Starbucks' (SBUX) fiscal second-quarter 2019 results finally demonstrated some strength in operating income. As a whole, the coffee giant has not impressed me in recent quarters, as operating income has been continually squeezed by the efforts to derive higher sales figures. Fiscal Q2 went against the current, in a good way.
Starbucks reported revenue growth of 4.5% year over year to $6.3 billion. Operating income increased 11% to $857.7 million. To me, this is important. Starbucks had been squeezing operating income in order to create gains on sales revenue. It was squeezing earnings and forcing the company to rely on buybacks and taxes in order to derive meaningful earnings.
If you look at the combined first two fiscal quarters for 2019, you can still see the effects. Operating income for the first two quarters is down 0.8%. Earnings before income taxes are down 53.3%. Net earnings are down 51.1%, to $1.42 billion. Earnings per diluted share are down 44.4%, to $1.14. In order for me to really get behind SBUX, they have to create enough momentum in the next two quarters to change that tale for the full fiscal year.
Fiscal Q2 2019 earnings before income taxes grew a meager 0.5%, to $820 million. The main culprit for the stagnation seems to be increasing interest expenses. Interest increased 110.5% year over year, to $73.9 million. Net earnings attributable to Starbucks were basically flat -- increasing 0.5% to $663.2 million. Thanks to continued stock buybacks, those earnings got a bigger boost on a per-share basis. Net earnings per diluted common share increased 12.8% to $0.53 per share.
I've been cautious of Starbucks, but I do admittedly see some good things in this quarter. Comparable-store sales were strong. Furthermore, they were strong across the board, rather than relying on China to make up for weakness domestically. Comparable-store sales grew 4% in the U.S. and 3% in China. Global net stores increased 7% year over year. The bulk of the expansion continues to be in China, with a 17% increase in net stores.
Looking forward, Starbucks is forecasting full-year earnings per share on a GAAP basis of $2.40-$2.44. Thanks to the strong performance in Q2, these numbers were increased from prior guidance of $2.32-$2.37 per share. The company anticipates full-year comp-store sales growth of 3%-4%, with 2,100 new stores, and consolidated revenue growth of 5%-7%.
When looking at this from a five-year trend, that revenue guidance is a bit weaker than normal. Fiscal 2018 had revenue growth of 10.44%. The only year of the last few that didn't experience double-digit revenue growth was 2017, with 5.03%. The forecasted earnings per share would also be below 2018's $3.24.
If Starbucks does reach its guidance of $2.40-$2.44, the stock is trading at roughly 32.25x full-year forecasted earnings. It's not exactly a discount, but Starbucks is rarely a cheap stock.
With this quarter of nice news, has Starbucks become a solid buy? I say not yet. There's one problem with the Starbucks story. It is increasing sales by enticing customers to spend more. However, they're not successfully increasing the total number of customers entering their locations. Total transactions for the Americas were flat, and the company relied on a 4% increase in ticket order to show that comp sales growth for the U.S. The same was true in China/Asia, where transactions were flat, and ticket increased 2%.
Over the long haul, this simply won't work. You can only induce customers to spend so much. After a certain point, it comes down to increasing store traffic. Until we see a trend of increased store traffic, along with the gains from new store openings, I think Starbucks continues to be a "hold". There was good progress in fiscal Q2, but there's more work to be done. Pushing five-year highs, the stock just seems a bit too much to jump in now.