Stock Wars: Starbucks Vs. Coffee Holding Co.

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between a pair of coffee-focused companies: Starbucks Corporation SBUX and Coffee Holding Co., Inc. JVA.

The Case For Starbucks: This year marks Starbucks’ 50th anniversary in business. It began as a coffee bean retail store in Seattle’s Pike Place Market run by co-founders Jerry Baldwin, Zev Siegl and Gordon Bowker. In 1982, the company hired 29-year-old Howard Schultz as the director of retail operations and marketing. He wound up buying the company in 1986 and served as its CEO until 2017.

Under Schultz, Starbucks expanded far and wide beyond Seattle and today the company has approximately 33,800 stores worldwide.

In recent corporate developments, Starbucks was handed a setback last week when the National Labor Relations Board rejected the company’s effort to prevent store-by-store unionization votes at several of its locations around Buffalo, New York. None of Starbucks’ corporate-run stores are unionized and the organizing group — Starbucks Workers United, an affiliate of the Service Employees International Union — hailed the board’s ruling as a “significant victory” for its side.

While it was trying to abort union organizing in its stores, Starbucks announced last week it was raising all U.S. hourly wages to at least $15 per hour and up to $23 by the summer of 2022; the current minimum wage for its workers is $12. The company also promised a 5% raise in January to employees with two or more years on the job and a raise of up to 10% for those with five or more years. This marked the third time in 24 months Starbucks raised its workforce’s pay.

In its most recent quarterly earnings report, the fiscal year, fourth-quarter data published Oct. 28, Starbucks reported total net revenue of $8.1 billion, a company record, up from $6.2 billion in the same quarter one year earlier. Its operating income of $1.4 billion was up from the previous year’s $558.3 million. The quarter’s net earnings per common share (diluted) was $3.54, a significant increase from 79 cents one year earlier.

During the quarter, Starbucks reported its North America comparable store sales increased 22% year-over-year while international comparable store sales increased 3%. A decline in China-based store sales was a drag on its global performance. The company opened 538 net new stores in the quarter.

President and CEO Kevin Johnson announced the quarterly data with the pledge that Starbuck “will be doubling-down on our investments in our partners, the heartbeat of our company. We know that when we exceed the expectations of our people, they in turn exceed the expectations of our customers — which creates value for all of our stakeholders — our partners, our customers, our communities and our shareholders. We anticipate that our strong business momentum, increased operating efficiency and continued global store expansion will fund these unprecedented investments while delivering yet another year of significant growth.”

Starbucks opened for trading on Wednesday at $111.45, closer to its 52-week high of $126.32 than to its 52-week low of $86.18.

Related Link: The complete Stock Wars series

The Case For Coffee Holding Co.: This Staten Island, New York-based company was launched in 1971 as Transpacific International Group Corp. before changing its name in 1998. The company is involved in both the wholesale and retail side of the business. It sells green coffee products, including roughly 90 varieties of unroasted raw beans, to roasters and coffee shop operators while providing private label coffee under more than 20 labels.

Among its major recent corporate developments, Coffee Holding Co. has been diversifying its portfolio: it made a $2.5 million investment in the plant-based protein drink manufacturer OWYN in September and in November 2020 it became the owner of 49% of The Jordre Well, a CBD beverage company managed by the founders of Cannuka. In June, the company paid $900,000 to purchase the 50,000-square-foot building and surrounding 6.28 acres of property in La Junta, Colorado, which has been the home to its largest roasting operations since 2005.

In its most recent earnings report, the third quarter data published Sept. 13, the company reported net sales of $13.6 million, a 21.3% decline from the $17.3 million recorded one year earlier. Its gross profit of $2.9 million was a drop from $3.8 million in the previous year. Its net income was a loss of $127,051 or 2 cents per share basic and diluted, compared to net income of $391,324 or 7 cents per share basic and diluted in the third quarter of 2020.

“Our sales for the third quarter were consistent with other companies during this timeframe as supermarkets continued to wind down inventory levels which were ramped up over the last year due to COVID-19 and supply chain concerns,” said Andrew Gordon, president and CEO, who added that the “rally in the coffee market, which began at the end of the third quarter and too late to have a significant impact on our third-quarter results, will be a major tailwind for our sales of green coffee in the fourth quarter as well as for sales in fiscal 2022.”

Gordon also stated the “the price increases which we initiated to our wholesale and retail customers will begin taking effect during this fourth quarter and should have a positive impact on our performance. In addition, we believe sales from our CBD coffee items may begin to have a positive impact in the fourth quarter as we have begun fulfilling orders online and have also begun presentations of these items to some of our largest wholesale and retail customers where state regulations allow these products to be sold.”

Coffee Holding Co. opened for trading on Wednesday at $4.62, sandwiched between its 52-week range of $3.60 and $6.48.

The Verdict: Admittedly, this week's Stock Wars duel is not a clash of two evenly paired companies as the Starbucks behemoth and the under-the-radar Coffee Holding Co. have little in common except for the caffeinated drink at the center of their operations. Yet both deserve attention for their respective pursuits of this sector.

Starbucks’s most recent quarterly data was wonderful for the company, while Coffee Holding Co. would certainly rather forget its most recent quarterly report. Yet it would not be a total shock to see both companies undergo a reversal of fortune in the next couple of quarters.

If the Starbucks workers in upstate New York successfully unionize, this will change the employer-workforce environment dramatically, and 5% raises will not win the company an increased degree of worker fidelity. Also, Johnson’s quarterly report pep talk conveniently overlooked the impact of inflation and supply chain disruptions on its operations — rising prices and inventory hiccups will not bring more customers into its locations.

On the flip side, Coffee Holding Co. is factoring in rising prices as a means to move beyond its desultory quarterly performance while its efforts to diversify its product line show a willingness to explore new opportunities.

Also, Coffee Holding Co.’s stock has the potential to rise beyond its current low level. It wouldn’t be difficult to imagine the Reddit apes finding favor in this company as their version of the anti-Starbucks.

While Starbucks’ stock is a sturdy addition to any portfolio, Coffee Holding Co. might be an intriguing wild card to play — and for that reason, it gets the nod in this Stock Wars duel.

Photos: Cover photo by Daniel Dan Outsideclick; Starbucks photo by Pexels; Coffee Holding Co. photo by Christoph; all photos courtesy of Pixabay.