July 27, 2014 in City

Motley Fool: Starbucks’ relentless growth keeps profits pouring in

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Associated Press photo

Pedestrians stroll past a Starbucks store in downtown Atlanta.
(Full-size photo)

Starbucks’ global empire features more than 20,000 stores, and its business is firing on all cylinders, offering little sign of market saturation or damage from competition. Even in the U.S., where Starbucks has reached a significant level of market penetration, same-store sales increased by a vigorous 6 percent during the quarter that ended March 30.

Total sales in the China/Asia-Pacific region jumped 24 percent in the quarter, with 174 net new store openings. China is on track to become Starbucks’ largest market outside of the U.S., and the company’s international growth is just getting started.

Starbucks is the leading mobile-payments retailer, with 14 percent of purchases now made with mobile phones. Recent acquisitions such as Teavana (teas), Evolution Fresh (juices, smoothies, soups and salads) and La Boulange (baked goods) provide a deep pipeline for innovation in coming years, as the company aims to become a lunch and dinner destination. Management is optimistic about an evening menu featuring wine, beer and more sophisticated food items.

Starbucks is also venturing into specialized sodas. Packaged products have proved to be another smart way to leverage the brand and expand into different sales channels and product categories.

Starbucks’ stock isn’t a screaming bargain right now, but the company has many growth drivers at work, and its stock can still reward long-term investors. (The Motley Fool owns and has recommended shares of Starbucks.)

Ask the Fool

Q: What does it mean when a company is taken private? – L.J., Shenandoah, Iowa

A: Think of how a company “goes public” via an initial public offering (IPO), selling a chunk of itself in shares on the stock market. Companies can go in the opposite direction, too, becoming private again if their shares are bought back and no longer trade publicly.

In 2011, Hugh Hefner took his company, Playboy Enterprises, private in a $207 million deal. In an effort to regain control over the company, and presumably because he thought its stock was undervalued, Hefner offered shareholders a premium over the going price. He had to raise his bid, too, to deflect other bidders.

Last year, Michael Dell, in partnership with a private equity firm, took his struggling computer company, Dell, private in a far-bigger, $25 billion deal. And right now, lululemon athletica founder Chip Wilson is looking into taking his company private, as well.

Q: Is “buy and hold” the best investment strategy? – K.V., Greenville, North Carolina

A: Super-investor Warren Buffett has said that his favorite time to sell is “never.”

But successful investing isn’t as simple as just never selling. Many have made millions by holding shares of great companies for decades, through ups and downs.

Think of it as buying to hold. In other words, don’t buy a stock and then just blindly hold it for years. You need to check up on your holdings regularly. Fortunes can change, even for the best companies.

So carefully select promising companies, intending to hang on for the long term – as long as they remain healthy and growing.

My dumbest investment

My dumbest investment was when I listened to my husband, who doesn’t know jack about stocks. He wanted to get in on Facebook when it had its initial public offering (IPO). So instead of listening to the buzz about the inflated IPO price, I bought and lost and … the second-dumbest investment was selling it! Live and learn. – S.C.S.

The Fool responds: Financial differences can sink many relationships, so it’s great to talk about money frequently and to get on the same page. Like many IPOs, Facebook shares opened high and then rose, before falling back to earth a bit later. The shares touched $45 on their first day, closing near $32 a week later and near $18 a few months after that. Of course, they’re above $60 now.

It is indeed risky to jump into IPOs in their first year or so, when they can be extra-volatile. There’s usually plenty of time to invest in great companies. With Facebook, you needed to study the company to determine what you thought the shares were worth. Selling was right – if you no longer had faith in its future.


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