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Starbucks Accelerates Global Sales in Fiscal 2nd Quarter

- By James Li

Starbucks Corp. (SBUX), a leading global coffee retailer, produced accelerating comparative sales during the quarter ended April 2, 2017. High comparative sales growth led to record revenues, earnings per share and operating margins for the fiscal second quarter. Management expects these trends to continue over the next four years as the company plans to open new stores around the world.


Company reports record second-quarter revenues and earnings

According to the current report filing, the Seattle-based coffee retailer reported consolidated revenue of $5.3 billion and diluted earnings of 45 cents per share, both setting record fiscal second-quarter values. These results drove the company's operating margin, which is currently near a 10-year high of 19.59%. Starbucks's profit margins and returns outperform over 90% of global restaurants, suggesting the company has higher profitability than its competitors.

CEO Kevin Johnson praised the company's 330,000 employees for accelerating Starbucks's business in the U.S. in the earnings report. According to the CEO, the solid performance in China and the U.S. will continue to "deliver strong revenue growth in the second half and into the future."

Company expands revenue potential through new stores

According to the report, Starbucks opened 427 net new stores in the quarter, about 77 more than the prior-year quarter. The company currently operates approximately 26,100 stores in 75 countries. The report mentions that management expects to open about 12,000 new stores globally, with 3,400 net new stores within the U.S.. Executive Chairman Howard Schultz further announced several Starbucks Roasteries under design or construction, including the first Roastery in the EMEA region (Milan, 2018) and the one at the iconic "Magnificent Mile" in Chicago (2019).

Starbucks opened 187 net new stores in the China / Asia Pacific region, where comparative sales increased 3% according to the report. Comparative sales in China alone increased 7%, driven by the "new social gifting feature" through China's Weixin (WeChat in the U.S.). Customers in China can "say it with Starbucks" to gift Starbucks beverages or digital gift cards.

Conclusion

Starbucks offers good growth potential with a financial strength rank of 7 and a GuruFocus business predictability rank of three stars. The company also has strong Piotroski F-scores and Altman Z-scores, suggesting a solid business with almost no distress. Even though the share price of $61.30 is near a 10-year high, Starbucks still has good value potential for 2017.

Disclosure: The author currently does not have a position in Starbucks.

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This article first appeared on GuruFocus.