On May 27, 2015, we issued an updated research report on Starbucks Corporation SBUX.
On Apr 23, the coffee chain reported yet another solid quarterly performance delivering exceptional sales growth in second-quarter fiscal 2015. Earnings of 33 cents per share grew 18% driven by 18% increase in revenues and higher profits. Successful food/beverage innovation, strong traffic trends in America and China Asia-Pacific (CAP) stores and incremental revenues from Starbucks Japan primarily drove sales. In the second quarter, the coffee giant took over 100% ownership of its Japanese JV — Starbucks Coffee Japan, Ltd. — per a deal announced in September last year.
Despite significant investments in digital initiatives and greater employee investments in 2015, Starbucks is capable of strong earnings growth. Starbucks’ investments in employee welfare include increased pay rates for barista and shift supervisors, additional performance-based recognition programs, new food benefit policies as well as the new online college education program in collaboration with the ASU. We believe that a better top-line performance backed by a range of sales drivers and various cost saving initiatives should boost earnings in the second half of 2015.
Digital efforts like mobile order/pay and delivery services, food and beverage innovation, lunch and evening programs, Starbucks Reserve premium coffees and Teavana teas can fuel stronger comps growth in the Americas, going forward. This, coupled with continued growth in CAP and Channel Development segments, can fuel stronger sales trends in fiscal 2015.
Starbucks Mobile Order & Pay initiative, launched last year, is now available at select stores in Portland and in over 600 stores across the Pacific Northwest. This initiative allows customers to order before arriving at a Starbucks cafe. The company also expects to introduce food and beverage delivery in collaboration with on-demand delivery service, Postmates, in Seattle, and through its own employees in specific office buildings of New York City, like the Empire State building, later this year.
These new digital initiatives are expected to quicken service, increase convenience and enhance customer loyalty thereby driving mobile payment transactions.
Stocks to Consider
Starbucks carries a Zacks Rank #3 (Hold). Better-ranked restaurateurs include BJ's Restaurants, Inc. BJRI, Zoe's Kitchen, Inc. ZOES and Ruby Tuesday, Inc. RT. All these stocks sport a Zacks Rank #1 (Strong Buy).
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