Starbucks: A Long-Term Investment Case

| About: Starbucks Corporation (SBUX)


Starbucks showed huge global comparable sales growth during the second quarter of fiscal year 2014 with the opening of new Teavana tea bars.

Lunch-menu testing showed positive results during this quarter, and Starbucks is ready to launch the menu soon.

Drive-thru stores will raise the company's sales in Britain in the future.

The company will earn more, as it is planning to launch "handcrafted" carbonated sodas during this quarter.

Starbucks (NASDAQ:SBUX) is consistently using innovative ways to raise its revenues and net income for the future, as the company showed a surprisingly good performance in the second quarter of fiscal year 2014 compared to the same quarter last year. Moreover, the company is also making new plans to gain a major share in the world market, especially in China. This article will be a discussion about the potential of these plans and products to bolster the company's top and bottom lines in the future.

Starbucks to Open 1,500 New Stores:

Starbucks introduced the new senior leadership structure in January of this year, and expanded its CEO's focus on innovation, next-generation retailing and payment initiatives. The company also promoted its CFOs and SVPs to executive CFO and executive SVP positions. Under the supervision of new leadership, the company opened about 335 new stores (net) during the quarter and reported 6% strong comparable growth in global sales during the quarter. Starbucks showed a 9% YoY growth in its revenues and an 18% YoY growth in its operating profits during the quarter. The operating margin of the company showed an improvement of 130 basis points.

Starbucks showed huge comparable sales growth in the US, as well as in China and the EMEA (Europe, Middle East and Africa) region, with the addition of 335 new stores during this quarter. To continue the growth of its revenues, the company announced it would open 1,500 new stores during the year. Starbucks hopes to open approximately 600 new stores in its American region that generates almost 72.5% of total revenues for the company. The company will open about 150 stores in the EMEA region and approximately 750 new stores in the China Asia Pacific region during this year. The company is focusing on the Chinese market, as this region showed an extraordinary growth of 24% in its revenues, and also surprisingly showed a 27% increase in its operating income. The company also recorded a year-over-year increasing trend in its total store count (as shown in the table below), and the company is also expecting to increase its customer visits during this year. The inclusion of more stores in the chain will help the company to attain its target.

Source: Bloomberg

Newly Launched Product Will Earn More for Starbucks:

Starbucks also started the process of serving San Francisco-based La Boulange brand's sweets to its customers at the start of this year, and earned a lot from the success of this new plan. According to this plan, the company served hot pastries and other sweets to its customers. Now, the company is planning to increase the menu items and to launch this product to the Chinese market, which is showing huge potential and may increase the company's top and bottom lines in the future.

Starbucks also launched Teavana tea bars in October 2013, and tested a new express order-and-pay system in these cafes. The company observed huge growth in the sales of Teavana tea, and also attracted customers with its growing loyalty and reward program. The company opened around 337 new Teavana tea bars during the second quarter of this year, and the performance of these bars surpassed analysts' estimates during this quarter. Starbucks officials said that if all goes well, then the company will launch more Teavana tea bars in all US stores up until 2015. The current results proved the success of this product and helped the company gain more customer visits during this quarter. With the opening of new Teavana tea bars in US stores, the company will be able to raise its sales in the future.

Lunch-Menu Testing gives a Positive Signal:

According to the company's CEO, Starbucks has attracted its customers with its non-coffee offerings, such as juices, breakfast sandwiches and tea during this quarter. The company's non-coffee offerings also include beers and alcoholic drinks for its customers. The company is consistently using innovative moves to attract its customers over the last three quarters, and to gather more market share, the company is planning to launch a lunch menu. Starbucks tested the lunch menu before launching it, and received positive results, as customers are interested in buying lunch from Starbucks stores. Together with the lunch menu, the company also tested its mobile payment app to make it easy for its customers to pay their bills through smartphones. The innovative idea of a lunch menu and the mobile payment app will pay off in the future.

Handcrafted Carbonated Sodas and British Drive-Thru Stores:

Starbucks CFO, Scott Maw also announced in March 2013 that the company had been testing "handcrafted" carbonated sodas in the US, as well as in Japan. The company received a fantastic response from the testing of its handcrafted carbonated sodas. It was also announced by the Starbucks CFO that the company has plans to sell these carbonated sodas in its US stores during the summer of 2014.

Starbucks also opened drive-thru stores in the city of Milton Keynes in Britain. The stores are open 24 hours a day and seven days a week to provide coffee to the residents of Milton Keynes. The drive-thru stores proved to be successful during this quarter. Starbucks had also announced in 2011 that it would open 200 new drive-thru stores throughout Britain in the next five years, and the successful launch of the drive-thru stores gives the company a green signal to open more stores. By opening new stores, the company's sales will increase in the future and also boost its bottom line in the future.

The company has also repurchased about 3.5 million shares during the second quarter, and still has 22 million shares remaining under its old share repurchase program. Further repurchases of its shares will improve its earnings per share in the future.

Final Words:

Starbucks showed huge growth in its second quarter results, and it is performing extraordinarily well after the successful launch of the Teavana tea bars in the US. The company also has plans to expand these bars throughout the US, and is also planning to launch its lunch menu after receiving successful results after testing. The handcrafted carbonated sodas will also have the potential to increase the company's sales in the future. The current financial performance and future growth prospects of its newly-launched and soon-to-be-launched products indicate that Starbucks' stock is a feasible option to buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by APEX Financial Consultants. This article was written by one of our research analysts. APEX Financial Consultants is not receiving compensation for this article (other than from Seeking Alpha). APEX Financial Consultants has no business relationship with any company whose stock is mentioned in this article