SBUX Earnings Preview: Europe, Evenings Are Key

Starbucks needs to expand its operating hours and beef up its margins in Europe

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SBUX Earnings Preview: Europe, Evenings Are Key

SBUX Stock Catalyst #2

Forget China and the rest of Asia for a moment and consider its Europe, Middle East and Africa (EMEA) segment. In the first quarter, EMEA generated $340 million in net revenue — $73 million higher than China/Asia Pacific (CAP). Yet its CAP region had an operating profit margin of 30.4%, which was 20 percentage points higher than EMEA. Imagine how much profit SBUX would generate if all three of its regions were delivering operating margins of 20% or higher.

In the first quarter, EMEA’s operating margin was 9.9% — 260 basis points higher than in the same quarter in 2013. That might not seem like a lot, but exactly two years ago its Q2 operating margin was -2.0%. It’s making plenty of progress. If it continues to add 250 basis points of margin over the next 12-18 months EMEA could be as profitable as the Americas. That’s something no one would have considered in 2012.

SBUX Stock Catalyst #3

Howard Schultz was interviewed by CNBC’s Jim Cramer in January after releasing its Q1 earnings. Schultz reminded investors that SBUX sold $1.4 billion in SBUX cards in Q1 — 24% higher than a year earlier. Going further, he let Cramer know that in December a 1% increase in comps was equivalent to $23 million in revenue. With 5% comps in the quarter we’re talking approximately $115 million in additional revenue year-over-year for stores open more than 13 months.

Meanwhile, a 24% increase in gift cards sold translates into $270 million in additional future revenue, or more than double the contribution of comparable store sales growth in the quarter. With the expansion of its Chinese business, you can be sure that SBUX cards will continue to grow in popularity both as gifts and for personal use because of the My Rewards loyalty program. Keep an eye on this number. It’s going to play a big role in the future Starbucks stock price.

Bottom Line — Q2 Starbucks Earnings Preview

It’s not enough to look at the top and bottom line with SBUX. You need to read between the lines. Its comps will do just fine in Q2. What I’m more interested in is what it has to say about the future. That’s where you’ll find the value in Starbucks stock.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2014/04/sbux-earnings-preview/.

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