After the market closed on April 27, Starbucks Corp. (SBUX, Financial) reported earnings results for its second quarter of fiscal 2021, which ended on March 28.
While both earnings and revenue grew year over year, only earnings surpassed what analysts had been expecting. The stock was up 0.2% to $116.15 for the day ahead of the earnings announcement before dropping in after-hours trading.
Earnings results
For the quarter, the coffee chain reported revenue of $6.67 billion compared to $5.99 billion in the prior-year quarter, while adjusted earnings per share came in at 62 cents versus 32 cents and GAAP earnings grew to 56 cents from 28 cents. Analysts had been expecting revenue of $6.82 billion and adjusted earnings of 53 cents per share.
"I am very pleased with our progress to date in fiscal 2021, as our second quarter results demonstrated impressive momentum in the business with full sales recovery in the U.S. Our strong results validate our ability to adapt to changes in our environment and the needs of our customers," President and CEO Kevin Johnson said.
Comparable store sales were up 15% compared to the lows that the company saw during the beginning of the Covid-19 pandemic a year ago. A 19% increase in average ticket size was partially offset by a 4% headwind in the number of transactions.
By region, comps in the Americas were up 9%, while international comps improved 35%. Year-over-year growth was the most pronounced in China, which saw 91% comps growth, 9% of which can be attributed to value-added tax exemptions.
The overall operating margin was 14.8%, up from the 8.1% reported in the year-ago quarter. The Americas segment reported operating income of $905.3 compared to $621.2 million in the second quarter of fiscal 2020, with the operating margin improving 510 basis points to 19.5%. Meanwhile, the international segment reported operating income of $251.5 million versus an operating loss of $15.4 million a year ago, with the operating margin improving 1,700 basis points to 15.6%.
The company opened five net new stores during the quarter, ending the period with 32,943 stores globally. Net new store openings included 300 U.S. and Canada company-operated store closures in relation to the acceleration of the company's Americas Trade Area Transformation initiative announced last June, which aims to reduce store footprint and take advantage of digital sales growth through pickup-only sites.
As of the quarter's end, Starbucks' balance of cash and cash equivalents stood at $3.88 billion, down from $4.35 billion the same time last year, while long-term debt was mostly flat at $14.63 billion versus $14.65 billion.
Looking forward
For full-year 2021, the company now guides for revenue of $28.5 billion to $29.3 billion, up from its previous estimate of $28.0 billion to $29.0 billion. GAAP earnings per share is projected in the range of $2.65 to $2.75, while adjusted earnings are expected to be $2.90 to $3.00 (both representing an improvement to the outlook).
The GAAP operating margin is expected to fall in the 15% to 16% range, while the non-GAAP operating margin is expected to be between 16.5% and 17.5%.
Starbucks also reiterated its previously stated guidance for global comparable store sales growth of 18% to 23% (17% to 22% in the Americas and 25% to 30% internationally).
Continuing its digital transformation process in the Americas, the company aims to open approximately 850 new stores and approximately 50 net new stores in the region. Internationally, it is planning on approximately 1,300 new store openings and 1,050 net new stores, 600 of which will be in China.
Valuation
At a price-earnings ratio of 206.39, Starbucks' stock seems to already be pricing in another decade of over 15% annual growth. Its valuation is high above the industry median and its own 10-year median price-earnings ratio of 29.57.
On the other hand, according to the Peter Lynch chart, if Starbucks can return to its pre-pandemic earnings growth trajectory, it should be able to match up to its median historical valuation. The combination of Starbucks' success on the international growth front and its plans to achieve greater efficiency in the Americas with its digital transformation strategy could thus serve to push shares higher in the future.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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