I have a love-hate relationship with Starbucks
Almost two years ago (April 2011), I wrote an assessment of Starbuck’s (SBUX) for one of my MBA classes. It began: “BOTTOM LINE UP FRONT: STARBUCKS IS A LONG-TERM BUY AND HOLD.” The emphasis was the original. In it, I assessed Starbuck’s current operating profile, discussed the effects of two of the political and natural climates (weather) that the company has to contend with, and provided a Strength, Weakness, Opportunity, and Threat matrix. Here are some of the quotes:
1. “In a nutshell, Starbucks is well-positioned for long-term survivability, although it is not impervious to the forces of nature, or the fickleness of politics in the countries that provides its crop: coffee. On one hand, its best features as a company are its continued growth and commanding market share; on the other hand, they may have had unconstrained growth the past few years, which may dilute product attractiveness.” Comment in 2013: this has not come to pass. Starbucks is invading the “Kingdom of Tea:” East Asia (China) and South Asia (India). They have recently purchased Teavana to increase their revenue with those consumers (not my first choice for a tea store...never liked some of those lines of teas. Having been stationed in Japan for five years, many of Teavana’s flavors are either simply barbarian and/or lack testosterone to be considered “tea.” Tea comes in three flavors: green, black, and mint. But I digress.). The British with whom I served in Afghanistan this past year as a civilian contractor (June through December 2012) considered a bag of Starbucks a highly pilferable commodity. Said one Cockney-accented comrade-in-arms: “Don’t leave that stuff out; it’ll be gone before you know it.” When the Brits “reacquire without compensation” that American beverage coffee, you know that you have a winner.
2. “One issue that Starbucks does not seem to address heavily is its fantasy that the consumer will purchase coffee for its “quality,” and its “experience” when stores are mobbed, and the cost of the coffee is about the same price as a gallon of gasoline.” Comment in 2013: This does not seem to have stopped the thronging hoards that go to their stores. Starbuck’s supermarket sales and their entrance into the “single cup brew” market are very attractive alternatives to their retail establishments. As for their retail establishments, I can’t find a seat, plug in the laptop, start in on Facebook, and enjoy my java: the stores tend to be crowded, noisy, and have too few outlets for a laptop. But in all fairness, I did just that three weekends ago in downtown Boston on a Saturday morning at about 8:15AM. But I probably couldn’t do that at the same store at the same time on a Monday morning.
3. “The global recession has slowed Starbucks, but more importantly, their strong financials display a great company.” Comment in 2013: They still have strong financials, and will continue to do so. Although their price spike and two drops in 2012 looks like my last EKG, their stock price is continuing to climb up and to the right on the graph, and has been doing so relatively consistently since 2009. A one thousand dollar investment in SBUX in 2009 would be worth about five thousand five hundred dollars today; this is impressive, given the global economy.
A few weeks ago, Starbucks announced a profit of about $432 million, or roughly 57 cents per share; its revenue grew 11% to $3.8 billion. These figures basically met Wall Street’s analysts’ estimates of 57 cents per share for earnings, and about $3.84 billion revenue. These earnings should continue for the rest of the year.
BOTTOM LINE AT THE BOTTOM: STARBUCKS IS A BUY-AND-HOLD FOREVER STOCK. In spite of its less-than-prestigious dividend, currently at a taxable 1.51% (a 7-year T-Bill is at 1.37%, and a 10-year note is at 2.004%), Starbucks will continue to grow, increase its value, and make the investor very happy.