Starbucks first quarter earnings

Last night after hours we received earnings from Starbucks for their first quarter of the financial year. The numbers look good and the share price shot up 5% after hours. Lets look at the numbers.


Revenues increased by 13% but remember this now includes Starbucks Japan which was recently acquired. Global comparable sales increased 5%. Earnings per share increased 83% to $1.30 per share, this also includes Japan for the first time. Highlights for the quarter included, 9 million more customer transactions in the US over the comparable period; the opening of 512 new stores including the first Starbucks Reserve Roastery and Tasting Room (Sasha wrote about this last year); $1.6bn now loaded on Starbucks Cards; 1 in 7 Americans received a Starbucks gift card in Q1 (WOW!); 896 000 new Rewards members in the quarter.


As you can see, its been a busy quarter for a company that never sits still. In fact I was reminded of an Onion headline the other day which gave me a good chuckle. "New Starbucks Opens in Restroom of Existing Starbucks." I've hacked a table from the presentation which sums up the quarter. The decrease on Margins actually comes from the Japanese business. If you exclude that, margins in fact increased by 70 basis points.


From what I read and see in daily life, coffee is growing everywhere. Research has shown (in moderation of course) that it is actually good for you and it's allure as a gourmet product has spiralled it up the list for anyone who claims to be cool. Whats more exciting for Starbucks is that 70% of their sales come from the US. A recent study from Statista suggests that the US is still quite low on the list of coffee drinking nations. Global leading 20 coffee consuming countries in 2013 (average per capita cups per day). Which means there is still plenty room to grow in its country of origin. Other studies I have read suggest that within the US, minority groups are the fastest growing coffee consumers. Thats always a good sign.


The room for expansion outside the US is also huge. Paul said that the presence of Starbucks in China was huge. The brand is strong and the Chinese sure love strong brands (sorry for the generalisation).


Fundamentals? The stock is expensive, it always has been. Earnings expectations for the year are $3.17, trading at $86.26 we have forward earnings of 27 times. But these earnings are expected to grow by 24% in 2016 to $3.93. As far as PEG ratios are concerned, the market is right. We expect Starbucks to beat these lofty expectations and continue to add.