Starbucks' Caffeinated Earnings Brings Multi-Year Highs (SBUX)

Starbucks Corp. (NASDAQ: SBUX) is managing to do what many probably thought was not possible.  It isn’t a shock that Starbucks beat earnings and raised guidance.  The surprise is that the stock is running further and further above $30.00 despite investors being concerned about its valuation for a quarter now.  The coffee retail giant and  net income in its fourth quarter was $278.9 million, which generated $0.37 EPS versus $0.20 a year ago. Thomson Reuters consensus data was for  versus $0.32 EPS.  Revenue rose about 17% from last year to $2.8 billion and same store sales were up close to 8%.  Revenue expectations from Thomson Reuters were about $2.77 billion.

The new 2011 earnings target is for about 15% growth to a range of $1.41 to $1.47 EPS, up from earnings guidance of $1.36 to $1.41 EPS.  The company noted further that commodity costs are now expected to have an unfavorable impact on earnings of about $0.08 to $0.10 primarily due to higher coffee costs.  The company is also targeting mid-to-high single-digit revenue growth that is built upon low-to-mid single-digit comparable store sales growth.  The company expects to open 500 stores globally in 2011, 100 of which will be in the U.S.

Another issue that is helping for guidance is that it has its customers fairly well-trained by now.  The company has selectively raised prices over labor costs and over higher commodity prices.  Whether its attempt to sell adult beverages in the later hours of the day will work remains to be seen.

In the fourth quarter, Starbucks spent about $112 million to repurchase 4.5 million shares of its common stock.  It has spent $285 million this year to repurchase some 11.2 million shares.

Starbucks hit $30.00 on an intraday basis but closed up 2.2% at $29.75 in the regular trading.  The $30.00 mark was a 52-week high, and shares are hitting $30.65 in the after-hours session.

If tonight’s after-hours prices can hold, the stock will hit levels not seen since April and May of 2007.   At the highest point of the range 2011 guidance, a $30.00 share price implies a forward earnings multiple for 2011 of about 20.4.

JON C. OGG