SBUX?

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JoeyDVivre

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Starbucks has the strongest brand name in the world? Say what?

That's a nice analysis HoldSide although it looks to me like an analysis of the profitability of selling very expensive, not very tasty coffee. If people buy it (and they do) you can make a boatload of money selling it.

The downside is
a) Those numbers you pointed out suggest that the stock is expensive
b) Growth in the high single digits for coffee houses is not very impressive and there is no particularly reason to think that the market leader will gain market share. In an industry that sells exclusivity (well, sort-of, people still like to know what they are getting), it seems that they are more likely to lose market share.
c) Their coffee sucks. Eventually people will realize their coffee sucks.
d) The company is probably not very recession proof. In an economic downturn, people will buy coffee pots and go to McD's not spend $6 on some prissy girl coffee.

I also wouldn't short this company because their are oodles of terrible companies out there to short. Starbucks at least has fine cash flow and decent management even if their product requires lots of space for the warm cream left out in to bake.
 
HoldSideAnalyst Wrote:
-------------------------------------------------------

>
> Do I love it today as a long? No. I agree with
> you on the valuation issues. But as a short?
> Come on, this is a fantastic company. There are
> plenty of things to like about it, which makes
> your sarcasm towards those disagreeing with you
> totally unwarranted.


Overall, that looks like a good analysis. But, what about SBUX's prospects for future growth? Ive seen a lot of copy cat coffee shops pop up left and right. They have to be squeezing SBUX's business tighter, and will continue to some degree. Foreign expansion? I don't see this as having as much of an effect on CF as it's expansion in the US, simply b/c income outside of the US is lower, generally. Secondly, Europeans aren't going to be as "into" SBUX's as Americans are, b/c Europeans don't like food chains as much.

Also, HoldSideAnalyst, I wouldn't short this stock either as that looks like an over-reaction, but I would Hold it as I expect slower growth.



Edited 1 time(s). Last edit at Thursday, June 28, 2007 at 07:58PM by dallas470.
 
I just said "arguably", although I should limit it to just the US. Besides: http://www.forbes.com/free_forbes/2005/0620/115tab.html.

Everyone loves to say their coffee sucks, and I don't care for it either. But people, was THE Wall Street story of the last 10 years, and they remain a $20BB company. So someone is drinking the coffee.

I think their valuation makes them look expensive, but necessarily overvalued. I could probably get there at 26x, but not 30x.

Recession proof? 90% of coffee is already consumed in the household, so the gourmet coffeehouse, is, to a certain extent, a niche market. That said, I think they're relatively less exposed than other restaurants/consumer discretionary stocks. The stuff is addictive.

Everyone also loves to complain about the prices, but a you can get a medium dark roast for under $2.
 
That article in Forbes is more than 2 years old showing lots of growth in 2004 (and I'll spare you the witty remarks about investing on 2 year old reports of things that happened 18 months before that).
 
I said that I profitably covered my SBUX short. ( FWIW, i'm still short KKD )

I said in my posts that there are easier ways to make a buck than long SBUX. The reasons that other people listed for buying SBUX are those behavioural issues (strong brand name, global growth, coffee is addictive, etc.).

I will short SBUX again if the situation is right. Commodity prices are going to eventually kick in and their operating leases will continue to escalate... meanwhile their coffee sells at an unjustified premium to other gourmet coffees. No way they can pass on another dime to the coffee buyer when "coffee carts" and all sorts of other people are starting to pay attention to coffee branding.

Lastly, sbux has sizable debt if you look at their leases the right way.
 
do I like sbux in the high 20s?? nah... prbobably not.... mid 20s? it's probably a push from the trade's risk / reward perspective... almost pulled the trigger in low 25 the other day, but was looking for a dip below 25 that never came... penny wise in hindsight.... for a trade, a dad cat bounce of a back that we got was a pretty good probabilily.... I think it trades lower from here though, but not by much... I will own it in the low 20s for a 3-4 bucks... while I think the story has some flies on it long term, the stock will be fine for trades here and there... it's not the best of places to catch very short term moves though....
 
