On Thursday, Starbucks (click ticker for report: SBUX) reported lower than expected fiscal third-quarter results, and the company’s outlook disappointed most investors. Shares are under pressure after the report, and we continue to believe Starbucks remains overvalued.
The coffee giant’s revenue grew 13% during the period but came in lower than the consensus estimate. US comparable store sales grew 7% (5% increase in the number of transactions; 2% increase in the average ticket) and Channel Development revenue expanded 45% thanks to robust sales of Starbucks and Tazo-branded K-Cup portion packs. Consolidated operating income jumped 22%, and the firm’s operating margin improved to 14.9% (up 120 basis points), as sales leverage more than offset higher commodity costs (coffee). Starbucks’ earnings per share jumped 19% to $0.43, but fell short of consensus estimates of $0.45 per share. During the quarter, Starbucks opened 231 net new stores globally, including the 600th in China.
Looking ahead, Starbucks updated its fiscal fourth-quarter revenue growth target to the range of 10% to 12% and its fourth-quarter earnings per share outlook to the range of $0.44 to $0.45. The bottom-line guidance reflects heightened global economic concerns and came in below the consensus estimate of $0.48 per share. For fiscal 2013, Starbucks expects revenue to expand 10% to 13% thanks to mid-single-digit comparable store sales growth, the opening of 1,200 net new stores, and continued strong growth in its Channel Development business. For fiscal 2013, the firm expects earnings per share to be in the range of $2.04 to $2.14 per share, representing growth of 15% to 20% but still coming in below consensus expectations of $2.28 per share.