The Uglier the Better - Significant Changes to the Business Model

Reduced U.S. Store Growth..... SBUX significantly reduced its previously announced U.S. store opening target for fiscal '09, down to 250 net new company-operated stores and less than 400 in total U.S. store openings. The benefit to the P&L will be improving ROIIC and reduced cannibalization of existing stores.

Free Cash Flow..... Over the next three years, SBUX will generate $4.4 billion in CFFO and have 2.4 billion in capital expenditures, leaving over $2 billion cumulative free cash flow. This compares to cumulative free cash flow of about $800 million from fiscal '06 to fiscal '08.

Improving the Four Wall Experience:

1. In February SBUX took the first step with an Espresso Excellence Training which was designed to improve the customer experience.
2. April 8th, SBUX introduced the new everyday brewed coffee Pike Place Roast
3. SBUX will be remodeling stores with the next generation of espresso machines exclusive to Starbucks - the Mastrena
4. SBUX will introduce the Clover into its U.S. store base. The Clover's specialized brewing process blends the best of the vacuum pot and coffee press methods and further develops and unlocks the unique flavor nuances of specialty coffee.
5. SBUX will introduce the Starbucks Card Rewards program which will allow the company to explore ways reward loyal customers.

New Products:
1. The company will enter the energy beverage category through the Starbucks DoubleShot platform. Other entrants into this space have used caffeine as a supplement within their energy beverages, which makes Starbucks a natural. SBUX will leverage the assets of the JV partnership with Pepsi-Cola to expand Starbucks DoubleShot platform. This new platform will include both customizable, handcrafted beverages and RTD beverages.

2. SBUX will broaden its offerings into the health and wellness category. This summer, SBUX's first step is with a protein and fruit blended beverage which is made from simple ingredients that provide the benefit of sustained energy. This new beverage will be initially available in two flavors and will include fresh fruit and a proprietary whey protein, with no artificial sweeteners, delivering 15 or more grams of protein, with no more than 270 calories.

3. With an Italian heritage, SBUX will has developed (through a partnership with an Italian supplier) has a new category of frozen beverages.

FINALLY! - SBUX's New Product Pipeline Revealed

As we have outlined in the past, a key step in the recovery process for SBUX is new product news that broaden the beverage offering at its retail locations!

It appears that the company is now ready to launch a line of smoothie-like drinks made with fresh fruit and whey powder in the U.S. Importantly, this is the first step into of broader line alternative drinks.

Next up new food news!
Stay tuned!

Panera Bread (PNRA) - Wheat trends are as important as Same-Store Sales

All in, a $1 change year-over-year in the cost of wheat per bushel is worth $3.25 million of expense to Panera, or $0.05 in EPS. For 2008, PNRA is fully covered for essentially all their wheat needs at an all-in cost of $14 a bushel.

Currently, wheat is trading at $8.00.

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GIL: The Market Does Not Get It (Though CEO Does).

Chamandy sold $147mm in stock in 4Q, just as a multi-year run in margin improvement from accelerated sales growth layered on top of sourcing-driven cost cuts showed signs of cooling. 4 of the top 8 buyers of the stock were Canadian. Average multiple of 22x EBITDA was seemingly rich for an underwear company that is underspending in SG&A. What happens when capacity growth starts to slow in '09, pricing pressure (more WMT exposure) kicks in, GM% erodes, and SG&A growth accelerates to support a new mass-retailer-based business model? We can't imagine that the end result will be anything that could support a 20x+ EBITDA multiple.