Starbucks Enhances Loyalty Program

Zacks

Starbucks Corporation (SBUX), in its recently held analyst meeting, discussed its plans to integrate the card and loyalty programs across new channels and brands. Moreover, the company re-affirmed its outlook for 2013.

Expanding Loyalty Program

Starbucks announced that from May onward, its customers will earn rewards points under the My Starbucks Rewards loyalty program on purchase of packaged coffee at its grocery channels. These can be redeemed later against food or beverages at Starbucks stores.

Moreover, benefits under the Starbucks loyalty cards and programswill now be extended to SBUX’s emerging brands. For example, from April onward customers will be able to use Starbucks cards as well as Starbucks mobile application at all Teavana stores and earn stars. The company acquired Atlanta-based Teavana Holdings, Inc., a specialty retailer of tea, for approximately $620 million in cash in fiscal 2012. Teavana has now become a wholly owned subsidiary of Starbucks.

Starbucks loyalty cards are gaining popularity and the company is adding around 80,000 new loyalty members a week. Starbucks aims to almost double its My Starbucks Rewards membership through such new loyalty program features. By the end of this fiscal year, the company expects to have 9 million members versus 4.5 million members at the end of Oct 2012.

Reaffirmation of Outlook

The company re-affirmed its fiscal 2013 revenue and earnings outlook provided at the first quarter 2013 conference call in January this year.

Overall, Starbucks has a bright outlook for fiscal 2013. The company expects continued robust top-line growth and margin expansion in the upcoming year driven by innovation, expansion of existing product portfolio and potentially favorable commodity costs.

For fiscal 2013, the company continues to expect revenues to grow in the range of 10%–13% driven by mid-single-digit comparable store sales growth, net new store openings and strong growth in the Channel Development business.  Starbucks expects its recent new platforms like Verismo, light Blonde Roast coffee, K-Cups, La Boulange bakery products, Evolution Fresh juices and Refreshers energy drinks, to continue to drive comps growth for the rest of 2013.

Operating margin is expected to expand approximately 100 bps year over year, driven by better operating leverage. Earnings are expected in the range of $2.06 to $2.15, up 15%–20%.

Starbucks has compelling growth drivers like La Boulange bakery products, Verismo at-home-coffee machine, Evolution Fresh juices, Teavana tea, and K-Cups portion packs to sustain earnings momentum in the upcoming quarters.

Coffee Farming Plant

Last week Starbucks announced the purchase of its first coffee farm, 240-hectare coffee plot in Costa Rica, which it plans to convert into a global agronomy research and development center. The farm will be used to grow new blends of coffee and supports Starbucks’ billion-dollar commitment to buy 100% ethically sourced coffee by 2015.

Other Stocks to Consider

Starbucks carries a Zacks Rank #3 (Hold). Some other stocks in the retail/restaurant industry that are currently doing well and are worth considering include Red Robin Gourmet Burgers Inc. (RRGB) – Zacks Rank #1 (Strong Buy), Burger King Worldwide, Inc. (BKW) – Zacks Rank #2 (Buy) and Dunkin' Brands Group, Inc. (DNKN) – Zacks Rank #2 (Buy).

Read the Full Research Report on SBUX

Read the Full Research Report on DNKN

Read the Full Research Report on BKW

Read the Full Research Report on RRGB

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