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Why Is Starbucks (SBUX) Up 0.4% Since Last Earnings Report?
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It has been about a month since the last earnings report for Starbucks (SBUX - Free Report) . Shares have added about 0.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Starbucks due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Starbucks Q2 Earnings Beat Estimates, Revenues Miss
Starbucks reported second-quarter fiscal 2021 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The bottom line surpassed the Zacks Consensus Estimate for the sixth straight quarter, while the top line missed the consensus mark for the second consecutive quarter. Nonetheless, the metrics increased on a year-over-year basis.
Discussion on Earnings, Revenues & Comps
In the quarter under review, the company reported adjusted earnings per share of 62 cents, which beat the Zacks Consensus Estimate of 52 cents by 19.2%. Moreover, the bottom line surged 93.8% year over year from earnings of 32 cents reported in the prior year quarter.
Total revenues came in at $6,668 million, which missed the Zacks Consensus Estimate of $6,803 million by 1.9%. However, the top line increased 11.2% from the year-ago quarter. The increase was primarily driven by growth in comparable store sales partially offset by the unfavorable impact of Global Coffee Alliance transition-related activities.
Global comparable store sales increased 15% year over year against a decline of 5% in first-quarter fiscal 2021. Global comps increased owing to 19% rise in average ticket, partially offset by 4% fall in comparable transactions.
Starbucks opened five net new stores worldwide in the fiscal second quarter, bringing the total store count to 32,943. Global store growth came in at 3% on a year-over-year basis.
Overall Margin Expands in Q2
On a non-GAAP basis, operating margin came in at 16.1% compared with 9.2% in the prior-year quarter. The uptrend can be attributed to sales leverage from business recovery and the lapping of COVID-19 related costs in the prior year. However, this was partially offset by investments in store partner related wages and benefits.
Segmental Performance
Starbucks has three reportable operating segments: Americas, International and Channel Development.
Americas: Net revenues in this flagship segment were $4,664.6 million, up 8% year over year. Notably, the segment benefitted from 9% growth in comparable store sales. However, this was partially offset by a decline in product sales and royalty revenues from its licensees due to the coronavirus outbreak.
Operating margin in the Americas segment expanded to 19.4%, up 510 basis points (bps) year over year. The uptrend can be primarily attributed to the lapping of COVID-19 related costs in the prior year, sales leverage from business recovery and pricing, temporary government subsidies as well as the benefits of Trade Area Transformation. However, this was partially offset by investments in store partner related benefits and wages.
International: Net revenues rose 42% year over year to $1,610.9 million in the segment, courtesy of 1,044 net new store openings in the past 12 months and 8% favorable impact from foreign currency translation. Moreover, International comparable store sales rose 35% year over year. However, the upside was partially offset by a decline in product sales and royalty revenues from the company’s international licensees, owing to the coronavirus pandemic.
Adjusted operating margin in the segment expanded 1700 bps year over year to 15.6%. The upside can be attributed to sales leverage coupled with temporary government subsidies.
Comps in China surged 91% year over year, driven by 93% increase in transactions. The gain was partially offset by a 1% decline in average ticket.
Channel Development: Net revenues in the segment declined 29% from the prior-year quarter’s figure to $369.9 million. The downside was primarily due to nearly 30% unfavorable impact of Global Coffee Alliance transition-related activities, which includes structural change in its single-serve business and negative impact of lapping the transition of Foodservice order fulfillment to Nestlé in the prior year. However, this was partially offset by growth in its ready-to-drink business. Meanwhile, operating margin expanded 1,020 bps year over year to 46.7%.
Guidance
The company updated fiscal 2021 GAAP earnings guidance. Management noted that fiscal year 2021 is a 53-week year instead of the normal 52 weeks. The company continues to anticipate global comparable sales to increase between 18% and 23% in fiscal 2021. Moreover, the company continues to anticipate Americas and U.S. comparable store sales to improve in the range of 17-22% in fiscal 2021. International comps for the fiscal 2021 are expected in the band of 25-30%. The company anticipates China comparable store sales growth to be 27-32%.
The company continues to expect to open nearly 2,150 (850 stores in Americas and 1,300 internationally) news stores and 1,100 (50 stores in Americas and 1,050 in internationally) net new stores worldwide in fiscal 2021. In China, the company anticipates to open 600 net new stores.
The company projects consolidated revenues in the range of $28.5-$29.3 billion, inclusive of a $500-million impact attributable to the 53rd week. Channel development revenues are expected in the range of $1.4-$1.6 billion. Moreover, adjusted operating margin expected between 16.5% and 17.5%.
Moreover, for full-year earnings is expected in the range of $2.90-$3.00 compared with the prior estimate of $2.70-$2.90. The Zacks Consensus Estimate for fiscal 2021 earnings is currently pegged at $2.84.
Other Financial Updates
The company ended the quarter with cash and cash equivalents of $3,880.7 million compared with $4,350.9 million at the end of Sep 27, 2020. As of Mar 28, 2020, long-term debt is at $14,630.3 million compared with $14,659.6 million as of Sep 27, 2020.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, Starbucks has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Starbucks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Starbucks (SBUX) Up 0.4% Since Last Earnings Report?
