Starbucks Corp. (SBUX, Financial) shares soared on Friday after the company reported better-than-expected results for the fourth quarter on Thursday evening.
Revenue jumped 10.6% from the prior-year quarter to $6.3 billion, while adjusted earnings per share increased 13% year over year to 62 cents, beating the Street’s expectations of 60 cents.
The Seattle-based coffee chain has been witnessing strong growth lately, as continuous store expansion coupled with favorable tax laws and share buybacks are contributing to the bottom line. Moreover, the highlight of the quarter was stronger-than-expected global same-store sales growth of 3%, compared to analyst estimates of around 2.3%.
“I'm pleased to highlight that we posted a 4% comp in our largest market, the U.S., which was our strongest comp in the past five quarters,” President and CEO Kevin Johnson said. “China, our second largest and fastest growing market, drove double-digit growth in total transactions when combining new store growth and total comp sales with the latter improving sequentially to a plus 1% year-on-year growth.”
While coffee consumption in China is much lower than in the U.S., the country’s changing dynamics in terms of higher spending power and population demographics might prove beneficial to Starbucks, even if it only attains a sliver of the market. Starbucks aims to have 6,000 stores in China by 2022 and has teamed up with Alibaba’s (BABA, Financial) Alipay and Tencent’s (HKSE:00700, Financial) WeChat to increase the efficiency of its service in the country.
In regard to the loyalty program, the company said it accounts for 14% of all transactions and has now reached 15.3 million members, up 15% from last year. Starbucks Rewards members drove nearly 40% of sales in the U.S., the company said.
Among other developments, the company's $7.2 billion deal with Nestle (XSWX:NESN, Financial), which allows the company to sell the coffee giant’s products as packaged goods, will help it to expand its presence in markets where it has little impact. Starbucks is also focusing on drive-thrus and plans to open 80% of its new stores in the U.S. in that format.
“Additionally, drive-thru, out-the-window and Mobile Order and Pay combined grew to more than 50% of the way customers are ordering, up more than 10 percentage points in just two years,” Rosalind G. Brewer, chief operating officer, said.
Looking ahead, Starbucks guided for 2019 earnings of between $2.61 and $2.66 per share and same-store sales growth to be on the low end of its long-term target range of between 3% and 5%.
From a valuation perspective, the company currently has a price-earnings ratio of 20.26 as compared to the industry median of 25.91. Moreover, the company’s three-year revenue growth rate of 12.4% stands way above the industry median of 4.1%.
Moreover, Brewer also highlighted key areas of focus for the company.
“You’ll continue to hear us talk about beverage innovation because that’s where we see our greatest push from transaction growth,” she said.
The company mentioned it is working toward cutting administrative tasks that could help the partners to increase customer interaction and engagement. Overall, Starbucks' innovative pipeline and growing transaction growth in key markets call for a bullish stance on the stock.
Disclosure: I do not own any of the stocks mentioned.
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