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Starbucks Prices Senior Notes

Zacks Equity Research

Coffee company, Starbucks Corporation (SBUX) recently announced the pricing of senior notes worth $400 million due 2016 and $350 million due 2018. The $400 million offering carries an interest rate of 0.875%, while the $350 million offering carries an interest rate of 2.000%. The offering is expected to close on Dec 5, 2013.

Starbucks intends to use the net proceeds for the payment of an arbitration award in the Kraft Foods Group, Inc. (KRFT) litigation matter. The remaining net proceeds would be used to meet other general corporate expenses, which may include dividend payments on common stock, repurchase of common stock under the ongoing share repurchase program, funding any future acquisitions and other business expansion.

Starbucks is continuously expanding its store base outside the U.S. — especially in the Asian market — buoyed by the increasing popularity of its Starbucks brand across Asia. The relatively low per-capita consumption of these markets as well as a burgeoning middle class with rising income levels promise significant growth potential as they increase the demand for convenience food and beverages. In Nov 2013, Starbucks announced the opening of yet another store in the lucrative Indian market.

Starbucks' business in China is rapidly growing and the region is expected to become the company’s second-largest market by 2014. The company is planning to take the store count in this region to 1,500 in 70 cities by 2015. Starbucks opened its first store in Vietnam this year. Further, it plans to open 100 stores each in Indonesia and Philippines over the next 3–4 years.

Starbucks carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail/restaurant sector include Buffalo Wild Wings Inc. (BWLD) and Cracker Barrel Old Country Store, Inc. (CBRL). Both the companies carry a Zacks Rank #2 (Buy).

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