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Starbucks (SBUX) Q2 Earnings In Line, Revenues Top Estimates
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Starbucks Corporation (SBUX - Free Report) reported in-line earnings but exceeded the Zacks Consensus Estimate for revenues in the second-quarter of fiscal 2018. The company’s results benefited from an improved performance in the Americas segment (mainly in the United States), the ongoing momentum in China (following the takeover of East China) and strongest comps growth in Japan in five quarters.
However, Starbucks’ shares declined 2.2% in the after-hour trading session following the earnings release on Apr 26, possibly in response to stagnant comps growth in the Americas division that constitutes 70% of total revenues.
Earnings, Sales & Comps Discussion
Adjusted earnings per share (EPS) of 53 cents met the consensus mark but grew 17.8% year over year.
Total sales of $6.03 billion surpassed the consensus mark of $5.9 billion by 2.3% and increased 13.9% from the year-ago level. Notably, the acquisition of the East China business as well as other portfolio reshuffling activities lent a 3% net benefit to its top line. These activities include the closure of the Teavana mall store in the quarter, the Tazo divestiture in December, and the conversion of certain international retail operations from company-owned to licensed models. Meanwhile, currency translation had a 2% positive impact on revenues.
The year-over-year performance was also driven by higher revenues from the opening of 2,103 net new stores over the past 12 months and higher global comps growth.
Global same-store sales increased 2%, same as the preceding quarter. Global traffic increased 3%, better than the 2% increase in the fourth quarter. Transactions were down by 1% against no growth in the preceding quarter. The company opened 468 net new stores globally, bringing the total store count to 28,209 across 76 markets. It also closed 298 Teavana stores in the quarter.
Starbucks Corporation Price, Consensus and EPS Surprise
Operating margin decreased 490 basis points (bps) year over year to 12.8% in the quarter due to a product mix shift, largely toward food and restructuring costs associated with the company's ongoing efforts of streamlining business operations. Again, higher spending in its store partners (employees) along with the impact of its ownership change in East China added to the woes.
On a non-GAAP basis, operating margin declined 170 bps to 16.2%.
Quarterly Segment Details
Americas: Net revenues in this flagship segment were up 8% year over year to $4 billion.
Comps rise of 2% in the quarter (same as the preceding quarter) comprised a 3% increase in average ticket. U.S. comps also grew 2% albeit less than the 3% increase during the second quarter of fiscal 2017.
Importantly, this is second consecutive quarter of 2% comps growth in Americas, mirroring concerns that its increased promotions somehow failed to attract a huge number of customers.
Food comps were more than 1% and food has consistently contributed in the 1% to 2% comps range for many years now. This momentum continued in the quarter with food's share of total U.S. sales being 22%, up 100 bps from the prior-year quarter. Meanwhile, iced beverages contributed almost 40% to overall revenue growth.
Membership increased 12% year over year to 14.9 million in the My Starbucks Rewards (MSR) program. Customers in the United States are using the chain's mobile app to order and pay for their drinks and are joining the company's rewards program. Mobile payments represented 12% of U.S. transactions, reflecting an increase from 8% a year ago.
Operating margin in the segment, however, contracted 220 bps to 20% as a strong sales leverage was more than offset by the impact of a food-related mix shift and higher spending in its store partners.
China-Asia-Pacific (CAP): Net revenues increased 54% to $1.2 billion on the back of higher revenues from the acquisition of east China operations, new store openings and comps growth.
Comps grew 3%, higher than 1% in the previous quarter. China continued to post impressive comps growth, with 4% improvement in the quarter (softer than 6% in the preceding quarter). The softer sequential growth was attributed to a shift in the timing of the Lunar New Year. Meanwhile, Japan delivered its first quarter of positive comps since the first quarter of fiscal 2017, buoyed by a strong beverage lineup.
However, operating margin at the CAP segment contracted 570 bps year over year to 17.2% in the quarter, owing to the impact of its ownership change in East China.
