Starbucks (SBUX) Q4 Earnings Meet Estimates, Stock Down
Starbucks' (SBUX) fiscal fourth-quarter top line reflects on solid contributions from the North America and International operating segments.
Starbucks Corporation SBUX reported mixed fourth-quarter fiscal 2021 results, with earnings meeting the Zacks Consensus Estimate and revenues missing the same.
Following the results, the company’s shares declined 4.7% in after-hour trading session on Oct 28. Investor sentiments were hurt as the company reported below-than-expected global comps for the fiscal fourth quarter.
Kevin Johnson, president and CEO, stated, “Our strong finish to fiscal 2021, including record performance in the fourth quarter, demonstrates the resilience of Starbucks and reinforces the value of the bold strategic moves we have taken over the past two years. Through it all, we have thoughtfully navigated a strong recovery with an eye towards our future.”
Discussion on Earnings, Revenues & Comps
Starbucks Corporation Price, Consensus and EPS Surprise
In the quarter under review, the company reported adjusted earnings per share (EPS) of $1 that is in line with the Zacks Consensus Estimate. In the prior-year quarter, the company had reported adjusted earnings per share of 51 cents.
Quarterly revenues of $8,146.7 million missed the Zacks Consensus Estimate of $8,263 million by 1.4%. However, the top line increased 31.3% on a year-over-year basis. The upside was primarily driven by growth in comparable store sales backed by the lapping of business disruption in the prior year due to the COVID-19 pandemic.
Global comparable store sales increased 17% year over year. The upside was primarily driven by a 15% rise in comparable transactions and a 2% increase in average ticket. However, the figure remained below the company’s expectation of 18-21% growth.
Starbucks opened 538 net new stores worldwide in the fiscal fourth quarter, bringing the total store count to 33,833. Global store growth came in at 4% on a year-over-year basis.
Overall Margin Expands in Q4
On a non-GAAP basis, operating margin during the fiscal fourth quarter came in at 19.6%, up from 13.2% reported in the prior-year quarter. The uptrend can be attributed to sales leverage from business recovery and the lapping of COVID-19 related costs in the prior year. However, this was partially offset by a rise in supply chain costs.
During the fiscal fourth quarter, the company initiated certain changes related to its operating segment structure. The company renamed the Americas segment to North America operating segment, featuring company-operated and licensed stores in the United States and Canada. Starbucks realigned the licensed Latin America and Caribbean markets from the earlier Americas segment to the International segment. The company’s latest reportable operating segments comprise North America, International and Channel Development.
North America: The segment’s fiscal fourth-quarter net revenues came in at $5,763 million, up 37% year over year. The segment benefited from 22% growth in comparable store sales.
Operating margin in the North America segment came in at 21.8% compared with 12% reported in the prior-year quarter. The uptrend was driven by the lapping of COVID-19 related costs in the prior year as well as sales leverage from business recovery and pricing along with the benefits of North America Trade Area Transformation. However, this was partly negated by a rise in supply chain costs.
International: Net revenues in the segment rose 27% year over year to $1,914.6 million. The upside was primarily driven by 1,287 net new store openings (in the past 12 months), incremental revenues from an extra week (in the fiscal fourth quarter), higher product sales and royalty revenues (with reference to its licensees) and 3% favorable impact from foreign currency translation. International comparable store sales rose 3% year over year.
Operating margin in the segment expanded 770 basis points (bps) year over year to 19.7%. The upside can be attributed to sales leverage from the lapping of the severe impact of the COVID-19 pandemic, favorability from temporary government subsidies and labor efficiencies.
During the fiscal fourth quarter, comps in China declined 7% year over year compared with a 3% fall reported in the prior-year quarter. The downtick was caused by a 5% decline in average ticket and a 2% decline in transactions.
Channel Development: Net revenues in the segment declined 6% from the prior-year quarter’s figure to $438.3 million. The downside was primarily due to nearly 20% unfavorable impact of Global Coffee Alliance transition-related activities. This was somewhat mitigated by incremental revenues arising from an extra week (in the fiscal fourth quarter) coupled with growth in its ready-to-drink business and Global Coffee Alliance. Meanwhile, operating margin expanded 740 bps year over year to 50.1%.
Other Financial Updates
The company ended the quarter with cash and cash equivalents of $ 6,455.7 million compared with $4,350.9 million at the end of Sep 27, 2020. As of Oct 3, 2021, long-term debt is at $13,616.9 million compared with $14,659.6 million as of Sep 27, 2020.
The company declared a quarterly cash dividend of 49 cents per share. The dividend will be payable on Nov 26, 2021, to shareholders of record as of Nov 12, 2021. Management stated its intention to return $20 billion (over the next three years) in dividends and share repurchases.
Fiscal 2021 Highlights
Net sales in fiscal 2021 came in at $29.1 billion compared with $23.5 billion in fiscal 2020.
Non-GAAP operating margin in fiscal 2021 were 18.1% compared with 9.1% in the prior year.
Non-GAAP EPS In fiscal 2021 came in at $3.24 compared with $1.17 in the previous year.
Fiscal 2022 Guidance
For fiscal 2022, the company anticipates global comparable sales to reach high-single digits. The company expects to open approximately 2,000 net new stores globally in fiscal 2022, up from 1,173 store openings reported in fiscal 2021. Starbucks intends to diversify its portfolio across highly-profitable markets as it expects 75% of its net new stores openings outside the United States.
Consolidated revenues for fiscal 2022 is anticipated between $32.5 billion and $33 billion.
For fiscal 2022, the company anticipates non-GAAP EPS growth to be a minimum 10% from the base of $3.10 in fiscal 2021 (the figure is adjusted for non-GAAP treatment of certain integration costs and excludes the involvement of extra week).
Zacks Rank & Key Picks
Starbucks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail - Restaurants industry space are Denny's Corporation DENN, Noodles & Company NDLS and Dave & Buster's Entertainment, Inc. PLAY. Denny's sports a Zacks Rank #1, while Noodles & Company and Dave & Buster's carry a Zacks Rank #2 (Buy).
Denny's has three-five-year earnings per share growth rate of 9%.
Noodles & Company’s 2021 earnings are expected to surge 182.8%.
Dave & Buster's has a trailing four-quarter earnings surprise of 201.8%, on average.
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