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As the S&P 500 has risen 6.9% in 2013, Starbucks (NASDAQ:SBUX) has slightly underperformed by gaining 6.6%. The company recorded record earnings in 2012 and the first quarter of 2013, and I do not think it is close to slowing up. Let's take a look at the company before it is set to report earnings on April 25 and see if it is worth buying.

2012 review

Fiscal 2012, which ended September 29, was a record year for Starbucks. In that time frame, the stock gained an impressive 32.85%. Here is an overview of the annual report:

EPS Reported

$1.79

EPS Growth Year-over-Year18%
Revenue Reported$13.3 billion
Revenue Growth Year-over-Year

14%

Net New Stores1,063

$1.1 billion was returned to shareholders in the form of dividends and share repurchases in 2012. This is very impressive and the most important statistic to note because it shows the dedication Starbucks has in returning value to its shareholders.

First quarter report

In the 2012 annual report, management stated, "We remain confident in our fiscal 2013 outlook of continued strong profitable growth on a global scale." Boy were they right. The first quarter report was released on January 24 and included another set of record earnings and revenues.

EPS Reported$0.57
EPS Growth Year-over-Year14%
Revenue Reported$3.8 billion
Revenue Growth Year-over-Year11%
Net new stores212

Setting earnings records in back-to-back quarters is never a bad thing. In this quarter, global same-store sales increased 6%, exceeding expectations by 1%. Also, 3 of the 212 stores opened were in India, the very first locations in the country.

In the report, Chief Executive Officer Howard Schultz made a powerful statement by saying, "Starbucks has never been better positioned to achieve the goals we have set for ourselves around the world and I have never been more optimistic about our future." I believe every word of this and think this is only the beginning of Starbucks' record setting run.

Second quarter expectations

Starbucks is set to report second quarter earnings on April 25. Currently, analysts expect the following results:

EPS Expected$0.48
EPS Growth Year-over-Year20%
Revenue Expected$3.58 billion
Revenue Growth Year-over-Year11.9%

This would be yet another record-setting quarter. It seems very obtainable with the current strength of the business and overall economic climate. I would be shocked if it were to miss expectations, but would buy on any pullback if it were to sell off.

Expansion plans 2013

Last year, Starbucks opened 1,063 new locations to bring its grand total to an incredible 18,066. 212 more were opened in the first quarter of 2013 and management expects another 1,088 to open by the end of the year. The 1,300 new locations would represent a 22% increase year-over-year. We will get an update in the quarterly report and I believe the company will be on pace to meet this goal. The global growth of Starbucks is impressive and will be beneficial in its mission to continue increasing shareholder value.

Expanded offerings

Starbucks has been expanding the products it offers in stores to bring in more income per customer. Dunkin' Donuts, which is owned by Dunkin' Brands Group (NASDAQ:DNKN), has the mix Starbucks aims to one day have. A 2011 study showed that beverage sales made up 78% of Starbucks sales compared to just 57% of Dunkin's sales. This means that more customers paired a doughnut or sandwich with their Dunkin' Donuts coffee than they did a scone with Starbucks coffee.

For this reason, Starbucks acquired 3 companies recently to bring in new products:

Company AcquiredProduct Mix
La Boulange BakeryFrench pastries and breads
Bay BreadPastries and specialty sandwiches
TeavanaWide range of teas

The bakery and bread company acquisitions will provide both finger foods and full meals to customers. This may help transform some shops into more of a restaurant where people go planning to eat rather than being impulse buys. The Teavana acquisition will give Starbucks an expanded beverage offering and give customers an alternative to coffee. This will bring in a whole other mix of customer who does not drink coffee. The teas are also sold in free-standing stores and supermarkets which will add to other revenues like k-cups and bagged coffee.

Acquisition potential

I believe the three acquisitions noted before have the potential to grow revenues substantially. The pastries, breads and sandwiches have the potential to add $750,000 in revenue per U.S. store in 2013. This would translate into $3.2 billion in added revenue and that is not even factoring in the 14,000+ stores outside of the United States. If all goes well on U.S. soil, this product mix could easily be taught in other markets.

Teavana expected to make around $225 million in revenues in 2012, but I think Starbucks can make that number much larger. Let's say teas add $500,000 in revenue per U.S. store, which would result in another $2.15 billion in revenue. Add the current Teavana retail locations in and this acquisition could lead to $2.4 billion in added revenues.

Overall, I believe these three acquisitions can boost revenues by $5.6 billion in 2013 and exceed $7.5 billion by 2015. Starbucks will continue to make acquisitions, so the growth does not stop here.

SWOT Analysis

There are hundreds of possibilities for a SWOT analysis of Starbucks, but these are the keys for 2013-2015:

StrengthsExpansion worldwide, brand recognition, increased consumer spending, partnerships in India and China, increased free cash flow for further acquisitions
WeaknessesContinued struggles in Europe
OpportunitiesBegin offering franchised locations
Threats

Dunkin' Brands expansion West

Concluding thoughts

Starbucks is an incredibly strong company with an impressive growth model. I believe it will exceed quarterly expectations because of the momentum the company currently has, new locations adding revenue, increased consumer spending, and positive same-store sales growth. It has narrowly underperformed the overall market, but I do not think this will be the case by year's end. I want to buy the stock on any weakness in the market or following the quarterly report.

Source: Starbucks: Earnings Preview And Bull Case

Additional disclosure: I am long DNKN.