March 22, 2010 - Starbucks Corp. (SBUX-NASDAQ) engages in the purchase, roasting, and sale of whole bean coffees worldwide. It offers brewed coffees, Italian-style espresso beverages, cold blended beverages, various complementary food items, and a selection of premium teas, as well as beverage-related accessories and equipment, through its retail stores.

The company also licenses its trademark through other channels, such as licensed retail stores, as well as through certain of its licensees and equity investees. In addition, Starbucks Corporation produces and sells ready-to-drink beverages, which include bottled beverages, espresso drinks, chilled cup coffees, and ice creams.

Its brand portfolio primarily includes Starbucks, Seattle's Best Coffee, Tazo, Frappuccino, Starbucks DoubleShot, Starbucks Discoveries, Starbucks super-premium Tazo Tea, and Starbucks super-premium. As of September 27, 2009, the company operated 8,800 retail stores. Starbucks Corporation was founded in 1985 and is based in Seattle, Washington.

Starbucks is back. While the last 2 years have been tough on the coffee dispenser, the final quarter of 2009 showed real signs of improvement with the final period delivering a 4% increase in sales compared to the fourth quarter of 2008. That's the first year over year increase in comparable sales since the last quarter of 2007. With better sales, earnings jumped noticeably to 33 cents a share, up from 15 cents in the same quarter of 2008.

Because Starbucks has such high fixed overhead from its retail stores and required staffing, revenues have to be at certain levels to cover those costs. In the last 2 years, with the economy faltering, those costs have been harder to cover as consumers cut back on discretionary spending (though some would argue that nothing is more important than their Starbucks coffee in the morning). The company cut back as well, reducing headcount and closing underperforming stores. Now that the economic recovery is starting, consumers are back, spending on little luxuries, like a cup of special coffee or tea.

With increased revenues (analysts see $10.28 billion this year vs. $9.77 billion in 2009, a 5.1% improvement), profitability becomes much stronger. Once the fixed costs are covered, profits expand with higher revenues. Certainly there are some variable costs (the price of coffee and tea among them along with markerting and dairy products), but the bulk of Starbucks' expenses are fixed.

Twenty analysts have a consensus estimate of $1.11 for earnings this year, up from 80 cents in 2009, up 38.75%. Next year, they forecast $1.26 (with a range of $1.15 to $1.41). Analysts see earnings growing, on average, 15.71% annually over the next 5 years, compared to the last 5 when growth averaged 6.09% a year.

Part of the boost in earnings will come from Starbucks' new instant coffee VIA. Consumers are drinking up VIA, buying it currently at the company's retail stores. Next step: offer VIA in grocery stores, starting in the third quarter. Management is also expanding efforts globally, looking for the international markets to drive growth. The company is opening its own stores (rather than offering licenses) in France and China, two large coffee-drinking markets.

More numbers: The stock has been on a tear over the last 15 months, going from a low of $7.10 in late 2008 to a recent 3 year high of $25 (as this is written). Market Cap is $18.55 billion. Forward P/E is 19.83. Price to Book is 5.57. Book value is $4.50. Operating margin was 9.74% in the last 12 months. Profit margin was 5.75%. Return on equity was a noteworthy 19.14% while Return on assets was 10.35%. Total cash per share is $1.83. Total debt is $549.50 million. Total cash is $1.36 billion. Debt is 14% of capital. Current ratio is 1.45. Beta is 1.37.
There are 743.4 million shares outstanding with a Float of 722.70 million. Insiders own 4.9% of the stock. Institutions have 73.20%. There is no dividend.

One more important element in the Starbucks story: the founder, Howard Shulz, returned to run the company. He successfully built one of the great franchises, decided to leave, and then as the stock went from a high of $40 a share in 2005 (split adjusted) to a low of $7.10 in 2008, he couldn't watch anymore. He had to put the company back on the profitability track. He's delivered great returns to investors in the past. Most likely, he'll do it again.

- Ted Allrich