Should I Do It? Starbucks Beaned

Starbucks' (SBUX Quote) shares tumbled 8% on Aug. 3 after the company reported solid third-quarter results but weaker-than-expected July same-store sales growth. The company's CFO infamously attributed the shortfall to record high temperatures that led to increased orders for Frappuccinos -- an ice-blended drink that requires more time to serve.

But is this the real reason for the 35% misstep in same-store sales, or is one of America's great growth companies showing signs of maturing? My research suggests weather isn't Starbucks' only problem, and that when it comes to the coffee peddler's stock, investors should not consider doing it.

Starbucks' reasoning for the same-store miss came under scrutiny from analysts and investors. When a company reports results that are short of estimates, the numbers are usually attributed to less demand. Some questions that merit an answer: Does Starbucks actually monitor consumer non-purchases? Since Frappucinos are one of the most expensive items on the menu, wouldn't that boost same-store sales?

Looking past management's comments, I believe Starbucks is becoming a victim of its own success. Starbucks operates more than 11,000 stores globally (5,231 in the U.S., 1,325 in international markets and 4,821 licensed stores worldwide) and plans on opening an additional 2,000 stores in fiscal 2006. Management expects annual total net revenue growth of approximately 20% and annual earnings per share growth of approximately 20% to 25% for the next three- to five-year period.

To achieve this growth, sales would have to total almost $19 billion by 2010 on a compounded basis from its $7.5 billion sales for fiscal 2005. This seems very difficult, given the current economic landscape of rising energy prices and higher interest rates.

Starbucks remains adamant that these macro headwinds will not have a significant impact on sales. But after earnings shortfalls from Whole Foods Market (WFMI Quote) and Hansen Natural (HANS Quote), two other high-growth consumer-goods companies, I see reason to worry.