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Six Reasons Starbucks Corporation (SBUX) Will Continue Being a Stock Star

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Starbucks Corporation (NASDAQ:SBUX) closed 8% higher on July 26 after beating earnings estimates when it announced its fiscal third-quarter results the day before. Given its size and valuation, some wonder whether the rock star among coffee retailers still has room to run. I’m going to cover six reasons why its star should continue to shine.

Starbucks Corporation (NASDAQ:SBUX)

First, a brief recap of its quarterly results:

  • Revenue increased 13% to $3.7 billion
  • EPS increased 28% to $0.55
  • Comparable store sales grew 8% — U.S. and China/Asia Pacific were particularly strong at 9%

Reason 1: CEO

Top management is a huge factor in a company’s long-term success. Winners often keep winning – and Howard Schultz has proven he can win. Schultz has a strong business model to work with and should adeptly guide the company to the winner’s circle in newer markets (notably, Asia), just as he’s done in the U.S.

Reason 2: Coffee is addictive & nearly recession-proof

Starbucks Corporation (NASDAQ:SBUX) is in the right business. It sells a product that many not only love, but crave. Sales of coffee are less sensitive to challenging economic times than are other consumer discretionary products.

The major coffee players are having a great year. Starbucks Corporation (NASDAQ:SBUX)‘ stock is up 39%, cafe chain franchiser Dunkin Brands Group Inc (NASDAQ:DNKN) is up 44%, and single-serve coffee king and Keurig maker Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is up 327%.

Reason 3: Atmosphere

Starbucks Corporation (NASDAQ:SBUX)‘ cafes are aesthetically-pleasing, comfortable, and clean. And there’s free Wi-Fi, to boot.

I find the knocks at Starbucks’ coffee as “over-priced” interesting. Just as with all restaurants, one pays not only for the meal, but also for the atmosphere and service. The three comprise the “experience.”

For those who want a huge selection of tasty coffees, an ever-expanding selection of food and beverage offerings, and a pleasing environment in which to enjoy their goodies, Starbucks Corporation (NASDAQ:SBUX) has few to no peers among the chains. (Panera Bread provides the closest atmosphere comparison, in my opinion.)

Dunkin’ Donuts? I don’t view Starbucks Corporation (NASDAQ:SBUX) and Dunkin Brands Group Inc (NASDAQ:DNKN)‘ – at least in my area (the Northeast, Dunkin Brands Group Inc (NASDAQ:DNKN)‘s roots and core) as strong competitors. While there’s surely some customer overlap, they’re largely serving different customers. And even for those that frequent both, they’re largely filling different needs. If I were a donut person and wanted coffee and donuts to take out, I might choose Dunkin’. But, I’m not going to meet a friend for a coffee or lunch at my local Dunkin’.

Reason 4: Product & service offerings

Two words sum things up: innovation and leverage. Starbucks is always tweaking existing product offerings and expanding into new ones. And it’s usually ahead of the curve when it comes to trends in food, beverages, and technology.

Recent examples:

  • Just tapped Google to make Wi-Fi at its U.S. cafes 10 times faster.
  • It’s teaming with Danone to create Greek and other yogurt products. Products will be sold under the Evolution Fresh, Inspired by Dannon label, and be available in cafes and grocery channels.
  • Announced in June that Seattle’s Best Coffee Frozen Coffee Blends, created with Inventure, were available in grocery channels.
Evolution Fresh is the premium juice, fruit smoothie, and salad producer that Starbucks bought in late 2011. Starbucks started opening Evolution Fresh juice bars in 2012. It also has added juice items to its cafe offerings, and is – as per the Dannon partnership – invading the grocery channel.
Then there are the 2012 acquisitions: Teavana and

La Boulange. Teavana is a premium tea retailer with locations in shopping centers. Look for Starbucks to do with tea what it has done with coffee — expand the premium market and turn it into an experience. In a wise move, Starbucks will open the first street-front Teavana this fall in New York City.
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