Starbucks (NYSE: SBUX) 2nd quarter earnings report of their 2020 fiscal year
Category: Stock Market and Starbucks
Date: 29 April 2020 Stock Price: $78.69 We take a look at the 2nd quarter 2020 earnings report of Starbucks, one of the world's best known coffee shop franchises.
Starbucks 2nd quarter 2020 is significantly impacted by the Coronavirus epidemic with global revenue down 5% on the prior year, and net earnings down just over 50% on the prior year. |
About Starbucks
For those that don't know anything about Starbucks below a bit more detail regarding the group as obtained from their website
The Starbucks Story
Our story began in 1971. Back then we were a roaster and retailer of whole bean and ground coffee, tea and spices with a single store in Seattle’s Pike Place Market. Today, we are privileged to connect with millions of customers every day with exceptional products and more than 30,000 retail stores in 80 markets.
Folklore
Starbucks is named after the first mate in Herman Melville’s Moby Dick. Our logo is also inspired by the sea – featuring a twin-tailed siren from Greek mythology
.
Starbucks Mission
Our mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.
Our Coffee
We’ve always believed in serving the best coffee possible. It's our goal for all of our coffee to be grown under the highest standards of quality, using ethical sourcing practices. Our coffee buyers personally travel to coffee farms in Latin America, Africa and Asia to select high quality beans. And our master roasters bring out the balance and rich flavor of the beans through the signature Starbucks Roast.
Our Stores
Our stores are a neighborhood gathering place for meeting friends and family. Our customers enjoy quality service, an inviting atmosphere and an exceptional beverage. Total stores: 30,000 across 80 markets (as of June 30, 2019)
Our Partners
We offer some of the finest coffees in the world, grown, prepared and served by the finest people. Our employees, who we call partners, are at the heart of the Starbucks Experience. We believe in treating our partners with respect and dignity. We are proud to offer several landmark programs for our partners, including comprehensive health coverage for eligible full- and part-time partners, access to full college tuition coverage through the Starbucks College Achievement Plan, and equity in the company through Bean Stock.
Our Products
Starbucks offers a range of exceptional products that customers enjoy in our stores, at home, and on the go.
Coffee: More than 30 blends and single-origin premium coffees.
Handcrafted Beverages: Fresh-brewed coffee, hot and iced espresso beverages, Iced Coffee, Cold Brew, Nitro, Frappuccino® coffee and non-coffee blended beverages, Starbucks Refreshers® beverages, and Teavana® teas.
Merchandise: Coffee- and tea-brewing equipment, mugs and accessories, packaged goods, books and gifts.
Fresh Food: Baked pastries, cold and hot sandwiches, salads, salad and grain bowls, oatmeal, yogurt parfaits and fruit cups.
Consumer products available where groceries are sold
The Starbucks Story
Our story began in 1971. Back then we were a roaster and retailer of whole bean and ground coffee, tea and spices with a single store in Seattle’s Pike Place Market. Today, we are privileged to connect with millions of customers every day with exceptional products and more than 30,000 retail stores in 80 markets.
Folklore
Starbucks is named after the first mate in Herman Melville’s Moby Dick. Our logo is also inspired by the sea – featuring a twin-tailed siren from Greek mythology
.
Starbucks Mission
Our mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.
Our Coffee
We’ve always believed in serving the best coffee possible. It's our goal for all of our coffee to be grown under the highest standards of quality, using ethical sourcing practices. Our coffee buyers personally travel to coffee farms in Latin America, Africa and Asia to select high quality beans. And our master roasters bring out the balance and rich flavor of the beans through the signature Starbucks Roast.
Our Stores
Our stores are a neighborhood gathering place for meeting friends and family. Our customers enjoy quality service, an inviting atmosphere and an exceptional beverage. Total stores: 30,000 across 80 markets (as of June 30, 2019)
Our Partners
We offer some of the finest coffees in the world, grown, prepared and served by the finest people. Our employees, who we call partners, are at the heart of the Starbucks Experience. We believe in treating our partners with respect and dignity. We are proud to offer several landmark programs for our partners, including comprehensive health coverage for eligible full- and part-time partners, access to full college tuition coverage through the Starbucks College Achievement Plan, and equity in the company through Bean Stock.
Our Products
Starbucks offers a range of exceptional products that customers enjoy in our stores, at home, and on the go.
Coffee: More than 30 blends and single-origin premium coffees.
Handcrafted Beverages: Fresh-brewed coffee, hot and iced espresso beverages, Iced Coffee, Cold Brew, Nitro, Frappuccino® coffee and non-coffee blended beverages, Starbucks Refreshers® beverages, and Teavana® teas.
Merchandise: Coffee- and tea-brewing equipment, mugs and accessories, packaged goods, books and gifts.
