Starbucks Corporation (SBUX) Stock Whipsaws on Q2 Earnings

Starbucks - Starbucks Corporation (SBUX) Stock Whipsaws on Q2 Earnings

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The hardest act for a great company is getting out of its founder’s shadow. Howard Schultz, the legendary founder of Starbucks Corporation (NASDAQ:SBUX), retired for the second time to the post of executive chairman on April 3. (He had previously left in 2005 and returned in January 2008.)

Starbucks Corporation (SBUX) Stock Whipsaws on Q2 Earnings
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The June quarter was thus the first reported by his successor, Kevin Johnson, and was being examined closely by traders as a harbinger of what may be to come.

Since Johnson took over, Starbucks stock has gone nowhere, up just 1.4%.  Analysts were expecting 55 cents per share of earnings, with hints of 56 cents, and revenue of $5.74 billion, very close to the numbers of a year ago and well below what the company itself wants to see. But for the most part, Wall Street has held its breath, waiting to see if, this time, the succession would take.

The actual earnings, $761 million, came to 55 cents per share fully adjusted on revenue of $5.7 billion, although early reports had the earnings at 47 cents before adjustments. Management highlighted top-line growth of 8%, with comparable store sales up 5% year-over-year in North America, and 4% overall.

The China Deal

The earnings report was overshadowed by Johnson’s first big deal, an agreement to spend $1.3 billion and buy out its East China Joint Venture partners while, at the same time, divesting from Taiwan, to the same partners, for $175 million.

Starbucks now plans to have 5,000 stores on the mainland by 2021, nearly four times the current number. There were about 13,000 Starbucks units in the U.S. at the end of 2016, almost 5,300 of them run under license.

Analysts were worried after earnings about the slow growth in international sales. The China purchase should correct that.

The Analysts Weigh In

The final numbers seemed to confirm the view of its 33 analysts, 24 of whom have kept the stock on their buy lists, and none of whom has so much as an “underweight” rating on the shares.

After the earnings were fully digested, Starbucks stock started rising, to almost $62 per share in after-hours trading, a gain of about 4%. After the company’s conference call began, and Johnson issued a cautious growth forecast for the rest of the year, the shares fell back to even and then in the red as of this writing. But this was after a gain of $1.56 per share, 2.69%, during the trading session leading into earnings, despite a weak market.

The number many analysts were looking at most closely was same store sales. These were up only 3% in the March quarter, but the rise to 5% should renew confidence.

Analysts also seemed delighted that the company has worked out kinks in its mobile order and pay system, which lets customers order and buy their coffee before getting to the store, and then just pick it up. Starbucks has been a leader in bringing technology into its operations and has had a mobile rewards app in the market for years.

Starbucks’ performance has been so sterling — SBUX stock is up over 1,000% from its 2009 low — that analysts like our Tyler Craig, who have grown cautious about tech stocks, have suggested investors buy Starbucks instead.

I had taken that advice myself several years ago, and have had no reason to regret that decision.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time,  available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in SBUX.

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