Shares of Starbucks (SBUX) edged down Friday morning, continuing their decline from yesterday, as investors' enthusiasm for the coffee chain's better-than-expected quarterly earnings was cooled by concerns about rising costs.
Shares of the Seattle-based company recently changed hands at $78.90, down about 2 percent. They have barely moved this year, while the S&P 500 Index has gained more than 7 percent.
Under Chief Executive Howard Schultz, who bought the company from its original owners in 1987, Starbucks has expanded its menu to include items such as Greek yogurt smoothies and chicken sandwiches and diversified beyond coffee through its 2012 acquisition of Teavana, a specialty tea shop business, for $62 million. The investments have benefited Starbucks' bottom line.
In the quarter ended June 29, net income soared 23 percent to $512.6 million, or 67 cents per share while revenue surged 11 percent to $4.15 billion during that same period, topping analysts' expectations. Same-store sales, a key retail metric measuring performance of locations opened at least a year, surged 7 percent during the quarter, a feat which Schultz called "stunning" during an interview today with CNBC. He added that it was "best in class" results compared with rivals such as McDonald's (MCD) and Dunkin' Brands (DNKN), both of which recently reported disappointing results because of lackluster same-store sales.
"We are winning and we are winning around the world," Schultz said. "It's still early days for the growth and development of Starbucks."
Wall Street analysts have repeatedly argued that Starbucks' guidance is overly conservative. The same-store figure is a case in point. In his CNBC interview, Schultz said it would be "irresponsible" for the chain to assume that it would maintain 7 percent same-store sales growth. That's why it had forecast a "mid single digit" gain in this metric.
Investors, though, were spooked yesterday by Chief Financial Officer Scott Maw's forecast that long-term earnings growth will come at the "low end" of his forecast next year.
Starbucks, though, isn't concerned about the 47 percent rise in coffee prices, since it has adequate supplies for the current fiscal year and has 50 percent of the supplies it needs for the 2015 period. The company has recently raised coffee prices to consumers but that doesn't appear to be cooling sales.
In fact, during the 2015 fiscal year Starbucks expects revenue growth of at least 10 percent, with earnings per share growth of 15 percent to 20 percent and plans to open an additional 1,600new stores globally. The company is planning to expand its lunch offerings and expects to launch an effort in the fast-growing mobile payments area that would allow customers to place orders over their devices to be picked up later at a Starbucks store.
Wall Street expects Schultz to deliver on his promises. Most analysts covering the stock rate it a "buy." The average 52-week price target on the stock is $88.63, about 13 percent higher than where it currently trades.