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Starbucks Store Makeovers Are Boosting Profit Margins

Stocks in this article: SBUX MCD TGT

NEW YORK (TheStreet) -- Starbucks (SBUX) aggressive store remodels are bolstering profit margins at the Seattle-based retailer. 

In an interview with TheStreet, Starbucks vice president of design for the Americas, Bill Sleeth, said the Starbucks store makeovers are rooted in having an "acute awareness of the customer" and are designed in a way that "evokes the spirit of the community."

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Sleeth shared the new store vision as seen here on his Twitter account.

Sleeth's creative team operates 18 design studios worldwide, with 14 in the Americas, attending to such details as the number of seats based on a store's square footage, using higher tables to create conversation in well-trafficked locations, and pairing round top tables with banquet seating against the wall so that customers can easily slide out to leave or return for a refill or second pastry. 

The science even goes so far as to positioning tables in a manner that a person's sight lines aren't obstructed. Sleeth said the store planning is "about giving the customer a seamless experience with the barista." The executive wouldn't say how many Starbucks Americas stores have been remodeled.

Since Starbucks began to significantly increase its capital expenditures beginning in early-2012, the company's gross profit margin has risen.

In the company's second fiscal quarter of 2012, Starbucks had $160.3 million in capital expenditures, according to data compiled by 
BloombergIn the second quarter of its fiscal 2014, capital expenditures totaled $247.5 million. During this time period, Starbucks' gross profit margin has gone from 55.8% to 57.9%. The data suggests that locally relevant store designs are attracting new customers, and convincing them to stay longer to buy more than one cup of java.

Worldwide customer traffic at Starbucks has grown every quarter from the second quarter of 2012 to the second quarter of 2014, along with average ticket. Starbucks' same-store sales have increased for 18 straight quarters. 

The next set of opportunities for the Starbucks design team is licensed stores at Target  (TGT), which started to appear at the retailer in 2003. Sleeth wouldn't discuss a timeline for remodels at Target, but said the chain would like all of its stores to convey a similar customer experience.

Starbucks announces fiscal third quarter earnings Thursday.  

Wall Street expects earnings of 66 cents a share on revenue of $4.14 billion -- the company has beaten earnings per share estimates in four consecutive quarters. My firm, Belus Capital Advisors, currently rates Starbucks shares a buy with an $85 price target.

At the time of this publication, Belus Capital Advisors rated Starbucks shares a buy. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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