It has been about a month since the last earnings report for Starbucks (SBUX - Free Report) . Shares have added about 0.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Starbucks due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Starbucks Q2 Earnings Beat Estimates, Revenues Miss
Starbucks reported second-quarter fiscal 2021 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The bottom line surpassed the Zacks Consensus Estimate for the sixth straight quarter, while the top line missed the consensus mark for the second consecutive quarter. Nonetheless, the metrics increased on a year-over-year basis.
Discussion on Earnings, Revenues & Comps
In the quarter under review, the company reported adjusted earnings per share of 62 cents, which beat the Zacks Consensus Estimate of 52 cents by 19.2%. Moreover, the bottom line surged 93.8% year over year from earnings of 32 cents reported in the prior year quarter.
Total revenues came in at $6,668 million, which missed the Zacks Consensus Estimate of $6,803 million by 1.9%. However, the top line increased 11.2% from the year-ago quarter. The increase was primarily driven by growth in comparable store sales partially offset by the unfavorable impact of Global Coffee Alliance transition-related activities.
Global comparable store sales increased 15% year over year against a decline of 5% in first-quarter fiscal 2021. Global comps increased owing to 19% rise in average ticket, partially offset by 4% fall in comparable transactions.
Starbucks opened five net new stores worldwide in the fiscal second quarter, bringing the total store count to 32,943. Global store growth came in at 3% on a year-over-year basis.
Overall Margin Expands in Q2
On a non-GAAP basis, operating margin came in at 16.1% compared with 9.2% in the prior-year quarter. The uptrend can be attributed to sales leverage from business recovery and the lapping of COVID-19 related costs in the prior year. However, this was partially offset by investments in store partner related wages and benefits.
Segmental Performance
Starbucks has three reportable operating segments: Americas, International and Channel Development.
Americas: Net revenues in this flagship segment were $4,664.6 million, up 8% year over year. Notably, the segment benefitted from 9% growth in comparable store sales. However, this was partially offset by a decline in product sales and royalty revenues from its licensees due to the coronavirus outbreak.
Operating margin in the Americas segment expanded to 19.4%, up 510 basis points (bps) year over year. The uptrend can be primarily attributed to the lapping of COVID-19 related costs in the prior year, sales leverage from business recovery and pricing, temporary government subsidies as well as the benefits of Trade Area Transformation. However, this was partially offset by investments in store partner related benefits and wages.
International: Net revenues rose 42% year over year to $1,610.9 million in the segment, courtesy of 1,044 net new store openings in the past 12 months and 8% favorable impact from foreign currency translation. Moreover, International comparable store sales rose 35% year over year. However, the upside was partially offset by a decline in product sales and royalty revenues from the company’s international licensees, owing to the coronavirus pandemic.
Adjusted operating margin in the segment expanded 1700 bps year over year to 15.6%. The upside can be attributed to sales leverage coupled with temporary government subsidies.
Comps in China surged 91% year over year, driven by 93% increase in transactions. The gain was partially offset by a 1% decline in average ticket.
Channel Development: Net revenues in the segment declined 29% from the prior-year quarter’s figure to $369.9 million. The downside was primarily due to nearly 30% unfavorable impact of Global Coffee Alliance transition-related activities, which includes structural change in its single-serve business and negative impact of lapping the transition of Foodservice order fulfillment to Nestlé in the prior year. However, this was partially offset by growth in its ready-to-drink business. Meanwhile, operating margin expanded 1,020 bps year over year to 46.7%.
Guidance
The company updated fiscal 2021 GAAP earnings guidance. Management noted that fiscal year 2021 is a 53-week year instead of the normal 52 weeks. The company continues to anticipate global comparable sales to increase between 18% and 23% in fiscal 2021. Moreover, the company continues to anticipate Americas and U.S. comparable store sales to improve in the range of 17-22% in fiscal 2021. International comps for the fiscal 2021 are expected in the band of 25-30%. The company anticipates China comparable store sales growth to be 27-32%.
The company continues to expect to open nearly 2,150 (850 stores in Americas and 1,300 internationally) news stores and 1,100 (50 stores in Americas and 1,050 in internationally) net new stores worldwide in fiscal 2021. In China, the company anticipates to open 600 net new stores.
The company projects consolidated revenues in the range of $28.5-$29.3 billion, inclusive of a $500-million impact attributable to the 53rd week. Channel development revenues are expected in the range of $1.4-$1.6 billion. Moreover, adjusted operating margin expected between 16.5% and 17.5%.
Moreover, for full-year earnings is expected in the range of $2.90-$3.00 compared with the prior estimate of $2.70-$2.90. The Zacks Consensus Estimate for fiscal 2021 earnings is currently pegged at $2.84.
Other Financial Updates
The company ended the quarter with cash and cash equivalents of $3,880.7 million compared with $4,350.9 million at the end of Sep 27, 2020. As of Mar 28, 2020, long-term debt is at $14,630.3 million compared with $14,659.6 million as of Sep 27, 2020.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, Starbucks has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Starbucks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.