Starbucks To Continue Growth With Focus On China And Adding New Stores

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SBUX: Starbucks logo
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Starbucks

Starbucks (NASDAQ: SBUX), the world’s renowned coffee company, announced its Q2 2019 results on April 25, 2019, followed by a conference call with analysts. The company reported revenue in line with consensus at $6.3 billion, up by 4.5% year on year. The increase is mainly driven by an increase in global comparable store sales by 3% year on year and Global Net Store Growth of 7% year on year. The earnings were recorded at $0.60, up by 13% year on year.

 

We have summarized our key expectations from the earnings announcement in our interactive dashboard – What Has Driven Starbucks’ Revenues & Expenses Over Recent Quarters, And What Can We Expect For Full-Year 2019?  In addition, here is more Consumer Discretionary data.

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Key Factors Affecting Earnings:

Revenue Continues to grow in Q2 2019:

  • Starbucks’ Total Revenue in Q2 2019 was recorded at $6.3 billion, up 4.5% year-on-year.
  • This was attributed mainly to an increase in global comparable store sales by 3% year on year, driven by an increase in average ticket size by 3%, and Global Net Store Growth of 7% year on year, led by 17% net growth in China.
  • The company opened 319 net new stores in Q2 2019, which takes them to 30,184 stores at the end of the quarter, a 7% increase over the prior year. Further, 94% of net new store openings were outside of the U.S. and 88% of the new stores were licensed.

Trend in Expenses:

  • The Total expenses have been growing in relation to Total Revenue over the years.
  • Operating Margin increased by 80 basis points year on year to 13.6% primarily due to lower restructuring and impairment charges, the beneficial impact of cost savings initiatives, sales leverage, and new revenue recognition accounting for stored value card.
  • The company also returned $3.2 billion to shareholders through share repurchases and dividends.

Full Year Outlook:

  • For the full year, we expect gross revenue to increase by 10.7% to $21.8 billion in 2019.
  • Growth is expected to mainly come from continuous addition of stores, especially in China. The company also expects Starbucks Delivers to help increase the reach and ticket size in China.
  • Overall EBITDA margin is expected to remain flat.

 

Trefis has an estimate of $66 for Starbucks’ stock. Expectations of growth in China, the delivery model, and the coffee alliance are expected to improve profitability.

 

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