Fresh Food: Baked pastries, cold and hot sandwiches, salads, salad and grain bowls, oatmeal, yogurt parfaits and fruit cups.
Consumer products available where groceries are sold
- Coffee and Tea: Whole bean and ground coffee (Starbucks and Seattle’s Best Coffee brands), Starbucks VIA® Instant, Starbucks espresso capsules available on the Nespresso and Nescafé Dolce Gusto systems, Starbucks® Coffee K-Cup® pods, Starbucks® and Teavana® Verismo® pods.
- Ready-to-Drink (RTD): Starbucks® bottled Frappuccino® coffee drinks, Starbucks Iced Latte, Single Serve Cold Brew, Doubleshot® Coffee Smoothies, Teavana Craft Iced Teas, Teavana Sparkling Craft Iced Teas, Starbucks Discoveries® chilled cup coffees, Starbucks Discoveries Iced Café Favorites®, Starbucks Iced Coffee, Starbucks Doubleshot® espresso drinks, Starbucks Doubleshot® Energy Coffee drinks; Starbucks Refreshers® beverages, Evolution Fresh™ bottled juices.
Brand Portfolio
Starbucks Coffee, Seattle’s Best Coffee, Teavana, Evolution Fresh, Ethos Water and Torrefazione Italia Coffee.
Investor Information
Starbucks Coffee, Seattle’s Best Coffee, Teavana, Evolution Fresh, Ethos Water and Torrefazione Italia Coffee.
Investor Information
- Starbucks went public on June 26, 1992 at a price of $17 per share (or $0.53 per share, adjusted for subsequent stock splits) and closed trading that first day at $21.50 per share.
- Starbucks was incorporated under the laws of the State of Washington, in Olympia, Washington, on Nov. 4, 1985.
- Starbucks Corporation's common stock is listed on NASDAQ, under the trading symbol SBUX.
Overview of Starbucks 1st quarter 2020 earnings report
The numbers below refers to the latest quarter unless specified otherwise:
- Net revenues: $5.995 billion (down from $6.305 for the same quarter of the previous year)
- Net revenues decreased by 4.9% over the last 12 months
- Total operating expenses: $5.576 billion (up from $5.510 billion for the same quarter of the previous year)
- Total operating expenses increased by 1.2% over the last 12 months
- Net earnings: $328.4 million (down from $663.2 million for the same quarter of the previous year)
- Starbucks net earnings increased by -50.5% over the last 12 months
- Diluted earnings per share: $0.28 (down -47.2% from $0.53 for the same quarter of the previous year)
- PE ratio of Starbucks: 70
- Dividend per share for the quarter: $0.41 (up from $0.36 for the same quarter of the previous year)
- Dividend yield of Starbucks: 2.1%
- Diluted number of shares in issue: 1.187 billion
- Cash and cash equivalents: $2.572 billion
- Cash and cash equivalents per share: $1.82
- Cash and cash equivalents makes up 2.3% of Starbucks' market capital
- Cash and cash equivalents makes up 9.4% of Starbucks' total assets
- Inventories: $1.492 billion
- Inventories makes up 5.4% of Starbucks' total assets
- Goodwill in Starbucks: $3.493 billion
- Goodwill per share: $2.94
- Goodwill makes up 12.7% of Starbucks assets
- Goodwill makes up 3.7% of Starbucks' stock price
- Cash generated from operations: $474.8 million
- Cash generated from operations per share: $0.40
Starbucks' management commentary on their 2nd quarter 2020 earnings report
SEATTLE--(BUSINESS WIRE)-- Starbucks Corporation (NASDAQ: SBUX) today reported financial results for its 13-week fiscal second quarter ended March 29, 2020
“People around the world are united around a common cause as we navigate the COVID-19 situation globally. We are very grateful for the heroic efforts of medical personnel, first responders, government officials and volunteers who are working tirelessly in the service of others. I am exceptionally proud of the thousands of Starbucks partners around the world who are safely serving customers and playing a positive role in every community we serve,” said Kevin Johnson, president and ceo.
“Since the beginning of this global crisis, Starbucks has made decisions that prioritize the well-being of our partners and customers, support health and government officials, and responsibly serve our communities. This principled approach is showing steady business improvement in China where today, substantially all existing Starbucks® stores have reopened with modified operations, new store locations are being added and customer engagement continues to grow with each passing week. We are leveraging our experience in China to inform our actions in other markets, including the U.S., where we are now entering the ‘monitor and adapt’ phase to reopen many more stores with best-in-class safety protocols. We continue to navigate this dynamic situation — which we believe is temporary — and are confident that Starbucks will emerge from this global crisis even stronger than before,” concluded Johnson.
