Starbucks (NASDAQ:SBUX), credited with brewing up a coffee-culture revolution, has seen its share price fall as costs have risen, tough economic times have pushed down demand and various food chains have introduced rival premium-coffee offerings. Still, Barron's says Starbucks may yet provide the share price jolt investors are waiting for.
CEO Howard Schultz says the company is working to "significantly differentiate" itself from the copycats that have sprung up, as chains like Dunkin' Donuts and McDonald's chip away at Starbucks' market share with their own lines of premium coffee drinks. Schultz is responding to customer requests for an expanded menu including healthier foods. Since 75% of Starbucks' revenue comes from beverages, any increase in food purchases could significantly help revenue. After years of rapid expansion, Starbucks is cutting 600 store locations and pushing down costs in the U.S., which is estimated to add $0.17-0.18 to earnings per share, while simultaneously expanding abroad. Seventy percent of Starbucks' overseas revenue comes from the U.K. and Canada. Both those countries are facing housing market woes, and Starbucks is looking to expand in China, Russia and Latin America. Starbucks is also targeting existing customers by rolling out a new Starbucks card program and introducing new in-store promotions.
With Starbucks' renewed commitment to innovation and smart growth, an uptick in consumer spending a year from now could send the company's shares up as much as 20-30%. Some analysts estimate the next three years could push the stock price up as much as 50%.
- Starbucks (SBUX): FQ3 EPS of $0.16 misses by $0.02. Revenue of $2.57B (+9%) vs. $2.61B. Sees full-year EPS of mid-$0.70s vs. $0.81. [PR]
- Bucking the retail trend of bringing in Christmas early, Starbucks is launching its holiday season after Thanksgiving. Some retailers worry that a later holiday launch will dampen already-weak consumer spending, but Starbucks is betting that coffee-drinkers will fall into "holiday fatigue" if the tinsel is brought out too early.