Starbucks beats the Street: strong gains in US, China continues to grow
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Starbucks beats the Street: strong gains in US, China continues to grow

Global coffeehouse market leader Starbucks reported earnings at the end of last week, and investors liked what they saw. In addition to the usual task of beating consensus estimates, Starbucks had to do two things this quarter to justify the share-price rally we witnessed in the run-up to earnings: first, demonstrate that it was making gains in the US (its domestic market), and second, reassure nervous observers that its important China business was still going strong. Last week, the company delivered on all fronts.

Over the last three months Starbucks’ share price has soared by an enviable 16%

graph 28 starbucks

Source: Yahoo Finance

For the fiscal first quarter, Starbucks reported earnings per share pf 75 cents – an easy win against analysts’ expectations of earnings per share of 65 cents. The company also beat on revenue, reporting $6.6 billion for the quarter ending December against consensus estimates of $6.49 billion.

Perhaps more meaningful in Starbucks’ ongoing story was how the company fared in regards to comparable store sales. Analysts were expecting the company to post an improvement of 3%, but Starbucks managed an increase of 4%. Importantly, that includes continued growth in China (+1% - defying investors’ worries about the company being oversold and tightening of demand in the country), and a return to dominance in the US (+3%). These figures are reported on a sequential basis, rather than year-on-year.

In a statement over the results, Starbucks’ CEO Kevin Johnson said: “We are particularly pleased with the sequential improvement in quarterly comparable store transactions in the U.S., underpinned by our digital initiatives and improved execution of our in-store experience. With this solid start to the fiscal year, we are on track to deliver on our full-year commitments.”

Throughout the three-month period, the company added 541 stores, bringing up its total number of outlets worldwide to 29,856.

Disclosure

Dominion holds Starbucks’ in its Global Trends Managed Fund.


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