscal year. In the quarters to come, the company plans to achieve higher penetration of Keurig systems in US households, and also to experiment with new products and new geographical regions.
Green Mountain's share price has come a long way from the lows reached in 2012, surprising many who expected the stock to fall post September. That's when its K-Cups patent expired and Starbucks launched Verismo, Keurig's competitor. All in all, Green Mountain has been doing quite well and will probably continue doing so.
What to do?
When it comes to brand loyalty, no one does it better than Starbucks. The company has more than 11,000 outlets in the US, with more coming in the future. Expansion in countries like Brazil and India in the years to come will only add to its global brand image.
An ever-increasing customer base, expansion plans in key markets, a solid track record at home, and great numbers in its quarterly results make me optimistic about this stock. Shares are trading near their 52-week high. This makes them a tad expensive but I'd still want to go long. This is one stock that is a must-have in your long-term portfolio.
With Green Mountain as cheap as it's ever been, many investors are wondering whether this is the end of the former market darling, or the perfect entry point for an enormous rebound. You can find our recommendation for how to play the company in our premium research report. In it you'll find everything you need to know about Green Mountain, including whether it's a buy at today's prices. Click here for instant access.
Sonam Chamaria 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!