Earnings Preview : Starbucks Corporation (NASDAQ:SBUX) First Quarter 2010
Monday, April 12, 2022 6:14 PM

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Starbucks Corporation (NASDAQ:SBUX)  is scheduled to report their results after the market closes on April 21, 2010. The company expects revenue growth to be in the mid single digits for the balance of the year driven by modestly positive comparable store sales growth, extra week of this fiscal and an additional 300 stores. With respect to commodities and foreign currency the balance of the year is expected to be flat compared to last year with unfavorable dairy costs offset by favorable coffee costs and foreign currency and an improvement of roughly 400 basis points in the US and in line with prior guidance 200 to 250 basis points in international. All together consolidated operating margin is expected to be in the range of 11% to 12% for the full year, with EPS being in the range of $1.05 to $1.08 on a non-GAAP basis.
 
As for Q2 2010, net income is expected to come in at $176.2 million, with EPS at $0.24. Operating income is estimated at around $272.2 million and EBITDA at $406.9 million. 
 
Starbucks Corporation purchases and roasts high-quality whole bean coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, and coffee-related accessories and equipment primarily through its company-operated retail stores. In addition to sales through our company-operated retail stores, Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Additionally, Starbucks produces and sells bottled Frappuccino coffee drink and a line of premium ice creams through its joint venture partnerships and offers a line of innovative premium teas produced by its wholly owned subsidiary, Tazo Tea Company. The Company plans to continue to rapidly expand its retail operations, grow its specialty sales and other operations, and selectively pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.  
 
Q1 2010 was a relatively strong quarter for Starbucks Corporation, as revenues were $2.7 billion, up 4% from $2.6 billion a year ago, primarily driven by a 4% increase in comparable store sales and favorable foreign exchange offset in part by a smaller store base and softness in specialty revenues. The comp growth was attributable to a 1% increase in traffic and a 4% increase in the average value per transaction. Consolidated operating income came in at $353 million, including $18 million of restructuring charges. This compares to Q1 fiscal 2009 operating income of $118 million. The company realized operational efficiencies it implemented throughout fiscal 2009 in this quarter and the trend is expected to continue through fiscal 2010. EPS was $0.32 for Q1 2010 compared to $0.09 per share in last year's fiscal first quarter. International operating income was $54 million in the Q1 of fiscal 2010, a significant increase from $15 million posted last year. The company ended the quarter in excellent financial condition with $1.4 billion in cash and short term investments, no short term borrowings outstanding and only modest long term debt on the balance sheet.
 
Analysts' estimates for Q2 2010 range from a low of $0.22 to a high of $0.27, compared to a consensus estimate of $0.24, with number of estimates being 12 and the co-efficient variance 5.33. On March 24, 2022 Starbucks Corporation announced that its Board of Directors had approved the initiation of a cash dividend to its shareholders. The quarterly dividend of $0.10 per share would be paid on April 23, 2010, to shareholders of record on the close of business on April 7, 2010. While future dividends will be subject to Board approval, Starbucks announced that it is initially targeting a dividend payout range of 35% to 40% of net income. Starbucks Board of Directors also authorized the repurchase of 15 million shares of the Company's common stock. This authorization is in addition to 6.3 million shares that remain available for repurchase under previous authorizations. The lower buyback could pressure our EPS estimates all else equal, though the current sales momentum could make up for that difference. According to reports, SBUX is currently testing a 31 oz iced coffee/tea size dubbed a "Trenta" in two markets. This is significantly larger than the current 24 oz cold Venti size and would match MCD and Dunkin Donut's mega-sized 32 oz iced drinks. Though price points would be higher than MCD's (reportedly somewhere in the $2.60 to $3.30 vs. MCDs tea at $1), it could provide a boost to SSS if rolled out.
 
The stock closed at $24.60, down 0.44% on April 9, 2010. Most analysts' rate this stock as a relative Overweight with a price target of $27.50. The market is currently assuming that SBUX will return to prior peak operating margins of 12% + and this is a possibility if the company can hold current cost cuts and SSS turn slight positive. Long-term buyers of the stock need to be convinced that the aforementioned price target is a reasonable goal. 
 

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