Starbucks Sees Record Revenue, but Reiterates Full-Year Guidance

Starbucks (Nasdaq: SBUX) reported earnings after the market closed on Thursday and it was a record-breaking quarter for them:

  • Record net revenues of $6.0 billion, up from $5.3 billion (14% increase year-over-year)
  • Net income rose to $660.1 million, up from $652.8 million (1.1% increase YOY)
  • Earnings of $0.47 per share, up from $0.45 per share (4.4% increase YOY)

If you’ll recall from earlier this week, I was primarily concerned with the performance of Starbucks’ food business, and unfortunately, the food business isn’t broken out specifically in the results. Instead, I will focus on the growth by segment, specifically how well Starbucks is growing outside of the “Americas,” which might be more important when looking at the long-term prospects of the company.

Starbucks is pretty ubiquitous here in the U.S., so you wouldn’t expect a lot of the future growth from the company to be centered in the U.S. And since we should be investing based on what might happen in the future, it might be more telling to see where that growth might come from for Starbucks. It breaks out sales and store information into three geographical segments: Americas, China/Asia Pacific (CAP), and Europe, Middle East and Africa (EMEA). A quick look at some of the results by segment show where we should be looking for growth from the company going forward:

Segment Q2 2018 Revenue % of Total Store Revenue Change from Q2 2017 Net New Starbucks Stores
Americas $4,003.5M 73.38% +8% -13
CAP $1,186.4M 21.74% +54% 29
EMEA $266.1M 4.88% +15% 18
Total $5,456M 100% +14% 34

Source: Starbucks Q2 Earnings Press Release

The future growth in this company will continue to come from the China/Asia Pacific segment. It was the first quarter for the segment that exceeded $1 billion in revenues, and they also opened more stores in the region than anywhere else. As developing economies – and the largest and second-largest countries in the world – China and India will continue to be important for the long-term success of Starbucks, and should the growth overseas slow, the company will be more reliant on a slowing Americas segment to pick up the slack. I don’t see that as a good thing, and I would probably choose to walk away from this investment should that start to happen dramatically. While I don’t expect annual growth exceeding 50% every quarter, should it start to drop below 30%, I would be concerned.

Speaking of future performance, Starbucks reiterated its previous guidance for the year on the most important metrics. They expect full year revenue to grow another 2% from 2017, and annual earnings of $3.34 per share by the end of the year. Should Starbucks hit that earnings target, and based on its current P/E (approximately 19), we should expect a share price of around $63.50 at the end of its fiscal year in September. This represents about 9% upside from current prices, which is not great. However, returns should also be boosted by a dividend yield of around 2%, as well as plans by the company to repurchase 100 million shares by the end of the year.

These results reinforce my decision to consider Starbucks for a future sale, though I do not expect to sell prior to the next earnings release. Should the release in July show slowing international growth, however, I might end my long tenure as a Starbucks shareholder.

Until next time…

Disclosure: I have purchased shares of Starbucks on behalf of my mother and have no intentions of adding or selling shares over the next 30 days. Please read my full disclosure here.

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