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Thursday, October 05, 2006

Starbucks Traders Need to Switch to Decaf

By William Trent, CFA of Stock Market Beat

One month ago we wrote about what we considered the Silliness Surrounding Starbucks’ Same Store Sales. At the time, we said:
This is getting to be a monthly phenomenon - Starbucks reacting in apparently random fashion to the release of its same store sales results.

Yesterday was no different. The stock rose during regular trading and popped nearly one percent after hours on the release of their data, prompting to proclaim “Starbucks Sales Improve.”
August same-store sales rose 5%, in the middle of its targeted range of 3% to 7%.
The results represent an improvement over July, which saw 4% same-store sales growth. The July results were largely viewed as a disappointment and a sign the chain’s growth may be decelerating.

So 4 percent marks deceleration and a disappointment, while 5 percent is improving? Well, we guess so… but both are within the 3-7% range the company has issued as their official expectations. Sounds more like noise to us.

In the month since we wrote that, exactly nothing has changed. Witness:
Shares of the world’s largest specialty coffee chain climbed $1.95, or 5.7 percent, to close at $35.96 on the Nasdaq Stock Market, its highest close since early July, then rose another $1.67, or 4.6 percent, to $37.63 in after-hours trading.In a report after markets closed for regular trading, Starbucks said sales at stores open at least 13 months increased 6 percent for the five weeks ended Oct. 1, compared to the same period ended Oct. 2, 2005. Analysts polled by Thomson Financial had predicted same-store sales would increase 3.3 percent.

Still within the 3-7% range, but this time enough for a rally of more than 10%. Time to switch to decaf.

Disclosure: Author owns shares of Starbucks common stock, and has written covered calls to hedge half of the position.

The author may hold a position in the securities discussed. A current list of the author's holdings is available here.

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