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Like Your Coffee Hot? Gems from Starbucks Conference Call

By: Nicole Urken | 01/23/14 - 10:29 PM EST

NEW YORK (TheStreet) - If you look at the market reaction to both McDonalds (MCD) and Starbucks (SBUX) after their quarterly reports today (McDonalds before the open and Starbucks after the close), the muted stock reaction could make you think these were similarly looking quarters.  But that was not the case at all. </p>
The McDonald's report was point blank disappointing. The US ended the year with December same store sales down 3.8%.  The stock didn't go down because, well, the stock has done nothing for a year - up just 9% in 2013, well underperforming the market. On the other hand, Starbucks--which surged 46% in 2013--is consolidating amidst macro uncertainty but reiterated very strong long-term growth drivers.

The contrast between McDonald's and Starbucks is an interesting case study, because they are both huge global chains.  Both have struggled in the past to match growth and value.  Between 1997 and 2002, we saw the decline of McDonalds as the company focused on building new stores instead of focusing on customer satisfaction.  The company turned itself around by focusing on identity. The same thing happened to Starbucks in 2008 when the chain got too caught up in expansion and lost the Danny Meyer focus on the customer--just before Howard Schultz returned as CEO and focused again on image.

But, the difference between the two companies now? Starbucks, under Schultz, learned to right the ship in terms of value and then jumped back into growth - focusing on international opportunities, new channels--including juice, snacks, and tea, consumer products, and health & wellness.  The latest Starbucks quarter reflected superior performance in amidst  worrisome spending period.  While the Americas comps of 5% were below the 15 consecutive quarters we have gotten above 7%, the number is still double the comp growth of peers. EMEA recovered, with Starbucks delivering a 5% same-store-sales growth figure for the region--the strongest performance in over 3 years. The CAP region saw comps up 8% and, importantly, Schultz re-emphasized China as a growth engine for the company. Plus, Schultz is anticipating and acknowledging the shift to online by emphasizing gift cards in particular--being proactive and making dynamic choices and changes.McDonald's hasn't embraced innovation to even a fraction of the degree, and that is showing up in its results. The company is suffering from lack of compelling new products, a menu that is too complicated, and poor execution. Results in Europe, with same-store sales up 0.5% in December, also came in below estimates. And APMEA saw a decline of 2.1% in same-store sales.

The bottom line: Believe in a CEO like Schultz - the latest quarter, and the company's growth prospects,  are much better than McDonalds.

And here are a couple of gems from the Starbucks conference call -- always key to read!

-US 5% comp included 4% traffic growth... key in a decreasing-mall-traffic environment.  Schultz essential condemns the majority of retailers and says that Starbucks remains well positioned: "Starbucks' solid 4% increase in traffic in Q1 validates that we will be among the small group of retailers to gain from the macro-transference of brick-and-mortar retail sales to online sales."  Talk about a controversial statement!  But Schultz points to the Danny Meyer quotient of his domestic store quote around-- hospitality, that is (he didn't use Danny Meyer's name specifically).

- Schultz noted he is prepared for the two shifts in holiday 2013 that we saw, notably shift to online shopping and gift card acceleration: "Starbucks is prepared for both of these shifts, having invested over many years in the creation and development of proprietary, world-class digital and mobile payment and card technology and expertise." As a note, $1.4 billion were loaded on Starbucks loyalty cards in 1Q.

- Schultz applied what the company learned from the US turnaround about five years ago to Europe today... and it's paying off: "Noteworthy is that the 5% comp growth delivered by our important EMEA region with over 2,000 stores was the strongest growth in more than three years, demonstrating the success of our strategies to transform our EMEA business based on the learnings from our US transformation"

-Starbucks is a way to play the movile revolution: "Today with nearly 10 million customers actively using our mobile payment app...Starbucks integrated mobile and Willow app technology is by far the undisputed leader in digital retail technology."

-Drive throughs! "In the US, highly profitable drive-throughs account for 40% of company-operated store portfolio and remain a focal point of our store development efforts"

-Acquisitions doing well!  Schultz highlighted Teavana growth one year after the acquisition.

-China is the future! "This month, Starbucks celebrated its 15th anniversary in China, a market we opened with one store in Beijing in 1999.  We have more than 1,000 stores today, and China remains on track to become Starbucks' largest and most successful market outside the US."

Food (including benefit of La Boulange!) is helping to drive comps.. along with innovation

-Single cup! "Premium single cup is the fastest-growing segment in at-home coffee"

--Written by Nicole Urken in New York.

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