STRONG BRANDS
Starbucks (SBUX), named after the first mate in Herman Melville's Moby Dick, is a whale of a success story. From a single store in Seattle's Pike Place Market in 1971, the company now operates more than 20,000 stores in 64 countries around the globe. Starbucks' well-recognized logo is also inspired by the sea, featuring a twin-tailed siren from Greek mythology.
The Starbucks flagship brand is one of the world's most recognized and respected brands, resulting in more than three billion customer visits last year. The company has successfully built a great and enduring brand that strikes a balance between profitability and social conscience, which attracts a growing and loyal consumer base. The company's brand portfolio has expanded over the years and now also includes Teavana and Tazo teas, Seattle's Best Coffee, Evolution Fresh juices, Frappuccino and La Boulange bakery items.
Starbucks stores offer consumers high-quality coffee and tea beverages, distinctively packaged roasted whole bean and ground coffees, a variety of premium single serve products, juices and bottled water. Starbucks' beverage innovation leads the industry with the company rolling out its latest innovation this summer with Fizzio handcrafted sodas. Beyond the core coffee concept, Starbucks plans to expand a unique tea bar concept with the Teavana Fine Teas +Tea Bar, which will enable them to more fully participate in the $90 billion global tea industry. The company recently launched Teavana Oprah Chai Tea with Oprah Winfrey's endorsement.
STRONG GROWTH PROSPECTS
Starbucks' long-term growth targets are for at least 10% annual sales growth and annual EPS growth in the range of 15%-20%. Despite operating more than 20,000 stores, management sees the opportunity to increase their store base significantly not only in North America but also in fast-growing international markets, especially in China, Brazil and India. The company has enjoyed tremendous success with return on investments in new stores in excess of 50% and first year average volumes over $1.2 million. The company plans to open 1500 new Starbucks stores in fiscal 2014, which should lead to EPS in the range of $2.62-$2.68.
Another massive growth opportunity is increasing food sales in Starbucks stores. La Boulange has significantly improved the quality of their bakery operations, which is driving same stores sales growth. As the bakery rollout is completed, Starbucks is rapidly advancing their lunch program of bistro boxes, paninis and salads. Starbucks also plans to roll out evening food offerings along with beer and wine in select stores.
As the retail industry's leader in mobile payments and loyalty, Starbucks is seeking to leverage their digital leadership by monetizing new platforms and revenue streams which could prove to be another significant driver of growth and long-term value for shareholders. The Starbucks Card, with $3.7 billion loads last year, is available in 28 countries. Over 10 million customers are using Starbucks' mobile app, generating 5 million mobile transactions per week.
STRONG CASH FLOWS
Starbucks brews strong cash flows with operating cash flow more than tripling over the last decade to $2.9 billion in fiscal 2013. The company shares the cash in the coffee can with shareholders through the initiation of a $.36 per share dividend in 2010 that has grown at a 30% annual rate to $1.04 per share. The firm is targeting a 35%-45% dividend payout ratio for the future. In addition, Starbucks has repurchased nearly $1.7 billion of its stock over the last three years as it increases shareholder returns. Long-term investors seeking a java jolt should sip Starbucks, a HI-quality firm with a strong brand and strong growth prospects and cash flows. Buy.
Disclosure: The author is long SBUX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.