Starbucks Corporation (
) continued with its streak of announcing strong quarterly
earnings, rounding off what has been an excellent fiscal year for
the company. During the quarter, Starbucks' revenues rose 12.9% to
$3 billion, while the operating income surged 28.7% to $668.9
million. The company's net income stood at $481.1 million, or $0.63
per share vs $0.46 per share in the previous year quarter. For the
full year, Starbucks revenues rose 12% to $14.9 billion, while the
net income jumped 24.4% to $1.7 billion.
For fiscal 2014, Starbucks is targeting a revenue growth of 10%
or more, which disappointed the market slightly since in the
previous earnings release, the company had mentioned a range of
10-13%. The absence of an upper end of the range might indicate
that the company now believes that the lower end of the range looks
more realistic. In terms of earnings, Starbucks expects profits in
the range of $2.55-2.65 per share.
We have a
price estimate for Starbucks
, which is about 15% below the market price. We are in the process
of revising our estimates in order to incorporate the latest
See our full analysis for Starbucks
Same-Store Sales Surge Again
Starbucks' earnings have benefited from strong performances in
the U.S. and China, where same-store sales grew 8% in both markets.
The company's same-store sales are in stark contrast to other
restaurant companies such as McDonald's and Yum! Foods, which are
struggling to generate the required sales. For the full year,
Starbucks' comparable sales have risen 7%.
Same-store sales, or comparable sales, is an important parameter
to gauge a restaurant chain's performance since it excludes the
effect of currency fluctuations and only includes the restaurants
open for more than a year.
In the U.S., the company's sales are buoying due to additions to
the menu, to include bakery items under the La Boulange brand. By
the end of the fourth quarter, La Boulange products were available
at 3,300 Starbucks stores across the U.S. By the next fiscal, the
company plans to make these items available in 7,000 stores across
Furthermore, sales are getting boosted by higher customer
traffic as a result of increased usage of mobile apps to place
orders. Paying through mobile phones allows customers to skip
queues, the effect of which was evident in the traffic volume,
which rose 5% in the quarter. Starbucks' mobile app in particular
seems to be pretty popular with 11% of the transactions made
through the app in the latest quarter.
Store Addition On Track
Starbucks added 1,701 new stores during the fiscal. However,
this figure includes 366 stores added as a result of the Teavana
acquisition. Excluding these stores, the net addition would be
~1,350 stores. For fiscal 2014, the company plans to add another
1,500 stores. About half of these stores will open up in
China/Asia-Pacific. China is a key part of the company's
global expansion plans, with the store count in the nation set to
rise to 1,500 by the end of 2015. The world's most populous nation
will surpass Canada as the second most important market for the
company within the next two years.
In adding these many stores, Starbucks expects to incur a
capital expenditure of $1.2 billion.
Packaged Product Sales Rise
Sales of the channel development segment, which primarily
consists of packaged coffees and teas, K-cups and brewers etc, rose
13.3% to $360.9 million. The channel development segment now
accounts for about 12% of the company's total revenues.
Furthermore, the reported operating margins swelled to 35.6% vs
31.1% in the previous year quarter. Margins were helped by lower
arabica coffee prices, which are trading near a three year low.
Starbucks sees a significant growth opportunity in this segment.
Three months back, Starbucks entered an agreement with French giant
Danone, which will see the company launch new specialty yogurt
products (such as Greek yogurt) beginning from next year. Earlier
in the year, Starbucks announced the extension of its deal with
Green Mountain as well. Starbucks has also tied up with Whole
Foods, which will see the retail giant offering 12 Evolution Fresh
juices and three Evolution Harvest snack bars at its stores soon.
Evolution juices are now available in 8,000 Starbucks stores and
This division should continue to witness impressive growth as
the company keeps expanding to new geographies and introduces new
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