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Starbucks a Great Buy After Q3 Earnings Beat

Manaswita Ghosh Dutta

Starbucks Corporation SBUX posted stellar earnings for the quarter ended June 2019. The coffee giant’s strong growth in business and quarterly sales was largely led by an uptick in sales in the United States and China, an improved product portfolio and leading position in loyalty programs and digital capabilities. The coffee giant firmly believes that such factors will help it expand further in the near term.

Q3 Earnings & Revenues Impressive

Starbucks reported fiscal third-quarter earnings of 78 cents per share, which easily beat the Zacks Consensus Estimate of 72 cents.

The global coffee chain primarily owes its impressive earnings to the rise in sales in the world’s two largest economies, which remain its major targeted markets. For instance, the company introduced about 442 new coffee outlets in the said quarter, a third of which opened in China.

The company reported a 6% rise in same-store sales in the Asian country, despite competition from Luckin Coffee Inc. LK. Same-store sales at Starbucks’ domestic outlets grew 7% in the said quarter despite stiff competition from brands such as Dunkin' Brands Group, Inc. DNKN and McDonald's Corporation’s MCD McCafe.

The company also benefited from new beverages. Starbucks focused on bringing into its menu, fast-growing categories such as draft Nitro beverages, cold brews and plant-based modifiers since these drive customer demand these days. The coffee giant also improved how it deals with customers and expanded its digital customer relationships.

In fact, Starbucks’ U.S. loyalty program, which pushes customers to visit Starbucks outlets more frequently and spend more, witnessed an uptick in members. The loyalty program added about 400,000 members in the fiscal third quarter, taking the total count to 17.2 million. Needless to say, this aided sales too.

It’s not surprising that the coffee giant registered impressive revenues of $6.82 billion, which surpassed the Zacks Consensus Estimate by 2.07%.

Multiple Growth Boosters Ahead for the Coffee Chain

Impressive quarterly earnings and revenues aren’t all the coffee chain has on offer. On Jul 25, the company raised its full-year earnings and revenue guidance as well on expectations of further sales growth.

Why shouldn’t Starbucks feel this way, after all? The company has witnessed a spike in the number of customers returning to its outlets in both the United States and China, despite costlier drinks.

This rise in sales is expected to continue on the back of Starbucks’ reach into the middle-class Chinese market and the addition of a wide range of new beverages.

Starbucks is set to offer about 95% of its main menu via Uber Eats UBER early next year in a bid to reach more customers digitally.

In addition, the coffee giant is also looking to develop a cloud-based platform with technology company Brightloom. The platform will aid the coffee giant’s rewards, orders, offers, payment and personalized information etc. The initiative is bound to increase traffic for Starbucks.

Starbucks is a Screaming Buy

Starbucks, currently, has a Zacks Rank #2 (Buy) and is banking on the aforesaid positives. Its expected earnings growth rate for the current year is 14.9% compared with the Zacks Retail - Restaurantsindustry’s projected growth of 5.7%. In fact, the company’s stock price has already outperformed the Zacks Retail – Restaurants Market on a year-to-date basis (+41.2% vs +26.5%). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for its current-year earnings has risen 0.4% over the past 60 days.

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Click to get this free report Dunkin' Brands Group, Inc. (DNKN) : Free Stock Analysis Report McDonald's Corporation (MCD) : Free Stock Analysis Report Starbucks Corporation (SBUX) : Free Stock Analysis Report Uber Technologies, Inc. (UBER) : Free Stock Analysis Report Luckin Coffee Inc. Sponsored ADR (LK) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research