Starbucks Earnings, Ammo For Bulls & Bears Alike (SBUX)

Starbucks (NASDAQ: SBUX) is seeing shares trade slightly lower in after-hours trading after earnings.  The coffee inflating retailer posted earnings of $0.28 EPS on revenues of $2.8 Billion, yet First Call estimates were $0.27 EPS on $2.77 Billion revenues.  Its margins contracted 160 basis points, a 1.6% total drop, down to 12.0%; and same store sales growth was 1% for the quarter.

As far as its slowing growth plans, it slowed the pace of U.S. store growth to 1,175 stores for this fiscal year, down from a revised target of 1,600 stores; while it increased International store openings to 975 stores.  The problem with today’s numbers is that Howard Schultz noted that the full details of the PLAN AHEAD will not be released until MARCH 19:  “We will unveil additional details of our transformation plan, including bold innovations that will reassert our coffee leadership, redefine the in-store experience and introduce core brand-building initiatives, on March 19, 2008, at the company’s Annual Meeting of Shareholders. Given all the work underway, we view 2008 as a year of refocus and renewal for Starbucks.”

Starbucks targets low double-digit EPS expansion this year.  Schultz also maintains that this $1 coffee initiative offering is just a test and it will be listening to customer feedback. 

During the first quarter, the company repurchased a total of 12.2 million shares at an average cost of $295 million, and had 1.3 million shares remaining available for repurchase under the authorization in place. Starbucks’ Board of Directors authorized the repurchase of up to 5 million additional shares of the company’s common stock just last night.

Shares closed down 3.7% at $19.22 in regular trading today, and shares are down about 2% at $18.83 in after-hours trading.  The 52-week trading range is $17.66 to $35.42. 

There is nothing special in this earnings release.  The bulls will say the worst is over, and it probably is.  The bears will say the best days are obviously long gone in a more challenging environment, which is also true.  Personally, this sort of feels like being Imelda Marcos opening a birthday present, only to find the present is a new pair of shoes.

Jon C. Ogg
January 30, 2008