Starbucks (SBUX) reported fiscal first quarter earnings. The earnings report was mostly positive as was the 2013 guidance. The result was a 2% increase in the shares during the after hour trading session. Shares now trade for $55.75, closing in on 52-week highs of $62. Shares were up 18% in 2012 and are off to a quick start in 2013. Here's why shares look attractive for growth going forward.
In the first quarter, Starbucks sold 175 million K-Cups. The Keurig, owned by Green Mountain Coffee Roasters (GMCR) continues to be the number one selling premium coffee maker for homes. The K-Cups are the single servings that are sold individually or by the box. Starbucks is one of the bestsellers for K-Cups. In 2012, the patent on these little instant coffee packets expired and Starbucks is working on ways to profit on its own. Until then, the company will continue to sell hundreds of millions of K-Cups, helping Green Mountain and itself out.
Speaking of the Keurig and K-Cups, Starbucks introduced the Verismo last year. The at home coffee brewer is the company's answer to Green Mountain. Coffee makers range from $200 to $400 and use the company's line of "Pods". Since the launch of the devices, the company has sold 150,000 Verismos. A strong start is only the beginning as the device is upgraded to a new model and the $200 model becomes even more affordable. The Verismo was originally available for sale through 4000 Starbucks stores and 2000 retailers nationwide. That number will increase and eventually be all freestanding stores in the nation, which will improve sales of the units and "pods".
Same-Store Sales Growth
Same-store sales continued to grow in Starbucks operating regions. In the Americas segment, growth was 7%, with 5% coming from traffic and the remaining 2% from price increases. In the company's China/Asia Pacific region, same-stores sales grew 11%. Remarkably, this was the 12th consecutive quarter of double-digit growth in the region.
In 2012, Starbucks paid over $600 million to acquire Teavana, a chain of tea stores in the United States. When Starbucks made the purchase, there were over 300 Teavana stores inside malls. By the end of fiscal 2013, Teavana will have 30 additional locations, including the chain's first free-standing non mall store. Starbucks did not hide their intentions on this purchase, as it wants to do to the tea market what it did to coffee. Expect at some point the expansion of this brand to enter rapid mode and hit international markets, where tea is an even bigger commodity.
Starbucks opened its first Chinese store in 1999. Since that time, China has become one of the key markets for Starbucks in its quest for world domination. New plans from Starbucks call for 1500 stores in the world's most populous country by 2015.
In the first quarter, Starbucks repurchased 8 million shares of its own stock. The amazing thing is the company already has a plan to repurchase 29 million more shares. This would retire over 3% of all Starbucks shares. As the company continues to grow in 2013, look for the company to be more aggressive with share repurchases and dividends. The current quarterly dividend of $0.21 represents a yield of just under 1.5%. Since beginning dividend payments in 2010, Starbucks has already raised the payout amount three times. A dividend raise in 2013 is more than likely.
Starbucks bought the San Francisco bakery chain for $100 million to expand its food offerings. The purchase is beginning to pay off and the chain is ready to expand the presence of the bakery items in new cities. After testing in San Francisco Starbucks locations, La Boulange products will be coming to Seattle, Los Angeles, Chicago, and New York City. This all leads up to a national rollout that will greatly impact Starbucks food sales and help same-store sales growth.
Earnings per share
In the first quarter, Starbucks reported record quarterly earnings per share of $0.57. This is an increase from the $0.50 seen during the first quarter of 2012. For fiscal 2013, analysts on Yahoo Finance expect to see earnings of $2.16. Starbucks guidance calls for growth of 15-20%, which would put analysts' target at the high-end of guidance. With tightening of costs and improved profit margins, Starbucks should be able to easily meet this goal.
Starbucks has more than 18,000 stores in 61 countries. The company continues to expand its retail footprint, while also creating new products to sell online and in stores to help capitalize on growing trends. The expansion and acquisitions efforts should reward shareholders in 2013 and into the future. Shares are a buy under $56 and should see $60 by June. I would not be surprised if a new yearly high is set by that time frame either.