Starbucks perks up on earnings, upgrade

Shares of the coffee chain rise after earnings beat expectations and an analyst upgrades the stock.

By TheStreet Staff Nov 5, 2010 12:24PM

thestreetCredit: (© Anthony Bolante/Reuters)
Caption: Starbucks baristaBy Miriam Marcus Reimer, TheStreet

 

Starbucks (SBUX) shares jumped 4% Friday after the coffee chain beat top- and bottom-line expectations.

 

S&P restaurant analyst Erik Kolb upgraded his rating on Starbucks to hold from sell, noting its better-than-expected earnings and growth in comparable same-store sales, driven by higher traffic and average ticket price.

 

Fiscal 2011 guidance "gives us greater confidence in the viability of SBUX's turnaround efforts," he noted. "We now see 500 new store openings and slightly higher operating margins leading to continued EPS growth. However, currency is likely to remain a headwind."

 

The analyst raised his fiscal 2011 earnings-per-share estimate by 3 cents to $1.45 and lifted his 12-month target price to $32 from $20 on his updated peer price-to-earnings analysis.

Starbucks said late Thursday its quarterly earnings jumped 8.9% to $278.9 million, or 37 cents per share, topping estimates of  earnings of $243.4 million, or 32 cents per share.

 

Starbucks said quarterly revenue grew 17.2% to $2.8 billion, slightly higher than the $2.77 billion analysts were looking for.

 

Global comparable same-store sales, or sales at stores open at least one year, grew 8%. Global traffic increased 5%.

 

Operating margins pushed sharply higher to 17.3% in the U.S. and 13.8% internationally.

 

Starbucks reiterated its fiscal 2011 targets introduced over the summer for net new store growth of 500, including 100 in the U.S. and 400 internationally, the majority of which are expected to be licensed stores. It also targeted mid- to high single-digit revenue growth based on a 52-week comparable year, driven by low to mid-single-digit comparable-store sales growth.

 

The coffee chain raised its fiscal 2011 EPS guidance to a range of $1.41 to $1.47.  

 

Starbucks maintained its 13-cent dividend, to be paid next on Dec. 3 to shareholders of record on Nov. 18.

 

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