Saturday, November 1, 2014

Starbucks (SBUX) reports record high earnings; Wall Street responds by selling off shares: Why Im keeping mine {Earnings Commentary}

Good day my dear followers!


Welcome & Happy Saturday. Take a seat, grab a coffee (pun intended), and welcome to Starbucks earnings commentary. The company announced earnings for the quarter and full year 2014 after hours on October 30th 2014. Without yet reading the results on thursday, I took a quick glance at the stock price and noticed a somewhat significant drop. I decided to go directly to the source first and foremost (sbux investors relations site) before going on to read commentaries from outside analysts.

As I read the press release all I kept thinking was "wow, they did pretty well". I was even pleasantly surprised to see the company had actually reached record highs in several financial metrics. I wasn’t sure what the issue was. I then proceeded to go outside of the Starbucks universe and read some outside reports. As suspected, Starbucks failed to meet "wall street expectations" and so, the street punished the company with a nice sell off, and thus, down went the stock price.

Highlights of the call:

-Consolidated net revenue increased 10% for the quarter year over year reaching a record 4th quarter revenue of $4.2 billion. For full year 2014; this represented an increase of 11% reaching a record $16.4 billion.

-Global comparable store sales for the quarter increased 5%; for full year 2014 the increase was 6%. This was the 19th consecutive quarter in which starbucks reached sales of 5% or greater. {*generally, comparable store sales refers to the sales generated in already existing stores that have been in operation for one year or longer.}

--Consolidated operating income for the quarter reached $854.9 million. For full year 2014; consolidated operating income was $3.1 billion representing an expansion in profit margin which increased to 18.7%. {*Meaning that starbucks was able to retain approximately  $0.19 cents for every dollar of sales}.

-Earnings per share increased to $0.77 for the quarter and reached $2.71 for full year 2014.

-Starbucks openned a total of 503 net stores globally during the quarter alone. For full year 2014; total of net new stores reached 1,599.

-During the quarter, the company also announced an increase of 23% in their dividends, now paying $0.32 per share.

My Two Cents

My original thesis for purchasing shares in Starbucks remains intact. The fact that they failed to meet wall street numbers doesn’t really phase me. One thing we must learn as long term investors in quality companies is to quiet the outside noise and focus on the reasons why we bought in the first place as well as focus on the facts rather than the hype. If we sold or purchased stocks based on the actions of Wall Street, we'd probably end up very poor. So, please keep that in mind. This is specially targeted to those investors just starting out! This is one of the reasons why keeping track of "why" you buy a stock is such a valuable tool and it helps quiet down unnecessary hype.
With that said, I am even more excited with the company's plan for strategic growth and expansion. They also seem to be well aware of technology trends and are making strides towards making sure the business is well aligned with the increasingly high tech consumer. I liked the fact that this company seems to clearly understand that, despite being a leader in their industry, they must continue working hard if they wish to maintain their competitive advantage. Starbucks CEO Howard Schultz said it best during the conference call:
"Starbucks performance in fiscal 2014 was extraordinary by any metric or comparison...but we cannot be content with the status quo, as consumers continue to demand more and more in terms of convenience and excellence. You will see us continue to invest where it counts most, in mobile commerce, innovation, in the customer experience and the partners who drive it and in the quality of our coffees."
I also enjoyed this quote by the CFO, Mr. Scott Maw:
"In Q4, each of our segments delivered strong and balanced revenue and profit growth, consistent with the prior three quarters of fiscal 2014. The increasing global strength of the Starbucks brand, a robust pipeline of innovation, strong global comparable store sales growth and impressive margin expansion in conjunction with a company-wide emphasis on operational excellence and expense management give me great confidence in achieving our 2015 growth targets."
Complacency is not in Starbucks vocabulary and although words may be just words I am confident that this company can deliver what they promise. I will be collecting my dividends and sipping on some coffee {or green tea} while I keep my eye on this company's growth as the quarters and years go by.
Thank you for reading!
Tell me, what are your thoughts on Starbucks? the company and/or its products?
Cheers to profits,