“People around the world are united around a common cause as we navigate the COVID-19 situation globally. We are very grateful for the heroic efforts of medical personnel, first responders, government officials and volunteers who are working tirelessly in the service of others. I am exceptionally proud of the thousands of Starbucks partners around the world who are safely serving customers and playing a positive role in every community we serve,” said Kevin Johnson, president and ceo.
“Since the beginning of this global crisis, Starbucks has made decisions that prioritize the well-being of our partners and customers, support health and government officials, and responsibly serve our communities. This principled approach is showing steady business improvement in China where today, substantially all existing Starbucks® stores have reopened with modified operations, new store locations are being added and customer engagement continues to grow with each passing week. We are leveraging our experience in China to inform our actions in other markets, including the U.S., where we are now entering the ‘monitor and adapt’ phase to reopen many more stores with best-in-class safety protocols. We continue to navigate this dynamic situation — which we believe is temporary — and are confident that Starbucks will emerge from this global crisis even stronger than before,” concluded Johnson.
Fiscal 2020 Guidance
To protect the health and well-being of our partners and customers—and in support of efforts to control the spread of the COVID-19 outbreak—currently, we have temporarily closed approximately 50% of our company-operated stores in the U.S., as well as more than 75% in Canada, Japan and the United Kingdom. In China, where our stores are company-operated, 98% are open but operating under modified schedules and enhanced safety-related protocols, including limited cafe seating. We expect China's sales to substantially recover with comparable store sales roughly flat to prior year levels at the end of fiscal year 2020. Currently, approximately 50% of our global licensed store portfolio is also closed, with higher levels of closure in Europe, the Middle East and Africa, and lower levels of closure in Asia Pacific.
While this disruption to Starbucks business is expected to be temporary, given the dynamic nature of the COVID-19 outbreak and how it is affecting our business globally, including our largest market, the U.S., we are currently unable to estimate full company financial impacts with reasonable accuracy. Additionally, given the late-quarter onset of COVID-19 impacts in the U.S.—as well as a materially higher flow-through rate on lost sales in the U.S.—we expect the negative financial impacts of COVID-19 to be significantly greater in Q3 FY20 compared to Q2 FY20, and to extend into Q4 FY20 but at a more moderate level. Therefore, until we have greater visibility into the impact, in the U.S. in particular, and except for the selected metrics noted below, total company guidance for fiscal 2020 will remain suspended as communicated in our April 8 letter to Starbucks stakeholders.
All guidance for the metrics noted below is for fiscal year 2020 and growth metrics are relative to fiscal year 2019. Please note, the guidance provided below is dependent on our current expectations which may be impacted by prevailing, external conditions and local safety guidelines.
To protect the health and well-being of our partners and customers—and in support of efforts to control the spread of the COVID-19 outbreak—currently, we have temporarily closed approximately 50% of our company-operated stores in the U.S., as well as more than 75% in Canada, Japan and the United Kingdom. In China, where our stores are company-operated, 98% are open but operating under modified schedules and enhanced safety-related protocols, including limited cafe seating. We expect China's sales to substantially recover with comparable store sales roughly flat to prior year levels at the end of fiscal year 2020. Currently, approximately 50% of our global licensed store portfolio is also closed, with higher levels of closure in Europe, the Middle East and Africa, and lower levels of closure in Asia Pacific.
While this disruption to Starbucks business is expected to be temporary, given the dynamic nature of the COVID-19 outbreak and how it is affecting our business globally, including our largest market, the U.S., we are currently unable to estimate full company financial impacts with reasonable accuracy. Additionally, given the late-quarter onset of COVID-19 impacts in the U.S.—as well as a materially higher flow-through rate on lost sales in the U.S.—we expect the negative financial impacts of COVID-19 to be significantly greater in Q3 FY20 compared to Q2 FY20, and to extend into Q4 FY20 but at a more moderate level. Therefore, until we have greater visibility into the impact, in the U.S. in particular, and except for the selected metrics noted below, total company guidance for fiscal 2020 will remain suspended as communicated in our April 8 letter to Starbucks stakeholders.
All guidance for the metrics noted below is for fiscal year 2020 and growth metrics are relative to fiscal year 2019. Please note, the guidance provided below is dependent on our current expectations which may be impacted by prevailing, external conditions and local safety guidelines.
- China comparable store sales growth:
- Q3 FY20: -25% to -35%
- Q4 FY20: -10% to flat
- Full year FY20: -15% to -25%
- At least 500 net new stores in China
- Channel Development GAAP revenue decline of 6% to 8% with modest operating margin improvement
- Capital expenditures of approximately $1.5 billion
Starbucks (NASDAQ: SBUX) stock price history
The image below shows the stock price history of Starbucks (SBUX) over the last 5 years. And its been a very good time for Starbucks (SBUX) stockholders over the last 5 years. 5 years ago the stock of Starbucks was trading at $50.30 and its currently trading at $75.58. That's a return of 50.2% provided to Starbucks stockholders over the last 5 years.
