SBUX – LOOKING THROUGH THE NOISE, SBUX CAN GROW

When it comes to SBUX, most investors have been focused on the company's significant number of store closures, particularly in the U.S, and rightly so because SBUX was growing too fast!  Just last quarter, management increased the number of anticipated closures by 300, bringing the running total to 961, including the 61 closures in Australia (800 in the U.S.).  SBUX may announce further closures as it continually evaluates its stores' performances, but at the same time, it is important to remember that SBUX is still growing, largely outside the U.S.  To that point, SBUX announced the opening of its first store in Poland today.  The store is being opened through a joint venture with AmRest Coffee, Sp. zo.o, a partner that was responsible for opening SBUX's first store in the Czech Republic and operates nine stores in the country and is already a joint-venture partner in the Hungarian market. 

 

SBUX has highlighted that one of its key initiatives going forward will be to "focus on disciplined global store expansion in key markets."  Note the mention of "disciplined" growth as management will unlikely forget the mistakes it made in the U.S.  Importantly, much of SBUX's growth internationally stems from licensed store and joint-venture growth (as is the case with the new store in Poland).  Licensed and joint venture stores make up about two-thirds of all SBUX's international stores versus less than 40% in the U.S., and SBUX plans to open 360 net new licensed stores internationally in FY09 relative to only 70 net new company operated stores.  This licensed growth strategy lessens the risk to SBUX as it allows the company to rely on its partners' capital while still benefiting from increased royalties and licensed fees.  The company's growth in other markets, like Poland, will also decrease SBUX's relative international exposure to Canada and the U.K., which currently make up about 77% of SBUX's international comparable sales growth and have been largely responsible for the slowdown in international same-store sales growth.   


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