Reasons to be Bullish on Starbucks
Coffee behemoth Starbucks Corporation (NASDAQ:SBUX) operates more than 18,000 outlets around the globe, and plans to open 1,300 more stores in FY13. Its presence in 61 countries somewhat advertises for the brand itself. But even adding 1,300 stores would contribute to nearly 7% of its annual revenues (best-case scenario). With such a magnitude of global presence, growth in same sale stores becomes more important than inorganic expansion.
For this very reason, Starbucks Corporation (NASDAQ:SBUX) acquired the premium tea brand Teavana for $620 million. The latter operates around 300 stores, and with the acquisition, Starbucks would be able serve premium tea at almost all its outlets.
Starbucks also attracts customers by offering free Wi-Fi, reward points and seasonal discounts. Furthermore, its Verismo single-serving coffeemakers are capturing the market like wildfire.
Reasons to be Bullish on Dunkin Brands
Dunkin Brands operates with over 10,000 stores, which includes both Baskin Robbins and Dunkin Donuts outlets. Compared to Starbucks, Dunkin Brands Group Inc (NASDAQ:DNKN) is a much smaller company both by operations and enterprise value, which allows it to grow faster than its larger peer. As a result of rapid expansions and a cost-effective business model, shares of Dunkin Brands have appreciated by almost 34% over the last year, and its growth story is still intact. Its management aims to double its store count over the next 20 years, and would have the option to avoid economically troubled countries.
The company added just four stores over the last year, but despite that, it reported a staggering 69% spike in store revenues. Its management explained that it had acquired stores near the end of the quarter, and their financial results were not reflected upon its books.
But Dunkin Brands Group Inc (NASDAQ:DNKN) is not all about inorganic growth. Its same-store sales rose by 7%, which contributed to an overall 5% increase in quarterly revenues. It operating expenses dipped by 22%, and all together, its gross income rose by nearly 50%. Growth at such staggering rates is common amongst micro or small-cap companies, but the highly competent management of Dunkin Brands made it possible for the $4 billion enterprise (by market cap) to grow faster than its peers.
Wrap Up
Another peer, The J.M. Smucker Company (NYSE:SJM), reported a staggering 50% spike in its K-cup sales. Its revenues were up by 6%, but this growth was mainly driven by its acquisition of Sara Lee. The acquisition of the coffee brand accounted for nearly 30% of its revenue growth, without which its revenue growth would’ve clocked in at around 4%. Even after the inorganic growth, the consensus annual EPS growth estimate for JM Smucker is only 8.43% while Starbucks and Dunkin Brands sport 18.57% and 15.43% respectively.
Although JM Smucker is a good company, I believe that investing in Starbucks or Dunkin Brands would greater returns.
The article The War of the Coffee Giants originally appeared on Fool.com and is written by Piyush Arora.
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