You Just Got Another Shot At Starbucks

| About: Starbucks Corporation (SBUX)


Starbucks earnings came up short, owing to U.S. weakness.

A change in promotion strategy was blamed.

Everything else is firing on all cylinders. You just got a chance to buy more at a discount.

If you had been thinking of buying Starbucks (NASDAQ:SBUX) but feared the shares were too expensive, you just got one more chance to get in.

A weak second quarter caused the stock to fall 5% in overnight trading, and if you jump in now you can make a fast profit, or a nice, slow one over the next three months.

CEO Howard Schultz blamed "a confluence of social and political turmoil at home, weakening consumer confidence, increasing global uncertainty, and the launch of one of our most significant long-term initiatives of all-time" for the $130 million miss on revenue that caused shares to fall 5.2%. But the company still managed to pull in $1 billion in operating income on $5.2 billion in sales, and that's before a price increase pushed through mid-July.

Schultz calls his Starbucks Rewards program a "digital flywheel" that includes a mobile app with payment support, which was switched from a frequency-based during a spend-based model during what was the company's third fiscal quarter. He blamed the poor U.S. results - a 4% same-store sale increase year-over-year - on the combination of making that change and not sufficiently promoting its Frappuccino Happy Hour. (For more on the loyalty program problems, click here.)

In short, the shortfall was a bump in the road, and a whole lot of things are happening beneath the surface aimed at improving growth. While the U.S. lagged, China came back, with comparable store sales up 7%. The company is opening 1,900 stores during the current fiscal year, and will have even more new stores next year, Schultz said.

Then there are the other big growth drivers. Another run at baked goods, this time through Princi, an Italian bakery that will be a partner with Starbucks, rather than a subsidiary as La Boulange was. An expansion of beer-and-wine sales, taking Starbucks stores throughout the network into the late evening. Tea, which the company continues to work on through Teavana and the creation of tea-based drinks in its stores.

As this was written, as morning trade was approaching, the stock was already bouncing off those post-earnings lows. You can still get it today at $56. Bears are going to note it's up only 3.4% for the year, ignoring the 76 cents in dividends that have come along with it. Bears are going to be very afraid of JAB Holding, owned by the German Reimann family, which has been buying Starbucks' competitors left-and-right, from Einstein Bagels to Peets Coffee to Keurig Green Mountain. Or they'll just point to the Price/Earnings multiple of 34 and call it overvalued.

But Starbucks is not one of those stocks you buy for a trade, or even for a short-term pop. It's something you can stick in your portfolio and literally forget about. I have been in Starbucks for my retirement account for a few years, having bought in at about $74/share before the most recent stock split. I'm up about 50% on that investment. And I see nothing in this report that tells me I should even think of selling.

Disclosure: I am/we are long SBUX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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