Starbucks (SBUX) Surges 10% After Beating on Both Top and Bottom Lines
PUBLISHED ON: Nov 5, 2012
Coffee giant Starbucks (SBUX: Charts, News) surged more than 10% last Friday, after the company's fourth quarter earnings topped analyst expectations on both top and bottom lines. Starbucks reported earnings of 46 cents per share, a decline from 47 cents a year earlier, but beat the consensus estimate of 45 cents.
This also beat the company's own forecast for earnings between 44 and 45 cents per share. The adjusted earnings included a 2 cent charge for store portfolio optimization initiatives in Europe. Daily Chart
Revenue grew 11% to $3.4 billion, in line with the company's prior expectation of 10% to 12% growth, and exceeded the analyst forecast of $3.39 billion. Same-store sales rose 6% across the company. Starbucks opened 415 new locations around the world during the quarter, including its 700th location in China - the company's most important growth market. Starbucks now intends to open between 1,200 to 1,300 stores by the end of the year, encouraged by strong demand in Asia. Starbucks' adjusted operating margin also improved 160 basis points to 15.4%. In North America, revenue rose 9% to $2.5 billion, due to 7% same-store sales growth and new store openings. Aggressive promotional offers in August and September helped offset weak same-store sales in June and July. In Europe, the Middle East and Africa, revenue slid 2% to $283.7 million, due to unfavorable economic conditions in Europe and a strong U.S. dollar. Starbucks' China and Asia Pacific segment posted the strongest growth, with revenue rising 28% to $198 million, fueled by 10% growth in same-store sales. CEO Howard Schultz has stated that China will become the company's second-largest market by 2014. Starbucks also followed its rival McDonald's (MCD
) into India, a lucrative market for American restaurant chains. Starbucks opened its first three stores in Mumbai in October, through a joint venture with Tata Global Beverages. Starbucks is expected to open its first location in Vietnam in 2013. Looking forward, Starbucks boosted its full year 2013 earnings guidance from a range between $2.04 to $2.14 up to a range between $2.06 and $2.15 per share. Both the original and revised guidance falls in line with the average analyst estimate of $2.13 per share. Starbucks also raised its quarterly dividend by 24%. During the fourth quarter, Starbucks launched its single cup coffee machine, the Verismo. The Verismo, which is designed the compete with Green Mountain's (GMCR
) Keurig machines and Nestle's Nescafe machines, is now available in the United States and Canada in its company-operated retail stores and specialty retailers. The Verismo is Starbucks' second aggressive initiative to increase its market share in the single cup coffee business - the fastest growing market in the industry. The company first tested the waters with its VIA Ready Brew and Starbucks K-Cups, which now hold 22% of the instant coffee market, up from 0% a mere three years ago. Starbucks intends to use a variety of its new products, such as the Verismo, La Boulange bakery products and Evolution Fresh juices to boost sales through the end of the year. Starbucks currently trades at 24.25 times forward earnings with a 5-year PEG ratio of 1.4. The stock has increased 25% over the past twelve months, but has bounced in a wide 52-week range between $40.55 and $62.00. Other News About SBUX Starbucks' Confidence Spurs Stock
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