Starbucks earnings: Expect strong results

Investors to focus on the Teavana acquisition and the chain's expansion into emerging markets.

By Benzinga Jan 24, 2013 11:15AM
A Starbucks Corp sign is displayed outside a coffee shop in London UK Chris Ratcliffe Bloomberg via Getty ImagesBy Nelson Hem

Starbucks (SBUX), which was a recent Jim Cramer pick, is scheduled to report its fiscal first-quarter results Thursday after the markets close.

Investors will be looking for what is new with the recently completed buyout of Teavana Holdings and the company's move into emerging markets, particularly China. Another key issue is how the company is faring against the increasing competition from the likes of Green Mountain Coffee Roasters (GMCR) and McDonald's (MCD).

Expectations
Analysts on average predict that Starbucks will report an 11% year-over-year increase in revenue to $3.84 billion. Analysts also expect earnings of $0.57 per share for the quarter. That would be up from a reported profit of $0.50 per share in the comparable period of last year.

Analysts seem to be pretty sure about their estimates, as the consensus has not changed in the past 60 days and individual estimates only range from $0.55 to $0.59 per share. However, analysts underestimated the company's earnings per share (EPS) results in five of the past six quarters. The fourth-quarter earnings of $0.46 per share beat the street view by a penny.

In the previous report, Starbucks posted record quarterly and full-year revenue and said strong traffic boosted same-store sales both domestically and internationally. Also, the board raised the quarterly dividend by 24%.

CFO Troy Alstead then said, "On the strength of our business in fiscal 2012 and the momentum we carry into the new fiscal year, we remain confident in our fiscal 2013 outlook of continued strong profitable growth on a global scale." The share price jumped about 9% following the fourth-quarter report.

Looking ahead to the current quarter, the analysts' consensus forecast so far calls for year-over-year EPS growth of more than 16%, as well as revenues that are more than 12% higher. That consensus EPS estimate is unchanged in the past 60 days.

And the full-year forecast also calls for similar growth of EPS and revenues, relative to the previous year.

The company
Starbucks is a retailer of specialty coffee with more than 9,400 company-operated stores and more than 8,600 licensed stores worldwide. Its brands include Starbucks, Tazo, Seattle's Best Coffee, Starbucks VIA Ready Brew, Evolution Fresh and Verismo.

This S&P 500 component was founded in 1985 and is headquartered in Seattle. The company has a market capitalization near $40.9 billion. Howard Schultz is the founder, chairman and chief executive officer.

Besides Green Mountain Coffee Roasters and McDonald's, other competitors include Dunkin' Brands (DNKN). Dunkin' is expected to report marginal earnings and revenue growth for its most recent quarter, while Green Mountain's EPS are expected to be up more than 7% and sales up about 15%.

McDonald's posted better-than-expected fourth-quarter and full-year results Wednesday.

During the three months that ended in December, Starbucks opened its first store in India, authorized additional share repurchases, unveiled its accelerated global growth plans at its biennial investor conference and completed its Teavana acquisition.

Performance
Starbucks has a long-term EPS growth forecast of more than 18%, but its price-to-earnings (P/E) ratio is about 30.7. While the operating margin is greater than the industry average, the return on equity is about 29% and the return on investment is more than 24%.

The number of Starbucks shares sold short, as of the end of December, represents a little more than 1% of the float. That is the lowest that the short interest has been since August.

Of the 30 analysts surveyed by Thomson/First Call who follow the stock, 23 recommend buying shares; 12 of them rate the stock at "strong buy." The analysts' mean price target, or where they expect the stock to go, represents more than 9% potential upside.

That would be a level the stock has not seen since last spring, when SBUX share price reached a multi-year high.

The share price has risen about 18% since the previous quarterly report, but shares have traded mostly between $54 and $56 for the past three weeks and are now in line with the 50-day moving average. The stock is about 16% higher than a year ago.

Over the past six months, the stock has underperformed Dunkin' Brands, Green Mountain Coffee Roasters and the S&P 500. It has outperformed McDonald's.

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