SBUX – Interesting Takeaways

Starbucks CFO Troy Alstead presented this morning at an investor conference and based on his comments, the company appears to be maintaining its momentum.


First, in reference to my comments earlier this morning on MCD’s August sales trends, Mr. Alstead stated that there is a great deal of noise in the coffee segment that has helped everyone in coffee, including Starbucks.  This helps to explain why SBUX’s sales trends are becoming less bad at the same time MCD launched its national campaign behind its McCafe beverages.


Signs that SBUX’s focus on cost cutting and improving profitability is working:


SBUX removed 30 stores from its planned closure list.  These 30 stores were significantly underperforming and slated to close, but are now contributing profitably. 


Mr. Alstead said that the initial results out of the 2009 class of stores are encouraging.


He stated that management still has limited visibility (though he believes the company has more visibility than it had 6 months ago), but that SBUX shaped its plans and forecasts around the expectation that there is still a long economic recovery ahead of us.  That being said, he thinks the company is positioned to live in this environment and still grow margins.


SBUX is still a growth story:


Mr. Alstead commented that going forward, SBUX’s growth will be more focused on improving the profitability of its currents store base rather than unit growth.  Along those same lines, he said that capital spending will first be allocated to preserving the health of its current portfolio before going to new unit development.  To that end, he said that the company’s business model can now yield very healthy profit growth with only slight comp growth (more mature comp growth). 


There is still unit growth ahead, however.  Unit growth will continue to be cautious in 2010, but the CFO said that there is room for growth in the U.S. and significant opportunity outside of the U.S.  Specifically, he said that he does not see the company growing as fast as it did 2-3 years ago, but expects it to accelerate from 2009 and 2010 levels.  The company will pursue this growth in a more disciplined manner, with a close watch on the velocity in which it penetrates markets and a focus on achieving a 2 to 1 sales to investment ratio.


Mr. Alstead also said that there is huge headroom for non-store channel growth as the Consumer Product Group’s business is still under exploited in the U.S. and open to pursue internationally. 


Driving shareholder returns:


When asked how the company will use its free cash flow, Mr. Alstead responded that management is focused on driving shareholder returns and will be making strategic decisions about “how to distribute cash.”  I have been saying for some time now that I would like to see SBUX establish a dividend in order to increase its total amount of cash returned to shareholders to a level more in line with that of its global restaurant peers (MCD and YUM).  This could be one way the company will decide to distribute cash.



Other key takeaways:


The CFO stated that the company’s decision to raise prices on some products while lowering prices on others to reflect costs and the consumers’ willingness to buy will be net neutral to net positive to margins.


SBUX continues to be focused on its advertising with the CFO mimicking a comment that CEO Howard Schultz has made in the past that the company will no longer allow itself to be defined by others.


SBUX – Interesting Takeaways  - sbux


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