SBUX - Better Capital Allocation Decisions

06/12/08 07:34AM EDT
Starbucks shareholders have been penalized over the past two years for aggressive capital allocation decisions that have not generated the appropriate level of return. I believe management has seen the light and is now on the road of smarter capital allocation decisions which will reward shareholders.

A perfect example of a smarter capital allocation decision is the company's recent announcement outlining its new licensing agreement with SSP. Starbucks Coffee Company and SSP announced a significant licensing partnership to open more than 150 Starbucks stores in key European markets over the next three years.

The pan-European agreement gives SSP licensing rights to the Starbucks brand in travel channels, including airport and railway locations, throughout a number of significant markets and exclusive rights in France, Germany and the United Kingdom.

For Starbucks, this is the third announcement (following its agreement to acquire assets, including development and operating rights in Canada and its first store opening in Argentina) that signifies a change in the company's business model, particularly around its international operations. Importantly, the SSP agreement accelerates growth using a high margin, high return licensing strategy.
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