Is Starbucks (SBUX) making Money?

It is time to ask is Starbucks (SBUX) making money because its former CEO Howard Schultz is running for president.

Obviously, Schultz; like Donald J. Trump (R-New York), is basing his presidential run on business expertise. Thus, it is an excellent time to look at Starbucks (NASDAQ: SBUX) to see how successful an executive Schultz is.

Fortunately, Starbucks; unlike the Trump organization, is a publicly traded business. Hence, we can learn if Starbucks is making money and how well it is doing.

Is Starbucks (SBUX) making money today?

A present Starbucks (SBUX) is making money. In fact, Starbucks reports a gross profit of $3.874 billion on revenues of $6.632 billion for 4th Quarter 2018.

In addition, Starbucks revenues grew at a rate of 9.2% during 4th Quarter 2018. Impressively, Starbucks records an operating income of $947 million, a net income of $760 million, and a gross margin of 58.41% for 4th Quarter 2018.

Hence, Starbucks is making money on its coffee shops right now. However, I must note that Schultz is not responsible for these numbers. Instead, the present Chief Executive Officer (CEO) Kevin Johnson is. To clarify matters, Johnson took over at Starbucks in April 2017.

Starbucks (SBUX) is a cash-rich company

Starbucks is a cash-rich company because it reports an operating cash flow of $2.379 billion and a free cash flow of $1.947 billion for 4th Quarter 2018. Moreover, Starbucks has a lot of money in the bank.

In fact, Starbucks had $4.761 billion in cash and equivalents and $230.2 million in cash on 30 December 2018. Therefore, Starbucks had $4.991 billion in cash at the end of 2018.

That is a large amount of cash for a brick and mortar retailer to accumulate. Comparatively, Kroger (NYSE: KR) had $439 million in cash and equivalents on 10 November 2018. However, Kroger reports revenues of $27.672 billion for 4th Quarter 2018.

Is Starbucks (SBUX) a value investment?

Therefore, Starbucks is a superb company and a potential value investment at the $68.80 share price reported on 7 February 2019.

I think Starbucks is a possible value investment because of its huge footprint. For instance, Starbucks operated 2,324 stores worldwide in 2018, Statista calculates.

The United States has the most Starbucks stores in the world with 14,606 locations. However, many of those coffee shops are inside other realtors such as Target (NYSE: TGT) and Kroger stores.

Starbucks (SBUX) goes digital and taps data

Like Kroger (KR), Starbucks is growing its business with digital technology and rewards.

For example, the Starbucks Rewards program had 15.3 million members in 2018 up from 13.3 million in 2017, CNBC calculates. Importantly, Starbucks Rewards drove 40% of the chain’s business in 2018.

Rewards points are important because they offer a vast amount of data about customers. Starbucks can use that data to improve its business or sell the data to other companies. Thus, Starbucks can tap the “oil of the 21st Century,” as The Economist calls consumer data with its rewards points.

Starbucks taps Delivery and Rewards

Besides rewards, Starbucks is partnering with Uber Eats for coffee delivery. Moreover, there are plans to bring Starbucks Delivery to one-fourth of US Starbucks locations or around 3,651 stores, CNBC reports.

Importantly, Starbucks claims delivery orders are 2.5 to three times larger than in-store purchases. Thus, offering tired office workers their caffeine jolt in their cubicles is a smart move for Starbucks.

In addition, Starbucks can use Rewards to drive more delivery business. A long-term source of revenue is allowing Uber Eats users to order Starbucks drinks with food from other restaurants. For instance, you could order a Red Robin burger and a Starbucks iced tea.

How Amazon (AMZN) Threatens Starbucks

Unfortunately, Amazon (NASDAQ: AMZN) is coming for Starbucks business. To explain, Amazon plans to spend several billion dollars to open over 3,000 GO convenience stores by 2021.

Amazon Go is an automated convenience store that threatens Starbucks because it sells coffee and other hot drinks. Unlike, Starbucks Go sells a wide variety of prepared foods.

The GO is cheap to open and operate because it has no cashiers. Instead of cashiers, customers pay for everything with smartphones. In addition, GO can be located in public places like airports, train stations, big box stores, and office buildings.

How Amazon Prime threatens Starbucks (SBUX)

Moreover, Amazon can deliver coffee from its Whole Foods subsidiary through its Amazon Restaurants. Thus, Prime Coffee could be a huge direct menace to Starbucks Delivery.

Moreover, Amazon can deliver coffee from its Whole Foods subsidiary through its Amazon Restaurants. Thus, Prime Coffee could be a huge direct menace to Starbucks Delivery.

Plus, Amazon could drive business by delivering a wide variety of other items, such as office supplies, with coffee. Therefore, Amazon could quickly become Starbucks biggest competitor.

Starbucks (SBUX) is a good dividend stock

I think Starbucks is still a good stock for an income portfolio because of its growing dividend.

The next Starbucks dividend is 36¢ scheduled for payment on February 22, 2019. Impressively the Starbucks dividend grew by 6¢ in 2018 and 5¢ in 2017. In detail, Starbucks paid a 25¢ dividend in August 2017. That dividend grew to 30¢ in November 2017, and to 36¢ in November 2018.

Finally, Starbucks investors enjoyed a dividend yield of 2.11%, an annualized payout of $1.44 and a payout ratio of 60% on 4 February 2018. In addition, Dividend.com calculates the Starbucks dividend has been growing for eight years.

Therefore, Starbucks is a good company with an impressive stock. However, that does not qualify Howard Schultz to be president.

Should Businessmen run for President?

To clarify, the skills needed by a business leader and a political leader are very different. For instance, the major purpose of a business is to make money.

On the other hand, the purpose of government is to disperse money and offer services the market is incapable of providing. Examples of such service include; a military for national defense, police for law enforcement, and Social Security for senior citizens.

Moreover, governments do not need a profit so they can run at a perpetual loss. In fact, trying to run a government like a profit-making business will lead to disaster.

Is Howard Schultz a serious presidential candidate?

To explain, the government has to provide its services even if nobody is paying for them. Thus, governments often lose a lot of money which is why they need to collect taxes. It is not clear if Schultz understands these distinctions.

However, it is clear Schultz knows little about politics because he apparently intends to run as a third-party candidate. I believe a third-party presidential run will be a waste of time in 2020 because Trump demonstrates outsiders can succeed in presidential primaries.

However, I think Schultz could be a formidable candidate in either the Republican or Democratic primaries. Thus, Schultz’s third-party run will be a joke.

Do we need a businessman as a president?

One final thought, history shows business success does not predict presidential success. To explain, historians regard Herbert Hoover (R-California); probably the most successful businessman to serve as president as one of our worst chief executives.

Meanwhile, Hoover’s successor Franklin D. Roosevelt (D-New York) was a terrible businessman who invested his money in harebrained schemes. For instance, FDR tried to organize a Zeppelin airline and build automated retail stores in the 1920s. Yet, historians regard the second Roosevelt as one of our best presidents

Therefore, we must judge Howard Schultz on his policy proposals, not his business record. However, the Starbucks record of success speaks for itself.