For the latest quarter, Starbucks posted revenue of $3.7 billion, up 12.8% from 3.36 billion a year earlier, and net profit of $481 million, up 34% from $359 million a year earlier. On per share basis, the earning per share stood at $0.63, up from $0.46 per share during the same period last year. The quarter was the best quarter for the company in its 42 year history as $.63 per share is the highest EPS of any single quarter in the history of the company.
Comparable Store Sales:
The company showed a marked improvement in the comparable store sales (see the table below). On the consolidated basis, the sales improved by about 7%, marking its 15th consecutive quarter of comparable growth in excess of 5%. The growth came due to 5% growth in the transactions and 2% growth in the ticket rate. Americas and China Asia-Pacific regions showed the 8% improvement in sales. EMEA region showed improvement of about 2%.
This improvement in the sales of established stores tells a lot about the growth potential and the sustainability of its business model. This also signifies that the company is not dependent on the new store openings for growth. The most positive outcome of such a constant improvement in the same-store growth is its impact on margins, which also showed significant improvement.
The company's margins showed an improvement of 220 bps to touch quarterly record of 17.6% from 15.4% a year earlier. The improvement in margins was due to the innovation, disciplined operating performance as well as the healthy growth in comparable store sales. EMEA Segment turned back to positive margins with 9.7% margin. The Channel Development segment and China/Asia-Pacific segment showed the maximum improvement in operating margins as the margins improved by 4.5 bps and 4.4 bps and touched 35.6% and 37.5%, respectively. Despite huge scale Americas region showed an improvement of 100 bps. All other segments continued to operate with negative margins and showed a operating loss of $ 16.5 million on a revenue of 105.5 million. The increased operating loss was the result of increased spending on the emerging brands.
During the quarter, the company added 558 stores, up 143 from 415 a year earlier. Americas region added 340 stores; China/Asia-Pacific region added 197 stores. For the fiscal year 2014 the company intends to open about 1500 net new stores, as explained below:
- Americas: approximately 600
- EMEA: increased to approximately 150
- CAP: increased to approximately 750
Fiscal 2014 Targets
For the fiscal year 2014, the company reaffirms its earlier guidance. Revenue growth is expected to be 10% or more. Comparable store growth is expected to be in the mid single digits. Margins are expected to improve by about 150 to 200 basis points over FY 2013. Segment-wise expected margins are detailed below:
- Americas: moderate improvement over FY13
- EMEA: operating margin improving toward the high single digits
- CAP: operating margin percentage moving toward the low 30's
- Channel Development: modest improvement over FY13
Earnings per share in the range of $2.55 to $2.65:
- Q1 EPS in the range of $0.67 to $0.69
- Q2 EPS in the range of $0.54 to $0.55
The company once again showed a record performance backed by the improved margins. China Asia-Pacific region continues to deliver record margins that are much higher than Americas regions. EMEA region continue to struggle with low margins. For the future growth the company continues to look forward to new as well as expansion of existing products, beyond coffee.
- Baked food expansion plans:
The success of La Boulange bakery products, prompts the company to expand the La Boulange offering to more and more stores. Now, the company offers these products in more than 3,500 Starbucks stores in the U.S. The company plans to double these numbers by the end of fiscal 2014 as the company begun to test new La Boulange lunch concepts in a number of its stores.
"we're now on track off for La Boulange in all 7,000 company operated stores in the U.S by the end of fiscal 2014." "Building on the success we've begun testing new La Boulange lunch concepts in a number of our San Francisco stores."
- Cold, carbon Asian industry:
Encouraged by the initial customer response to its handcrafted carbonated beverages the company is firming up its plans for the $100 billion global category. The company plans to leverage its unique customized beverage retail platform expertise in this industry as well.
As said by the management:
"Customer response to our carbon, Asian innovation has been encouraging and we look forward to sharing more details around our plans for cold, carbon Asian in the months ahead. Stay tuned."
- Evolution fresh:
The company is moving forward briskly in the $1.6 billion super premium juice category. Today, fresh healthy Evolution Fresh juices are available in more than 800 Starbucks and grocery stores, including almost all Whole Foods (NASDAQ:WFM) locations nationwide. The company also supports this retail expansion by production capacity. During the quarter the company opened a new state-of-the-art juicery in California, which quadruples its production capacity.
Almost one year after the acquisition of Teavana, a company that offers new tea enthusiasts and tea connoisseurs alike its "Heaven of Tea" retail experience, Starbucks finally gets enough insight about the tea beverage market and tea-drinkers to open its own Tea-bar (in current/on-going quarter). This marked as its entry in global tea-beverage market, which represents a $90 billion global market opportunity.
The company holds exceptional growth opportunities but all these opportunities will take some time to materialize.
As said by the management:
"We are more optimistic about our future than ever before and at the same time we're realistic and practical in our expectations and I would encourage you to be as well."
All in all a record quarter for the company. The future guidance reflects some expected softness in the growth rate in China/Asia-Pacific region where the margins are expected to come down to low 30's from mid 30's. Still the overall growth rate is expected to be good. The company's entry in some of the new beverage segments is expected to gather pace in the next few quarters particularly in tea and premium juice segments. Increase in the targeted dividend payout ratio to 35 to 45% is a good news for the investors. Its planed entry in the $100 billion carbonated beverage segment, if materialize, will be the big news for the investors. All in all, an excellent quarter with lots of developments that will accelerate the growth of the company in the long-term.
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