Third-quarter Starbucks (SBUX – Get Report) earnings are just a flag in the hat of a company that has noticed investors as the rejuvenated growth engine that could.
When earnings rolled in on Thursday afternoon, the once-dead coffee chain boasted the sales growth rate and an earnings figure that appeared to investors over the past few quarters of skill is not a fluke, but rather a trend for the future.
Earnings per share were adjusted 78 cents, beating estimated analysts by 72 cents. Furthermore, US growth in the same store sales was 7% from the previous year, and the ever-important growth region in China saw the metric reach 6%. These growth rates had remained at around -1
The share rose 8.72% to $ 98.90 per share on Friday. The share is now up 90% over the past year.
It was an "absolutely fantastic quarter," said Jim Tierney, chief investment officer for concentrated US growth at Alliance Bernstein to TheStreet. Alliance growth fund owns Starbucks. "We were pleased with top and bottom line hits from the third quarter," wrote Cowen's analyst Andrew Charles in a note, moving his Starbucks prizes up to $ 93 from $ 77.
It has been the management's ability to be committed to both customers and employees who have driven strong foot traffic, higher loyalty, and digital membership growth levels and saving efficiency.
Foot traffic grew by 3% for the quarter. "The bank of the company had been raising prices, but you were not getting traffic, and that had been the major concern," said Tierney. Foot traffic in the quarter was "absolutely fantastic." Tierney is optimistic that the higher foot traffic, which leads to an expanded operating margin, is an important factor bringing the stock multiple higher. "2017 and 2018 [low traffic growth] will be seen as abnormal rather than the new norm," said Tierney. Charles moved the revenue target for 2020 to 30 from 25.
Management noted that the higher foot traffic is due to a few factors. First, do not clean store-based stores within hours. They now clean after hours. This enables more sales and better customer service. These higher sales come without any increase in marketing expenses or other expenses. Therefore, the operating margin of Starbucks expanded slightly to 22%, a small part of the higher earnings multiple. Starbucks is currently trading 30 times future earnings in the year.
Another driver for the traffic? There are now happy hours in the afternoon, which the management said sold solid afternoon.
Loyalty and digital members
The strong growth of reward members was partly driven by customer knowledge. "We know a lot more about our customers now," said Chief Operating Officer Roz Brewer about the revenue call. Plus: "The components have been in the low, simple digits, so if you increase the most loyal members to a low to mid-teenage rate, it's good, because in the end they'll turn into repeat customers," Tierney said.
Risk Reward Scenario
Of course, getting into the stock can now pose a certain risk, since the income multiplication can be somewhat rich. Tierney said it is difficult to say whether the expected annual growth rate of just a few years of 15% is fully priced, but that it may not be fully invested in the stock. He said that if Starbucks maintains this rate, the sock may increase 15% per year over the next couple of years.
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