On June 26, 1992, Starbucks’ stock (SBUX) began trading 2.1 million shares on the public market at a price of $17 per share. The stock has had six 2-for-1 stock splits since its IPO, so the IPO price was really around $1.40 per share. Twenty-seven years later, Starbucks’ stock now pays out more in annual dividends than the cost of purchasing the stock. Invest $1,000 in Starbucks stock in 1992? You get over $1,000 in dividends today. Also, your $1,000 investment would have grown to $82,000 due to a combination of capital appreciation and dividends paid out.
Of course, the most important question to figure out is what signal identified Starbucks as a great investment in the 1990s, early 2000s, and through the present. I would argue that what has distinguished Starbucks from, say, many of the burger outfits that have had an IPO over the past five years is the growth in same-store sales because that is the sign of a great brand.
From 1992 through 2002, Starbucks had 8.4% same store sales growth. From 2002 through 2012, it had 7.9% same store sales growth. And over the past ten years, Starbucks has reported 7.3% same store sales growth. And this is in addition to the 7% growth in actual stores that have occurred since 2000. With some price bulk pricing available as the company shifted from doing a few billion in annual revenue to hundreds of billions of annual revenue, another 2% hit the bottom line in the form of better pricing so the company has been able to deliver 16% annual earnings per share growth over the long haul.
When we talk about “brands” as an investment category, it only takes on great importance when it is tied to the ability to exercise pricing power. We’ve all heard of the “Hamburger Helper” brand, but that doesn’t translate into any pricing power. The price has gone up 0.5% annually since 1992, adjusted for inflation. We’ve all heard of “Jell-O”, but it’s price has gone up 0.3% annually over the same time adjusted for inflation. Meanwhile, the cost of Starbucks’ coffee has gone up 5% annually at existing stores over the same time frame, plus, more complex beverages and pastry options have delivered the 7-8% same store sales growth. If you want to make those buy-and-hold forever investments, look to businesses that can and do raise their prices. Same store sales growth over long periods of time is a great data point to evaluate when identifying such an investment. There are many coffee millionaires to be made.
