You've probably heard the talking heads already mention increased foot traffic this holiday period but will it hold up and are people spending like before? It doesn't matter to Starbucks (NASDAQ:SBUX). Last year's all around disappointment didn't hurt SBUX. In fact, according to CEO Howard Schultz in the conference call that followed the period, "Holiday 2013 was the first in which many traditional bricks and mortar retailers experienced in-store foot traffic give way to online shopping in a major way."
If trends have reversed due to better weather, cheaper gas, and higher consumer confidence, then Starbucks may be positioned to simply do even better. People may stroll and window shop and not necessarily spend feverishly, but companies that sell impulse products like Starbucks does can benefit from the casual light shopper. Last year SBUX saw on average a 4% increase in traffic despite the decline in traffic for retail stores in general. Maybe online shopping has given people more time to hit a coffee shop and relax. "Our Q1 U.S. comps were approximately twice the national retail sales average during holiday shopping period this season," Schulz added again referring to last year's holiday season. This year there is an extra shopping day between Thanksgiving and Christmas which may not seem like much but it's an extra 3%.
Another reason attributed to SBUX's strength last year was the increasing popularity of gift cards for presents in the holiday period. Last year there were $1.4 billion in gift or deposit card loaded compared to the $4.2 million in product sales. Over 30% of sales in the quarter were attributed to digital, app, online, or debit/gift card sales. My point is not to give a full review of earnings from a year ago but to illustrate what was likely the beginning of a holiday trend that at the very least should be even stronger this holiday period. Obviously I can't prove what will happen, and it's speculative at this point, but I think you'd be hard pressed to find somebody who expects weaker digital anything anywhere this holiday season. What may be new to a lot of people is the sheer magnitude of this trend is a lot more meaningful for SBUX than most other companies.
Then you have more recently the last quarter ending Sept. 28 which marked the 19th quarter in a row of positive same-store sales growth greater than 5%. You can be sure management is pulling no punches in the quest to hit number 20. SBUX is calling for global same-store sales growth in the "mid-single digits." For the holiday, SBUX plans to add fuel to its gift card fire. Schultz stated in the most recent conference call,
"This holiday we will create even more passion and excitement for Starbucks gift cards by offering 100 beautiful unique and proprietary new card designs, merchandise on an engaging freestanding card wall and supported by social media to encourage engagement and peer-to-peer sharing, and we will have greatly expanded our ecommerce merchandising offerings as well."
Add to that the company is offering over 500,000 prizes with a chance to win every time a card is used. Top prizes include 13 "Starbucks for Life" cards. There are plenty of other reasons to be excited about SBUX now for the holiday season and beyond, especially for product innovation, but this year I believe digital and gift cards will be the many driver setting up the street to be positively surprised when SBUX reports results next year in 2015.
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