NEW DIRECTIONAL CALL PLAYS
Starbucks Corp. - SBUX - close: 89.64 change: +0.94
Stop Loss: 85.80
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.1 million
Entry on February -- at $---.--
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.
A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.
The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.
Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:
"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."
"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."
The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years
They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.
Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.
The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.
SBUX is having a pretty good 2015 so far with the stock up +8.1%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pop. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.
SBUX said their worldwide comparable store sales rose +5% while traffic only rose +2%. It was the 20th consecutive period that same-store sales were up +5% or more. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.
SBUX's guidance was pretty lackluster but Wall Street didn't care. The company actually guided down for the Q2 2015 (current quarter) as they expect earnings in the $0.64-0.65 range. Analysts' were expecting $0.68 a share. SBUX also provided 2015 guidance of $3.09-3.13 versus Wall Street's estimate of $3.12. The company is still projecting 2015 sales growth of 16% to 18% as they see sales ramping up in the second half of 2015. They also updated their outlook on China as they plan to add 3,400 stores by 2019.
Investor sentiment on SBUX is bullish. Shares have not seen barely any profit taking following its post-earnings pop. Now, after two weeks of digesting gains, the stock is pushing higher and poised to breakout past resistance at $90.00. The point & figure chart is bullish and forecasting at $104.00 target.
Tonight we are suggesting a trigger to buy calls at $90.25 with an initial stop loss at $85.80.
Trigger @ 90.25
- Suggested Positions -
Buy the Apr $95 CALL (SBUX150417C95) current ask $1.00
Option Format: symbol-year-month-day-call-strike