Starbucks Brews Up Solid Growth In Asia-Pacific And Americas

Starbucks Corporation (NASDAQ:SBUX) announced its Q2 earnings on Thursday. Revenues jumped 15% to $3.2 billion on a y-o-y basis helped by a 57% increased in channel development revenues. Operating profit witnessed a slight improvement as declines in store operating expenses (as a percentage of revenues) were negatively offset by an increase in store operating expenses. Net income stood at $309.9 million, or 40 cents a share compared to 34 cents a share in Q2 2011.

The company even raised the full year EPS guidance to $1.81 to $1.84 per share. Starbucks’ competitors in the broader market for coffee include McDonald’s (NYSE:MCD), Caribou Coffee (NASDAQ:CBOU) and Dunkin’ Brands (NASDAQ:DNKN). We have a Trefis price estimate of $55 for Starbucks, which is around 5% below the current market price.

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Comparable stores sales (or comp sales) grew 7% overall with China/Asia-Pacific(CAP) comp sales witnessing a whopping 20% jump while American same stores growth stood at 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.

Overall, Starbucks added 176 new restaurants in the quarter with almost half of them in CAP. 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.

Although Starbucks has more company-owned stores, the rate at which licensed stores are being opened is outpacing that at which company-operated stores since 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.

Global Consumer Product (CPG) Revenues Soaring

Revenues for the 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 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, we should see the revenue growth rate falling to more feasible levels.

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