Is Starbucks a Buy After Acquiring Teavana?
Starbucks suffered its worst sell off of the year at the end of July when it posted third-quarter fiscal year 2012 results (calendar year is October-September) that came in below expectations and flat quarter over quarter earnings guidance for the fourth-quarter. The stock dropped 17.63 percent by August 2, and hasn’t broken $52 per share since.
Fourth-quarter earnings came pretty much exactly in line with estimates at $0.46 per share, a 24 percent increase year over year. Comparable-store sales rose 7 percent, revenue grew 11 percent, and the board raised the quarterly dividend by 24 percent, for a forward annual dividend rate of $0.84, or 1.7 percent.
On November 14, Starbucks announced its agreement to buy Teavana Holdings, Inc. (NYSE:TEA) for $620 million in cash, or $15.50 per share. Before the acquisition was announced, shares of Teavana had lost over 50 percent of their value year over year, and were trading just at just over $10 per share. The press release states that “Just as Starbucks pioneered a new retail experience for coffee and espresso, the company’s acquisition of Teavana provides the opportunity to do the same with the rapidly growing $40 billion global tea category.”
Many investors found the decision questionable, especially given the fact that Starbucks already owns the Tazo tea brand. However, the day after announcing the acquisition, Starbucks placated investors by announcing the repurchase of 25 million shares, adding to the 12.1 million approved for repurchase at the end of FY 2012.
H = High Quality Pipeline
Since its inception, Starbucks has aimed to become a “third place,” a space between home and work that serves as a casual community center.
The company is piloting new bakery items from La Boulange, a San Francisco baker chain that Starbucks bought over the summer. Starbucks is also launching an Evolution Juice Bar chain, targeted at capitalizing on the $50 billion health food market.
The company is experimenting with LEED-certified, drive-through and walk-up only modules. The retail units are prefabricated and standardized on the inside, but decorated entirely in local materials, and strive toward energy efficiency.
Starbucks is also leading the way in mobile payment processing, recently launching a partnership with Square that will soon take away the need for customers to even touch their wallets.
All of these initiatives will lead to future headlines helping the stock to move higher.