Starbucks On A Caffeine High

| About: Starbucks Corporation (SBUX)

On Thursday, Starbucks (NASDAQ:SBUX) reported solid fiscal fourth-quarter results that showed strong comparable store sales growth and impressive profitability gains. The firm also announced a 24% increase in its dividend, but its projected 1.6% dividend yield is still too minute to consider the company for addition to the portfolio of our Dividend Growth Newsletter. We don't expect any change to our fair value estimate to be material. Please click here to learn how we derive our fair value estimate for Starbucks.

The coffee giant's revenue advanced 11% thanks to global comparable sales growth of 6%, comprising of 5 percentage points of higher traffic and the balance coming from an increase in the average ticket. The firm's Americas growth was strong on moderately better pricing trends compared to consolidated performance, revealing the resiliency of the consumer that we on display this October. The company's Channel Development revenue jumped 31.5% thanks to strong performance from its Starbucks- and Tazo-branded K-cup portion packs. Starbucks' EMEA segment represented the only real sign of weakness during the quarter, with segment revenue dropping 2% and operating income swinging to a loss. Still, the company's consolidated adjusted operating margin jumped 160 basis points, to 15.4%, while adjusted fourth-quarter earnings per share grew 24% from the prior-year period. Starbucks opened 415 net new stores during the quarter, with more than half added in the Americas region.

Looking ahead, Starbucks increased its store-growth target to 1,300 net new stores globally during fiscal 2013, with 600 expected to be added in both its Americas and China/Asia Pacific regions. The company expects to open the doors on over 300 new stores in China alone during fiscal 2013, as it continues to benefit from double-digit comparable store sales growth in the country. Starbucks expects to reach 1,500 stores in China by 2015, representing a concerted effort to gain a coffee stronghold in one of the largest and fastest-growing economies in the world (and one that has rapid growth in the purchasing power of the middle class).

During fiscal 2013, management is targeting total revenue expansion in the range of 10-13% driven by store growth and a mid-single-digit increase in comparable store sales. Margin expansion should also be on display, with 100 basis points of operating-margin improvement anticipated during the fiscal year. Starbucks also raised its fiscal 2013 earnings per share target to the range of $2.06-$2.15, representing expansion of roughly 20% on the high end of the guided range.

We think the strong quarterly performance positions Starbucks well for the coming holiday season, and new releases such as the Starbucks' Christmas blend Blonde Roast should help keep traffic trends robust. Verismo, the only single-serve beverage system that makes Starbucks lattes, espressos, and brewed coffee from a single machine, should get the attention of holiday shoppers. Still, the firm's shares aren't cheap, and its score of 5 on the Valuentum Buying Index (our stock-selection methodology) leaves us less excited about the company's investment prospects at this time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.