) adjusted earnings of 48 cents per share for the second quarter
of fiscal 2013 were in line with the Zacks Consensus Estimate.
Earnings of this coffee giant grew 20% year over year driven by
solid margin growth.
However, the coffee giant failed to meet our revenue
expectations. Moreover, though the company increased its earnings
expectations for fiscal 2013, it did not change its sales outlook
- signaling a lack of real growth.
Adjusted earnings excluded a one-time gain from sale of
minority equity stake in a joint venture in Mexico.
Revenues and Margins
Total sales for the second quarter increased 11% year over
year to $3.56 billion but slightly missed the Zacks Consensus
Estimate of $3.59 billion. Beverage and food innovations and
steady sales growth in the U.S. and Asia were partially offset by
weakness in Europe.
Same store sales, which exclude the impact of new
company-operated stores opened in the past 13 months, grew 6%,
same as in the first quarter.
Adjusted operating margin increased 180 basis points (bps) to
15.3% driven by strong sales leverage and lower coffee costs.
Cost controls and improved efficiency in the retail stores also
Starbucks operates through the following segments: Americas
(inclusive of the U.S., Canada and Latin America); Europe, Middle
East and Africa (EMEA); China-Asia-Pacific (CAP); Channel
Development (CD); and Other. The CD segment is not a geographic
region, but an entirely different channel (referred to as CPG
The CPG business reflects everything outside the Starbucks's
stores like packaged coffee, foodservice operations, K-Cups,
Starbucks VIA Ready Brew and Tazo tea. The Other category
includes Teavana, Seattle's Best Coffee, Evolution Fresh, Tazo
Retail stores and Digital Ventures business.
Net revenue in this flagship segment rose 10% over the prior-year
quarter to $2.60 billion, attributable to 6% growth in same-store
sales. In Americas, the U.S. did significantly well despite the
cautious consumer spending environment, with comps up a strong 7%
in the quarter.
Growth in the U.S. was driven by new product launches like
Vanilla Spice Latte and Hazelnut Macchiato and enhanced and
expanded food offerings. Starbucks loyalty cards have become
increasingly popular and are a major driver of consumer traffic
in the U.S. Latin America also delivered double-digit revenue
growth in the quarter, driven by the growth in Brazil and
Adjusted operating margin improved 220 bps to 21.1% in the
quarter driven by strong sales leverage, improved productivity
and cost controls and lower coffee prices.
: Net revenue was flat year over year at $273.2 million in the
quarter as a 41% improvement in licensed store revenues were
offset by a 6% decline in company operated revenues due to some
closings and ownership changes in these stores. Same store sales
declined 2% in the quarter due to continued economic weakness and
constrained consumer spending in the region.
Despite the revenue shortfall, adjusted operating margin
increased 450 bps to 1.9% in the quarter due to portfolio-mix
shift towards licensed stores and solid cost control.
Net revenue jumped 22% to $213.6 million in the quarter driven by
8% increase in same-store sales and the rapid pace of new store
openings. Increasing popularity of Starbucks' loyalty cards and
programs and increased sales of seasonal beverages also drove
this segment's revenues and profits.
The company has increasingly focused on expanding its business
in the fast-growing Chinese market, which the company believes
will become its second-largest market by 2014 and have more than
1500 stores by 2015.
Operating margin at the CAP segment declined 710 bps year over
year to 32.0% in the quarter despite the solid sales growth due
to higher investment spending to support the fast pace of growth
in China. Moreover, shift in its store mix from licensed stores
to lower-margin company operated stores also hurt operating
margins. Also, the prior-year quarter included a one-time gain
which was not present in this quarter.
Starbucks's CPG business is growing rapidly and is now the
second-largest unit at Starbucks to have grown three times faster
than the company average
Net revenue grew 7% year over year to $343.5 million in the
second quarter due to strong performance of Starbucks branded
K-Cup portion packs.
However, revenue growth in the CPG segment has slowed down in
this fiscal year as the company is investing in innovation and
effective distribution of its long term growth drivers including
the Verismo at-home-coffee machine, VIA Ready Brew, K-Cup portion
packs, Refreshers energy drinks and iced coffee and tea.
Moreover, sales of roast and ground coffee declined 3.5% in
core retail channels due to competitive pricing pressures.
Adjusted operating margin increased 270 bps to 27.4% in the
quarter driven by low coffee costs.
Revenues grew 131% in the quarter to $121.5 million due to
inclusion of sales from the newly opened Teavana stores for the
first time this quarter.
Fiscal 2013 Outlook Retained
The company upped its earnings guidance for 2013 but
maintained its sales, comps and operating margin outlook. For
fiscal 2013, the company continues to expect revenues to grow in
the range of 10%-13% driven by mid single-digit comparable store
sales growth and net new store openings. Starbucks now expects to
open 1650 stores in the year, up from prior expectations of 1300
stores to include 350 new Teavana stores to be opened in the
Operating margin is expected to expand approximately 100 bps
year over year, driven by better operating leverage. Earnings
expectations were increased from a range of $2.06 - $2.15 to
$2.12 - $2.18 (includes the second-quarter one-time gain from
sale of minority equity stake in a joint venture in Mexico).
Starbucks expects to generate earnings per share of 50 cents -
53 cents in the third quarter, lower than Zacks Consensus
Estimate of 54 cents. In the fourth quarter, the company expects
earnings of 54 cents - 57 cents.
Starbucks carries a Zacks Rank #2 (Buy). The company has
compelling growth drivers like La Boulange bakery products,
Verismo at-home-coffee machine, Evolution Fresh juices, Teavana
tea and K-Cups portion packs to sustain the earnings momentum in
the upcoming quarters.
Other restaurateurs such as
Cracker Barrel Old Country Store, Inc.
), carrying a Zacks Rank #1 (Strong Buy), and
Burger King Worldwide, Inc
Cheesecake Factory Inc.
), both carrying a Zacks Rank #2 (Buy) are currently doing well
and are worth considering.
BURGER KING WWD (BKW): Free Stock Analysis
CHEESECAKE FACT (CAKE): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
STARBUCKS CORP (SBUX): Free Stock Analysis
To read this article on Zacks.com click here.