Starbucks Corporation (SBUX) Is Steaming Hot!

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A company that posts rocking quarters, provides great returns to its investors, and keep increasing its dividends is one that deserves a special place in your portfolio. That incredible company is Starbucks Corporation (NASDAQ:SBUX), a premium coffee provider that has proven itself by posting a stellar quarter recently. The coffee maker’s first quarter met the Street’s expectations in spite of ongoing macroeconomic problems.

Starbucks Corporation (SBUX)This is in contrast to other companies that offer high-end products, such as Coach, Inc. (NYSE:COH). Coach’s latest quarter was quite disheartening to investors as lower customer spending hurt the company’s sales. Its higher prices and lower promotions led to lower customer traffic, especially in the American market. This was even more surprising since the quarter included the holiday season, which is considered to be the peak retail season. However, the retailer finds great potential in the international markets where revenue has been growing remarkably, making Coach bank on its international operations and helping it grow stronger.

The Real Hero and Its Achievements

Starbucks, on the other hand, has overwhelmed its investors even in such a situation. The coffee retailer is a customer favorite even though it charges a premium for its products. People seem to be unmoved by economic conditions and price changes when it comes to delicious coffee at Starbucks, leading to a continuous rise in its revenue of 11% over last year. A key driver for the top line growth was the addition of new stores during the quarter.

The company’s strategy of closing down unprofitable stores in the United States worked well. The American market brings in most of Starbucks’ revenue and after the reorganization the region performed even better, with higher footfall as well as larger transaction sizes on each visit.  Additionally, the company also performed well in emerging markets. Its revenue from China and Asia have been growing on a continuous basis. Key reasons for the growth are higher consumer demand in these  countries, as well as Starbucks’ expansionary moves.

The retailer has been very active on all fronts. Its drive for new strategic initiatives helps lure more and more customers in. For example, its deal with the payment provider company Square helped Starbucks customers pay for their coffee bills on their mobile phones. Moreover, its recent launch of Verismo and single cup coffee pods sizzled the market with great market reaction. It has already become very successful and is expected to contribute largely to the company’s revenue. Starbucks is not alone in offering such a product. Even peers such as Dunkin Brands Group Inc (NASDAQ:DNKN) and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) have been reaping the benefits of a similar product called K-Cups.

Green Mountain was the first to introduce the Keurig brewer, which caught all customer attention, especially in the U.S. The company made a lot of money out of the sale of K-Cups. It enjoyed leadership in this niche for quite some time, with 200 varieties of licensed as well as owned K-Cups.

Even Dunkin Brands witnessed happy days because of the introduction of K-Cups, especially with the introduction of new flavors. But the gala seems to have come to an end as customers find Verismo increasingly affordable. Green Mountain now expects stagnating sales as indicated by its dull outlook for the current quarter. However, Green Mountain is planning to add new products to its portfolio in order to boost sales. New product launches might give Starbucks stiff competition.

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