Starbucks Beats


Every year at this time, Starbucks rolls out its range of "holiday drinks". This means fancy coffee-based concoctions for Halloween, Thanksgiving, Christmas, Hanukkah, New Year and even Kwanzaa. Hey, anything for a bit of media buzz, right? Holiday season is spending season, a good time for customers to spend, businesses to make a profit and investors to enjoy share price gains.

Well, the holidays came early for shareholders. Starbucks shares popped 9% in after-hours trading to above $64, on better than expected quarterly results. Earnings were 62 cents per share, and global same-store sales rose 3%. That was well above consensus expectations, after a tough period in the North American market.

It would appear that the business streamlining initiatives launched by new CEO Kevin Johnson are bearing early fruit. In the earnings call after the bell, management suggested that Starbucks can deliver low-double-digit earnings per share growth over the long term. This is why the share price is up - the investment case has improved significantly.

Starbucks China also had an encouraging quarter. Remember that they have about 80% of the Chinese coffee market. In August Starbucks struck a deal with Alibaba to do coffee delivery directly to customers in big cities.

This is how it works. A thirsty customer picks up their smartphone and taps an order into the Starbucks "virtual store" interface on one of Alibaba's many online malls. One of an army of on-foot delivery people (all independent contractors) bids and wins the right to pick up the drink from the nearest production point and deliver it in person, within minutes. GPS mapping ensures that no-one gets lost. Everyone gets charged/paid in real-time, electronically. Incredible!

If Starbucks closes above $64.61 this evening, every single Vestact client who owns them will be in profit. I'm holding thumbs!