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Not only did Starbucks Corporation (SBUX - Free Report) , a leading coffee chain, report better-than-expected fiscal fourth quarter earnings, it also hiked its dividend by 25% to 25 cents a share. In response, Starbucks’ share price gained 1.4% during after-hours market trading.
Earnings in Focus
Starbucks’ adjusted earnings of 56 cents per share were ahead of the Zacks Consensus Estimate of 55 cents. Earnings increased 30% year over year following strong growth in revenues. Fiscal fourth-quarter sales jumped 16% year over year to $5.71 billion on the back of higher global comparable store sales and a healthy increase in net new stores opened. Revenues came in slightly ahead of the Zacks Consensus Estimate of $5.68 billion (read: How Does Q3 Earnings Taste to Restaurant ETF?).
The company noted that comparable store sales were up 4% globally and increased in the Americas, U.S. and China by 5%, 4% and 6%, respectively.
In the U.S. both average ticket and traffic grew 4%. Meanwhile, Starbucks’ latest digital offering, Mobile Order and Pay accounted for 6% of the transactions in the quarter, up from 5% in the prior quarter.
For fiscal 2017, Starbucks expects earnings per share to be in the range of $2.12 to $2.14, compared with the current Zacks Consensus Estimate of $2.15. The company expects consolidated revenues to grow in double digits and opening of 2,100 net new stores globally. Comparable store sales are expected to grow in mid-single digits.
Increasing use of Mobile Order and Pay could prove to be a key growth driver in the upcoming quarters. Additionally, factors including cheap fuel, better job prospects and increasing consumer confidence are likely to play an important role in boosting the restaurant industry, to which Starbucks belongs. The outcome of the election is also expected to have a major impact on the industry (read: ETFs to Watch If Hillary Clinton Wins the Presidency)
In this scenario, we have highlighted three consumer discretionary ETFs with a solid Zacks ETF Rank and a good exposure to Starbucks that are expected to remain on investors’ radar following the earnings release.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and the most popular product in this space with AUM of nearly $8.8 billion and average daily volume of around 5.2 million shares. Holding 89 securities in its basket, Starbucks occupies the sixth position in the fund with 3.5% allocation. Media dominates about one-fourth of the portfolio while Internet and direct marketing retail, specialty retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund charges 0.14% in expense ratio and has a Zacks ETF Rank of 3 (read: 3 Sector ETFs with Revenue Growth Potential).
This ETF provides targeted exposure to domestic consumer services stocks by tracking the Dow Jones U.S. Consumer Services Index. It holds 183 stocks in its basket with Starbucks occupying the eighth position in the fund with 2.8% allocation. In terms of industrial exposure, retailing makes up the largest share with 38.2%, followed by media (22.9%), consumer services (15.2%), and foods & staples retailing (14.8%). The fund has amassed $803.2 million in its asset base and trades in a small volume of 35,400 shares a day on average. It charges 44 bps in annual fees from investors and has a Zacks ETF Rank of 3.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 377 stocks in its basket. Out of these, SBUX takes the sixth spot with 2.8% share. Media makes up for the top sector with 23.6% share, followed by specialty retail (18.6%), Internet & direct marketing retail (17.1%), and hotels restaurants & leisure (14.7%). The product has amassed $207.1 million in its asset base and trades in a good volume of around 80,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank of 3 (read: Online Shopping Gaining Traction: ETFs to Buy).
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ETFs to Watch on Starbucks' Upbeat Q4 Results
Not only did Starbucks Corporation (SBUX - Free Report) , a leading coffee chain, report better-than-expected fiscal fourth quarter earnings, it also hiked its dividend by 25% to 25 cents a share. In response, Starbucks’ share price gained 1.4% during after-hours market trading.
Earnings in Focus
Starbucks’ adjusted earnings of 56 cents per share were ahead of the Zacks Consensus Estimate of 55 cents. Earnings increased 30% year over year following strong growth in revenues. Fiscal fourth-quarter sales jumped 16% year over year to $5.71 billion on the back of higher global comparable store sales and a healthy increase in net new stores opened. Revenues came in slightly ahead of the Zacks Consensus Estimate of $5.68 billion (read: How Does Q3 Earnings Taste to Restaurant ETF?).
The company noted that comparable store sales were up 4% globally and increased in the Americas, U.S. and China by 5%, 4% and 6%, respectively.
In the U.S. both average ticket and traffic grew 4%. Meanwhile, Starbucks’ latest digital offering, Mobile Order and Pay accounted for 6% of the transactions in the quarter, up from 5% in the prior quarter.
For fiscal 2017, Starbucks expects earnings per share to be in the range of $2.12 to $2.14, compared with the current Zacks Consensus Estimate of $2.15. The company expects consolidated revenues to grow in double digits and opening of 2,100 net new stores globally. Comparable store sales are expected to grow in mid-single digits.
Increasing use of Mobile Order and Pay could prove to be a key growth driver in the upcoming quarters. Additionally, factors including cheap fuel, better job prospects and increasing consumer confidence are likely to play an important role in boosting the restaurant industry, to which Starbucks belongs. The outcome of the election is also expected to have a major impact on the industry (read: ETFs to Watch If Hillary Clinton Wins the Presidency)
In this scenario, we have highlighted three consumer discretionary ETFs with a solid Zacks ETF Rank and a good exposure to Starbucks that are expected to remain on investors’ radar following the earnings release.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and the most popular product in this space with AUM of nearly $8.8 billion and average daily volume of around 5.2 million shares. Holding 89 securities in its basket, Starbucks occupies the sixth position in the fund with 3.5% allocation. Media dominates about one-fourth of the portfolio while Internet and direct marketing retail, specialty retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund charges 0.14% in expense ratio and has a Zacks ETF Rank of 3 (read: 3 Sector ETFs with Revenue Growth Potential).
iShares U.S. Consumer Services ETF (IYC - Free Report)
This ETF provides targeted exposure to domestic consumer services stocks by tracking the Dow Jones U.S. Consumer Services Index. It holds 183 stocks in its basket with Starbucks occupying the eighth position in the fund with 2.8% allocation. In terms of industrial exposure, retailing makes up the largest share with 38.2%, followed by media (22.9%), consumer services (15.2%), and foods & staples retailing (14.8%). The fund has amassed $803.2 million in its asset base and trades in a small volume of 35,400 shares a day on average. It charges 44 bps in annual fees from investors and has a Zacks ETF Rank of 3.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 377 stocks in its basket. Out of these, SBUX takes the sixth spot with 2.8% share. Media makes up for the top sector with 23.6% share, followed by specialty retail (18.6%), Internet & direct marketing retail (17.1%), and hotels restaurants & leisure (14.7%). The product has amassed $207.1 million in its asset base and trades in a good volume of around 80,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank of 3 (read: Online Shopping Gaining Traction: ETFs to Buy).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>