Starbucks Brews Up 16% Revenue Growth

Millions of consumers rely on Starbucks (SBUX) for their daily caffeine fix. If you are one of them, it will not surprise you that things are going well for the company since Howard Schultz stepped back in as CEO. The stock and revenue has perked up considerably since the recession where the stock traded below 10 dollars a share.

Starbucks Corporation Stock Chart

Starbucks Corporation Stock Chart by YCharts

At the time, many market observers questioned the value of the premium priced coffee and feared McDonalds (MCD) and Dunkin' Donuts (DNKN) might eat into the top baristas market share. As you can see below, Starbucks did just fine.

Starbucks Corporation Stock Chart

Starbucks Corporation Stock Chart by YCharts

Starbucks released first quarter earnings after the close today. Starbucks revenues increased 16% to a record $3.4 billion with EPS up 11%. Global comparable store sales increased 9%. 241 net new stores were opened globally. There are now over 500 stores in both Latin American and mainland China. CPG revenue increased 72% driven by Tazo-branded K-Cup® packs and the transition to the direct distribution model for packaged coffee and tea.

Starbucks continues to expand our global footprint and accelerate the innovation and momentum in our CPG business,” said Howard Schultz, Starbucks chairman, president and ceo. “Our first quarter performance represents the highest quarterly earnings in the history of the company, and is a testament to the hard work and commitment of our 200,000 partners (employees) around the world. Starbucks is firing on all cylinders and taking full advantage of the many global opportunities that lie ahead," Schultz added.

"Our first quarter results demonstrate the fundamental strength of the Starbucks business and the powerful momentum we carried into fiscal 2012,” commented Troy Alstead, CFO. “A very successful holiday season drove strong global same store sales, which, combined with continued operational efficiencies, delivered record results despite continued commodity cost pressures. We are well positioned to continue to drive strong revenue and profit growth throughout this year, and in years to come.”

For 2012, Starbucks plans to open 800 net new stores globally. Approximately 400 net new stores in the Americas, with licensed stores comprising approximately one-half of the new additions. The company is targeting 10% revenue growth for the year.

Coffee prices have been trending up for several years and the higher commodity costs are impacting operating margins. They were down 80 basis points YoY on a consolidated basis with weakness in EMEA (320bps), China Asia Pacific (350 bps) and CPG (1,270 bps). Commodity costs will add approximately $230 million of cost pressure to FY12, with the majority expected to impact the first half of the year.

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Coffee Arabica Price Chart by YCharts

Given the strong Q1 FY12 results, the company has raised its expectation for earnings per share to a range of $1.78 to $1.82, representing 17% to 20% growth over the $1.52 EPS in FY11, excluding the non-routine gains. EPS growth is expected to be approximately 10% in the first half of FY12 and approximately 25% in the second half of FY12, reflecting the expected distribution of unfavorable commodity cost impact throughout the year.

Increased same store sales, net new store increases and CPG gains have Starbucks in a good position. Investors have taken note and bid up the shares over the last couple of years. With SBUX near 48 dollars a share it trades at 26 times 2012 earnings which may be rich given the 17 to 20% EPS growth targets. Investors may be smart to keep sipping their Starbucks coffee and lay off the SBUX for now.

Starbucks Corporation Stock Chart

Starbucks Corporation Stock Chart by YCharts

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