20 Years of Pumpkin Spice, is it Just the Beginning?

Twenty years ago, an event that has grown into something resembling a religious experience was first birthed. And now each fall, faithful pilgrims make the solemn journey one chill morning to receive their sacrament…The Pumpkin Spiced Latte!

And with the high priest of this rapidly growing religion recently stepping down for what is likely the final time, it seems very appropriate in this season of pumpkin, to take a look at the church that now “lifelong Chairman Emeritus” Howard Schultz built, Starbucks (SBUX). 

As we celebrate the pumpkin latte, SBUX the company just opened its 37,000th new store. Starbucks has become a brand powerhouse across the entire globe, to put it lightly, since it first opened its doors in 1971. 

The first stop after your kid’s soccer match…Starbucks…need to celebrate a good day (or get a pick me up after a bad one)...Starbucks…need to work remotely but can’t be in the house because of yelling kids…Starbucks. The company has somehow turned “getting a Starbucks” into the go-to experience for almost every occasion. 

And the continued growth in earnings, and reliability, even in both good and bad economic times, reflects that brand ubiquity. To highlight its growth, just this quarter the company reported its rewards membership has surpassed 31 million people…and this is the incredible number…a 15% increase YoY. (Who knew there was anyone that didn’t have a Starbucks card?)

In the most recent quarter, same store sales increased 10%, with international sales increasing a whopping 24%. Net revenue increased to $9.2 billion (a record), up 12% YoY. 

Commenting on the quarter, Rachel Ruggeri, chief financial officer said, “I am pleased with our third quarter performance, which beat our expectations, including our International segment. Our performance was bolstered by the progress we are making against our strategies, specifically our Reinvention Plan, and it’s unfolding into tangible financial results, as we delivered earnings growth of 19% well above our revenue growth of 12%.”

This Reinvention Plan was introduced in late 2022, and includes a focus on its employees as well as new store designs and new systems for delivering drinks. Part of the plan included an upgrade of the Siren System: “Starbucks has redesigned its cold beverage station, which significantly reduces the time and number of steps to make cold beverages, unlocking productivity gains and ultimately freeing up time for partners to connect with customers.” 

The company continues to innovate and improve upon its systems through the Reinvention Plan, and that is clearly hitting both the top and bottom line. The company has upped both the number of transactions in its stores as well as the average ticket cost for a customer purchase. Ticket charges are up 6% YoY in the latest quarter, and the number of transactions internationally increased 21%. 

The company currently trades at a PE just under 28, and at just over 3 times sales. Starbucks has an overall B rating in our POWR Rating system, with its highest mark in the Quality component, where it scores at close to 90% better than all the stocks we track. 

For a long-term portfolio hold, a rejuvenated Starbucks doesn’t look like such a bad idea. Now go get that pumpkin spice latte!

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SBUX shares were trading at $91.92 per share on Thursday afternoon, up $0.77 (+0.84%). Year-to-date, SBUX has declined -5.91%, versus a 11.65% rise in the benchmark S&P 500 index during the same period.

After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.

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