Starbucks SBUX ended its fiscal year in strong fashion, posting comparable-store sales improvement and operating margin expansion. We are encouraged by new growth opportunities in the U.S. segment and consumer product group segments, and we have greater confidence that cost-containment initiatives put in place over the past year will permanently reduce the firm's expense structure. As a result, we will raise our long-term operating margin growth assumptions and plan to modestly increase our fair value estimate. Consolidated comparable-store sales declined 1% for the quarter, an improvement from the 5% decline in the third quarter and the 8% drop in the second quarter. More important, we were encouraged that the average transaction size remained relatively flat in the United States, which indicates that new in-store food offerings and other merchandise assortment improvements were sufficient to offset the introduction of value-oriented products. We remain impressed by cost-containment initiatives, particularly with respect to labor optimization and waste-reduction efforts, and have raised our near-term margin expansion assumptions as a result. In our view, management's target of 15%-20% earnings per share growth for fiscal 2010 appears realistic, if not moderately conservative.We also remain optimistic about the early success of the VIA instant coffee platform, and we are intrigued by the firm's announcement that the Seattle's Best Coffee brand will be featured in more than 9,000 Subway locations by the end of the year. In our view, these initiatives could represent key growth opportunities for the firm during the next several years. Moreover, we expect these initiatives to be margin-accretive, which supports the decision to increase our long-term operating profit assumptions.
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Analyst Notes
07-22-09 | 9:31AM Positive Momentum for Starbucks in 3Q
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