Ever expanding its market of coffee consumers, Starbucks Corporation (SBUX) outperformed the estimate by securities analysts with an impressive second-quarter feat of a 26 percent increase to $390 million in net earnings from the year-earlier period.
The Seattle-based coffee company provides customers worldwide with rich-brewed coffee, drinks, juices, food items, teas, as well as beverage-related accessories and goods through a broad, international network of both company-operated and licensed retail stores.
In the second quarter, ending March 31, 2013, Starbucks’ consolidated operating income also increased 26 percent to a Q2 record $544.1 million, the company saw an 11 percent growth in total revenue to Q2 high of $3.6 billion.
In the Americas, same-store sales rose 6 percent with traffic increasing, however modestly, 5 percent in comparison to the first quarter’s 4 percent. Q2 marked the 13th consecutive quarter of 5 percent or more comp gains at Starbucks.
“Starbucks has a pretty strong foothold as a coffee company, I think the variety that they have caters to what everyone wants,” said Alan Herskowich, a 20-year-old Northwestern University student who said he is not surprised by the company’s ongoing success.
“Starbuck’s second-quarter earnings per share (EPS) rose 28 percent, to $0.51, ahead of our and consensus expectations of $0.48 due to a nonrecurring $0.03 gain on the sale of the company’s equity in its Mexican joint venture,” said Sharon Zackfia, a William Blair & Company L.L.C analyst, in a report.
This is the first quarter that the company included results from the recently acquired Teavana Corp. business in their financial results. Howard Schultz, Starbucks’ chairman, president and CEO said the acquisition of the Teavana brand is intended to complement their current Tazo Tea businesses, and was an important move into the $40 billion global tea category.
“The tea category, we believe, is ripe for innovation and we now intend to do for tea what we have done for coffee,” said Schultz in Starbucks’ second-quarter fiscal year 2013 conference call.
Zackfia reported the clear highlight of the quarter to be Starbucks’ strong margin performance, with the operating margin up 180 basis points to 15.3 percent, ahead of William Blair analysts’ projection of 14.9 percent. Additionally, the company raised its full year earnings per share target range to $2.12 to $2.18 from the previous target range of $2.06 to $2.15
“That is the highest Q2 margin we’ve ever reported for the Americas segment, and there are several things contributing to this improvement,” said Cliff Burrows, president of the Americas segment, during the conference call.
Aside from an intense focus on store operations in order to increase in-store efficiency, Burrows said the company is benefitting largely from lower global coffee prices, which he said alone provided at least 40 basis points of profitability.
As disclosed in the conference call, Starbucks plans to have 4,000 stores in the China and Asia-Pacific region by the end of 2013. China is to become Starbucks’ second largest market, after the United States, by 2014. In the second quarter, Starbucks Corporation and its licensees opened 590 locations worldwide, including 337 Teavana stores.
In her report Zackfia said, “With consistently strong sales trends, high visibility on continued 15 to 20 percent EPS growth, and the potential for comps to accelerate in the near term, we continue to like shares at 22 times our calendar 2014 EPS estimate.”
Photo Credit: Allison Seward