Earnings Release Is Starbucks A Buy?

Starbucks Corp  (SBUX)  $116.15    (%)

Starbucks Corporation (NASDAQ: SBUX) today reported financial results for its 13-week fiscal first quarter ended December 27, 2020. GAAP results in fiscal 2021 and fiscal 2020 include items that are excluded from non-GAAP results. Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release for more information.

“I am very pleased with our start to fiscal 2021, with meaningful, sequential improvements in quarterly financial results despite ongoing business disruption from the pandemic. Investments in our partners, beverage innovation and digital customer relationships continued to fuel our recovery and position Starbucks for long-term, sustainable growth,” said Kevin Johnson, president and ceo.

“Our results demonstrate the continued strength and relevance of our brand, the effectiveness of the actions we’ve taken to adapt to changes in consumer behavior and the steadfast commitment of our green apron partners to serve our customers and communities. We remain optimistic about our robust operating outlook for fiscal 2021 as well as our ability to unlock the full potential of Starbucks to create value for our stakeholders,” concluded Johnson.

Q1 Fiscal 2021 Highlights

  • Global comparable store sales declined 5%, driven by a 19% decrease in comparable transactions, partially offset by a 17% increase in average ticket
    • Americas comparable store sales declined 6%, driven by a 21% decrease in comparable transactions, partially offset by a 20% increase in average ticket; U.S. comparable store sales declined 5%, driven by a 21% decrease in comparable transactions, partially offset by a 19% increase in average ticket
    • International comparable store sales were down 3%, driven by a 10% decline in comparable transactions, partially offset by an 8% increase in average ticket; China comparable store sales were up 5%, driven by a 9% increase in average ticket, partially offset by a 3% decline in transactions; International and China comparable store sales are inclusive of a benefit from value-added tax exemptions of approximately 3% and 5%, respectively
  • The company opened 278 net new stores in the first quarter of fiscal 2021, yielding 4% year-over-year unit growth, ending the period with 32,938 stores globally, of which 51% and 49% were company-operated and licensed, respectively
    • Stores in the U.S. and China comprised 61% of the company’s global portfolio at the end of the first quarter of fiscal 2021, with 15,340 and 4,863 stores, respectively
  • Consolidated net revenues of $6.7 billion declined 5% from the prior year primarily due to the impact of the COVID-19 pandemic
    • Impact included the effects of reduced customer traffic, modified operations, reduced store operating hours and temporary store closures
  • GAAP operating margin of 13.5%, down from 17.2% in the prior year primarily due to the COVID-19 pandemic, mainly sales deleverage, as well as growth in wages and benefits and Americas store portfolio optimization expenses, partially offset by labor efficiency and the impact of pricing in the Americas
    • Non-GAAP operating margin of 15.5%, down from 18.2% in the prior year
  • GAAP earnings per share of $0.53, down from $0.74 in the prior year primarily due to unfavorable impacts related to the COVID-19 pandemic
    • Non-GAAP earnings per share of $0.61, down from $0.79 in the prior year
  • Starbucks® Rewards loyalty program 90-day active members in the U.S. increased to 21.8 million, up 15% year-over-year

 

Net revenues for the Americas segment of $4.7 billion in Q1 FY21 were 6% lower relative to Q1 FY20, primarily due to a 6% decline in comparable store sales as well as lower product sales to and royalty revenues from our licensees primarily due to the impact of the COVID-19 pandemic. These declines were slightly offset by 105 net new store openings, or 1% store growth, over the past 12 months.

The Americas segment reported operating income of $813.5 million in Q1 FY21, compared to $1.1 billion in Q1 FY20. Operating margin of 17.3% contracted 460 basis points, primarily due to the impact of the COVID-19 pandemic, including sales deleverage and additional costs incurred, growth in retail partner wages and benefits as well as expenses relating to the Americas store portfolio optimization, partially offset by labor efficiency and pricing.

Full Year Fiscal 2021 Guidance

Please note that  Starbucks fiscal year 2021 is a 53-week year instead of the usual 52 weeks. The impact of the 53rd week will be reflected in our results for the fourth quarter of fiscal 2021. All full-year guidance for the metrics noted below is for fiscal year 2021 on a 53-week basis except comparable store sales growth metrics, which are relative to fiscal year 2020 on a 52-week basis.

The company updates fiscal year 2021 GAAP EPS guidance:

  • GAAP EPS in the range of $2.42 to $2.62, inclusive of a $0.10 impact attributable to the 53rd week
    • (previously $2.34 to $2.54, inclusive of a $0.10 impact attributable to the 53rd week)

The company reiterates the following fiscal year 2021 guidance:

  • Global comparable store sales growth of 18% to 23%
  • Americas and U.S. comparable store sales growth of 17% to 22%
  • International comparable store sales growth of 25% to 30%
    • China comparable store sales growth of 27% to 32%
  • Approximately 2,150 new store openings and 1,100 net new Starbucks stores globally
    • Americas approximately 850 new store openings and approximately 50 net new stores
    • International approximately 1,300 new store openings and 1,050 net new stores
      • Approximately 600 net new stores in China
  • Consolidated revenue of $28.0 billion to $29.0 billion, inclusive of a $500 million impact attributable to the 53rd week
    • Channel Development revenue of $1.4 billion to $1.6 billion
  • Consolidated GAAP operating margin of 14% to 15%
    • Consolidated Non-GAAP operating margin of 16% to 17%
  • Interest expense of approximately $470 million to $480 million
  • GAAP and non-GAAP effective tax rates in the mid-20%s
  • Non-GAAP EPS in the range of $2.70 to $2.90, inclusive of a $0.10 impact attributable to the 53rd week
  • Capital expenditures of approximately $1.9 billion

Q2 Fiscal 2021 Guidance

The company introduces the following Q2 fiscal 2021 guidance (growth targets are relative to Q2 fiscal 2020):

  • Q2 FY21 U.S. comparable store sales growth of approximately 5% to 10%
  • Q2 FY21 China comparable store sales growth of nearly 100%
  • Q2 FY21 GAAP EPS in the range of $0.36 to $0.41
    • Q2 FY21 Non-GAAP EPS in the range of $0.45 to $0.50

Please note, the guidance provided above is dependent on our current expectations, which may be impacted by evolving external conditions and local safety guidelines as well as shifts in customer routines, preferences and mobility.

Please refer to the reconciliation of GAAP measures to non-GAAP measures at the end of this release.

The company will provide additional information regarding its business outlook during its regularly scheduled quarterly earnings conference call today; this information will also be available following the call on the company’s website at http://investor.starbucks.com.

CWEB Analyst’s have initiated a Buy Rating for Starbucks Corporation (NASDAQ: SBUX)   and potential upside of $168 by 2021.


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