) reported earnings of 57 cents per share for the first quarter
of 2013, in line with the Zacks Consensus Estimate. Earnings of
this coffee giant grew 14% year over year, almost in line with
management's expectation of being at the lower end of its full
year growth range of 15%-20%. Earnings growth was driven by solid
top-line performance due to an outstanding holiday season in
Following the in-line first quarter results, the company
maintained its previously provided outlook for 2013.
Revenues and Margins
Total sales for the first quarter increased 11% year over year
to $3.8 billion. The sales growth was driven by strong
holiday performance in U.S, further expansion in China and Asia
Pacific and continued momentum in the Channel Development
segment. The quarterly revenues were slightly lower than the
Zacks Consensus Estimate of $3.83 billion.
Same-store sales, which exclude the impact from new
company-operated stores opened in the past 13 months, grew 6%
benefiting from consumer traffic growth and solid holiday season
sales. In the quarter, the company opened 212 net new stores all
over the world, including the first three stores in the lucrative
market of India.
Adjusted operating margin increased 40 basis points to 16.6%,
as strong sales leverage and favorable commodity costs offset the
headwinds from unusual cost pressures.
Starbucks operates through the following segments: Americas
(inclusive of the US, 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
channel henceforth). 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 Seattle's Best Coffee, Evolution Fresh
and Digital Ventures.
Net revenue in this flagship segment rose 10% over the prior-year
quarter to $2.85 billion, attributable to 7% growth in same-store
sales. In Americas, U.S. did significantly well with revenues up
9% in the quarter driven by robust holiday activity due to a high
volume of consumer traffic. A full lineup of holiday season
offerings, like Starbucks' Christmas Blend Blonde Roast, and
increased purchase of food items by customers helped capture more
business during the holiday season.
The introduction of Verismo-at-home coffee machine in Sep/Oct
2012 added 0.5% to American comp growth in the quarter. In the
quarter, Starbucks sold around 150,000 machines across all
channels, a solid start for this key growth driver. The Verismo-
at-home machine, together with the already popular VIA Ready Brew
and K-Cup portion packs, is expected to significantly expand
Starbucks' presence in the fast growing premium single cup coffee
Adjusted operating margin declined 50 bps to 20.8% in the
quarter despite the revenue beat due to October global leadership
conference costs, higher litigation charges, and the impact of
: Net revenue improved 1% year over year to $306.1 million in the
quarter, driven by 41% growth in licensed store revenues and 27%
growth in food service business which offset the 4% decline in
company operated revenues due to some closings and ownership
changes in these stores.
Adjusted operating margin increased 110 bps to 7.3% in the
quarter due to revenue growth and solid cost control.
Net revenue jumped 28% to $214.1 million in the quarter driven by
11% increase in same-store sales and the rapid pace of new store
openings. Increasing popularity of Starbucks loyalty cards and
programs are also driving 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.
Operating margin at the CAP segment declined 60 bps year over
year to 33.7% in the quarter despite the solid sales growth due
to higher spending to support the fast pace of growth in
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 surged 13% year over year to $379.8 million in the
first quarter, fuelled largely by higher sales of Starbucks
branded K-Cup portion packs. Continued growth in roasted ground
coffee and the launch of Verismo at-home-coffee machine in CPG
channels also boosted sales.
Adjusted operating margin increased 230 bps to 25.5% in the
quarter despite the launching costs for Verismo driven by low
Overall, sales in all the segments were up sequentially.
Fiscal 2013 Outlook Retained
The company maintained its outlook for 2013. Overall,
Starbucks has a bright outlook for fiscal 2013, expecting
continued robust consolidated operating margin and earnings
improvement in the upcoming year.
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, net new store openings and strong
growth in the Channel Development business. Starbucks
expects its recent new products like Verismo, light Blonde Roast
coffee, K-Cups, La Boulange bakery products, Evolution Fresh
juices and Refreshers energy drinks, to continue to boost
Starbucks expects to open 1300 stores in the year,
representing a 22% increase from fiscal 2012.
Operating margin is expected to expand approximately 100 bps
year over year, driven by better operating leverage. The company
expects slight operating margin improvement in Americas and EMEA
against some decline in the CAP segment. CPG margins are expected
to increase between 100 and 150 basis points.
Earnings are expected in the range of $2.06 to $2.15,
representing growth of 15%-20%.
Starbucks 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 earnings
momentum in the upcoming quarters. Starbucks carries a Zacks Rank
Starbucks' results came a day after peer,
) fourth quarter 2012 revenue and earnings, both beating the
Zacks Consensus Estimates.
Other peer companies like
Krispy Kreme Doughnuts, Inc.
) - Zacks Rank #1 (Strong Buy) and
Burger King Worldwide, Inc
) are currently doing well and are worth considering.
BURGER KING WWD (BKW): Free Stock Analysis
KRISPY KREME (KKD): Free Stock Analysis
MCDONALDS CORP (MCD): Free Stock Analysis
STARBUCKS CORP (SBUX): Free Stock Analysis
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