Summary

• Starbucks sales see growth, but fail to meet analysts’ forecasts. Consolidated net revenues increased by 10% to $4.2 billion with a consolidated operating income of $854.9 million this quarter.
• Starbucks continues to exploit its innovative tradition and raised prices on its products. It was able to realize more revenue through raising prices.
• It plans to launch a nationwide delivery service based on a mobile app. This initiative carries a lot of potential but also carries some evident risks.
• Recovering world economy is likely to boost consumption expenditure in the future which could be seen as an opportunity to generate more sales.
• The coffeehouse company’s stock will not likely see any vertical growth anytime soon.

The Starbucks Corporation (NASDAQ:SBUX ) has reported increasing comparable store sales in the fourth quarter, making it the 19th straight quarter where the company has seen comparable store sales exceed by 5%. Unfortunately these figures failed to impress investors as the world’s largest coffee chain stock saw a 6% decline in after hour trading on 30th October. Despite the 5% increase in sales, the performance was below the forecasts of analysts. The coffeehouse chain has seen its consolidated net revenues increase by 10% to $4.2 billion with a consolidated operating income of $854.9 million this quarter. The company opened up 1,599 new stores this year, building up on the 10,194 company operated stored they recorded in FY 2013. Apart from its famous coffeehouses, the company also operates other brands such as Tazo, Seattle’s Best Coffee, and Teavana. This speedy acceleration is taking shape on the company’s financials as a major boost as they announced earnings per share at $2.71.

Price Hikes And Innovative Beverages Fuel Growth

Throughout this last quarter Starbucks has increased prices over a range of products. even raising the price of its packaged coffee sold in supermarkets to $9.99, up by $1. The price hikes failed to deter sales as Starbucks markets its products to the rather affluent consumers for whom these price rises are not a concern, leaving product demand inelastic. Based on these price elevations, Starbucks materialized sales growth and confirmed the demographics of their clientele.

Venturing Into E-Commerce

Starbucks Corp has decided to launch a delivery service that they hope would make the coffee run a thing of the past. With consumers in the US pulling back on discretionary services, and with fast food competitors such as Dunkin’ Donuts battling it out for market share, Starbucks hopes to make an impact in the lives of their customers by using technology to make lives easier. The java company plans to have a nationwide launch of a mobile application that will allow customers to place an order and complete their transactions without leaving their immediate vicinity. Some experts have shown concern for how such an initiative could tarnish the image of the company which prides itself on providing the whole experience of coffee with its grand stores that provide a theatre experience. Similarly there are those who question Starbucks’ capabilities in actually carrying such a complex logistical task. All told, around 16% of Starbucks’ transactions across the US took place from a mobile device; a promising sign that the company might know what it’s doing. At the moment Starbucks leads the mobile-based purchasing race by a mile, which would take a hefty capital investment by its competitors to close in on.

Difficult Environment

The recent past has seen cautious spending by customers across the world in light of the financial crisis of 2008; a factor that has made fast food restaurants battle it out with each other for supremacy. Both Dunkin’ Donuts (NASDAQ:DNKN ) and McDonald’s (NYSE:MCD ) have resorted to promotional offers and new products to retain market share. Not to be outdone, Starbucks has even upped its game by maintaining its innovative nature as well as focusing on holiday-themed drinks, which last year helped rake in $4.24 billion worth of revenue. There is hope for the future with the US Federal Reserve announcing earlier this past month that they would cease the quantitative easing program by October indicating that the economy is recovering. It is likely that a better economic environment will result in greater growth for Starbucks and its competitors alike.

New Stores

The company opened 503 new stores across the world in the quarter taking the total in 65 countries to 21,366 stores. The company’s focus on expansion is evident in China, one of its strongest markets, where the total number of stores is closing in on 1,400. The company’s China division has reported superb results based on the rapid expansion and the subsequently expanding customer base. Starbucks has also announced the acquisition of the remaining 60% of the shares of Starbucks Japan, and by doing so the company aims to profit from the deal by expanding product sales through food service channels and speed up retail sales. After the Bank of Japan announced expanding its quantitative easing program. Starbucks’ future in Japan looks promising as the stimulus package is expected to drive the economy and increase consumption spending.

Conclusion

Starbucks stock is currently trading at around $75 per share; this coming after the stock took a 6% tumble earlier this past week as investors were unsatisfied by the company’s performance. With EPS at a solid $2.68, Starbucks stock has some positive outlook despite failing to meet the expectations of analysts. The company faces stiff competition that does not seem to be going away anytime soon. If Starbucks wants to prosper in this environment then it needs to capitalize on its strengths, namely the mobile based purchasing service which it currently leads in the industry.

The coffeehouse company’s stock will not likely see any vertical growth anytime soon, a pattern they have shown over the past 52 weeks where the stock fluctuated between a low of $67.93 and a high of $82.50. The company does seem to have a solid plan which could reap long term benefits if it transpires.

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