THE HEDGEYE EDGE
Starbucks is the premier roaster, marketer, and retailer of specialty coffee in the world, operating in more than 50 countries. The company sells drip brewed coffee, espresso-based hot drinks, tea, cold drinks, a variety of food items, as well as mugs and similar products.
As of March 31, 2013, there are more than 18,850 Starbucks locations across the globe, 52.2% company owned. During the first half of fiscal 2013, company-operated stores accounted for 78.8% of total net revenues.
Risk factors for Starbucks’ business include costs for commodities that can only be partially hedged, such as fluid milk and high quality Arabica coffee, labor costs such as increased health care costs, and other variables beyond management’s control.
Trading Starbucks today, it’s all about the duration.
INTERMEDIATE TERM (the next 3 months or more)
We remain positive on the intermediate-term TREND for Starbucks as the company should continue to post stable revenue growth thanks to strong growth potential in international markets as well as the ongoing expansion of its CPG business. If the US employment picture continues to improve, that would give investors further confidence in Starbucks achieving its targets.
LONG-TERM (the next 3 years or less)
The long-term TAIL for Starbucks is attractive; the company has plenty of white space to grow through several channels and geographies with ample expertise and capital to execute its strategies. The company must retain focus on the core business and we believe that management is acutely aware of this following their prior (‘07/’08) experience.