Analyst reaction to Starbucks Corporation’s SBUX FYQ2 earnings was mostly positive, with specific praise for the quarterly expansion of its membership program and its mobile ordering capacities.
The Numbers: For the quarter ending March 28, Starbucks recorded $6.6 billion in revenue, up 11.2% from $5.9 billion in the same period one year earlier. Net income came in at $659.4 million, or $0.56 per share, a significant rise from the $328.4 million, or $0.28 cents per share, from the previous year.
U.S. same-store sales during the quarter were up by 9%, bringing the company to its pre-COVID-19 pandemic levels, with the average ticket up 21% — although store traffic was down by 10% year-over-year.
Starbucks’ Chinese operations saw a 91% year-over-year uptick in same-store sales, although the average ticket fell 1%. Stores in the U.S. and China accounted for 62% of the company’s portfolio, and five new stores were opened during the quarter.
For FY2021, Starbucks — which is celebrating its 50th anniversary in business — is now forecasting to earn $2.65 to $2.75 per share, up from a previous forecast of $2.42 to $2.62 per share. Expected earnings on an adjusted basis were updated to $2.90 to $3 per share, compared to an earlier forecast of $2.70 to $2.90 per share. The company is also predicting a full-year revenue total in the range of $28.5 billion to $29.3 billion, compared to a prior forecast that envisioned a range of $28 billion to $29 billion.
“Our strong results validate our ability to adapt to changes in our environment and the needs of our customers,” said President and CEO Kevin Johnson. “We have positioned Starbucks for the inevitable great human reconnection that we see unfolding in the U.S. and will propagate in every market around the world, where people once again connect with others face-to-face to heal, to belong, to reflect, to share and to celebrate.”
The View From Credit Suisse: Lauren Silberman, analyst at Credit Suisse, rated Starbucks as Outperform and increased its price target from $116 to $125.
“SBUX has now fully recovered pre-COVID sales in the US, particularly impressive given SBUX was the only restaurant brand at scale to close more than 50% of its US store base at the height of the pandemic and its breakfast/coffee positioning, underscoring the strength of the brand and powerful digital ecosystem,” she wrote.
Silberman praised the company for growing its Starbucks Rewards member base to a record 22.9 million, adding these members accounted for roughly 52% of its U.S. sales during the quarter, up from 44% one year earlier. While noting challenges in operating within the food trade and the global economy — including competition, bad publicity from food safety events and currency fluctuations — Silberman nonetheless was pleased with Starbucks’ performance.
“We are increasing our FY21 EPS to $3.01 (from $2.90) and our FY22/FY23 EPS to $3.71/$4.22 (from $3.57/$4.08),” she wrote.
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An RBC Thumbs-Up: Christopher Carril, analyst at RBC Capital Markets, gave Starbucks an Outperform rating and increased its price target from $126 to $131.
Carril offered a reminder that the new quarterly earnings arrived one year after the tumult created by the COVID-19 health crisis, adding the next 12 months should be more vibrant.
“Following FY20's decline in total revenue (-11.3% Y/Y) driven by the pandemic and its disruption to daily morning routines, we are modeling a strong top-line recovery for SBUX in FY21 (>20%), supported by global blended comps in the mid-20s% range and the addition of >1,000 net new stores,” he wrote. “We expect global blended comp growth to be aided by growing digital engagement, elevated check growth and improving traffic.”
Carril also highlighted the role of digital technology in the company’s progress by calling attention to its addressable domestic customer base of roughly 75 million as the foundation for expanding the Rewards membership base.
“We also continue to see upside from SBUX’s ability to drive further mobile engagement and frequency through its Starbucks Rewards program and investments in its digital platform,” he added.
As for possible risks that could detour the company from its goal, Carril served a reminder that the ongoing pandemic could impact margins and cash flow longer than anticipated while rising labor costs and commodity volatility could create a negative impact.
Keybanc’s Consideration: Eric Gonzalez, analyst at KeyBanc Capital Markets, gave Starbucks a Sector Weight rating with a price of $116.15; he did not offer a price target.
Gonzalez noted the company’s “suburban drive-thru locations continue to offset weakness in dense urban areas” while its Chinese sales volumes were below FY2019 levels. But he also observed the Rewards program’s growth was helping to steer the company in the right direction, especially across the Pacific.
“In China, active Rewards members more than doubled vs. a year ago to 16.3 million in F2Q21, driving 72% of sales in the region — up 5pp from the prior year,” he wrote. “Mobile ordering hit 26% in the U.S. and 34% in China, up from 25% and 30% in F1Q, respectively.”
Gonzalez admitted a cautious optimism on the company’s near-term future.
“We believe Starbucks's scale, best-in-class digital platform, innovation competencies, and forward-thinking business mentality should position the Company well over the LT,” he continued. “However, current sales trends remain challenged, and we believe NT upside is limited due to its elevated valuation and the prospect of a more gradual SSS/EPS recovery than previously expected and relative to peers. We see fair value near $115, based on ~38x our FY21 EPS estimate of $2.99.”
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The Jeffries Take: Andy Barish, an analyst at Jeffries, gave Starbucks a Buy rating and a price target of $135, up from $118.
Barish echoed the other analysts in stating Starbuck’s Chinese business was “a bit underwhelming,” although he conceded this could be attributed to flare-ups in the pandemic in China during the quarter along with the Chinese government’s discouragement of nonessential travel, particularly during the Chinese New Year celebrations.
Barish also accentuated the quarter’s increase in food sales at the Starbuck’s stores and the addition of its mobile ordering and payment availability on Tencent Holdings Ltd.’s TCHEY WeChat during the quarter, which expanded its digital presence beyond its app and the Alibaba Group Holding Ltd. -ADR BABA platform.
“We view the FY21 margin/EPS guide raise as achievable, and potentially conservative,” Barish wrote, adding that “both Americas and Int'l delivered solid op margins above expectations at 19.9% and 19.6%, respectively, as benefits from higher ticket items/labor efficiencies remain present. Margin in 2H likely to progress but lacking government subsidies of 2Q and some normalization of check average as transactions improve to create some headwinds.”
Starbucks opened for trading today at $113.44 and closed at $112.40.
(Photo courtesy Christopher Irwin / Flickr Creative Commons.)
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