Starbucks, great results, coffee culture growing

One of our aspirational stocks in New York released very good looking numbers yesterday. Starbucks comfortably beat expectations sending the stock up 7.5% after the close. It's been a bumpy road for these guys over the last few months as big consumer stocks with exposure to China started pulling back at the beginning of October. Now that things are looking better in both China and the US these stocks have inevitably started to pick up again.


So these numbers were for the fourth quarter and the full year. Net revenues for the year grew by 14% to $13.3bn. With net operating margins improving 20 basis points to 15% this equated to earnings per share of $1.79 which was up 10% from last year. The share is looking to open at around $50 and you can immediately see that this one has a very demanding multiple. 28 times historic.


So why does the market expect so much from this company? It is one of the biggest Asian growth stories out there. Growth in that region for 2013 is expected to come in between 30%-40% for Starbucks. Earnings for 2013 then should show great growth. Company guidance is for $2.10 in 2013 while analysts expect the company to make as much as $3.31 by 2015. I saw a tweet yesterday from someone in Mumbai India who said that the queue at the new Starbucks was so long that some guy was selling chai tea to the people waiting in it.


I often say this but I will say it again. I think we underestimate the size and scale we are dealing with in China and India. How do you even fathom 1.4bn people in one country that is 8 times the size of South Africa? If South Africa had the same population density as China we would have 180 million people. This makes it hard to conceptualize so many people in a small space, consuming, producing, competing and making a living for themselves.


Back to Starbucks. It is an innovative company whose loyalty programmes have helped boost earnings this quarter while they have started expanding their product line to fresh juices. Coffee has fantastic margins and they are opening up stores at a very fast pace. 1063 stores were opened this year and 1300 planned for next year. Off what is quite a low base in Asia where a coffee drinking culture is growing unbelievably, even at these levels we will carry on buying this stock.