Starbucks Corporation (SBUX - Analyst Report) expanded its footprints in Latin America by opening its first store in Costa Rica and first Farmer Support Center in Colombia. These are strategic initiatives undertaken by the company to expand its reach among consumers in these regions.
Latin America acts as one of the major suppliers of coffee beans to Starbucks. The opening of another Farmer Support Center will strengthen the company’s relation with the farmers and the community. Agronomists and quality experts will help the coffee farmers by providing resources and expertise required to produce good quality coffee.
The company had previously opened Farmer Support Centers in San Jose, Costa Rica in 2004. Other than Latin America, the company has also opened Farmer Support Center in Kigali, Rwanda in 2009 and plans to open a Farmer Support Center in Yunnan, China later this year.
Starbucks presently has 560 operating stores in Latin America. The company is opening its first store in Costa Rica, through a joint-venture with Corporación de Franquicias Americanas (CFA). Starbucks intends to open more than 300 new stores in Argentina and Mexico by 2015. Brazil is also important for the company’s long term growth. From 2010, the company has taken full possession of its business in Brazil and intends to open many more stores within the coming five years.
The company intends to increase its global market share by judiciously opening stores in new and existing markets, generating more revenue from existing stores, controlling costs and brand building. The company expects that 1000 new stores will to be opened in fiscal 2012 with 500 in the Americas (includes operations in US, Canada, and Latin America), 400 in China-Asia-Pacific (CAP) region and 100 in Middle East and Africa (EMEA) region. Of the 400 stores targeted for the CAP region, more than half will be opened in China.
The company expects the earnings to be in the range of $1.81–$1.84 in fiscal 2012, representing annualized growth of 19% to 21%. Earnings are expected to be stronger in the latter half of the year as management expects commodity cost pressures to ease in this period. The Zacks Consensus Estimate is 46 cents for the third quarter of fiscal 2012, and $1.84 for the fiscal 2012.
We are optimistic about the growing demand for Starbucks’ products and the company’s strategy to open new stores along with including new segments of bread and juice into its portfolio. However, increase in commodity costs, especially coffee, might have a negative impact on the company’s performance.
Starbucks carries a Zacks #3 Rank in the near term (Hold rating). One of its strongest competitors, Jamba Inc. (JMBA - Snapshot Report) currently has a Zacks #1 Rank in the near term (Strong Buy rating).
Based in Seattle, Starbucks Corporation is the leading retailer of specialty coffee worldwide. The company buys and roasts high-quality whole bean coffees, which are sold along with handcrafted coffee and tea beverages and a variety of fresh food items.
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