(SBUX) Starbucks Boosts Presence in China

Starbucks Corporation (SBUX), in pursuit of its aim to launch 1,500 coffee shops in China, recently announced the opening of its 100th store in Beijing. The company also announced the launch of Starbucks China University, a program aimed to enhance the coffee and service expertise of its employees.

The new store in Beijing is located at the Solana International Business District and is staffed by certified employees, nicknamed as Starbucks Coffee Masters by the company.

Starbucks opened its first store in Beijing, also the first in China, in 1999. Currently, the coffee giant owns 700 stores in Mainland China and plans to have 1,500 stores across more than 70 cities in the country by 2015.Starbucks’ business in China is rapidly growing and the region is expected to become the company’s second-largest market by 2014.

The Starbucks brand is gaining popularity among consumers across Asia and the company is continuously expanding its store base outside U.S.  Management believes the China Asia-Pacific (CAP) region will drive significantly higher business growth over the next five years. Following the strong fiscal third quarter 2012 performance; this region has produced strong double digit comps for 10 consecutive quarters now. Of the 400 and 500 stores targeted to be opened in the CAP region in fiscal 2012 and 2013, respectively, more than half will be opened in China alone.

Our Recommendation

We currently have a long-term Neutral recommendation on Starbucks, supported by a Zacks #3 Rank (a short-term Hold rating).

Starbucks’ fiscal fourth quarter earnings were much better than the past quarter driven by solid-top line growth and margin expansion. Following the solid fourth quarter results, Starbucks upped its forecast for earnings, operating margins and global net new stores for fiscal 2013. We are encouraged by Starbucks’ strong market position, new product launches, rapid growth in China and the flourishing Channel Development segment as well as solid turnaround in its U.S. business.  However, poor sales performance in Europe due to depressed macroeconomic conditions keeps us on the sidelines.

Peer company, Green Mountain Coffee Roasters Inc (GMCR), carrying a Zacks #4 Rank (a short term ‘Sell’ rating), announced impressive fourth quarter results this week, beating the Zacks Consensus Estimate for both sales and earnings.

Read the full analyst report on “SBUX”
Read the full analyst report on “GMCR”
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