Starbucks Brewing Up Big Profits

Starbucks Brewing Up Big Profits

Someday, I'm going to be a better investor and a worse writer, and just take a few weeks off from covering Starbucks so that I can actually buy some. (The Motley Fool has pretty strict trading guidelines for its writers.) Once again, Starbucks surprised the market and beat the pants off analysts' estimates, sending shares up more than 6% in early trading.

The best news out of the earnings announcement came from the U.S., where comparable sales hit 9% -- which seems silly. Overall, the company managed to increase worldwide comparable sales by 8%, with Europe holding everyone else back a bit. The stock continues to set new record highs, and it's trading at a steep premium. Even so, investors are eager to get in.

Sales upon sales
Starbucks increased its earnings per share by 28% year over year. That was the result of the increase in revenue and an expansion in the company's operating margin, which rose to 16.4%. The company cited lower coffee costs for the increased margin, and continuing low prices should keep costs down for some time.

Starbucks raised its full-year earnings forecast to between $2.22 and $2.23 per share. It also provided fiscal 2014 financial targets, including earnings-per-share growth of 18% to 22%. The strong message from Starbucks is in sharp contrast to the downbeat message out of Panera earlier this week.

The cafe and bakery chain announced slower-than-predicted revenue growth, and the market brought the shares back in line with revised expectations. Panera had lower comparable store sales than the company had forecast; it blamed a decrease in the growth rate of number of transactions and a decline in comparable sales of breakfast items.

Starbucks' time to shine
One of Panera's insights was that it has shifted advertising dollars away from breakfast while competitors have moved into the space. Starbucks, in particular, is focusing more and more on food. On its earnings call, Starbucks noted that its recent La Boulange experiments have already been a big success with the breakfast crowd, highlighting the company's commitment to waking you up.

On top of the new food push, the company also recently increased some of its prices, which should help its margins further down the line. That should leave it with more cash, and at some point, investors might see a meaningful increase in the company's dividend. Right now, Starbucks is paying out a measly 1.2% dividend, but it has a tidy little cash pile that could be tapped once its growth slows.

All in all, it was a great quarter for Starbucks, and a great quarter to be a Starbucks investor. Maybe next time, I can count myself in that group.

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Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Panera Bread and Starbucks. The Motley Fool owns shares of Panera Bread and Starbucks. 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.

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