Starbucks Corporation (NASDAQ:SBUX) announced solid second quarter earnings as it continued to perform strongly in the United States and Asia Pacific. Total revenues climbed 11% to $3.55 billion while operating income swelled 26.4% to $544 million. Net income stood at $390.4 million, or 51 cents a share, up 27% from a year ago. ((SBUX 8-k))
Operating margin expanded 180 basis points to 15.3% buoyed by a greater mix of licensed stores. Licensed stores usually have margins three or four times higher than those of company-operated stores so a greater proportion of licensed stores will have a tendency to expand overall margins. More than half of Starbucks stores are company-operated currently, but the company has lately shown a preference for licensed stores.
Starbucks aims to generate top-line growth of around 10-13% for fiscal 2013 (i.e. Oct’12 to Sep’13). It also raised its full year earnings guidance to $2.12 to $2.18 per share, from $2.06 to $2.15 a share earlier.
The Americas and China
Global comparable sales were up 6% helped by strong performances in the Americas and China. Same-store sales were up 6% and 8% respectively in the two regions. European same-store sales, on the other hand, declined 2% as the company found it difficult to attract customers in a recessionary environment.
Same-store sales growth is an important parameter to gauge a restaurant chain’s performance since it excludes the effect of currency fluctuations and only includes 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.
Starbucks cafes generate more than three-fourth of their sales from beverages, and the company sees an opportunity to grow its sales through the sale of food products. As of March 31, it had introduced La Boulange pastries in 150 of its stores. The company will roll out La Boulange products in all of its company-owned stores across the U.S. by the end of 2014. La Boulange is a San Francisco-based bakery chain that Starbucks acquired last year for $100 million.
Excluding Teavana stores, the company opened 264 new outlets in the quarter ended March 31. Starbucks now plans to open 1,650 new stores in fiscal 2013, up from its previous guidance of 1,300 stores, reflecting 350 additional stores purchased as a result of the Teavana acquisition. Most of the additions will be in the Asia Pacific and the Americas region.  The company has set its eyes on China as a key market as it looks to grow the store count in the region to 1,500 by the end of 2015. The world’s most populous nation will surpass Canada as the second most important market for the company in the next two years.
Packaged Product Sales Moderate
The channel development sales growth slowed down to 7% this quarter, although they were still up 10% during the first two quarters. The channel development segment includes packaged coffee/tea as well as K-cups and brewers sold through third party retailers. Starbucks plans to double the international footprint of this segment within the next three years.  The sales of this division should continue to grow strongly as the company keeps expanding into new geographies and rolls out new products.
We have a $55 price estimate for Starbucks, but we are in the process of revising our estimates to incorporate the latest earnings.Notes: