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Starbucks (SBUX) Q2 Earnings Beat Estimates, Revenues Miss

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Starbucks Corporation (SBUX - Free Report) 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.

Despite reporting better-than-expected results, the company’s shares inched down 1.7% in after-hour trading session on Apr 27. Notably, negative investor sentiments were witnessed as the company’s revenues were below analyst’s estimates.

Nevertheless, Kevin Johnson, president and CEO, said, “I am very pleased with our progress to date in fiscal 2021, as our second quarter results demonstrated impressive momentum in the business with full sales recovery in the U.S. Our strong results validate our ability to adapt to changes in our environment and the needs of our customers.”

Starbucks Corporation Price, Consensus and EPS Surprise

 

Starbucks Corporation Price, Consensus and EPS Surprise

Starbucks Corporation price-consensus-eps-surprise-chart | Starbucks Corporation Quote

 

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.

Zacks Rank & Key Picks

Starbucks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Darden Restaurants, Inc. (DRI - Free Report) , Chuy's Holdings, Inc. (CHUY - Free Report) and FAT Brands Inc. (FAT - Free Report) . Darden sports a Zacks Rank #1, while Chuy's Holdings and FAT Brands carry a Zacks Rank #2.

Darden has three-five-year earnings per share growth rate of 10%.

Chuy's Holdings has a trailing four-quarter earnings surprise of 126.5%, on average.

FAT Brands 2021 earnings are expected to surge 197.3%.

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