Starbucks Is Worth The Risk

| About: Starbucks Corporation (SBUX)

Starbucks (NASDAQ:SBUX) has been shuffling its deck and changing up its strategy after "Chief Financial Officer Troy Alstead blamed maturing product lines for slower growth in its retail channels and emerging-brands division," writes the Wall Street Journal. "The segment grew 6.8% in the latest quarter after growing 50% in fiscal 2012."

Starbucks Looks to China

Starbucks is moving president of the China and Asia Pacific region, John Culver, to the helm of the coffee company's global channel development and emerging-brands portfolio, the latter of which boasted a billion dollars last year. In turn, Jeff Hansberry, who had been heading channel development, will take on Culver's old role as head of the China and Asia Pacific region. The idea is for Hansberry to help "drive the integration of the total business in our fastest-growing region."

"Starbucks has said it sees a big opportunity for growth in the retail segment in China, where the company's cafes and loyalty cards have been widely accepted by the growing consumer class," reports the Wall Street Journal. "Starbucks expects China to become its largest market outside the U.S. in 2014, overshadowing its Canada business. Starbucks has said it plans to reach 1,500 cafes in China in 2015. It had about 700 outlets there at the end of last year."

Extended Partnership

Starbucks is also extending its partnership with Green Mountain Coffee (NASDAQ:GMCR). The coffee company "has signed a new five-year contract that triples the number of branded single-serve packs it makes for Green Mountain's Keurig brewing machines," writes the Associated Press. "Under the new deal announced Wednesday, Starbucks Corp. is adding brands such as Seattle's Best coffee and Teavana tea to the packs it will make for Green Mountain Coffee Roasters Inc.'s Keurig and Vue machines." While the companies did say that the deal extends their existing partnership beyond North America, they did not specify which markets they plan to enter nor did they disclose the financial terms of the deal.

Integration Efforts

With so many irons in the fire, Starbucks will need a rockstar to bring it all together, or else it will end up looking more like a conglomerate than a single brand with a global presence. Michelle Gass, who had a role in transforming Starbucks' business in the U.S. several years ago and mostly recently acted as head of its Europe, Middle East and Africa (EMEA) operations, is moving out of her existing role and back to the U.S. While her role has not been given a formal title as of yet, it seems as though integration is the name of the game.

"She will be instrumental in implementing the next phase of opportunities in the pipeline," said a Starbucks spokesman. "Starbucks has changed as a company; we now have more brands and more complexity. She will help make all those pieces work well together." Under Ms. Gass' leadership, Europe alone "generated more operating income in the first two quarters of this fiscal year than it did in all of the last year," so she may have the chops to bring this all around.


On the downside, Starbucks has changed much of its management and there is bound to be a breaking in period. That said, I think Starbucks is worth the risk. The company is currently trading at $62.41, poised to hit a new year high off a 52-week range of $43.04 to $62.53. Analysts give the company a one-year target estimate of $67.63, which would represent a return of over 8% for those investors buying in today. Add to this a 1.4% dividend yield and the bullish could be looking at a return of nearly 10% over the next 12 months -- and that could be conservative if these initiatives pay off.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.