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[Beginning of
Cramer's
verbatim
comments for
this segment...]
Jim:
Okay look... I'd
like a triple
venti cappuccino
with skim,
wet... Are you
nodding because
you've got that
order?... triple
venti cappuccino
with skim...
wet... that
means... Oh
jeez... sorry...
At long last
Starbucks Corp.
(SBUX)
seems to have
turned... And I
think that turn
is for real...
This is not just
a stock that's
been slapped
around by slings
and arrows... if
not howitzers of
the weak
economy... No...
SBUX, the stock,
has been in
decline for
years... This
was the classic
example of a
growth stock
that reached its
peak... and
couldn't expand
fast enough to
impress the
growth
chasing... oh,
scratch that...
the growth
addicted money
managers on Wall
Street... SBUX
had saturated
the country...
with one or two
on every corner
seemingly... so
the growth
managers kept
selling and
selling and
selling the
stock ever since
the end of
2006...
Now, it can take
years for a growth
stock to finish
dying... But,
eventually if the
brand is solid, and
the company knows
how to execute...
its stock starts to
attract a different
kind of buyer... the
value investors...
that's SBUX... it
was a growth
caterpillar that
couldn't get off the
ground... And this
week, I think it
turned... I think it
turned into a
beautiful value
butterfly... A stock
that can really get
some lift... Yes,
ladies and
gentleman... the
SBUX turnaround is
finally here... Or
at least that was my
takeaway from the
better than expected
quarter the company
reported on Tuesday
after the close of
the market...
Okay... SBUX didn't
beat the Street's
expectations...
Thanks to stronger
than expected
business... meaning
sales... It's a
company that's
realized the take no
prisoners nature of
this market...
amazing... this is
SBUX... it never
used to be like
that... The take no
prisoners market is
where stock guru
Billy Paul reminds
us that only the
strong survive...
with a Cramer
addendum... only the
ruthless thrive...
Like a good value
stock, SBUX
aggressively cut
costs, and also
improved its margins
by implementing as
series of process
improvements at its
stores using lean
principles... In
2010 management says
it expects the cost
savings to reach
over $700 million...
which means three
quarters of its
earnings per share
growth next year
could come from cost
cuts alone... and we
know from the action
during this
reporting period...
investors are
thrilled with
earnings growth...
even if its sales
aren't so hot...
This quarter same
store sales were
down 6% in the US,
down 2%
internationally...
And while SBUX said
that each month of
the quarter showed
improvement in some
same store sales...
they were still
negative.
You know what?... It
doesn't matter...
The numbers per
month are going in
the right
direction... And
this is a company
that is trading in
sales for profits...
That's what the
market wants... and
Howard Schultz knows
that... It's
working... SBUX is
turning things
around... and a big
part of that is the
return of
Cramer-fave Howard
Schultz... the man
who made
Starbucks Corp.
(SBUX)
into a national
brand as CEO in
January of 2008
after he stepped
away from the
day-to-day
operations in
2000...
When Schultz
originally ran the
company... the stock
increased over 1000%
from the IPO in 1992
to when he resigned
from the helm...
It's taken him some
time... his 2008 was
really a rough year
for SBUX... the
stock fell as low as
$7.17 on October 20
of 2008... Of
course, many other
stocks went down at
that point too...
But now the stock is
back... $17.22... So
it's up 140% from
the '08 low...
thanks again to
largely Schultz's
effort to rebrand
the company and
focus on the
customer... SBUX has
a new approach to
store design... It's
supposed to make
customers feel the
words "more at
home"... It's
testing out the
addition of wine and
beer to the menu at
one of its Seattle
stores, that it has
renamed in order to
give it a more local
feel... And, in
general, the company
is trying to source
its materials
locally and
emphasize the
character of its
surrounding
neighborhood at its
new or renovated
locations...
This is something I
might have scoffed
at a year or two
ago... but it fits
perfectly into
restauranteur Danny
Meyer's hospitality
quotient thesis...
remember, he's the
guy setting the
table... he's our
guru of
restaurants...
customers shop more
at places, Danny
says, that they feel
more at home...
places that fit
right into the
neighborhood...
places, in other
words, that do
exactly what SBUX is
trying to do...
