ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

I found no Starbuck thread, so I created a new thread.

It was also US market leaded the sales...

Starbucks Q3 profit up, US sales unexpectedly strong

LOS ANGELES — Starbucks yesterday posted a bigger than expected jump in quarterly profit after new Refresher fruit beverages and seasonal Frappuccino iced drinks helped drive more visits to its shops in the United States, its top market.

The world’s biggest coffee chain also raised its full-year profit forecast, sending shares soaring almost 6 per cent in after-hours trade.

http://www.todayonline.com/business/star...dly-strong

SBUX - current price 72 USD

PE: 34.40
Div yield: 1.16%
PB: 10.56
P/Sales: 4.07
ROE: 29.15
Gross Margins: 26%
Net profit margins: 10%
Market cap: 54B


Q3 2013 Earnings Call Transcript

Turning to China and Asia Pacific regions. Our China/Asia Pacific region continues to be at the very forefront of Starbucks Global expansion initiatives and we are now on plan to surpass 4,000 stores in the region by the end of 2013. Noteworthy, are that our strong 9% increase in China/Asia Pacific comp store sales in Q3 included 8% traffic growth, a doubling of our Q2 traffic growth and that increased operating leverage enable China/Asia Pacific to deliver some of the highest margins in the Company. We will also open our 1,000 store in China by year end and remain on track for China to become Starbucks largest market outside the U.S. in 2014.



I have been to Chengdu and Beijing over the past 2 years. Starbucks outlets over there are packed with people. I feel that the Chinese are just starting to catch the "latte" trend like the Americans. Can SBUX be a good bet on China's domestic consumption?

Comparing with its competitor, McDonald's(McCafe), P/E: 17 P/B: 6 P/Sales: 3.45 ROE: 37% NPM: 20% GM: 39%, i feel that SBUX is currently expensive.

75% of SBUX revenue is derived from the US while 60% of MCD revenue is derived outside the US. I guess that is probably the reason why a higher PE is attahed to SBUX, the potential growth outside US. (will keep it in my watchlist)

SBUX looks a buy if we get another chance. have you look at chipotle and panera?

I have not looked at both of them in detail but I understand that their outlets are mostly in the US, no expansion in overseas markets like Starbucks.

Panera may be at a better price to enter given its recent sell off due to earning missing Wall Street estimates. P/E 26 P/B 6 Op margin 13%

thing about these 3 are that they are trying to create a management culture / university based where they promote internally. you cannot sustain such a large store expansion, still expect good same store sales without good managers. these 3 are trying to do that

http://www.remisiers.org/cms_images/rese...potter.pdf

Bullish wedge pattern
Coffee appears to be forming a bullish wedge pattern. If that is indeed the case, the there may be a big move up in coffee soon. The bearish wedge pattern requires one more short push to below 112.00 to complete the pattern. The next support is seen at 108.60. The multiple bullish divergences on its indicators support the wedge pattern view. Moving above 121.10 would likely signal that a breakout is underway. The big move up could potentially take prices back up to test 157.90, the Jan13 high and possibly even 192.20 (the Jul 12 high). Falling sharply below 105.00 would rescind our bullish forecast.

Seems to be in line with what i'm reading that the price of coffee beans is below the cost of production. No farmers will want to grow coffee beans in the long run if the selling price of their crops cannot even cover their production cost!

If the scenario plays out, gross margin of Starbucks will fall and it may be a chance to buy into Starbucks if the stock do correct itself.

Starbucks’ profit climbs as customers spend more

NEW YORK — Starbucks says yesterday (Oct 30) its profit rose 34 per cent in the quarter, as the coffee chain used its loyalty programme to get customers to visit more often and spend more on revamped sandwiches and other food.

The Seattle-based company said global sales rose 7 per cent at cafes open at least a year, including an 8 per cent rise in both the United States and Asia. In the region encompassing Europe, the Middle East and Africa, where the company has struggled, the figure rose 2 per cent.

The sales performance is somewhat of a standout in the restaurant industry. Chains including McDonald’s and Burger King have blamed the weak economy as they fight to drive up sales. But others are faring relatively better, with Chipotle reporting a 6.2 per cent sales increase at stores open at least a year and Dunkin Donuts reporting a 4.2 per cent increase for the latest quarter.

