Starbucks (SBUX) Q1 Earnings Top, Stock Falls on Weak Comps
Starbucks Corporation SBUX reported better-than-expected earnings but failed to meet the Zacks Consensus Estimate for revenues in first-quarter fiscal 2018 results. The company also lifted its full-year profit outlook considering the new U.S. corporate tax cut.
However, Starbucks’ shares declined 4.3% in the after-hour trading session following the news release on Jan 25, possibly in response to the weak comparable store sale or comps performance that overshadowed the raised profit guidance expected from a U.S. corporate tax cut. "Holiday (limited-time offers) and merchandise did not resonate with our customers as planned," chief executive Kevin Johnson said on a conference call.
Earnings, Sales & Comps Discussion
Adjusted earnings per share (EPS) of 65 cents surpassed the Zacks Consensus Estimate of 57 cents by 14.5% and grew 25% year over year.
Total sales of $6.07 billion missed the Zacks Consensus Estimate of $6.14 billion by a small percentage but increased 6% from the year-ago level. Notably, Q1 revenues mark Starbucks’ first ever $6 billion quarterly revenues. The year-over-year performance was driven by higher revenues from the opening of 2,305 net new stores over the past 12 months and higher comps growth.
Global same-store sales increased 2%, same as the preceding quarter. Global traffic increased 2% in the quarter, same as the previous quarter. Transactions were even during the quarter against 1% growth in the preceding quarter. The company opened 700 net new stores globally, bringing the total store count to 28,039 across 76 markets.
Margin Down
Operating margin decreased 140 basis points (bps) year over year to 18.4% in the quarter due to product mix shift, largely toward food and restructuring cost associated with the company's ongoing efforts of streamlining business operations.
On a non-GAAP basis, operating margin declined 80 bps to 19.2%.
Starbucks Corporation Price, Consensus and EPS Surprise
Starbucks Corporation Price, Consensus and EPS Surprise | Starbucks Corporation Quote
Quarterly Segment Details
Americas: Net revenues in this flagship segment were up 7% year over year to $4.3 billion.
Comps rise of 2% in the quarter was softer compared with an increase of 3% in the last quarter. U.S. comps grew 2%, comprising 2% increase in average ticket.
Food comps were 2% and the company’s core beverage comp (excluding holiday limited time offerings) was 1%.
Membership increased 11% year over year 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 31% of U.S. transactions, reflecting an increase from 27% a year ago.
Operating margin in the segment, however, contracted 100 bps to 23% as strong sales leverage was more than offset by the impact of food-related mix shift.
China-Asia-Pacific (CAP): Net revenues increased 9% to $843.7 million on the back of higher revenues from new store opening and comp store sales growth.
Comps grew 1%, softer than 2% in the previous quarter. China continued to post stellar comps growth, delivering 6% in the quarter (softer than 8% in the preceding quarter). Japan’s comp growth continues to be negatively impacted by softness in limited time offerings and Frappuccino limited-time offerings, in particular.
Operating margin at the CAP segment expanded 210 bps year over year to 23.3% in the quarter, buoyed by strong sales leverage and positive currency effect.
Europe, Middle East and Africa (EMEA): Net revenues were up 8% year over year at $283.9 million in the segment, as higher revenues from addition of new stores and positive currency effect.
That said, comps declined 2% (against 1% growth in the preceding quarter).
Operating margin declined 300 bps to 13.8% due to softer performance in its company-owned stores.
Channel Development (CPG): Channel Development's net revenues improved 1% to $560.3 million. The growth was driven by its foodservice, international and packaged coffee channels.
Operating margin contracted 50 bps to 43.4%.
All-Other: The segment comprises Seattle's Best Coffee, Starbucks Reserve and Roastery businesses. Revenues at the segment decreased 22% to $120 million.
Fiscal 2018 Guidance
Starbucks now expects global comp growth at the lower end of its earlier projected guidance at 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 to be in the range of $3.32-$3.36.
Starbucks now 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, the raised view reflects net impact of the new U.S. tax law's federal statutory tax rate and related reinvestments.
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 and Yum! Brands, Inc. YUM are slated to report quarterly numbers on Jan 30 and Feb 8, respectively.
Restaurant Brands International Inc. QSR is expected to report quarterly results on Feb 12, 2018.
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