As we observe an increase in the consumption of coffee, various coffee chains and snack shops have been focusing on acquiring a larger share of this mammoth market of coffee chains. In the U.S., per capita coffee consumption is anticipated to reach 7.6 lb by 2016, as compared to 7.4 lb in 2012. An average working American spends around $21.32 on coffee every week, and 19% of U.S consumers consume 2 cups of coffee daily. The growth in population and the change in lifestyles can further leverage the growth of coffee chains and snack shop industries around the world. The U.S. coffee and snack shops industry is anticipated to reach a market size of $32.46 billion by 2016 compared to $16.65 billion in 2002, while this year it is expected to reach $28.84 billion.
Starbucks (SBUX, Financial) is one of the global leaders of coffee chains. The company is expanding its global footprints and you can easily find a Starbucks location in various cities around the world. The company has been posting strong results and it influencing its investors, those who are looking for long term steady returns.
Strong Financial growth
The company recently released strong quarter and annual results for the fiscal year 2014. Q4 2014 witnessed revenue growth by 10% year-over-year, to record $4.18 billion as compared to $3.79 in the same quarter last year. Starbucks also reported its annual financial report of fiscal 2014, and we observe that it recorded 11% growth in total annual revenue at $16.45 billion.
The revenue growth momentum for the company is mainly due to higher traffic and new locations being established in every quarter. It is also increasing its global footprints, and global sales have increased by 5%.
Impressive bottom line
Bottom line is also growing; it was up by 34% year-over-year, to record net income of $171.5 million in the fourth quarter. The operating margins grew by 690 basis points, to record 43%. Various cost-cutting measures and fall in the price of food inventory, mainly coffee did influence the rise in the operating margin and had a direct impact on the growth of the net income of Starbucks.
Future Growth
As Starbucks steps into the new fiscal year, it is very optimist about its growth in 2015 and expects to continue the growth momentum. For fiscal 2015, the company anticipates revenue growth to be in the range of 16-18%. The planned acquisition of Starbucks Japan can further provide tailwinds to revenue. Starbucks plans to acquire 60.5% shares in Starbucks Japan (currently its stake is 39.5%).The company expects over $1 billion incremental revenue from this strategic acquisition of Starbucks Japan. It also plans to open 1,650 new stores globally.
Starbucks’ non-GAAP earnings per share is anticipated to be in the range of $3.08 to $3.13 for the fiscal 2015. Meanwhile for first quarter of 2015, EPS on non-GAAP basic is expected to be in the range of $0.79 to $0.81.
Share Repurchase
In Q4, Starbucks declared a cash dividend of $0.32 per share, a gain of 23%. Shares repurchase also influenced the EPS of the shares. In the fiscal 2014, Starbucks repurchased 10.5 million shares and it further plans to repurchase 16 million shares under its existing share repurchase programs.
Conclusion:
Financially, company is performing really well, revenues are recording sequential and year over year growth. The EPS value of the stocks always influences an investor to opt for any company, and the EPS value of Starbucks is on an upward trend. Considering EPS in last two quarters, it was up by 10% in the current quarter to record $0.77 per share, while in previous quarter it increased by 22% to record $0.67 per share. I would suggest a buy for this company.
