Starbucks (Nasdaq:SBUX) is a very interesting company right now. On one hand, the company still has a huge presence and an impressive following, and it appears as if it will be a force well into the future. On the other hand, I think it has lost some of its luster as Americans have reigned in their spending, and other competitors could give it a run for its money down the line as well. The big-name coffee chain's second quarter results were a bit of a mixed bag too.
The Pros
The first and most obvious thing that stands out about the numbers was that its adjusted bottom line EPS came in at 16 cents, which was better than what analysts had been expecting. A look at the data indicates that it is the first time in a few quarters where it's come in north of expectations. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)
It's also encouraging to see what it had to say about cash flow. "Starbucks fiscal year 2009 cash from operations is expected to exceed $1 billion, with resulting free cash flow in excess of $500 million." Given the problems it's been experiencing and the economic malaise we are experiencing, that's pretty decent and should signal to the Street that the company isn't on the verge of going the way of the dodo.
The Cons
Its same-store sales were down 8%, which signals that the company is far from being out of the woods and is facing some pretty hefty headwinds. That's a pretty steep drop and something that needs to be reversed if it wants to lure in investors. Finally, its operating income dropped off a cliff in the period. It came in at $40.9 million, whereas in the comparable period from the previous year it generated $178.2 million. That's something I think its going to need to turn around too, if it wants analysts to seriously warm to the story.
Where from Here?
There are some attractive features that will help Starbucks survive and ultimately thrive. For one, its stores remain extremely convenient for many. Remember, it currently sports more than 11,000 company operated and licensed stores in the U.S. and more than 5,000 internationally. This is big and enables it to reach, obviously, an extraordinarily large number of people.
Bottom Line
Starbucks' second quarter sent some mixed messages. Overall, there are some positives that could enable it to be a force to be reckoned with down the road. Its vast store base remains an asset and I think its effort to offer value type deals to consumers could well pay off. (Find out which catalysts can turn struggling stocks around to create a tidy profit in our related article Turnaround Stocks: U-Turn To High Returns.)
