Will Starbuck's New Menu Satifsfy Investors?

Smoothies and Italian ice drinks are making investors’ mouths water these days after Starbucks Corp. (SBUX) announced that it will offer the new beverages along with an energy drink and a new breakfast menu.

The world’s largest coffee chain is trying to revive its brand in the face of slowing U.S. growth, while also trying to boost its international business. Its earnings fell 28% in the second quarter and the company announced plans to reduce the number of store openings planned for the U.S.

These initiatives should help boost free cash flow at Starbucks in the next three years, but the company could be doing more, UBS analyst David Palmer told clients. Nonetheless, he thinks the new drinks are a step in the right direction away from fast food and as an attempt to revive slumping same-store sales – those open more than a year. But they will not be ready for a national launch in the U.S. this summer.

Mr. Palmer boosted his fiscal 2009 earnings per share estimate to C$0.99 from C$0.96, saying the company’s fiscal 2009-2011 guidance of 11.5% for U.S. EBIT margins was overly-conservative. He maintained a “buy” rating and $19 price target on Starbucks shares.

The stock has fallen nearly 20% in 2008 and is down almost 50% in the past 12 months.

Comments

[firboy4]

All I know is that rather than making coffee at home today, I decided to go out for some and enjoy it in a coffee shop. But I waited too late. I was going to get hot coffee but the weather had warmed up, so I wanted ice coffee. Well, not all independent coffee shops have that, so though I am no fan of Starbucks, I do like the ice coffee somewhat. So, I pulled in, got out, went to the door. And the freakin' line was backed up to the door!!!

I asked myself, "Is it really THAT good?" Though I left not wanting to wait in line, it did make me feel like maybe Starbucks has bottomed out and is here to stay and grow. They made some mistakes, but the news of them not opening so many more stores in the U.S. makes VERY good sense to me.

I read that international sales are better and growing. If they can just get a billion or so Chinese to drink coffee, that would be a boon to them. Chinese do seem to like to smoke cigarettes, so I guess they will just love coffee once they try it, and get that buzz off the caffiene.

I might just buy some SBUX on Monday, while I drink my Dunkin' Donuts coffee made at home.

[Labrador]

I'm a frequent Starbucks fan, generally visiting the same store 5-6 days a week (between 7-7.15 AM). I don't drink the fancy drinks, but just the regular brew. I've noticed what used to be quite a long line has declined to a mere 3-4 people at the most, and occassionally there's no line. I'm not sure where the people have gone. It may be that the people are just tired of the "same old thing." Nothing really changes.

[irija]

I'm all in. 5 Venti's baby!

[NormanQ]

Italian ice drinks and smoothies are making investors' mouths water??? Come on, and get REAL. This is not the answer to SBUX declining sales. Shultz's big plan is to bring SBUX back to their roots circa 1970s Pike's Place. His idea is pretty basic and has been done before by MCD and the like, but Italian ice and smoothies crap belongs somewhere else. It's as far away from coffee as you can get. SBUX will go lower...much lower, but in a few years they'll bounce back. Check out MCD charts for the past 20 yr.