Starbucks brews up solid growth

The coffee giant's comparable sales jump 20% in the China/Asia-Pacific region.

By Trefis May 2, 2012 10:32AM
Starbucks (SBUX) announced its Q2 earnings last Thursday. Revenue jumped 15% to $3.2 billion year over year, helped by a 57% increase in channel development revenue.

Operating profit improved slightly as declines in store operating expenses (as a percentage of revenue) were negatively offset by an increase in store operating expenses. Net income stood at $309.9 million, or 40 cents a share, compared with 34 cents a share in Q2 2011.

The company also raised full-year earnings-per-share guidance to $1.81 to $1.84 per share.

Starbucks' competitors in the broader market for coffee include McDonald's (MCD), Caribou Coffee (CBOU) and Dunkin' Brands (DNKN). We have a Trefis price estimate of $55 for Starbucks, which is around 5% below the current market price.

Comparable-store sales grew by 7% overall, with China/Asia-Pacific comp sales jumping 20%, while American same-stores sales grew 8%. American comp sales were helped by the launch of Blonde Roast in January 2012. The company also added wine and beer in select stores and is the process of adding them to more restaurants.

Starbucks Number of Daily Customers per Store

Overall, Starbucks added 176 restaurants in the quarter, with almost half of them in China/Asia-Pacific. The region now boasts of more than 3,000 Starbucks outlets.

Starbucks recently announced its plans to triple the number of outlets in China to 1,500 by the end of 2015 and double the number of restaurants in South Korea to 700 by 2016. The company will also launch its first outlets in India and Vietnam in 2012 itself.

Starbucks Avg Number of Franchised Stores

Although Starbucks has more company-owned stores, the rate at which licensed stores are being opened is outpacing the rate at which company-operated stores are opened. The former is a low investment and a high margin business. Margins for franchised stores are typically four times those of company-operated stores. A greater proportion of franchised stores will drive the overall margins for the company upwards.

Starbucks Franchise Stores EBITDA Margin

Global consumer product revenues soaring

Revenue for the global consumer product (CPG) segment, which mostly consists of packaged coffee and tea rose 57%, helped by the launch of Starbucks Blonde in January 2012. However, the growth is somewhat amplified by full recognition of packaged products under the direct distribution model.

Starbucks Global Consumer Products Revenues

Starbucks had transitioned the retail of CPG products from in-house retailing to direct distribution model (i.e. through groceries, warehouse clubs and drugstores etc) in 2011, which has resulted in significant revenue growth for the segment. Once the impact of full recognition of revenues is discounted in the subsequent quarters, the revenue growth rate will fall to more feasible levels.



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