Starbucks Corporation (NASDAQ:SBUX) announced solid Q1 earnings buoyed by a strong domestic performance and continued growth of its packaged product segment. Net revenues for the world’s biggest coffee chain jumped 11% to $3.8 billion while net income climbed 13% to $432 million or $0.57 per share.
Starbucks aims to generate top-line growth of around 10-13% for fiscal 2013 (i.e. Oct’12 to Sep’13). The company added 212 stores this quarter and reaffirmed its target of opening 1,300 stores globally this fiscal.  The Americas as well as China/Asia Pacific will see the addition of 600 stores each.
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Same-Store Sales Impress
Starbucks carried on the momentum from the previous quarter as same-store sales were up 6% on a consolidated basis. What was particularly impressive was that sales in Americas (dominated by the U.S.) rose 7%. The Americas segment accounts for about three-fourth of total revenues. Starbucks’ company-wide margins expanded 40 basis points to 16.6%, and strong store sales helped the company more than offset any rise in commodity, labor and occupancy costs.
Same-store sales growth is an important parameter to gauge a restaurant chain’s performance since it excludes the effect of currency fluctuations and includes only the restaurants open for more than a year. The sales of newly opened restaurants could be unusually high or low and can distort the overall revenue/store figure.
Still, Starbucks feels there is scope to raise the sales levels by expanding its food offerings. The company is currently in the testing phase of La Boulange bakery products in select stores. La Boulange is a San Francisco-based bakery chain acquired by the company last year for $100 million. Starbucks eventually plans to roll out the entire range in 2,500 of its company-operated stores across the U.S., beginning in the spring of 2013. Only a third of Starbucks’ transactions consist of food orders and, naturally, the company sees an opportunity to grow this figure. 
The sales of its channel development segment grew 13% to $380 million helped by the sale of K-cups and introduction of the Verismo in September. The channel development segment includes packaged coffee/tea as well as K-cups and brewers.
There were concerns that the Verismo, the single-cup brewer launched in September, wasn’t doing well after Starbucks lowered its price in November. However, that seems to have been put to rest with the company selling nearly 150,000 units during the quarter. Assuming each unit generates revenue of $150, the Verismo itself would translate to a $100 million business (on an annual basis). K-Cup sales would be additional.
We expect the channel development segment’s contribution to the top-line to grow for the next few years. The segment already has more than 100,000 distribution points across 20 countries, and the management expects the division to double the international footprint by 2015.
We have a $58 price estimate for Starbucks, which we are in the process of revising to incorporate the latest earnings.Notes: