Over the past year, worldwide coffee giant Starbucks (NASDAQ:SBUX) has reported its four best quarters in the company's history. This has caused the stock to soar to all-time highs and has made it one of the most talked about businesses on Wall Street. The company is set to release first-quarter results shortly, so let's take a look to see if we should be buying now.
The coffee giant
Starbucks is home to the world's largest chain of specialty coffee shops. It currently operates 19,767 locations, with the United States being its largest market. It will exceed 21,000 stores by the conclusion of fiscal 2014 and could easily have more than 25,000 within a few short years.
Last time out
On Oct. 30, Starbucks released record fourth-quarter results that were mixed compared to analyst estimates. Here's a summary of the report:
|Revenue||$3.80 billion||$3.81 billion|
Earnings per share increased 37% and revenue rose 12.8%, driven by global comparable-store sales growth of a strong 7%. Operating income increased 28.7% to $668.9 million as the company's operating margin expanded 220 basis points to 17.6%.These record results caused management to increase its full-year outlook for 2014 and allowed for a 24% increase in its quarterly dividend. Overall, this was a great quarter for Starbucks, and I believe the only reason the quarter was considered "mixed" was because analysts were a bit too bullish.
First-quarter results for fiscal 2014 will be released on Jan. 23 before the market opens, and the current expectations call for growth on both the top and bottom lines. Here are the consensus estimates:
|Revenue||$4.29 billion||$3.8 billion|
These expectations would call for EPS to increase 21.1% and revenue to increase 12.9% year over year. In the fourth-quarter report, management said it expects first-quarter earnings to be in the range of $0.67 to $0.69, right in line with these expectations. I believe these estimates are very attainable and that Starbucks will also report better-than-expected comparable-store sales as well as improvement in its operating margin. This will allow the company to maintain its quarterly dividend and repurchase several million shares throughout the second quarter.
What else to watch for
Other than the key metrics, it will be important to look at the updated store count and expansion plans for the remainder of the year. In the fourth quarter, 558 new stores were opened, bringing the company's total count to 19,767, and management stated plans for 1,500 to be added in 2014. This means Starbucks should surpass the 20,000 mark in the upcoming quarter, a major milestone, but it is more important for the company to say it is on track to meet its goal of 1,500.
Competitor results due out
Dunkin' Brands (NASDAQ:DNKN), one of Starbucks' largest competitors, is also expected to report strong year-over-year growth when it announces earnings on Jan. 30. Dunkin' Brands is the parent company behind the global powerhouse brands Dunkin' Donuts and Baskin-Robbins. The current analyst estimates look like this:
|Revenue||$182.9 million||$161.7 million|
These estimates would call for earnings growth of 17.65% and revenue growth of 13.1% compared to the same period a year ago. Dunkin' is expanding rapidly throughout the Western United States, which will help drive earnings in the coming years. Dunkin', like Starbucks, is well-positioned to outperform the market in 2014 and will provide additional returns via its 1.6% dividend. Still, I prefer Starbucks at current levels.
The Foolish bottom line
Starbucks was one of the best-performing stocks in 2013, and I believe this trend will continue in 2014. It is expected to report another year of record earnings, and expansion will help drive this growth even higher in the coming years. Keep a close eye on this one and consider buying on any steep decline going into the report, or on any weakness following it.