Starbucks also outperformed Panera Bread Co (NASDAQ:PNRA), the quick serve bistro eatery that is often called “The Next Starbucks.” In its most recent quarter, Panera posted top and bottom line growth of 11% and 16%, respectively, and same-store sales rose 3.7%. All three of those key figures came in lower than Starbucks, and Panera Bread Co (NASDAQ:PNRA) also lowered its full year earnings and same-store sales guidance.
Some investors had expected Panera Bread’s bistro dining environment, espresso bar, and healthier fare like sandwiches, salads, soups and pasta to steal market share away from Starbucks’ light lunch crowd. Those predictions didn’t come true, although Panera’s “bistro effect” continues to make waves through the rest of the fast food industry, with companies like Wendy’s upgrading their restaurants to offer healthier sandwiches in a more upscale dining environment.
A more diverse menu
Although Starbucks fared much better than McDonald’s or Panera Bread this quarter, it continues diversifying its menu offerings to become a full-featured dining establishment focused on lighter fare. In April, the company added new, higher-priced sandwiches, salads and grain bowls to its menu. It also announced a partnership with Danone to produce Greek yogurt parfaits starting next year, in a bid to compete with dessert offerings at McDonald’s and other rivals.
Starbucks’ commitment to diversifying its menu options should keep it competitive and increase the company’s versatility if commodity prices rise or discretionary income wanes – two primary reasons that Starbucks nearly slid into unprofitability at the nadir of the economic crisis. It will also give it a competitive edge against other coffee and dessert contenders, such as Dunkin’ Brands, its subsidiary Baskin-Robbins, and Krispy Kreme.
The Foolish Bottom Line
For the full year, Starbucks increased its earnings forecast to $2.22 to $2.23 per share, up from its original forecast for $2.12 to $2.18 per share. Revenue is expected to rise 10% to 13%, in line with analyst estimates. In closing, let’s take a look at how Starbucks measures up to its industry peers.
5-year PEG | Trailing P/E | Price to Sales (ttm) | Debt to Equity
| Profit Margin | Qty. EPS Growth (y-o-y) | Qty. Revenue Growth (y-o-y) | |
Starbucks | 1.66 | 34.68 | 3.73 | 10.32 | 11.06% | 25.40% | 13.30% |
McDonald’s | 2.07 | 17.92 | 3.53 | 84.04 | 19.85% | 3.70% | 2.40% |
Panera Bread | 1.40 | 26.12 | 2.15 | No debt | 8.32% | 15.60% | 11.00% |
Advantage | Panera | McDonald’s | Panera | Panera | McDonald’s | Starbucks | Starbucks |
Source: Yahoo Finance, 7/30/2013
Although Panera is the cheapest based on five-year growth valuations, Starbucks has the best top and bottom line growth, reinforced by strong margins. At nearly 35 times trailing earnings, Starbucks looks considerably more expensive than either McDonald’s or Panera, but if Starbucks’ third quarter is a preview of things to come, that premium could be well justified. Starbucks’ ambitious global expansion and its strategic menu diversification indicate that today’s prices could seem like a bargain in retrospect.
The article Why Starbucks Is Effortlessly Taking Over the World originally appeared on Fool.com.
Leo Sun owns shares of Starbucks. The Motley Fool recommends McDonald’s, Panera Bread, and Starbucks. The Motley Fool owns shares of McDonald’s, Panera Bread, and Starbucks. Leo 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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