Starbucks in Recovery

   That’s advice from Jefferies & Company restaurant analyst Jeff Farmer, who has a "hold" rating on the volatile stock. His enthusiasm for the cost-trimming steps the giant coffee chain has taken in recent months has him pegging next year’s earnings at $0.98, far above consensus. 

Is the analyst’s 98 cents per share estimate crazy high?

   Cost savings from closing stores and a strong marketing plan justifies his faith in future earnings. "Based on our view that [same-store sales] will trend positive in FY10 and that the company’s cost savings guidance is conservative, we are comfortable with our Street-high $0.98 estimate," he writes, adding he estimates same-store sales will climb 1 percent, to minus 2 percent for the year.
   Farmer, however, tempers his positive outlook with a few critical questions, the answers to which could provide a clearer view into the future. Here’s a sampling:

• Full details on Via launch? Via margins vs. brewed coffee. Distribution details and will Starbucks bring on a third party, as with Kraft and packaged coffee?
• Starbucks has been testing a new “lean store” format with the primary objective of improving ergonomics and in turn operations quality and profitability. The bottom line is that Starbucks believes there is plenty of opportunity to cut labor and waste (“cost of quality” in Starbucks speak) and to improve operating efficiencies. How many U.S.stores are currently operating in the lean store format and does the company intend to aggressively pursue this new format by reformatting existing units?
• At the end of F3Q09, Starbucks had closed 676 of the 800 planned U.S. unit closures. What has the SSS experience for the surrounding units been? What is the estimate for the SSS tailwind from these store closures?