Starbucks(NASDAQ:SBUX)delivered outstanding quarterly results last week with the stock gaining nearly 5% following the release. Management shared insights with investors during the subsequent conference call -- here are the key takeaways for long-term shareholders.
1. This business is firing on all cylinders
The second quarter was a thing of beauty, the latest in a long line of strong financial results. Founder, Chairman, and CEO Howard Schultz had this to say during the earnings call:
Q2 of fiscal 2015 was a stunning quarter for Starbucks on almost every level. Record Q2 revenues of $4.6 billion, record Q2 operating income of $778 million, and record split-adjusted Q2 EPS of $0.33 per share, all clearly demonstrating a continuation of the strength, momentum, and robustness we saw in our business during holiday Q1. Equally impressive is that our Q2 results were delivered despite foreign exchange headwinds and soft consumer environments in several key markets.
Our global comp store sales increased a strong 7% in Q2, with 3% coming from increased traffic, our 21st consecutive quarter of comp sales growth of 5% or greater; and a spectacular result, given that our comps are now calculated off of a US store base of over 7,000 stores and a global store base of over 10,000 stores. No other global retailer approaching our size or store base comes remotely close to posting such consistently strong comp performance.
Those numbers are almost unheard of in the food industry, particularly among such established large-cap companies like Starbucks, and it is one of the primary reasons shareholders have been well rewarded in recent years.
2. CAP continues to excel
One of the most important areas of the world for Starbucks both now and in the future is what the company refers to as China and Asia Pacific. This segment continues to deliver blockbuster performance, with Schultz sharing the following highlights during the call:
Turning to China and Asia Pacific. Now with over 5,000 stores, our China/Asia Pacific segment delivered a company-leading 12% comp increase in Q2, almost entirely coming from increased traffic and a strong increase in operating income as well.
We also completed the acquisition of Starbucks Japan in Q2, and are now in a position to aggressively go after business across all channels in Japan, both in and outside of our stores, in ways never before possible. And we are already seeing an acceleration of our business in that key, highly opportunistic market.
CAP remains a focal point of our future growth, and we are on track to meet our goal of doubling our CAP store count to roughly 10,000 locations, tripling our revenue to over $3 billion, and tripling our operating income to over $1 billion over the next five years.
The China and Asia Pacific region will clearly be a primary driver of growth in the next decade. As management delivers on its projections, shareholders should profit handsomely.
3. Channel development also remain a bright spot
In addition to the strong performance of Starbucks cafes, its packaged goods business, referred to as "channel development," continues to take share:
And our channel development segment also delivered a banner quarter, with a 16% increase in sales and strong increases in both operating margin and operating income, while at the same time further increasing Starbucks' already industry-leading share of premium single serve, premium packaged coffee, and premium packaged tea. Starbucks, by a wide margin, is the No. 1 premium coffee brand in the K-Cup category, and we now have shipped over 2.5 million K-Cup packs since launch.
Besides being a source of incremental growth for Starbucks, channel development also diversifies the revenue streams, thereby helping to lessen the risk to the business model posed by the growth of e-commerce.
4. Mobile payments are boosting sales
Starbucks has won praise for its mobile app and payments system, and for good reason. Schultz highlighted its significance during the call:
In December, we introduced Mobile Order & Pay into 150 stores in Portland, Oregon. Since then, we have expanded Mobile Order & Pay to over 600 stores in the Pacific Northwest, and we are now on track to roll out Mobile Order & Pay nationwide this calendar year.
Mobile Order & Pay has been extremely well received by our customers, enabling them to order ahead, avoid lines, avoid waiting for orders to be filled, resulting in shorter lines; faster service; improved, more efficient in-store operations and execution; and an elevated Starbucks experience. And Mobile Order & Pay is driving incrementality, as we are seeing an increase in both attach and daily transactions in those stores and markets where Mobile Order & Pay has been launched.
The Starbucks mobile apps help to differentiate the company from its competitors, and this innovative culture should continue to serve shareholders well.
5. Investments in the workforce are paying big dividends
One thing Starbucks management understands better than most of its peers is the importance of taking care of employees. Schultz explained this well:
Our history and experience demonstrate, and our research unequivocally confirms that the investments we make in deepening our connection to our people links directly back to value creation for our shareholders.
By offering every eligible partner the ability to profit alongside our shareholders through Bean Stock, providing paid healthcare coverage, providing competitive wages and incentive compensation opportunities, reimbursing college tuition costs through Starbucks College Achievement Plan, sharing and advancing our common values, and investing in the communities in which our people live and work, we are and will continue to make significant investments in our people around the world. And these investments are bearing fruit for our shareholders.
An all-stakeholder focus is something we value here at The Motley Fool, and we believe companies that subscribe to this philosophy will significantly outperform their competitors. Starbucks is one of the best examples of this in the world today.
Joe Tenebruso is portfolio manager of Tier 1 Investments, a Motley Fool Real-Money Portfolio. You can connect with him on Twitter @Tier1Investor. Joe has the following options: short January 2017 $100 puts on Starbucks and long January 2017 $97.5 puts on Starbucks.
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