Friday, July 29, 2011

Starbucks (SBUX) Doing a Nice Job Reigniting Growth

I'll admit to being surprised by Starbucks (SBUX) the past year or so.  A few years ago it was left for dead as a company whose growth had pretty much stalled.  However, when their original CEO Howard Schultz came back to the company in CEO role, the company straightened itself out and has been impressive.  As a 'premium' brand they do cater to those who are less affected by the weak recovery...thus giving the company more pricing power than I assumed.  As I've been saying for a few years - with the American middle class slowly being eroded, the years ahead will be focused on investing in a barbell approach - the top end, and the low end.  I was just surprised SBUX would be thrown in with the 'higher end' (not being a coffee drinker).

Via Reuters:

  • Starbucks Corp (SBUX) raised its fiscal year forecast above Wall Street's estimates, banking on its relatively well-heeled customers visiting more often and shaking off price increases. The world's biggest coffee chain, which is coming off a years-long restructuring that involved closing poorly performing stores to rekindle growth, on Thursday reported better-than-expected fiscal third-quarter earnings.
  • Seattle-based Starbucks joined a raft of other premium-positioned companies -- including burrito chain Chipotle Mexican Grill (CMG) and Whole Foods Market Inc (WFM.) -- in reporting out-sized same-store sales gains.  "The higher end is alive and well," said RBC Capital Markets analyst Larry Miller.
  • Sales at Starbucks' U.S. cafes open at least 13 months, and which yield about four-fifths of its revenue, jumped 8 percent in its fiscal third-quarter ended July 3. Analysts expected a 5.3 percent increase.
  • Traffic in its home market climbed 6 percent, while average spending per visit rose 2 percent.
  • Chief Financial Officer Troy Alstead told Reuters menu price increases accounted for the bigger part of the rise in spending, but customers were also buying more food.
  • Starbucks targets more affluent consumers than the typical U.S. fast-food chain. Those customers have fared better than their lower-income counterparts as the U.S. economy sputters, and they have resumed spending on discretionary items like $4 lattes and organic foods.
  • Starbucks shares, which have benefited from a massive restructuring that slashed costs and shut over 900 poorly performing cafes around the world, are up 60 percent from a year ago. On Thursday, it said it would be adding a net 800 stores globally in 2012.
  • Starbucks boosted its earnings forecast for this fiscal year to $1.50-$1.51 per share from $1.46 to $1.48 a share, previously. Analysts, on average, were expecting a fiscal 2011 profit of $1.50 per share.
  • It also forecast a 15 percent to 20 percent increase in earnings per share in 2012 and a 10 percent increase in revenue. The forecast is based on mid-single digit comparable store sales growth and the opening of net 800 new stores.
  • Starbucks' third-quarter net income rose 34 percent to $279.1 million, or 36 cents per share, beating analysts' average estimate by 2 cents per share, according to Thomson Reuters I/B/E/S. Revenue rose 12 percent to $2.93 billion.
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