Earnings Growth & Dividend Hike Meet Valuation at Starbucks (SBUX)

The turnaround continues at Starbucks Corp. (NASDAQ: SBUX).  The coffee chain posted a 37% profit gain and it raised its dividend.  Third quarter same store sales rose 9% on record numbers.  It posted earnings of $0.29 EPS on an adjusted basis and revenue  rose  to $2.61 billion.  Thomson Reuters had estimates of $0.29 EPS and $2.55 billion in revenues.  The lackluster guidance has shares seeing some profit taking.

Starbucks raised 2010 adjusted earnings targets to $1.22 to $1.23 EPS vs. Thomson Reuters estimates of $1.23 EPS.  Guidance for 2011 was $1.36 to $1.41 EPS versus Thomson Reuters estimates of $1.41 EPS.

It now sees 2011 cap-ex $500 to $550 million and consolidated non-GAAP operating margin improvement of 50 to 100 basis points.  2011 International non-GAAP margin gains will be 100 to 200 basis points.  2011 revenue views are Low-to-mid-single digit same store sales growth targets. Starbucks sees opening 400 international stores and 100 U.S. stores in 2011 after 102 net new stores year to date.

It did actually cuts its 2010 cap-ex target to $450 million from $500 million, while it raised its quarterly dividend by 30% to $0.13 from $0.10 per quarter.

Shares closed down 2.3% at $25.17 versus a 52-week range of $14.41 to $28.50, but the stock is trading down around $24.65 in the after-hours trading session.

The guidance may be a question for some hoping for a further continuation of its great turnaround.  Unfortunately, what you are seeing is a turnaround that has turned and valuations are now deemed roughly where they should be based upon the guidance.

JON C. OGG