Join the New Tea Party


Tea may never become the booming hot-beverage category that premium coffee has become, but you wouldn't know it from Teavana's (NYS: TEA) quarterly report this morning.

Net sales climbed 36% to $31.3 million for the upscale retailer of loose-leaf teas and artisanal tea-making gear, fueled by brisk expansion and a 6.4% spike in comps (excluding e-commerce sales). Earnings grew even faster, soaring 78% to $1 million -- or $0.03 a share.

Teavana opened 18 new stores during the quarter, upping its count to 179 locations. The chain still intends to tack on 50 new locations this fiscal year.

Investors already consider premium java a scorching hot industry. Starbucks (NAS: SBUX) and Keurig parent Green Mountain Coffee Roasters (NAS: GMCR) are market darlings. Starbucks created consumer demand for rich-flavored brews, and Green Mountain stepped up by making that java accessible at home in single-cup servings. Jammin' Java (OTC: JAMN) was a fleeting springtime sensation, briefly taking off on the mere mention of premium coffee before actual revenue even started trickling in.

Is tea poised to be the next hot hottie?

Why not? By its very nature, tea is more social. Guests come over for tea, while coffee's renaissance comes largely in single-cup helpings. Keurig's model is built entirely around single java sippers, while Doris Day belts out "Tea for Two" from the piano.

That very social nature has made Teavana such a sensation. Each store stocks more than 100 varieties of teas that consumers just can't find at the local grocer.

There wasn't a pure tea play available to investors before last month's Teavana IPO. Celestial Seasonings parent Hain Celestial (NAS: HAIN) and Unilever's (NYS: UL) Lipton are part of much larger food giants.

Teavana isn't cheap, but don't make the mistake of projecting this latest quarter forward over the course of an entire year. You know that folks weren't sipping a lot of tea during this hot summer; this is a seasonal business. Teavana expects to earn between $0.42 a share and $0.44 a share for the entire fiscal year, on $160 million to $164 million in net sales. Trading for roughly 60 times this year's projected profitability won't woo a lot of value investors, but this proven and scalable model is still early in its growth cycle.

Tea's on -- and it's starting to heat up.

At the time thisarticle was published The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters, Unilever, and Starbucks. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz is a hot cocoa kind of guy himself. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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