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Starbucks Corporation (SBUX) Still Has Problems After Earnings Beat

Starbucks Corporation (Nasdaq: SBUX) stock jumped more than 11 percent on Friday after the company beat earnings expectations in the fiscal fourth quarter and issued solid 2019 guidance. While investors cheer the positive quarter, analysts say Starbucks still has major problems it needs to address.

Starbucks reported fiscal fourth-quarter adjusted earnings per share of 62 cents on revenue of $6.3 billion. Both numbers topped consensus analyst expectations of 60 cents and $6.27 billion, respectively. Revenue was up 10.6 percent from a year ago and was a new quarterly record for the company.

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All-important same-store sales growth in the quarter was 3 percent, ahead of consensus estimates of 2.3 percent. U.S. same-store sales growth was even stronger at 4 percent, beating analyst expectations of 2.3 percent growth.

“Starbucks record Q4 performance reflected meaningful improvement in virtually every critical operating metric compared to Q3,” CEO Kevin Johnson says in a statement.

However, same-store sales growth in China was only 1 percent in the quarter. While that growth exceeded analyst expectations of a 0.3 percent decline, it indicates that Starbucks is struggling to grow its business in the largest international market.

Operating margin also declined 2.7 percent in the fourth quarter to 15.2 percent. The company said margins were negatively impacted by investments in employees and mix shifts in food and beverage.

Looking ahead, Starbucks guided for fiscal 2019 EPS of between $2.61 and $2.66, roughly in-line with consensus analyst expectations of $2.64. Starbucks also said 2019 same-store sales growth will likely be on the low end of its long-term target range of between 3 and 5 percent.

Morgan Stanley analyst John Glass says the better-than-expected same-store sales growth and solid 2019 guidance are certainly positive, but Starbucks still needs to demonstrate progress on margins and global traffic.

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“Like much of the rest of the QSR industry, traffic is still lacking, and if one views 3Q’s weakness as an anomaly, not much has yet changed over the last six quarters,” Glass says. “But if you combine that with China’s reversal, there appears to be a greater stability to the business than existing just a quarter ago.”

Morgan Stanley has an “equal-weight” rating and $64 price target for SBUX stock.

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Starbucks Corporation (SBUX) Still Has Problems After Earnings Beat originally appeared on usnews.com



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