Starbucks stock froths in Japan


Starbucks has about 300 stores in Japan but hopes to boost that to 500 by March 2004

By staff and wire reports

TOKYO, Japan (CNN) -- Starbucks Coffee Japan Ltd. had a frothy start in Tokyo trading Wednesday.

The first overseas operation of Starbucks to go public, Starbucks Japan saw its stock rise as high as 83,000 yen.

That's up 30 percent from the initial public offering (IPO) price of 64,000 yen.

But the inventor of the frappucino came off the boil later in the day. It fell as much as it could by the close, its decline restricted by trading rules.

It finished down its 10,000 yen limit at 70,000 yen, still a 9.4 percent rise for the day.

Experts already thought the stock was expensive at its offer price, which came in at the high end of its range. So its first-day jump was unlikely to last. In fact, some market watchers said it was time to offload the stock.

Recommending to 'sell'

Today's highs saw it trading at a multiple of around 80 against its fiscal 2000 earnings. That's well above its rivals.

That high value is hard to sustain, analysts say, because Starbucks same-store sales are leveling off in Japan. The company hopes to boost its numbers by opening new stores.

The brokerage Indosuez W.I. Carr Securities picked up coverage of the stock on Wednesday with a "sell" recommendation. It said the stock is much too expensive, though the business is sound.

Starbucks will open its 300th store in Japan this week. That's far behind industry leader Doutor, which has more than 1,000. But it makes it the leading gourmet coffee chain in Japan.

It is selling 220,000 new shares and 60,000 existing shares, meaning the offering will bring in 14.1 billion yen. The stock started trading on the Nasdaq Japan exchange.

The company wants to use that cash to expand to 500 stores by March 2004. Starbucks Japan has 1.42 million shares outstanding in all, meaning its market value totals 111 billion yen ($925 million).

Dentsu still pushing ahead

Man-in-the-street retail investors are jumping at the offering, investment professionals said, because Starbucks has good name recognition and an easy business plan to understand.

McDonald's Japan has the largest IPO in Japan so far this year, with an offering worth 113 billion yen (just under $1 billion) in July.

Advertising agency Dentsu is still expected to end up with the largest offering in 2001. Dentsu says it is going ahead with plans to sell stock for the first time this year, despite the market slump in Japan.

Starbucks is the largest gourmet coffee house in the United States, where it gets 89 percent of its sales. But it also operates in around 30 other countries.

Chairman and chief global strategist Howard Schultz says he wants to build its total number of stores from 4,600 worldwide now to 20,000 by the time he leaves.

It opened its first overseas store in Tokyo in August 1996, and has since branched out to 12 Asian nations. Besides Japan, its main expansion push is in Europe.

It just announced plans to go into Germany and Spain.

Starbucks Japan is a 50-50 joint venture between Seattle-based Starbucks Coffee International and Japanese retailer Sazaby Inc.