Starbucks has managed to keep growing through a mix of measures. It’s adding items such as Evolution juices, which can cost as much as US$6 (S$7.5) a bottle, and has rolled out new sandwiches and salads to get people to spend more when they stop in for a drink. Prices on several beverages were also hiked over the summer.

Mr Troy Alstead, Starbucks’ chief financial officer, said the increase in the average receipt for the quarter was mostly because of food. “As they’re adding those purchases, that’s giving us a lift,” he said.

Still, Mr Alstead said only about a third of purchases overall include food. But he said the trends are improving, and should continue to do so as the company finishes the rollout of new La Boulange baked goods.

The company has also been benefiting from lower costs for coffee beans.
...
http://www.todayonline.com/business/star...spend-more

Arabica Coffee Posts Biggest Gain Since 2004 on Brazil Drought

Arabica coffee extended its bull-market advance, posting the biggest gain in more than nine years, as drought drains dams to a record low in Brazil, the world’s biggest grower and exporter.

Dry weather will persist through Feb. 20 in the country’s southeast, the main growing region, according to Celso Oliveira, a meteorologist at weather forecaster Somar Meteorologia. Rains expected late this month and in March won’t be enough to fill reservoirs before the dry season starts in April, he said. Prices jumped 19 percent in five sessions, the biggest such advance since June 2010.

Coffee has surged 23 percent in 2014, heading for the best start to a year since 1997. Brazil had the hottest January ever and the least rain for the period in 20 years, according to Marco Antonio dos Santos, an agronomist at Somar. The drought is also driving prices higher for sugar and orange juice.

“Dryness in Brazil’s coffee-growing area is something that will propel the market higher,” Sterling Smith, a futures specialist at Citigroup Inc. in Chicago, said in a telephone interview. “Not enough rain is stressing the trees.”

Arabica coffee for March delivery jumped 8.6 percent to settle at $1.3595 a pound yesterday on ICE Futures U.S. in New York, the biggest increase since November 2004. On Jan. 31, the commodity settled at $1.252, up 23 percent from a closing low in November and entering a bull market. Prices reached $1.364, the highest since May 20.

The Standard & Poor’s GSCI Agriculture Index of eight contracts rose for a fourth day to 351.1961, the best run since Nov. 12 and the highest level since Jan. 16. Cocoa futures for March delivery increased 0.1 percent to $2,914 a metric ton on NYSE Liffe in London yesterday.

Global Output
In 2013, coffee fell 23 percent, the third straight drop and the longest slump since 1993, amid bumper crops in Brazil and Colombia, the second-largest arabica grower. This year, global output will outpace demand for the fourth straight season, according to the U.S. Department of Agriculture.

Arabica is grown mainly in Latin America and brewed by specialty companies including Starbucks Corp.

Robusta-coffee futures for May delivery climbed 3.4 percent to $1,839 a ton yesterday in London, after touching $1,856, the highest since Aug. 21.

http://www.bloomberg.com/news/2014-02-03...ought.html

Expect cost of goods for SBUX to increase due to increase in price for Arabica coffee beans in 2014.

Quotes from Howard Schultz in this article which I found to be particularly interesting..

Starbucks Billionaire Howard Schultz To Oprah: It's OK For Men To Cry (Even CEOs)

“I think the currency of leadership is transparency,” says Schultz. “You’ve got to be truthful. I don’t think you should be vulnerable every day, but there are moments where you’ve got to share your soul and conscience with people and show them who you are, and not be afraid of it.”

“You can’t build any kind of organization if you’re not going to surround yourself with people who have experience and skill base beyond your own,” he tells Winfrey, adding that ensuring employees share “like-minded values” is crucial.

“Short term success is not going to bring long term value to everyone,” he adds. “We live in an age where everything is based on the short term.”

http://www.forbes.com/sites/clareoconnor...even-ceos/

Starbucks continues Asian expansion with first store in Brunei

Starbucks will open its first store in Brunei on February 16 at one of the most popular shopping destinations in the country, Mabohai Mall.

The company is on track to expand its footprint by adding approximately 750 stores across Starbucks China and Asia Pacific region this year. Southeast Asia will play a significant role in this growth, driven both within existing markets – including Singapore, Vietnam, Malaysia, Indonesia, Thailand and the Philippines – as well as new markets such as Brunei.