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Starbucks Corporation (SBUX), Dunkin Brands Group Inc (DNKN): A Caffeine Company Addicted to Growth

Starbucks Corporation (NASDAQ:SBUX) posted another stellar quarter of earnings and saw its stock pop nearly 8% last week. This coffee giant is now trading well above its 50- and 200-day moving averages, having been on a tear over the past three years, but the stock could continue higher.

CEO Howard Schultz noted that “Starbucks’ Q3 [2013] results represent the best across-the-board third-quarter performance in our 42-year history.”

Highlights for last quarter included…

Fiscal 3Q EPS of $0.55, up from $0.43 for the same period last year

3Q revenue was up to $3.7 billion, compared to last year’s $3.3 billion

Consensus numbers were $0.53 for EPS and $3.7 billion for revenue

Same-store sales were up 8% globally year-over-year

Operating margin was up to 16.4%, compared to 14.9% for 3Q 2012

Growth abroad

Starbucks Corporation (NASDAQ:SBUX)’ U.S. business still accounts for around two-thirds of revenue. But one of Starbucks Corporation (NASDAQ:SBUX) great growth opportunities remains in Asia. The Asia/Pacific region has grown revenue 33% since 2010. Starbucks has 700 stores in China, versus the some 11,000 in the U.S.

What’s more is that the margins are higher in China due to the lower employee costs. Starbucks Corporation (NASDAQ:SBUX) hopes to have 4,000 stores in China and Asia Pacific by the end of 2013. Starbucks believes China could be its second-largest market by 2014.

Starbucks Corporation (NASDAQ:SBUX)Growth initiatives

The coffee giant is also partnering with Danone to get into the yogurt business. Greek yogurt parfaits will start showing up in Starbucks Corporation (NASDAQ:SBUX) stores next year.

One of its big hits has been its Verismo, at-home-coffee, machine. The premium coffee category accounts for around 50% of the total coffee sold via U.S. grocers. Starbucks Corporation (NASDAQ:SBUX) believes it owns 25% of that market.

Within the premium segment, single cup makes up 27% of the total coffee sales at grocers. Starbucks, via the VIA Ready Brew and Starbucks K-Cups, holds 22% share of the premium single-cup market. This is even more impressive when you consider the fact that Starbucks had no presence in the single-cup segment three years ago

The comps

I’m also a fan of Dunkin Brands Group Inc (NASDAQ:DNKN), but a lesser fan of the at-home, in-office coffee choices offered by Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR).

Dunkin Brands Group Inc (NASDAQ:DNKN)’ franchises almost all of its stores, which gives it a slight advantage to the company-owned coffee shops. Dunkin’s franchise model provides lower capital requirements, and by leaving the operations up to the franchisees, Dunkin Brands Group Inc (NASDAQ:DNKN)’ is free to focus its attention to menu-item growth and product differentiation.

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