During a controversial 3Q earnings period, patterns continue to emerge, with beloved companies accelerating business trends in the midst of a tough global economy. Winners are thriving with differentiated brands, business models, and strategy; the stock market is awarding the victors to an almost unprecedented degree with rich valuations and surging stock prices. On the other hand, companies with secular challenges are in a severe de-rating process and bear market. Starbucks (SBUX) falls into the former category and the stock is now valued at unprecedented levels post-financial crisis.
SBUX stock is up 6x over the past 6-years, pre dividend:
The path to superior investment returns is often obfuscated with a complex strategy, tactical shifts, and too much trading. The best results generally come from owning superior companies, understanding why a company thrives, and sticking with the stock, avoiding commissions and taxes.
What happened with SBUX?
Back in 2010-2011 Starbucks was never really broken. Same store sales turned negative during 6 quarters of the financial crisis but roared back all through 2010-2011, and remained solid since. But a few years ago a couple of concerns emerged:
1) That Starbucks was saturated and perhaps over-saturated in North America
2) That globally the concept just might not catch on to the same degree
Believers in “The Starbucks Experience” earned incredible returns by standing pat and letting a vision play out. Thursday’s conference call amounted to a validation of the strategy of the past three years. North American same store sales accelerated to an impressive +9%, driven by a combination of traffic growth in the stores, and price increases (ticket). New stores open strongly and fears of saturation, in any geography, are misguided. Sales growth around the world is robust, and China in particular received a call out with high single digit comps and an acceleration of China sales through the quarter, continuing into October. There are 1,800 stores operated in China across 95 cities. So much for a near-term China collapse.
While other firms are commencing large-scale investment cycles in ecommerce, and mobile, Starbucks is ahead of the curve, and reaping the benefits from early investment in its leading mobile app and loyalty program.
Howard Schultz on Starbucks success:
As I was preparing for this call, I couldn’t help but become a bit nostalgic as I reflected how gratifying this quarter and year has been. And now with a market cap poised to exceed $100 billion, how far we have come from that small coffee company in Seattle that had 125 stores at the time of our IPO in June of 1992. 23,000 stores in 68 countries around the world, close to 2,000 stores in China, over 2,000 stores in EMEA, and over a1000 stores each in Japan and Korea, and over 180,000 points of CPG distribution around the world.
The deep authentic connection our customers have with the Starbucks brand and with our people, our values, and our culture and the universal appeal of the Starbucks experience, stunning financial performance coupled with unmatched groundbreaking innovation that is relevant to our customers and our people and so much on the horizon.
Never in our 23 years as a public company has the Starbucks brand or our business been more relevant or been stronger. Nor have our aspirations and the opportunities that lie ahead of us. We remain humble and steadfast in our mission to build a great enduring company, and as managers and leaders to exceed the expectations of our customers and our partners.
Starbucks share price is galloping. Returns in the future are sure to moderate given the high valuation, but long-term investors in SBUX have a winner, better positioned than most consumer companies to navigate the global economy in years ahead.