The Chandler Fashion center is elegant, with marble floors and a front entrance that’s absolutely beautiful. It’s a 1.5 million square-feet mall, and its surface to ceiling height is absolutely breathtaking.
I sit inside Starbucks Corporation (NASDAQ:SBUX) watching the passerby’s as they walk around swishing their GameStop Corp. (NYSE:GME), Apple Inc. (NASDAQ:AAPL), Victoria’s Secret, Abercrombie & Fitch Co. (NYSE:ANF), Hollister, Fossil Inc (NASDAQ:FOSL), and Nordstrom, Inc. (NYSE:JWN) bags. With an air of confidence you’ll see customers with their latest shopping hauls walk with a sense of pride and excitement.
I spend a countless amount of time in Starbucks Corporation (NASDAQ:SBUX) and often find that it’s located in some of the most active and beautiful spots in the world. You will almost always find a Starbucks in some of the best locations; remember the number-one rule of retail is location, location, location.
Earnings highlights
Starbucks Corporation (NASDAQ:SBUX) came out with some fairly solid earnings results. The company was able to increase its store count by 590 locations, versus the 176 store-count increase it was able to report the year earlier.
The reason for the sudden increase in the number of stores came from the Teavana acquisition. The CEO hopes to turn the high-end tea company into a tea-serving company with open bars and baristas. The company’s expansion into high-end tea, along with the organic growth of Starbucks’ stores in the Asia Pacific region, seems to be the primary growth catalysts going forward.
Revenue grew from $430.4 million to $544.1 million, which was an 11% improvement from the year earlier. Operating income grew from $430.4 million to $554.1 million, which was a 26% improvement from the year earlier.
Starbucks Corporation (NASDAQ:SBUX) was able to improve its operating margin from 13.5% to 15.3%; the 180 basis-point improvement was what drove the operating income up by 26%. A small marginal difference in profitability can make a huge difference in operating income. Having a larger amount of operating income will drastically alter the amount of investment into new Starbucks openings.
The company’s primary growth market is the Chinese Asia-Pacific. This region was able to grow revenue by 8% year-over-year, with the Americas (its largest market) doing fairly well with 6% year-over-year growth. Starbucks has experienced some difficulty in foreign markets, such as Europe Middle East and Africa, which reported a 2% decline in sales and a 1% decline in transactions.
The company had a fairly solid quarter in terms of earnings. Earnings per share came in at around $0.51. The previous year, Starbucks was able to generate $0.40 per share in earnings. It was able to report a solid 28% improvement in earnings, which beat analysts’ estimates of around $0.48 per share; the company surpassed estimates by $.03 per share (a beat of 6.3%).
Alternatives to higher-risk retailers
Domestically, firms like Starbucks Corporation (NASDAQ:SBUX) are able to post solid growth, with the recent acquisition in Teavana clearly illustrating that specialty firms are able to operate economically and with a higher rate of profitability at mall locations. Specialty stores will continue to populate floor space at malls, so perhaps being the landlord of these tenants could be a lucrative opportunity. This phenomenon helps to give risk investors an opportunity to stay exposed in just about every hyped-up fad that runs through the stock market.
Macerich is a great investment opportunity for those who can’t stomach the volatility of trendy stores like Teavana, H&M, Victoria’s Secret, and Aeropostale, Inc. (NYSE:ARO). Macerich primarily focuses on high-end retail space (open and closed malls with square footage ranging from 500,000 to 2,000,000). The company was able to report an occupancy rate of 93% for its properties with sales per square footage at around $535 on average.
Over the past 15 years, the company has been able to average year-over-year earnings growth of around 61%. Its high yield is driven by leverage (borrowing money from banks to build property). Macerich has easy access to credit, which comes from its established credibility as a property developer, along with the transparency of the company’s financial condition by being a publicly-traded and audited entity.
That being the case, the company’s current P/E multiple is 34.7, which is attractive when compared to its average 15-year growth rate. The company also offers a hefty dividend yield of approximately 3.4%, which should keep income-oriented investors happy when compared to the awful yields from U.S. Treasuries. The stock has been able to out-perform the S&P 500 over the past five-years.