In the past... Danny
Meyers had objected
to SBUX... because
he was worried about
overexpansion... too
many stores that
lack the hospitality
factor... and not
enough qualified
workers to make it
feel good... to make
it happen....
But now that Howard
Schultz is behind
the wheel... that
problem is being
addressed... By the
end of the year SBUX
will have... and I
think this is good
news... I know it's
going to sound
strange... good
news... they will
have closed 800
unprofitable stores
in the U.S.... they
intend to close 100
stores
internationally...
The company still
expects to grow its
store count year
after year, but most
of its growth will
be international...
SBUX still has less
than 1% of that
market...
The company also has
a host of new
products and
initiatives that I
think are going to
work... On June 30th
it rolled out its
new high-quality
healthy food
program... Try the
Vivanno smoothie...
I think we've got
one... Let me just
give it a taste...
Two thumbs up... As
well as some cheaper
coffee options...
That's right. A
grande iced coffee
for $2... Now the
triple venti
cappuccino with skim
wet that was botched
by this barista hack
that I have...
that's $4.97...
That's too
expensive...
Then there's the
Via... This is the
company's approach
to instant coffee...
remember NesCafe?...
This is a $17
billion market
that's ripe for
renovation and where
a powerful brand
like SBUX could
carry a lot of
sway... VIA launches
this fall... and
it's something I
would want to get
into the stock ahead
of... as its results
from its test
markets in Chicago,
Seattle and London
have been great. If
SBUX can reinvent
its instant coffee
the same way it
reinvented the
coffee shop... come
on, man... that's
gigantic.
You know, I search
for analogies... the
turnaround at SBUX
is remarkably like
what happened with
McDonald's
(MCD*)
earlier in the
previous decade...
from 1997 to 2002
the stores went
downhill... and so
did the stock price.
By March 12th of
2003 MCD had gone
down to $12... down
from $45 bucks in
1999...
Then, the company
did exactly what
Starbucks Corp.
(SBUX)
is doing now...
Focusing on
improving the brand,
the customer
experience, no
longer own growth...
okay?... and then
its stock finally
started booming
after the bottom in
March of 2003.
Remember... focus on
customer... no more
growth... experience
of the customer...
And, you know
what?... That's
about the same
amount time it took
for Schultz to get
things back on track
at SBUX... which, by
the way, he told me
would happen, when
we had an offline
conversation of how
long he told me it
would be... because
I didn't want SBUX
stock to go down
anymore.
If I were you I'd be
buying some SBUX
again... The company
is showing that it
can ruthlessly cut
costs with the best
of them... something
I thought Howard
never could do... I
always felt Howard
was a bit of a
socialist,
frankly... And if it
can perform well in
this environment,
then you know it can
do much better when
things recover...
Beyond his focus on
boosting his profits
rather than sales
he's got a whole
host of new
initiatives... any
one of which could
catapult the stock
higher if it
works...
Plus, all of the
growth hands have
been shaken out of
the stock... new
shareholder base
made up of value
investors... they're
not going to sell
the stock at the
drop of a hat... The
stock is at 19.5
times 2010
earnings...
management's
guidance at 13-18%
growth in 2010... I
think it beats that,
given Schultz's
masterminding
turnaround...
Yeah... so 19 and a
half multiple... 18%
growth... come on...
even with 15% growth
I think it's
inexpensive...
▼ ▼
▼ ▼
▼
 The Bottom Line!:
The turn at
Starbucks Corp.
(SBUX)
is real... The
company has gotten
with the ruthless
cost cutting
program... It's got
initiatives to
improve its store's
new product,
including VIA
instant coffee,
which I think is
sure to be a
success... and a
strategy to expand
without spending
much, much money...
SBUX, once again, I
am proud to say, is
a buy, buy, buy.
[verbatim recap]
[end of segment]
Read Jim's next Segment
here
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