Starbucks 1Q numbers

Starbucks reported numbers Thursday evening, after the US market closed. The headline from their Investor Relations page says: Starbucks Delivers Record Q1 Revenues and EPS. Many others that I read suggested that a miss and guidance lower would weigh on the stock. It did initially, pre market the stock was down three percent, that however didn't last for too long, the stock ended the Friday session up one-quarter of a percent. And to think that in the August washout the stock traded in the low 40 Dollars, currently (in the recent washout) the stock is a whisper away from 60 bucks, pretty close to the all time highs of 64 Dollars.

The market rates the stock on a thirty multiple, which means that they expect higher than a 15 percent increase in earnings. Or are investors comfortable to rate stocks higher, when they do have the prospects of raising sales at a faster click than their peers? According to a Barron's article that I read over the weekend, the stock affords a 15 percent premium to their peer grouping, which at that multiple is not that much. The market really likes the growth trajectory, the market really likes the CEO Howard Schultz. The engine of growth continues to be the US, the company has had a strong December (despite not keeping with the tradition of the cup, red with a christmas tree on it, true story), adding 23 percent to their membership program in the US. That now stands at 11 million strong.

The Japanese integration of now owning all the business (see our piece titled: Starbucks goes bigger in Japan) has boosted revenues sharply. The company also stuck out their 2016 targets, which included adding 1800 stores, which equates to nearly 34 new stores a week in this 53 week year. 900 of those in China/Asia Pacific and an astonishing 700 in the US. Of course not all are company owned, two-thirds of the new opening in China/Asia Pacific are likely to be licensed, half in the US.

All in all, coffee continues to be a strong growth segment globally, both in and out of store. Added to the growth in consumption of their core product, Starbucks is no longer just a morning business, or just coffee for that matter. It has become a destination, all day afair, with a stronger contribution from the food segment, which is growing much faster than the brew segment. We continue to recommend the stock as a core part of your portfolio, it should be part of the makeup of your global growth in consumers from Tokyo to Seattle (that way around), they are soon likely to be here, courtesy of Taste Holdings.