One of standout quarterly numbers was the China/Asian region’s operating margin – 36.2%! That’s both a solid increase from 33.7% in Q3 F 2013, and superior to the Americas (22.3%) and Europe, Middle East & Africa (3.2%) regions.
Revenue in the region increased 29% over the prior year’s quarter. Growth was due to a 9% increase in comparable store sales plus revenue from 523 new store openings over the year.
Starbucks’ region with the highest margin is also growing at the fastest rate. This is a winning equation. Starbucks plans to open 700 stores in the region in fiscal 2014, half its total planned openings of 1,400.
Reason 6: The metrics
Keep in mind Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is a packaged foods producer, while the others are restaurants. Further, Dunkin’ operates on a franchise basis, whereas the majority of Starbucks’ cafes are company owned. Franchise locations have higher profit margins.
| Company | P/E | Fwd. P/E | 5-Yr PEG | EPS growth this yr (%) | EPS growth next yr (%) | Operating Margin (%) | Profit Margin (%) | ROE (%) | D/E |
|---|---|---|---|---|---|---|---|---|---|
| Starbucks | 34.5 | 27.1 | 1.7 | 10.5 | 20.4 | 14.5 | 11.0 | 29.0 | 0.1 |
| Dunkin’ Brands | 37.0 | 23.9 | 1.8 | 166 | 18.5 | 42.7 | 19.0 | 23.0 | 5.1 |
| Green Mountain | 29.2 | 20.9 | 1.1 | 74 | 14.6 | 16.1 | 9.7 | 17.8 | 0.15 |
Yahoo! Finance & finviz; data to July 30; margins and ROE are ttm, D/E is mrq.
As I wrote in a July 1 article, “coffee is an attractive space.” All these companies sport some desirable investment features.
I think Dunkin’s potential lies in being a kind of “non-Starbucks,” as it expands out West. Dunkin’ also announced earnings last week: revenue up 5.9%, and adjusted EPS up 24%. The revenue bright spot was its Baskin-Robbins International unit’s revenue increase of 16%, driven by higher sales of ice cream in the Middle East.
As I also previously wrote, I favor Starbucks over Dunkin’ because, “It’s much smaller than Starbucks … yet its projected EPS growth for next year is slightly less than Starbucks’. And, while debt is cheap these days, it’s a negative that it’s leveraged to the hilt.”
I also favor Starbucks over Green Mountain, as previously expressed:
Granted, it might not be able to outperform to the same degree as Green Mountain over the shorter-term. However, it’s a time-tested leader, and a good match for long-term investors who don’t want to concern themselves with some of the potential drawbacks of Green Mountain, namely the ever-present threat of its K-Cups’ margins being squeezed by increasing competition. Starbucks’ ROE says it all: The company is very efficient at using shareholders’ money to generate profit.
Bottom line
Starbucks continues to successfully leverage its product offerings. Additionally, its expansion plans in Asia, where it enjoys its highest operating margin, bode well for its financial results. Starbucks should continue to be a solid long-term core holding for these two primary reasons.
BA McKenna has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. BA is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 6 Reasons Starbucks Will Continue Being a Stock Star originally appeared on Fool.com is written by BA McKenna.
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