Earnings Preview: Starbucks Corp's 1Q Will Likely See Continued Upward Momentum On Back Of Aggressive Global Expansion

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Seattle-based coffee giant Starbucks Corporation (NASDAQ:SBUX) is expected to post a 14 percent increase in earnings per share during the last three months of 2012 on robust same-store sales, more revenue from recent store openings worldwide and improved operating margins.

The Seattle-based company reports its fiscal 2013 first quarter on Thursday after U.S. stock markets close.

Analysts polled by Thomson Reuters expect, on average, net income of $440.5 million, or 57 cents per share, on revenue of $3.8 billion. If those figures are achieved, it will mean revenue rising 11.7 percent. Further, it will mean the fifth quarter in a row of double-digit revenue growth.

The EPS consensus was raised from 56 cents three months ago on a rebound in consumer confidence and steady job growth toward the end of the calendar year.

Last month Starbucks CFO Troy Alstead voiced a more optimistic estimate for fiscal first-quarter earnings, saying they could be “near 15 percent.”

During the recently completed quarter, Starbucks closed the deal to buy Atlanta-based Teavana Holdings, Inc., a specialty retailer of loose leaf teas and tea accessories, for $620 million. The move leaves the company well positioned in the global $40 billion market for tea and will allow it to serve customers in parts of the world where tea is more popular. Starbucks already has a strong tea presence on U.S. grocery store shelves with its Tazo brand.

In October the company opened its first three stores in India and intends to expand this year after failing to meet an initial estimate of 50 stores in the subcontinent by the end of 2012. On Thursday, Alsea SAB de CV (Mexico:ALSEA), the licensed Starbucks operator for Mexico announced it plans to open 45 stores this year, up from 39 in 2012, as consumers there are increasingly moving to premium coffee consumption over the traditional preference for instant coffee.

For all of fiscal 2013, the company's revenue growth is expected to slow but still remain strong overall as Starbucks opens 1,300 stores globally, a 22 percent increase over fiscal 2012. New stores typically see stronger sales than older stores as local consumers flock to the novelty.

“We expect total revenue to rise 10 percent in fiscal year 2013,” said equity analyst Jim Yin of Standard & Poor’s, which estimates same-store sales growth to rise 6 percent in the Americas and 11 percent in the Asia-Pacific, led by double-digit growth in China.

More cautious consumer spending and a downturn in global economic growth is expected to slow revenue growth this fiscal year, but the company’s brand strength and customer loyalty will help ameliorate the effect of a possible downturn in discretionary consumer spending, according to analysts. Starbucks loyalists might pack more of their own lunches this year, but they’re still likely to splurge on a morning or midday latte, except in Europe and the Middle East, where Starbucks' revenue growth is expected to be essentially flat.  

Rising food prices could see the company raising the price of their prepared food items, but the big question about how operating costs will be affected moving forward into the year will be the wholesale price of the company’s main product, the coffee bean. Food price inflation could be offset by lower coffee prices to help widen operating margins.

The International Coffee Organization’s composite price index saw a 30 percent decline in 2012, with December’s price of $1.31 per pound at a 31-month low. Recent indications suggest the price may have bottomed out; coffee for March delivery jumped 3.9 percent to $1.49 per pound.

The company also continues to expand in the at-home single-cup coffee market with its Verismo machines that were introduced in September, priced at $199 or $399 for the high-end model that fit the K-cup single-serving coffee packs.

A company official told the New York Times that single-cup coffee sales grew by 143 percent last year. That growth is expected to continue, and Starbucks is likely to see its channel for at-home brewing to increase along with it.

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