The stock of Starbucks is trading at close to the midpoint of its 52 week high and 52 week low which to us is a clear indication that the short term sentiment and momentum of Starbucks stock is neutral.
The stock of Starbucks is trading at close to the midpoint of its 52 week high and 52 week low which to us is a clear indication that the short term sentiment and momentum of Starbucks stock is neutral.
Recent searches for Starbucks
According to Google Trends (see graphic below) there was a significant spike in the number of searches for Starbucks stock price and SBUX stock price (in the USA) in the middle of of March 2020, this coincides with the massive drop in the group's stock price due to massive global market sell offs due to the Coronavirus and the impact its having on global economic growth.
And the searches for starbucks stock price was pretty wide spread across most of the United States as the map of the two search terms below shows
Recent coverage of Starbucks
The extract below covers the latest regarding Starbucks as obtained from TheStreet.com
Shares of Starbucks (SBUX) fell in after-hours trading, after the coffee-shop titan reported lower earnings per share than analysts expected for the first quarter. Net income totaled $328.4 million, or 28 cents per share for the quarter, down from $663.2 million, or 53 cents a year earlier. Analysts had forecast EPS of 34 cents for the latest quarter.
Revenue registered $5.996 billion in the first quarter, down 4.9% from 6.306 billion a year ago. Analysts had predicted $5.89 billion for the latest quarter.
The coronavirus pandemic hasn’t been kind to Starbucks, of course. “Since the beginning of this global crisis, Starbucks has made decisions that prioritize the well-being of our partners and customers, support health and government officials, and responsibly serve our communities,” Starbucks CEO Kevin Johnson said in a statement.
“This principled approach is showing steady business improvement in China, where today, substantially all existing Starbucks stores have reopened with modified operations, new store locations are being added and customer engagement continues to grow with each passing week.” The company is using its experience in China to guide it in other markets, including the U.S., “where we are now entering the ‘monitor and adapt’ phase to reopen many more stores with best-in-class safety protocols,” he said. As of the last week of March, 44% of Starbucks’ company-owned stores were open in the U.S.
Read the full article here
Shares of Starbucks (SBUX) fell in after-hours trading, after the coffee-shop titan reported lower earnings per share than analysts expected for the first quarter. Net income totaled $328.4 million, or 28 cents per share for the quarter, down from $663.2 million, or 53 cents a year earlier. Analysts had forecast EPS of 34 cents for the latest quarter.
Revenue registered $5.996 billion in the first quarter, down 4.9% from 6.306 billion a year ago. Analysts had predicted $5.89 billion for the latest quarter.
The coronavirus pandemic hasn’t been kind to Starbucks, of course. “Since the beginning of this global crisis, Starbucks has made decisions that prioritize the well-being of our partners and customers, support health and government officials, and responsibly serve our communities,” Starbucks CEO Kevin Johnson said in a statement.
“This principled approach is showing steady business improvement in China, where today, substantially all existing Starbucks stores have reopened with modified operations, new store locations are being added and customer engagement continues to grow with each passing week.” The company is using its experience in China to guide it in other markets, including the U.S., “where we are now entering the ‘monitor and adapt’ phase to reopen many more stores with best-in-class safety protocols,” he said. As of the last week of March, 44% of Starbucks’ company-owned stores were open in the U.S.
Read the full article here
Starbucks latest stock valuation
So based on Starbucks (SBUX) latest earnings report and their fiscal guidance what do we value the stock of Starbucks at? Based on their earnings report and their withdrawal of their fiscal guidance and predicted impact of Coronavirus on their earnings our valuation model provides a target price (full value price) for Starbucks (SBUX) at $61.90 a stock (down slightly from our 1st quarter 2020 earnings report valuation of Starbucks). We therefore believe the stock of Starbucks is overvalued
We recommend that long term fundamental and value investors look to enter a stock at least 10% below our target (full value) price which in this case is $61.90. A good entry point into Starbucks would therefore be at $55.70 or below.
We expect the stock of Starbucks to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months.
We recommend that long term fundamental and value investors look to enter a stock at least 10% below our target (full value) price which in this case is $61.90. A good entry point into Starbucks would therefore be at $55.70 or below.
We expect the stock of Starbucks to pull back from current levels to levels closer to our target price (full value price) in coming weeks and months.
Next earning release of Starbucks
It is expected that Starbucks will release their 3rd quarter 2020 earnings report towards the end of July 2020