By Jeff Bailey
At the root of our newfound appreciation of Starbucks (SBUX) stock, and the job Howard Schultz is doing managing the company, is the growing sense that the coffee chain’s improved sales and widened margins aren’t done yet.
While Schultz, in his public remarks, talks about the smell of coffee and, at times, national economic issues, the Starbucks turnaround story, six years old, is built on prosaic yet crucial improvements like barista productivity in the stores and cost control at headquarters. To better understand the company's performance and the stock's appeal, you can unleash some financial advisor tools.
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SBUX data by YCharts
Another admirable development: Starbucks, long thought of as an indulgence for consumers, has persuaded customers to plan to indulge by socking away billions of dollars a year on Starbucks gift cards (for others and for themselves). Starbucks, of course, gets to hold your cash and it can also reliably count on a growing percentage of its revenue because the sales were in essence made days, weeks or even months ahead of time.
For fiscal 2013 ended September 29, people loaded $3.7 billion onto Starbucks cards, up 27.5% from a year earlier, when card loads were $2.9 billion. Growth continued in the first fiscal quarter ended December 29, with card loads rising 24% to $1.4 billion. At that rate, card loads will easily eclipse $4 billion in fiscal 2014.
Comparable-store sales are expected to rise mid-single-digits this year. With new store openings by Starbucks and by licensees, overall revenue is expected to grow 10% or more above fiscal 2013's $14.9 billion. So, card loads rising faster, Starbucks is enjoying a loyalty dividend.
At the end of the first fiscal quarter, about $1 billion of that cash was sitting on Starbucks’ balance sheet as deferred revenue, according to William Blair analyst Sharon Zackfia. She writes that the rising card loads speak to the strength of the Starbucks brand. That deferred revenue, notably, is also more than the $728 million of coffee, roasted and green, that Starbucks had sitting around as of September 29, 2013.