Saturday, January 24, 2015

Earnings Commentary: Buying Starbucks was a good idea

...The stock, not the coffee {although I love the coffee too}.

Starbucks reported first quarter 2015 earnings this past Thursday after market close. To say that I am one happy shareholder would be an understatement.

I purchased shares of Starbucks (SBUX) not too long ago. See investment thesis and thought process behind my purchase in this post.
I took some time today to read the full earnings release in addition to a couple of articles that appeared in the Wall Street Journal this week. I could not be more excited about the future of this company. Here are some of the highlights.

  • Consolidate Net Revenues increased to $4.8 Billion, a 13% increase in comparison to first quarter 2014.  Reasoning for this nice increase was attributed to a 5% increase in comparable store sales*, a total of 1,641 net new stores opened during the past 12 months, and increased revenue from the ongoing acquisition plans of Starbucks Japan {you can read more about that here. *Note: Comparable store sales includes same store sales of locations open for 13 months or longer.
  • Consolidated operating income increased to $915 Million for first quarter 2015, also a 13% increase from the $813.5 million earned during the first quarter of 2014.
  • Earnings per share came in at $1.30, in comparison to FY14 $0.71. The jump in EPS includes gains from acquisition of Starbucks Japan.
  • Adjusted operating margin increase to 19.5% {company is now making $0.195 per dollar of sales before interest and taxes}, an increase from 19.2% reported during first quarter 2014.

Notable Highlights
  • Dollars loaded on Starbucks cards increased to a record $1.6 billion during 1st quarter 2015, a 17% increase when compared to first quarter 2014.
  • About 14% of Americans (1 out of 7) received a starbucks gift card in quarter 1; this is an increase from the previously reported 1 out of 8 {~12%}, during first quarter 2014.
  • The company added 896, 000 new “My Starbucks Rewards” members during the month of December alone. This brings member total to over 9 million members (and counting).
  • A total of 100 million Starbucks K-cups were shipped out during the month of December alone—reaching a new record high.

New Developments {“coming attractions”}
  • Starbucks used Portland, Oregon as its testing ground for a new initiative called “Mobile order and pay”. This allows customers to place their orders before they get to the store and pick them up at participating locations. The pilot was deemed successful and should be rolled out to other parts of the country in the near future. This is meant in part to increase number of customers as well as sales (of course) and improve customer service as it should lessen the time for people waiting on the line, especially during peak hours when customers are in a rush.

  • Seattle, Washington was the chosen location for the opening of new Starbucks Reserve Roastery & Tastingstores—the stores are meant to serve “limited availability coffees” and additional “sophisticated” goodies (this last one is my guess judging by the name). The plan is to open a total of 100 of such stores throughout the country.

Dividend News
{Gotta' love a company that shares the wealth}

President and CEO, Howard Schultz, confirmed a cash dividend of $0.32 per share will be paid on 2/20/2015 to all shareholders on record as of 2/5/2015. {Annual dividend yield for Starbucks is at 1.60%, or $1.28 per share}.

On a Personal Note

I know that I've only been a "part owner" of Starbucks corp. for about 4 months and some may argue is too soon for me to conclude that buying this stock was a "good idea". I just want to clarify that I am not saying that simply because of yet another stellar quarter. I am saying that because after a ton of research I've come to the realization that Starbucks is much more than simply a coffee shop. Is a company with tons of technology-driven initiatives with plans of growth and continuous global expansion beyond the "just coffee" business model.

They are already making incredible advances with the strategic acquisition of customer data via their Starbucks cards as well as their mobile transaction feature (Starbucks payment app) which has been extremely successful- among tons of other initiatives on the works. Despite so much success, this company is not one to simply sit and collect revenue. They continue to work hard towards growth and towards remaining relevant and a leader within its respective industry. That's what I like to see in all of the companies where I am a shareholder.

Starbucks has some sort of "cult" following and I don't see it slowing down anytime soon. With that said, anything is possible in the volatile world of stocks so, as with all the other companies I own, I will continue keeping an eye on how this company continues to develop.

Thank you for reading and cheers to profits!