Starbucks_cup-300x197Sure, you’ve heard everybody knock Starbucks coffee. It’s too expensive. It’s too foo-foo – chai this, latte that. McDonald’s is cheaper and better. Dunkin’ Donuts is definitely cheaper and better. The king is dead….well, no, he is not.

Starbucks (SBUX)  is back where it should be – on the top of the heap, the best, most profitable and fastest-growing purveyor of coffee and community in the country. Yes, community. More on that in a minute.

Starbucks announced Q4 earnings on Thursday:  Profits rose 10.2% to almost $347 million on a revenue increase, and get this, of more than 16% to $3.44 billion.  No recession for all those baristas.  Both numbers easily beat Wall Street expectations.

Strong  2012 outlook  for Starbucks

That is the past – what about 2012 and beyond?

A recent survey by ChangeWave Research (part of the 451 Group) shows business in Q1 is going to be better than expected. Of the 28% of respondents who buy freshly brewed coffee, 12% responded they will spend more over the next 90 days, three points more than in August, and 19% said they will spend less, six points fewer than in August, a nine point swing that in the context of ChangeWave survey data is very large and bullish.

Looking backwards, the survey shows Starbucks took a massive turn upward in consumer preferences and spending in the August-to-December time frame. They are now at an all-time high among consumers responding to ChangeWave surveys and these Q4 earnings are not a surprise. What is a surprise is that Wall Street is surprised – all those laid-off analysts have to get their coffee somewhere, right?

In the home-brewed category, SBUX is still the market share leader and Green Mountain Coffee Roasters (GMCR) increased its lead in the “pod” single-cup market by eight points of share. That is a lot.

SBUX-Chart

Starbucks, normality and community

Why is this happening? People are getting back to normal in The New Normal – and even in tough times, people like to treat themselves. Good, expensive coffee is a treat. I remember during the last bad downturn you could see many workmen having vente lattes (gotta go with the appropriate lingo), foregoing lunch.

More importantly for investors, not just traders, Starbucks has returned to being what it pushed it to the top of the heap – it is a community place. The shops near me – three within a mile and a half – are packed with people working, chatting, chatting with strangers, reading e-mail, whatever. And convincing themselves they are saving money not buying the data plan for their iPad because WiFi is free and they would get their coffee anyway. Right?

GMCR is another story. At 20-24 times 2012 earnings, and having found a bottom after a serious crash in the stock, it looks attractive as well. If you are leery of the volatility in the stock, the premiums on the puts are outrageous. One way to play the stock is to sell puts well out of the money. They will still generate lots of cash.

For purposes of full disclosure, I am a loyal SBUX coffee drinker, a grande half-calf every afternoon, plus we serve the decaf at home after dinner. Our morning coffee? Our own blend of two not-so-hard-to-find but not common store brands, the same for the past 30 years.

SBUX could and should break-out with this earnings news and the good news will continue in 2012.

 

 

 

 

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