Will Starbucks Be The Star This Season?

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Feb 16, 2015

The most popular coffee retailer in U.S., Starbucks (SBUX, Financial), is enabling investors to make money. Its shares have risen by 18% in the last year. Through various strategic moves, the company has been able to register growth. It recently reported a blockbuster quarter, where the numbers were ahead of the Street’s estimates. Let us get into the details.

In-line with expectations

Revenue for the quarter surged 13% to $4.8 billion, over last year. The top line was in line with the analysts’ expectations. Sales were driven by same store sales growth of 5%. This was higher than the expectations of a same store sales growth of 4.7%. The comp sales metric was, in turn, driven by an increase of 3% in average ticket size and a 2% jump in store traffic. Also, the company opened 512 new stores during the quarter, which added to the revenue.

Further, factors such as strong holiday sales, an expanded assortment of products and additions to the food and beverage menu for the peak holiday season, attracted customer attention. Customers splurge during this time and retailers make most of their revenue in this season.

Moreover, Starbucks expanded its presence in China and Japan. It also added a new mobile rewards program, which enabled customers to make more purchases through Starbucks cards, resulting in higher sales. In fact, the success of this card program was evident from its popularity during the quarter. Points in Starbucks Cards increased 17% to $1.6 billion, over last year.

The bottom line of the company was also in line with analyst estimates. Earnings jumped to $0.80 per share from $0.71 per share in the previous year.

By the segments

Going by the geographical regions, Americas grew 10% to $3.37 billion, over last year. Revenue in this region was driven by food growth of 2% and beverage growth of 9% during the quarter. However, the EMEA region registered a decline of 2% to $333 million.

Nonetheless, the best performing segment was the China and Asia-Pacific region, where revenue grew 86% to $496 million. Sales in this region were driven by the acquisition of Starbucks Japan. Also, comp sales increased 8%.

The road ahead

Starbucks took a number of steps to attract customers in the last few months. Since people have shifted to online ordering for their holiday gifts, Starbucks expanded as well as strengthened this segment.Ă‚

Further, it ramped up its promotions. For instance, it offered a chance to win free Starbucks coffee for the next 30 years to some of the customers who used its cards. Also, it expanded its presence by adding more stores domestically and internationally.

Addition of new categories such as tea stores also added to the top line of the company. Starbucks is expected to complete the acquisition of Starbucks Japan in the first quarter of 2015. This buyout will further boost the performance of the company in the future.

Summary

Starbucks is indeed a star performer this season. Its results were spectacular and its efforts look impressive. Its plans to expand its business, add new products and strengthen the online business make the future look bright. However, it provided a poor outlook for the year, which disheartened the investors. Nonetheless, this coffee retailer can be a great pick.