Starbucks Corporation (
) is scheduled to announce its Q1 earnings on January 24. The
second half of 2012 was eventful for Starbucks with the company
launching its own single-cup brewer system called the Verismo, as
well as acquiring the Atlanta based tea leaf company
for $620 million. The company's stock has gained almost 10% since
its last earnings was announced. Here are some of the trends to
watch out for in the upcoming earnings.
See full analysis for Starbucks Corporation
Starbucks is planning to be aggressive with its expansion this
fiscal year as it looks to open new restaurants in the U.S., China,
Mexico, Costa Rica, India and the Nordic region. In total, the
company will add
1300 new stores
in fiscal 2013, up from 1,057 it added in the previous 12 months.
The Americas and China/Asia Pacific will account for about 600
each. Starbucks' global store count is expected to shoot up to more
than 20,000 in the next two years, from 18,000 currently.
The company has set its eye on China as a key market as it looks
to grow the store count to 1,500 in the region, by the end of 2015.
The world's most populous nation will surpass Canada as the second
most important market for the company in the next two years.
In the U.S., not all of the new set ups will be traditional
Starbucks coffee stores, and we expect to see a fair number of
juice bars as part of the new additions. Starbucks is
currently building a new production facility for
, whose capacity will be four to five times that of the present
facility. Once the construction is complete, Starbucks can
accelerate the openings of juice bars under the
For its traditional coffee stores, Starbucks plans to boost
sales by expanding its food menu. Starbucks is in the testing phase
(acquired in June 2012
bakery products in select stores, and eventually plans to roll out
the entire range in 2,500 of its company-operated stores
across the U.S., beginning in the spring of 2013.
Margins Could Widen
Overall, the company-wide margins should expand due to a rising
proportion of licensed stores. Licensed stores usually have margins
three or four times higher than those of company-operated stores so
a greater proportion of licensed stores will have a tendency to
expand the overall margins. More than half of Starbucks stores
are company-operated currently, but the company has lately shown a
preference to open more of licensed stores. Therefore, we expect
the company-wide margins to improve this quarter.
Watch Out For Channel Distribution Segment
Starbucks' channel development segment consists primarily of
packaged coffee and tea such as VIA Ready Brew and K-Cup packs,
which are then sold in grocery and retail stores. Revenues for the
channel development business totaled $1.3 billion in the previous
fiscal. The segment already has more than 100,000 distribution
points across 20 countries, and the management expects the division
to double the international footprint by 2015. Starbucks will be
banking on single-cup servings such as the VIA, K-cups and the
recently launched Verismo brewer to fuel sales growth of this
We have a $58 price estimate for Starbucks, which is about 10%
higher than the current market price.
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