In the military we called it lifer juice, but most people just call it by its proper name—coffee. Now, in the interest of full disclosure, I love coffee. My doctor says I drink too much of it, but I don’t care what he says. I can’t stop. I’m addicted, and apparently, I’m not the only one. How do I know this for certain? Easy, all I did was take a look at the recent earnings reports from the biggest coffee retailer.
Today we received word from the 800-lb coffee bean in the space, Starbucks (SBUX). The Seattle-Washington based java giant said its fiscal fourth-quarter profit surged to $150 million, or 24 cents per share, on an adjusted basis. That blows away the net income of $5.4 million, or 1 cent a share, the company earned in the same quarter a year ago. It also blows away consensus Street estimates for a quarterly profit of 21 cents per adjusted share.
Why Starbucks Will Benefit From a Weak Dollar
While Starbucks’ same-store sales fell 1% during the quarter, that decline pales in comparison to the 5% decline in fiscal Q3, and the 8% decline in fiscal Q2. Perhaps more importantly, the company increased its earnings growth target for fiscal 2010. Traders took the news like a triple-shot of espresso, drinking up SBUX shares in the after-hours session and sending the stock up nearly 5%.
The Research Says It All
I can’t say that I am really too surprised by Starbucks’ earnings beat, as I had the heads-up from the nearly always prescient ChangeWave Alliance Research Network. According to two recent Alliance surveys on restaurant spending, after four consecutive monthly surveys of virtually no change, we’re finally starting to see an increase in overall restaurant spending.
When respondents were asked specifically about their coffee-drinking habits, more than one-in-four (28%) reported they typically buy fresh-brewed coffee from a coffee shop or restaurant. The Alliance then took a close-up look at this group to find out where they’ll be spending those coffee dollars over the next 90 days.
For the second consecutive survey, Starbucks experienced the biggest improvement of any coffee shop or restaurant surveyed. And once again, the company has proved the clear momentum winner in the coffee drinkers’ sweepstakes. I think if you want to brew up some profits in your portfolio, you should definitely consider adding SBUX shares to your buy list. But Starbucks isn’t the only cup of Joe on investors’ tables.
This week we found out that Caribou Coffee Company, Inc. (CBOU) bested consensus Street estimates by delivering a third-quarter profit of 3 cents per share, well above the forecast for earnings of just 1 cent per share. Caribou is perhaps the least well known of the coffee stocks, but that shouldn’t deter you from taking a sip from their cup. The Minneapolis, Minnesota-based company is the second largest company-owned gourmet coffeehouse operator in the United States based on the number of coffeehouses.
At the end of Q1, 2009, Caribou Coffee had 515 coffeehouses, including 101 franchised locations. Like Starbucks, the company offers high-quality gourmet coffee and espresso-based beverages, as well as specialty teas, baked goods, whole bean coffee, branded merchandise and related products. I think this stock is one to watch, especially if you’re a coffee stock junkie like me.
I’ll Take My Merger with Cream
Of course, the real big news in the coffee space didn’t come from earnings, but rather from a java-selling merger. Late Monday, Emeryville, California-based Peet’s Coffee & Tea (PEET) announced that it was buying out Irvine, California-based Diedrich Coffee (DDRX) for $26 a share. Diedrich is by no means a big player in the coffee business, but that doesn’t mean the acquisition won’t help Peet’s.
Diedrich’s business is focused on the lucrative K-Cups for the Keurig single-cup brewing system. In March, Diedrich made a wise decision to jettison its Gloria Jean’s stores and focus instead on K-Cups.
Just what are K-Cups? Well, they’re the single-cup coffee pods that fit into Green Mountain Coffee Roasters’ (GMCR) popular Keurig system. With demand increasing for specialty coffees in homes, restaurants and offices, it’s no wonder Peet’s wants to brew up its revenue from this growing segment of the coffee aisle. I liked Peet’s shares before the Diedrich buyout, and I like them even more now.
So, there you have it, several coffee houses to choose from, and several coffee stocks to buy. Hey, what more could a coffee—and a coffee stock—junkie ask for?
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