Street Expectations for Starbucks (SBUX) Are Very Low, Despite Recent Initiatives -Barron's

An article published in this weekend's edition of Barron's touts shares of Starbucks (Nasdaq: SBUX), which are down nearly 30% year-to-date and down more than 40% over the last year. The article points out several interesting reasons why something could be brewing at Starbucks.

While food-service companies such as McDonald's (NYSE: MCD) and Dunkin' Donuts have recently stole market share from Starbucks by bringing coffee products to mainstream customers, Starbucks CEO, Howard Schultz, believes that customers will soon start to trade up to Starbuck's more distinguished coffee flavors. With beverage sales accounting for about 75% of Starbucks' sales, the CEO also believes that healthier breakfast options will create a huge opportunity within the food segment for the classically beverage-oriented restaurant.

The article also points out that Starbucks has several ideas in its pipeline that will create more value for consumers. The company is currently working on such promotions as prepaid cards with certain perks, and a surprise card program which CEO, Schultz feels will be a "surprise and delight" for customers. Starbucks also recently has been offering free in-store WiFi to preferred customers. The company is currently estimating that its new ideas and promotions could raise same-store sales growth into the mid-single digits, while simultaneously cutting costs.

Also adding to the cost cutting effort, Starbucks announced a massive plan to close about 600 stores recently, consequently cutting about 1,000 non-store jobs. Starbucks estimates that the initiative will save up to $200-$210 million per year, effectively adding $0.17-$0.18 per share to earnings. Moreover, the company has said that about 70% of its store closings are within 3 miles of another Starbucks, meaning that the remaining retail outlets will likely see increased traffic.

The article concludes by noting Starbucks' Annual Leadership conference will be held at the end of October, at which time management will unveil to employees its initiatives for this year's holiday season and next year. With expectations very low, Barron's hints at the fact that if analyst's are surprised, the stock could be jumping substantially higher.

Starbucks Corporation engages in the purchase, roasting, and sale of whole bean coffees worldwide.

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