Starbucks (SBUX) has been firing on all cylinders for ages. The U.S.-based stores have been on a major roll, but not as strong as the China-based stores, as that market is on fire on its way to being the major growth engine for the company. Europe turned a year ago, ahead of the continent's nascent turn, and is now accelerating.
The tea initiatives, through Teavana, are just starting to kick in. Watch India. The changes in the menu are working, the consumer packaged-goods business continues to be among the fastest-growing in the supermarket aisle. The Roastery, the Seattle DisneyWorld of coffee, is brilliant because it shows that Starbucks understands craft coffee unlike, say, the beer giants that were caught totally off guard from that insurgency.
It's not just the stores that are doing well. The technology initiatives, the through-put improvements, they are well ahead of all others in retail. The gold standard. The company's been on a remarkable run that extends to innovate changes for employees, including college tuition programs, that are addressing retaining of the best of the best at a time when employment growth is heating up.
However, through all of these incredible moves, one niggling issue has stood out to bedevil not Starbucks, the company, but Starbucks, the stock: rising coffee prices. Because of a drought in Brazil, the price of Arabica beans skyrocketed last year, and even though CEO Howard Schultz emphasized again and again to me that the price of coffee would not matter much to the earnings, it became the Achilles heel to the story. The stock scared people and caused hedge funds to bet against it as the objection that one day Starbucks would have to come out and say, "Look, we can't raise prices more than we have because of our relations with our customers, so the price of coffee is truly going to hurt us," could not be refuted.
It didn't matter that Schultz told me the rise in coffee could be managed and hedged effectively or that it wasn't his first coffee rodeo. The clever people who try to guess where a company is going simply refused to recognize that Schultz knew more than they did.
Today we look at coffee and see it's dropped to the lowest price in a year, down to $1.58 and change. It's been a one-way ticket down since October, and during this period people have begun to focus on the amazing operating performance of the company as well as the astounding customer loyalty and profitable growth for all.
It's a shame the coffee-price issue obscured the story for so many but, once again, this kind of "one-way data point" thinking led people astray the way they were led astray by single data points for Skechers (SKX) and Columbia Sportswear (COLM) that showed business was weak when it was anything but.
Starbucks was, is and always will be about the experience, not the materials within the cup, as important as they are to those who love coffee. It will be about a third place to go after home and office, a warmth, a personalized drink -- how many of us have invented our own drinks and are greeted with them when our baristas see us coming? It will always be about loyalty. It will be about superior customer service and a partnership with customers like no other in retail.
It will not be about the price of coffee. Never will be. All that said, the stock bottomed at the peak of Arabica pricing. It's now off to the races with coffee at a year low. If you are buying Starbucks for that reason, though, let me emphasize you are as wrongheaded as those who sold the stock when coffee hit a high. If you like the product, then go listen to the conference call. Go read about the initiatives. Google the news flow. And then make up your mind about owning the stock long-term. That's how you invest in Starbucks. Not by checking the prosaic price of Arabica coffee.