Starbucks Begins Fiscal 2014 With the Best First-Quarter in Its History

Starbucks (NASDAQ: SBUX  ) has been one of the hottest stocks over the last several years and this is a direct result of its financial performance. 2013 was the best year in the company's history and it is on another record-setting pace following its first-quarter report. Let's take a look at what it was able to accomplish and decide if we should be buying right now. 

The King of Coffee
Starbucks is home to the world's largest chain of specialty coffee shops. It currently operates in more than 50 countries, with the United States as its largest market, but China and Japan are growing quickly. The company also owns La Boulange cafe and bakery, and Teavana, a high-growth tea retailer.

The record-setting quarter
First-quarter earnings were released after the market closed on Jan. 23 and the results were mixed compared to analyst expectations. Here's a breakdown of the report:

Metric Reported Expected
Earnings Per Share $0.71 $0.69
Revenue $4.24 billion $4.29 billion

Earnings per share increased 24.6% and revenue increased 11.8% year-over-year, driven by global comparable-store sales growing 5%. Operating income rose an impressive 29% to $813.5 million, as the company was able to expand its operating margin 260 basis points to 19.2%. Financial statistics aside, I believe the most notable aspect of the report came within its expansion update; 417 stores were opened during the quarter, including the 4,000th location in the China and Asian Pacific region and the 2,000th location in the Europe, Middle East, and Africa region. Starbucks surpassed the milestone of 20,000 locations and now operates 20,184 worldwide.

These strong results allowed Starbucks to maintain its quarterly dividend of $0.26, payable on Feb. 21, and repurchase 600,000 shares of common stock during the quarter; there are still 26 million shares remaining in the repurchase program, so the pace will likely pickup in the second quarter. Overall, it was a great quarter for the king of coffee and puts it on pace for another record-setting year.

What the year will hold
In the report, management also affirmed its full-year outlook for 2014; the company expects to earn $2.59-$2.67 per share on revenue growth of 10% or more. Here's what is expected for each quarter:

Period Earnings Per Share
Second-Quarter $0.54-$0.55
Third-Quarter $0.64-$0.66
Fourth-Quarter $0.70-$0.75

If these estimates are accurate, all three would result in record quarters for the company. For the full year, Starbucks also expects comparable-store sales to rise in the mid-single digits and operating margin improvement of 150-200 basis points. In terms of expansion, it reiterated its plan to open 1,500 net new locations, with capital expenditures coming in around $1.2 billion. A record-setting quarter paired with guidance calling for three more makes me very bullish on the stock in the trading sessions to come.

Competitor results imminent
One of Starbucks' largest competitors in the coffee industry is Dunkin' Brands (NASDAQ: DNKN  ) and it too is expected to report a strong set of earnings; it is the parent company behind the global powerhouse brands Dunkin' Donuts and Baskin-Robbins. The company's earnings are due out before the market opens on Feb. 6 and the current expectations look like this:

Metric Expected Year Ago
Earnings Per Share $0.40 $0.34
Revenue $178.52 million $161.7 million

These estimates would call for earnings growth of 17.65% and revenue growth of 10.4% compared to the same period a year ago. I believe the expectations will be surpassed due to strength in the Dunkin' Donuts brand and this is supported by what was shown in Starbucks' report; its direct insight into the industry shows an increased demand for coffee and quick-serve food products. For this reason, I expect Dunkin' Donuts' comparable-store sales will come in well above expectations and propel the company to an earnings beat. With this said, I still believe Starbucks is the best investment option in the industry.

The Foolish bottom line
Starbucks has proven once again that it is one of the fastest growing global brands. It has reported yet another record-setting quarter and has given guidance that points toward three more record-setting quarters in fiscal 2014. I believe investors should buy Starbucks' stock on any weakness, but Dunkin' Brands is another great option in the industry. Keep a close eye on these giants, as both have the potential to widely outperform the overall market for the rest of the year.

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