"c) Their coffee sucks. Eventually people will realize their coffee sucks.
d) The company is probably not very recession proof. In an economic downturn, people will buy coffee pots and go to McD's not spend $6 on some prissy girl coffee. "

- Read my last post about SBUX over-roasting their beans. They use CHEAP quality beans and OVER-ROAST them, and people love it. You can say the coffee sucks but it means nothing. Their customers love the coffee. Will the same loyal SBUX customers who visit 4.2 times a week one day wake up and say, "Dang, this coffee sucks - why have I been wasting $20 a week for over five years?"

- In an economic downturn, people will buy coffee pots and go to McD's? Ha, that sounds so cute and nice but don't kid yourself.
 
drs Wrote:
-------------------------------------------------------
> "c) Their coffee sucks. Eventually people will
> realize their coffee sucks.
> d) The company is probably not very recession
> proof. In an economic downturn, people will buy
> coffee pots and go to McD's not spend $6 on some
> prissy girl coffee. "
>
> - Read my last post about SBUX over-roasting their
> beans. They use CHEAP quality beans and
> OVER-ROAST them, and people love it. You can say
> the coffee sucks but it means nothing. Their
> customers love the coffee. Will the same loyal
> SBUX customers who visit 4.2 times a week one day
> wake up and say, "Dang, this coffee sucks - why
> have I been wasting $20 a week for over five
> years?"
>
Yes. That's a time-honored lesson. Do people really love starbuck's coffee or have they been convinced that they love it? Most people love things that they identify with - when it becomes uncomfortable to identify with starbucks, they won't.
>
> - In an economic downturn, people will buy coffee
> pots and go to McD's? Ha, that sounds so cute and
> nice but don't kid yourself.

We'll see. Coffee is addictive. Is a $6 frappucino so addictive that people will put it in the essentials category?
 
JoeyDVivre Wrote:
-------------------------------------------------------
> That article in Forbes is more than 2 years old
> showing lots of growth in 2004 (and I'll spare you
> the witty remarks about investing on 2 year old
> reports of things that happened 18 months before
> that).

I saw one recently that had them in the top 3, and tried desperately to find it but couldn't. That's why I put that line about brand names in there.
 
OK. I ran out of coffee yesterday and forgot to buy some. I went to the grocery store this morning and Starbucks was on sale. Hmmm. Discounting overbaked cheap beans doesn't make them any better. I bought New England Coffee instead and I am currently drinking a disappointing cup of it (though possibly from the fat-free half-and-half which my g/f is making me drink because she says I'm getting fat)
 
Grocery and warehouse club sales account for 4% of total net nevenue for Starbucks. 4% !!

Whether or not your local grocery store has starbucks coffee "on sale" or not matters how?
 
It didn't matter at all. I didn't buy it anyway. It's lousy coffee. Fat-free half-and-half matters more.
 
drs Wrote:
-------------------------------------------------------
> The average starbucks customer visits a starbucks
> shop an average of 4.2 times a week. To me, that
> is amazing customer loyalty.


I believe that is their profit maker. As they begin to stretch their menu to include other items in order to compete with McD's and the lunch crowd, I believe they will lose loyalty.

I am sure most on this board can relate to the conveniece of waiting for an interview or meeting and passing the time in their store. It is convenient and a pleasant environment.

Now, imagine that store packed with caffeine injected 5yr olds and a soccer mom with no leash.... Do you pass your time in Wendy's or McD's?



Edited 1 time(s). Last edit at Friday, June 29, 2007 at 12:21PM by hueion.
 
I went to SBUXs last night, there were so many well dressed gay people there and a few hippies.
 
See - SBUX is not very gay-backlash proof. This could be a real problem.
 
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