However, it seems that costs have increased to such an extent that Starbucks’ chief financial officer warned that it would be “very challenging” for the company to meet the high 2007 earnings forecast, partly due to the increasing price of dairy. This resulted in a 3.9 per cent decrease in the price of shares. Despite this, same-store sales are still expected to rise three to seven per cent with net revenue growth of nearly 20 per cent. International store openings are expected to increase by 20 per cent annually over the next few years.
Deutsche Bank analyst Marc Greenberg stated that the increase in prices is a positive step for the company in offsetting higher costs in dairy, energy and rent. Although it may cause some decrease in sales in the short run, it allows Starbucks to improve cost leverage and quality of growth.
Without a doubt, these price hikes will cause some initial turbulence in the stock price, however, should aid the company in improving margins in 2008. I also feel confident that the company international exposure will further drive sales in coming years, particularly as additional stores act to leverage costs.
The Canadian Value Investor © 2007