Starbucks 3Q - Same store slows

On Thursday last week Starbucks released their Q3 results. Revenues were up 11%, resulting in EPS growing by 13% to 62c. Comparable store sales, however, were only up 1% which means most of their growth came from new stores. Another important metric is the 15.1m active Starbucks Rewards members. Amazon Prime has proven how much more loyal members end up spending. That subscriber number is becoming significant for Starbucks.

Their America's business has been quite slow, and that is where the concern has been for this business. We have seen a substantial PE compression here. Earnings have still been growing, but the share price is flat. Starbucks now trades on 16 times forward earnings, the cheapest it's been since the financial crisis.

Even more compelling to me is that the business plans on returning $25bn (35% of market cap) to shareholders before 2022. Starbucks has almost become a value play. This reminds me of a time when the Apple share price went through a slump during a period when they were also planning on significant cash returns to shareholders. Even if their underlying business shows no growth, shareholders will get rewarded.

We are big fans of the product, check Paul below in his Blunder video enjoying the premium reserve Nicaraguan Beans. We think the potential for growing this fabulous brand is underestimated in developing markets. Couple that with their plan to return $25 billion, Starbucks looks like a good buy.