SBUX – GRASS ROOTS SALES SURVEY FOR MAY 09

The street is decidedly negative (25% of the ratings are Buys) on Starbucks relative to the other large capitalization QSR restaurant companies, according to Thompson/Reuters. Interestingly, the company with the biggest rating is Burger King (75% of the ratings are Buys) and it is the worst performing QSR stock: down 30% this year. The fact that there is a large Private Equity firm with a big position has nothing to do the analyst opinion of the company.

 

SBUX – GRASS ROOTS SALES SURVEY FOR MAY 09 - ratings

 

I still believe that there is a significant catalyst coming for Starbucks when we settle the perception that McDonald's McCafe is not taking significant share from SBUX. We are getting closer to that day.


I don't care how negative people are on Starbuck's; the core of the business model is very healthy and is showing very sustainable trends that were not there three to six months ago. For the past two quarters the company has posted sequential improvements in operating margins and will report year-over-year improvement in 3Q and 4Q of 2009. This is directly attributable to the progress SBUX has made on its cost cutting initiatives. In 2Q09, SBUX delivered $120 million in cost savings, exceeding the $100 million target. For the balance of the fiscal 2009, SBUX has cost savings of approximately $150 million in 3Q09 and $175 million in 4Q09. In order to sustain continued stock price appreciation, SBUX cannot rely on cost saving initiatives alone. Investors will expect to see an improvement in same-store sales to keep the stock working.


That being said, I set out to come up with a way to gauge SBUX's progress toward improving monthly sales trends, which resulted in the inception of the SBUX monthly "grass roots survey." The stores surveyed represent a geographic mix across the U.S.


STARBUCKS MARCH "GRASS ROOTS SURVEY" SALES TRENDS:


The survey indicates that May same-store sales on average were flat to -1%. This compares to our previous survey indicating that March same-store sales on average were flat to -3%. As I said in March, these numbers are so good I don't believe what I'm seeing. Naturally, I provided a haircut to the numbers, but that would still put SBUX same-store sales at down 3-4% versus 5-7% in March.


This would be a significant improvement from the trends in fiscal 2Q09 when same-store sales declined 8%. I continue to think that it is more important to focus on the numbers on a directional basis, rather than looking at the absolute numbers, and directionally, these May numbers look better than what we have been seeing for some time from Starbucks' U.S. business. These numbers are even more impressive given that McDonald's was heavily promoting McCafe in May.


Other highlights of the survey:
(1) 80% of the stores reported a sequential improvement in sales trends in May from April
(2) 58% of the stores reported positive comps up from 21% in March - the average was +4%
(3) The stores reporting negative comps were down 5-6%
(4) The average number of breakfast combo's was 14 in May down from 19 in March. Note that 1/3 of the stores in March were not selling breakfast combo's yet
(5) Suggestive selling helps improve the attach rate of combo's.


Right now, I think SBUX could be tracking down 5-6% in same-stores sales for 3Q09.

 

SBUX – GRASS ROOTS SALES SURVEY FOR MAY 09 - sbuxsss


Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more