However, the Asia-Pacific region including China experienced quarterly comparable-store sales growth of 8%, which is a sequential decline of almost 3% from 11% in the previous quarter. And it is almost half of the 15% growth for the same period a year ago. Nevertheless, China still remains Starbucks’ most promising region for international expansion with far more room for growth down the line. Even with the deceleration in the Asian region, Starbucks still managed to report overall stronger comparable-store sales growth in the quarter, both domestically and abroad.
The other player
No discussion of coffee or Starbucks is complete without mentioning of Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). The company recently saw an incredible 26% jump in the share price (from $60 to $76) when it reported solid second-quarter results, and also announced a long-term strategic partnership with Starbucks.
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) generated second-quarter sales of $1.0 billion, up 14% from the year before, and mostly inline with the consensus estimates of $1.0 billion. A stronger year-over-year operating margin resulted in a solid 42% increase in operating income, coming in at $212 million. Net Income from continuing operations rose by a similar percentage to $133 million, or $0.87 per diluted share. EPS came in at $0.93 per share, handsomely beating consensus estimates of $0.73 per share.
The most important takeaway from the release was that Green Mountain feels that it currently has only 13% household penetration with its Keurig system, which leaves significant growth opportunities for its future. Green Mountain has created a strategy of using new technologies, brands and geographies to drive this growth. In the end, Green Mountain seems comfortable with its long-term revenue growth outlook of between 15% and 20%.
Conclusion and recommendation
All and all, a tough call here. My two cents: if you think Starbucks’ international success will continue, then based on both valuation and balance sheet, it would be a better buy than Dunkin’ Brands. On the other hand, if you believe in Dunkin’s 16% earnings growth and remain comfortable with its level of debt, then you can sway toward the tasty combination of doughnuts and coffee.
But if you ask me to choose it for you, I would go with Starbucks. It has an impeccable balance sheet, attractive valuation, a long track record of delivering growth, and its premium brand is well positioned for a successful future in an improving economy.
Sarah Richard has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks
The article Strong Fundamentals Make Starbucks a Better Investment originally appeared on Fool.com and is written by Sarah Richard.
Sarah is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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