Starbucks (SBUX 59.18, -2.12, -3.4%) reported its fiscal second quarter results after Thursday's close. Seeing that shares of SBUX are down 3.4% today, it is easy to surmise that investors were disappointed by what they heard.
That disappointment is borne out of the fact that investors have high expectations for Starbucks. Accordingly, a "good" report for Starbucks isn't quite the same as a "good" report for another company.
Starbucks had good second quarter results. Revenues increased 7.3% to $5.29 billion, global comparable store sales increased 3%, paced by a 3% increase in U.S. comp store sales and a 3% increase in China/Asia Pacific (CAP) comp store sales, its consolidated operating margin expanded 40 basis points to a second quarter record 17.7%, and its GAAP and non-GAAP earnings jumped 15% to a second quarter record of $0.45 per share, which was in-line with analysts' average expectation.
Most retailers would be more than pleased to put up those numbers in this environment, yet Starbucks isn't most retailers.
The concern for investors is that the pace of sales growth at Starbucks was below expectations. Various reports point out that analysts were expecting U.S. comp store sales growth closer to 4%;. meanwhile, total revenues in the second quarter fell shy of analysts' average expectation.
The second quarter also marked the fourth time in the last five quarters that Starbucks failed to deliver double-digit revenue growth on a year-over-year basis. There was one other time in the last 20 quarters when that didn't happen and it was the fiscal second quarter of 2014.
Another point of contention is that there wasn't much transaction growth behind the growth in comparable store sales, almost all of which was the result of the change in ticket. To wit, transactions declined 1% on a consolidated basis while the change in ticket was up 4%.
On a brighter note, Starbucks pointed out that U.S. comparable sales accelerated sequentially throughout the quarter, highlighted by a 4% comp in March that reportedly accelerated into April.
The momentum in the U.S. business exiting the quarter combined with a strong performance from its China operations, which enjoyed a 7% comp store sales increase in the second quarter, store and concept expansion plans, investments in technology and service delivery, and product innovation has Starbucks feeling enthused about its longer-term prospects.
Starbucks, however, poured some cold water on that upbeat outlook for its investors by lowering its fiscal 2017 expectations. Specifically, it now expects revenue growth to be at the low end of its prior guidance range of 8-10%, excluding an extra week, and earnings to range from $2.08 to $2.12 per share versus its prior guidance of $2.12 to $2.14. It reaffirmed its view for comp store sales to be up mid-single digits.