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Davidson Kempner sells position in Starbucks

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Davidson Kempner and Starbucks

Davidson Kempner Capital Management added new positions in Shire Plc (SHPG), Alibaba Group Holding (BABA), and CBS Corporation (CBS). It exited positions in The Walgreen Company (WAG), Yum! Brands, Inc. (YUM), and Starbucks Corporation (SBUX). The fund added to its positions in Signet Jewelers Limited (SIG) and Allegion Plc (ALLE). It lowered its stakes in Lamar Advertising Company (LAMR) and Tiffany & Co. (TIF).

Davidson Kempner closed its position in Starbucks Corporation (SBUX), which accounted for 0.68% of the fund’s 2Q14 portfolio.

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Starbucks: An overview

Starbucks Corporation (SBUX) was formed in 1985. It sells handcrafted coffees, other beverages, and food items at its company-operated stores. Starbucks also sells its products through grocery and licensed stores. Along with its branded products, Starbucks sells items under brands such as Tazo, Starbucks VIA, Teavana, Evolution Fresh, Seattle’s Best Coffee, Verismo, and La Boulange.

America’s segment drives up 3Q14 results

Starbucks reported 4Q14 revenues of $4.1 billion from its company-operated stores, licensed stores, and consumer packaged goods, food services, and other, each representing 80%, 9%, and 11% of revenues, respectively. Net revenue saw a 10% increase from $3.8 billion in the same quarter last year.

Net income for the quarter was $587 million, which gave the company a net profit margin of 14%. The growth in net income was due to higher same-store sales and unit growth.

Starbucks reported a same-store sales growth of 5% for its 10,713 company-operated stores open for 13 months or longer around the world.

By geographic segments, Starbucks’ America’s segment contributed 74%, while its Europe, Middle East, and Africa (or EMEA) segment and China/Asia Pacific segment contributed 5% and 7%, respectively, to Starbucks’ 4Q14 revenues.

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Investors sell Starbucks after fourth-quarter results

Starbucks Corporation (SBUX) reported its earnings on October 30, 2014, after the market closed. Shares began trading at $75.25 the next day when shares were down 2.6% from the previous day’s closing of $77.32. The day’s high and low were $76.74 and $74.92, respectively.

Share volume was ~18 million shares compared to the 50-day average daily volume of ~4 million shares. Starbucks closed flat at $75.56, according to NASDAQ.

Product innovation and offerings expansion

In 4Q14, Starbucks opened its sixth Teavana Teabar in New York City. Starbucks plans to capture the tea beverage market with an approach similar to its coffee stores. According to Starbucks’ management, the tea beverage industry is a $90-billion industry.

In addition, Starbucks introduced a carbonated drink called Fizzio into 3,000 of its stores in the United States. The company plans to launch these differentiated products in various international markets going forward.

Starbucks will also be expanding its micro lot rare and exclusive reserve coffee. Management stated that the company will offer one micro lot reserve coffee, which the company will develop on its own farm in Costa Rica. Through the micro lot, Starbucks will have an offering to the premium coffee segment.

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