Europe, Middle East and Africa (EMEA): Net revenues were up 15% year over year at $266.1 million in the segment. The improvement was prompted by higher revenues from the addition of new stores and a positive currency effect.
That said, comps declined 1% (against a 2% decline in the preceding quarter).
Operating margin declined 1,360 bps due to a partial impairment of goodwill related to the Switzerland retail business and sales deleverage on company-operated stores.
Channel Development: Net revenues improved 8% to $500.2 million. The growth was driven by higher sales of premium single-serve products.
Operating margin improved 100 bps to 43%.
All-Other: The segment comprises Seattle's Best Coffee, Starbucks Reserve Coffee and Roastery businesses, and Teavana-branded stores. Revenues at the segment decreased 32% to $75.6 million.
Fiscal 2018 Guidance
Starbucks expects global comps growth at the lower end of its earlier projected guidance of 3-5%. The company still expects to add approximately 2,300 net new stores globally. Consolidated revenue growth is expected in in the high single digits.
The company expects its GAAP EPS in the range of $3.32-$3.36.
Starbucks expects non-GAAP EPS in the range of $2.48-$2.53 compared with $2.30-$2.33 expected earlier. Although the guidance is consistent with the company’s earlier projection, it excludes the impact of its previously announced plan to close more than 8,000 company-owned stores in the United States on May 29, 2018 to conduct racial-bias training for all partners (employees) in the United States.
Earnings Schedules of Other Major Restaurant Service Providers
McDonald's Corporation (MCD - Free Report) is slated to report quarterly numbers on Apr 30. Yum! Brands, Inc. (YUM - Free Report) is expected to report quarterly numbers on May 2.
Meanwhile, Dunkin' Brands Group, Inc. reported adjusted earnings of 62 cents per share in the first quarter of 2018, surpassing the consensus estimate of 52 cents by 19.2%. Earnings also increased 21.6% year over year. Revenues in the quarter grew 1.7% year over year to $301.3 million. The top line almost met the consensus estimate of $301.4 million.
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Starbucks (SBUX) Q2 Earnings In Line, Revenues Top Estimates
Starbucks Corporation (SBUX - Free Report) reported in-line earnings but exceeded the Zacks Consensus Estimate for revenues in the second-quarter of fiscal 2018. The company’s results benefited from an improved performance in the Americas segment (mainly in the United States), the ongoing momentum in China (following the takeover of East China) and strongest comps growth in Japan in five quarters.
However, Starbucks’ shares declined 2.2% in the after-hour trading session following the earnings release on Apr 26, possibly in response to stagnant comps growth in the Americas division that constitutes 70% of total revenues.
Earnings, Sales & Comps Discussion
Adjusted earnings per share (EPS) of 53 cents met the consensus mark but grew 17.8% year over year.
Total sales of $6.03 billion surpassed the consensus mark of $5.9 billion by 2.3% and increased 13.9% from the year-ago level. Notably, the acquisition of the East China business as well as other portfolio reshuffling activities lent a 3% net benefit to its top line. These activities include the closure of the Teavana mall store in the quarter, the Tazo divestiture in December, and the conversion of certain international retail operations from company-owned to licensed models. Meanwhile, currency translation had a 2% positive impact on revenues.
The year-over-year performance was also driven by higher revenues from the opening of 2,103 net new stores over the past 12 months and higher global comps growth.
Global same-store sales increased 2%, same as the preceding quarter. Global traffic increased 3%, better than the 2% increase in the fourth quarter. Transactions were down by 1% against no growth in the preceding quarter. The company opened 468 net new stores globally, bringing the total store count to 28,209 across 76 markets. It also closed 298 Teavana stores in the quarter.
Starbucks Corporation Price, Consensus and EPS Surprise
Starbucks Corporation Price, Consensus and EPS Surprise | Starbucks Corporation Quote
Margin Down
Operating margin decreased 490 basis points (bps) year over year to 12.8% in the quarter due to a product mix shift, largely toward food and restructuring costs associated with the company's ongoing efforts of streamlining business operations. Again, higher spending in its store partners (employees) along with the impact of its ownership change in East China added to the woes.
