The following commentary was originally sent to Action Alerts PLUS subscribers on Jan. 21, 2016, at 5:17 p.m. ET.
Starbucks (SBUX) delivered mixed fiscal-first-quarter results after Thursday's close, with a slight beat on the bottom line offset by a slight miss on the top line. (Starbucks is part of TheStreet's Action Alerts PLUS portfolio.)
The most important metric for investors -- comparable store sales (or "comps," the equivalent of same-store sales, or SSS) -- came in better than expected within the company's key Americas division but were relatively disappointing on the international front.
In typical conservative fashion, management reiterated their fiscal 2016 guidance and issued second-quarter earnings guidance that came in a penny below consensus estimates. The company is notorious for managing investor expectations by lowballing forward guidance, as it is acutely sensitive to the elevated expectations that come with any company that offers such a rare mixture of 20%+ earnings growth, industry-leading SSS and impeccable track record of execution, spearheaded by its visionary CEO, Howard Schultz.
Considering shares rallied 7% from Wednesday's lows into Thursday's close (spiking 3.6% Thursday alone), we are not surprised by the stock's after-market selloff. In fact, we have seen this after-market reaction time and time again as investors initially become spooked by the stock's valuation before eventually recognizing the true scarcity of its growth and value proposition.
We have purposefully held a small starter position in the name, resisting the temptation to build upon it for the very pattern we are currently observing -- a euphoria-induced rally into the print followed by a post-earnings hangover, the latter of which has historically provided the entry level necessary to build upon the existing position. We will inform subscribers as soon as we conclude if this is the time to commit more capital after a thorough analysis of the results and incremental commentary.
Fiscal 1Q EPS of 46 cents was a penny above consensus, while revenues of $5.37 billion were in line. Global comps of 8% came in above consensus at roughly 7.5%, though whisper numbers suggested total comps of 8%+. Comps within the company's Americas division totally crushed both consensus and whisper expectations, increasing 9%, including a 4% increase in traffic. China/Asia Pacific comp sales increased 5% (below consensus of 6%), driven by a 4% increase in traffic. Comp sales across Europe, the Middle East and Africa (EMEA) increased just 1%, well below consensus of 4.5%, though the division represents less than 1.5% of the company's overall sales.
Management guided fiscal 2Q EPS of between 38 and 39 cents, slightly below consensus of 40 cents. The company backed its fiscal 2016 EPS view of $1.87 to $1.89 which -- at the midpoint -- came in a penny below consensus of $1.89. As previously stated, management has a history of lowballing sequential guidance and reiterating long-term guidance as it prefers delivering upside when it reports results rather than promising upside ahead of reported results.
All in, we would be buyers on any extended weakness in Friday morning's trading session.