Coffee. Something everyone drinks

Last week Starbucks released there Q1 results which saw 12% revenue growth to a record $4.2bn. Margins also impressively expanded to 19.2% while EPS rose 25% to come in at 71c per share. Geographically they have good growth in most regions. Americas and the U.S grew 5%, Europe and the Middle East grew 5% and China/Asia Pacific grew 8%.


The company made some very interesting observations over the festive period, here is what CEO Howard Schultz had to say.


"Holiday 2013 was the first in which many traditional brick and mortar retailers experienced in-store foot traffic give way to online shopping in a major way. As our solid traffic growth and record Q1 results demonstrate, Starbucks unique combination of physical and digital assets positions us as one of the very few consumer brands with a national and global footprint to benefit from the seismic shift underway."


Wow that is very interesting, online retail is really starting to have an effect on the retail sector and how we go about shopping. It is not something I would be worried about as far as Starbucks are concerned. They are an extremely innovative company and also supply in home coffee options. When I was overseas we often popped into a Starbucks just for the free wifi (and aircon) and ended buying an ice coffee. Great concept that.


That sales growth was very impressive as the business still has many areas where people would love a Starbucks to open. I am sure the business would do very well here in SA. So there is still lots of potential to get into new markets, especially in China and India, historically tea drinking nations. They are at the beginning stages of their global expansion.


At 71c for the quarter the company expects to make around $2.67 for 2014. That is up 18% from the $2.26 it made last year. The stock is far from cheap however trading at $75 or 28 times this year's expected earnings. But as you can see it is growing very fast. 18% is what earnings are expected to grow this year and a further 18% is expected for 2015.


It is an extremely profitable business with a great brand. People love coffee and I expect that to grow as more wealthy people can afford this premium brand. But it is not just coffee, they have also made inroads into tea, juices, food and pastries. We continue to add at these levels