On a non-GAAP basis, operating margin declined 170 bps to 16.2%.
Quarterly Segment Details
Americas: Net revenues in this flagship segment were up 8% year over year to $4 billion.
Comps rise of 2% in the quarter (same as the preceding quarter) comprised a 3% increase in average ticket. U.S. comps also grew 2% albeit less than the 3% increase during the second quarter of fiscal 2017.
Importantly, this is second consecutive quarter of 2% comps growth in Americas, mirroring concerns that its increased promotions somehow failed to attract a huge number of customers.
Food comps were more than 1% and food has consistently contributed in the 1% to 2% comps range for many years now. This momentum continued in the quarter with food's share of total U.S. sales being 22%, up 100 bps from the prior-year quarter. Meanwhile, iced beverages contributed almost 40% to overall revenue growth.
Membership increased 12% year over year to 14.9 million in the My Starbucks Rewards (MSR) program. Customers in the United States are using the chain's mobile app to order and pay for their drinks and are joining the company's rewards program. Mobile payments represented 12% of U.S. transactions, reflecting an increase from 8% a year ago.
Operating margin in the segment, however, contracted 220 bps to 20% as a strong sales leverage was more than offset by the impact of a food-related mix shift and higher spending in its store partners.
China-Asia-Pacific (CAP): Net revenues increased 54% to $1.2 billion on the back of higher revenues from the acquisition of east China operations, new store openings and comps growth.
Comps grew 3%, higher than 1% in the previous quarter. China continued to post impressive comps growth, with 4% improvement in the quarter (softer than 6% in the preceding quarter). The softer sequential growth was attributed to a shift in the timing of the Lunar New Year. Meanwhile, Japan delivered its first quarter of positive comps since the first quarter of fiscal 2017, buoyed by a strong beverage lineup.
However, operating margin at the CAP segment contracted 570 bps year over year to 17.2% in the quarter, owing to the impact of its ownership change in East China.
Europe, Middle East and Africa (EMEA): Net revenues were up 15% year over year at $266.1 million in the segment. The improvement was prompted by higher revenues from the addition of new stores and a positive currency effect.
That said, comps declined 1% (against a 2% decline in the preceding quarter).
Operating margin declined 1,360 bps due to a partial impairment of goodwill related to the Switzerland retail business and sales deleverage on company-operated stores.
Channel Development: Net revenues improved 8% to $500.2 million. The growth was driven by higher sales of premium single-serve products.
Operating margin improved 100 bps to 43%.
All-Other: The segment comprises Seattle's Best Coffee, Starbucks Reserve Coffee and Roastery businesses, and Teavana-branded stores. Revenues at the segment decreased 32% to $75.6 million.
Fiscal 2018 Guidance
Starbucks expects global comps growth at the lower end of its earlier projected guidance of 3-5%. The company still expects to add approximately 2,300 net new stores globally. Consolidated revenue growth is expected in in the high single digits.
The company expects its GAAP EPS in the range of $3.32-$3.36.
Starbucks expects non-GAAP EPS in the range of $2.48-$2.53 compared with $2.30-$2.33 expected earlier. Although the guidance is consistent with the company’s earlier projection, it excludes the impact of its previously announced plan to close more than 8,000 company-owned stores in the United States on May 29, 2018 to conduct racial-bias training for all partners (employees) in the United States.
Zacks Rank
Starbucks carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Earnings Schedules of Other Major Restaurant Service Providers
McDonald's Corporation (MCD - Free Report) is slated to report quarterly numbers on Apr 30. Yum! Brands, Inc. (YUM - Free Report) is expected to report quarterly numbers on May 2.
Meanwhile, Dunkin' Brands Group, Inc. reported adjusted earnings of 62 cents per share in the first quarter of 2018, surpassing the consensus estimate of 52 cents by 19.2%. Earnings also increased 21.6% year over year. Revenues in the quarter grew 1.7% year over year to $301.3 million. The top line almost met the consensus estimate of $301.4 million.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>