Breaking down the beat, some on the Street appear to be scrutinizing the clout of the bottom-line beat as Starbucks disclosed the non-GAAP first quarter earnings per share (EPS) result of $0.75 was helped by a $0.07 discrete income tax benefit.
Sales were decent as Starbucks leveraged continued strength in the Americas to drive top-line revenue growth of 9.2% to about $6.63 bln in the quarter, including a net benefit of about 1% from Streamline-driven activities and unfavorable foreign currency translation of nearly 1%.
Specifically, streamline-driven activities include the consolidation of the acquired East China business, partially offset by licensing Starbucks’ consumer packaged goods and foodservice businesses to Nestlé (NSRGY 84.36, -0.77, -0.90%) following the close of the deal on August 26, 2018 and the sale of the Tazo brand.
All told, Global comparable store sales increase 4%, driven by a global increase in average ticket of 3%. The Americas and U.S. comparable store sales increased 4%, with transactions flat while China/Asia Pacific comparable store sales were up 3%, including 1% transaction growth. China results were better than feared and showed signs of steadying as comparable store sales were again up 1% in Q1, with transactions down 2% as the company attempts to address the growing Chinese coffee market.
Starbucks also updated certain guidance for fiscal 2019. The company now sees fiscal year 2019 non-GAAP EPS between $2.68-2.73 – up from the prior $2.61-2.66 expectation – mostly due to the aforementioned tax adjustment. Additionally, for FY2019 Starbucks now expects its non-GAAP effective tax rate to be in the range of 20-22%. Management also updated its FY19 outlook for global comparable store sales growth between 3-4%, down on the top end from the prior 3-5% expectation. All other guidance was reiterated from the company’s mid-December Investor Day.
Given that Starbucks touched base with investors at the Investor Day just six weeks ago, much of the rhetoric has not changed. The better than feared result out of China, traffic improvements, and a tax benefit appear to have helped the coffee giant in Q1 while the updated guidance may be achievable if management executes on digital initiatives, continues to leverage the in-store experience, and maintains its innovation among specialty beverages.
The stock ran into the 50-day simple moving average (65.15) yesterday, ultimately closing below that level. Action this morning took shares to two-month highs, though, recent trading has pared opening strength as the stock now holds gains of 3.83% versus 4.55% at today's highs.