Starbucks’ new drinks, eats, tech lift profit
The coffee giant posted strong earnings as it benefited from strong growth in store sales both in the U.S. and abroad.
Seattle Times business reporter
Tech bravado, food sales and the launch of a bevy of new drinks — including cold-brewed coffee and the so-called “flat white,” an Aussie-inspired lattelike beverage — helped Starbucks meet the lofty promises made to Wall Street when it reported results on Thursday.
The coffee giant posted earnings of 33 cents per share, just as analysts projected, while revenues, at $4.56 billion, were even a tad higher than the expected $4.53 billion.
Both revenues and profit per share saw an 18 percent jump in the second quarter, hitting the higher end of the guidance previously given by Starbucks executives, despite the rising value of the U.S. dollar, which took a toll on the value of the company’s overseas sales.
A series of strong quarterly showings has made Starbucks a Wall Street darling and catapulted its valuation to more than $73 billion. The company has vowed to nearly double its revenue by 2019.
Starbucks’ optimism has sparked doubts as to whether an increasingly large and complex coffee purveyor can keep growing as fast as it has been since CEO Howard Schultz retook the reins in 2008.
But Thursday’s results silenced some of those doubts: Shares rallied 5 percent to $51.90 in after-the-bell trading, bringing the company’s valuation to a record.
“The stock, going into earnings, was priced for perfection. And they delivered,” says Kevin Kelly, managing partner of Recon Capital, which operates an ETF fund that owns Starbucks shares.
In an earnings call Thursday, Starbucks executives disclosed how much of the company’s windfall is being shared with employees. For the current fiscal year, the company will spend $140 million on increasing wages and other benefits, including a plan that gives baristas in the U.S. a full ride to an online degree at Arizona State University.
Starbucks executives pointed to a 7 percent increase in so-called comparable sales across the globe; that is, sales from stores that were open last year. In Asia, where Starbucks is placing a lot of its chips, “comp” sales grew at a brisk 12 percent.
In the Americas, a relatively mature region for the company and its largest market, comps grew at 7 percent. The company said 2 percentage points are attributable to food, 1 percentage point to new drinks such as the flat white, cold brew and coconut milk; and 1 percentage point to new tea offerings stemming from the company’s recent acquisition of Teavana. The sale of breakfast sandwiches alone grew 36 percent.
Technology also played a part. The number of transactions using the company’s mobile payment platform — a key ingredient in its goal of luring more members into its reward program — reached 8 million per week in the U.S. That represents nearly a fifth of the U.S. total. Some 16 million users are now actively using the mobile payment app — up from 14 million when Starbucks talked about the mobile pay users in March.
Executives said the company’s launch of a mobile ordering system in the Pacific Northwest has shortened lines, made stores more efficient and brought new customers but didn’t provide specific numbers. The company plans to launch a delivery service in Seattle and New York later this year.
Kelly, of Recon Capital, says Starbucks has “become a tech company that’s masquerading around as a coffee company.”
Finally, the opening of some 1,511 new stores over the past year also helped pad results. Starbucks now has 22,088 stores across the globe.
There were some head winds, however. Net revenues for Starbucks’ Europe, Middle East and Africa unit suffered from the appreciation of the U.S. dollar versus foreign currencies, causing a 10 percent decrease in that unit’s dollar revenue despite rising store sales.
Information in this article, originally published April 23, 2015, was corrected April 27, 2015. A previous version of this story incorrectly spelled the last name of investment executive Kevin Kelly.