Considering how large Starbucks has become, it might seem
that the company's rapid growth can't continue much longer. However, that
couldn't be further from the truth. Starbucks has plenty of opportunities to
continue growing at a healthy pace for decades to come.
Starbucks wraps up a strong year: Starbucks recently
reported its financial results for the 2014 fiscal year, which ended in late
September. For the full year, Starbucks added 1,599 stores to its
worldwide footprint and comparable store sales rose 6%. That boosted revenue by
11% to more than $16.4 billion.
Starbucks' full-year adjusted earnings per share (EPS) grew
21% year over year to $2.66, helped by strong margin performance. The company
also projected that adjusted EPS will reach $3.08 to $3.13 in 2015, which
translates to 16% to 18% growth.
Growing beyond
coffee: One big growth initiative at Starbucks has been boosting
non-coffee sales. In 2012, Starbucks purchased Bay Area bakery La Boulange in
order to add more food items to its menu. The chainwide rollout of La Boulange
food items has been bumpy -- some customers preferred the old Starbucks bakery
selection -- but it has still been successful overall. Food sales have been
growing at a faster pace than the rest of the company, driven by strong sales
of breakfast sandwiches. Starbucks recently added new lunch sandwich offerings
to stimulate additional growth.
Starbucks is also starting to expand its Starbucks Evenings
concept. Starbucks began testing the sale of wine, beer, and small-plate
appetizers after 4 p.m. at a single Seattle location in 2010. The company has
since expanded the pilot to several dozen locations.
Lastly, Starbucks has been doubling down on tea since the acquisition
of Teavana in late 2012. Globally, tea is even more popular than coffee,
and it represents a $90 billion market. Starbucks is adding tea bars to
existing Teavana stores to boost sales of prepared beverages. It is also
selling certain Teavana branded beverages in Starbucks stores.
These investments are starting to pay off, as Starbucks saw
more than 20% growth in iced tea sales over the summer. Ultimately, CEO Howard
Schultz wants to make Teavana the Starbucks of tea, and sees a tremendous
growth opportunity there.
Mobile order and pay: Starbucks
revealed yet another potential game changer last month when it announced plans
to roll out mobile order and pay functionality chainwide in 2015.
Customers will be able to place orders in advance and pick up their orders
without waiting in line. Starbucks describes it as the urban answer to the
convenience of drive-through.
Beginning next year, Starbucks will also use this platform
to offer delivery in some top urban markets. Schultz's vision is that a
customer could place a standing food or drink order and have it delivered to
his or her desk every day. If this concept takes off, it will represent a huge
long-term differentiator -- and growth driver -- for Starbucks.
Lots of ways to grow: Starbucks
is moving quickly in pursuit of several major growth opportunities. Investors
should recognize that some of these growth initiatives are bound to be more
successful than others.
However, the bottom line is that Starbucks has lots of irons
in the fire, and many paths to producing significant long-term growth.
Starbucks shares currently trade at about 25 times projected
2015 earnings. That still represents a premium to the broader market, but one
that is easily justified by Starbucks' numerous growth opportunities and its
leading position in digital engagement. For long-term investors, Starbucks
stock could be a great bargain today.
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