Starbucks Corporation’s Earnings Don’t Impress Investors

SBUX - Starbucks Corporation’s Earnings Don’t Impress Investors

Source: Adrianna Calvo via Stock Snap

Even though Starbucks Corporation (NASDAQ:SBUX) posted record results for the fiscal second quarter, this was not enough for Wall Street. In today’s trading, the shares are off about 2%.

For Q2, SBUX reported earnings of 53 cents a share, which was in line with the analysts’ consensus. The performance on the top line was more encouraging. Revenues jumped by 14% to $6.03 billion. Wall Street, on the other hand, was calling for $5.9 billion. Keep in mind that the company had missed revenue expectations for eight of the last nine quarters.

The all-important same-store sales were better than expected as well, increasing by 2% in the U.S. The forecast was for 1.8%.

Here are some other highlights for SBUX during the quarter:

– The company signed a deal with Brazilian restaurant operator SouthRock Capital Ltda to license Starbucks stores in the country. Note that all other locations in Latin America and the Caribbean are licensed.

– SBUX and JPMorgan Chase & Co. (NYSE:JPM) entered an agreement to distribute the Starbucks Rewards Visa Card. The bank is already the payment-processing partner in the U.S. and Canada.

– Ethisphere Institute named Starbucks one of the World’s Most Ethical Companies, and Fortune magazine put the company at No. 5 for its list of most admired in the world.

– At the annual shareholder meeting, SBUX announced that it reached pay equity among partners of all genders and races in the U.S.

– 468 new stores were added, for a total of 28,209.

– The company issued $1.6 billion in senior notes. Part of the proceeds will be used to repurchase Starbucks stock.

Yet the event that dominated the headlines is the unfortunate arrest of two black men in a Philadelphia store, which happened a few weeks ago. The claim was that they were trespassing because they did not order anything.

The incident was recorded via smartphone, and the video was quickly sent across social media platforms like Twitter Inc (NYSE:TWTR) and Facebook, Inc. (NASDAQ:FB), causing a big-time controversy.

But SBUX took action, such as meeting with local authorities. The company will also shut down all company-owned locations on May 29 to provide education on racial bias.

While this will take a bite out of revenues, the move is still a major indication that the company wants to make changes and will do what it takes to protect the brand and improve the customer experience.

Bottom Line on SBUX Stock

The nagging issue for Starbucks stock is the leveling of the growth rate in the U.S. market. Consider that the company did not change its full-year guidance, which calls for revenue growth of 9% to 11% and the opening of 2,300 locations. Note that the projection does not include the impact of the closing of the stores for May 29.

Now one of the reasons for the reduced growth profile is the general saturation levels. After all, SBUX has been in business since the early 1970s!

But the competition is also likely a factor. The fact is that there are many more alternatives for consumers — at more affordable prices. The rivals range from large companies like McDonald’s Corporation (NYSE:MCD), to fast-casual chains, to indie coffee shops.

Granted, the Chinese market should help make up for the growth shortfall. But this will take time to move the needle. So in the meantime, there is really no rush to buy SBUX stock for now.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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