Starbucks Q4 Earnings Show Strength: ETFs In Focus
Leading coffee chain Starbucks Corporation (NASDAQ: SBUX ) ended its fiscal 2015 fourth quarter with lower-than-expected earnings. The softer earnings were driven by higher employee and digital investments. However, the company’s top line saw a strong upside, thanks to outstanding growth in traffic trends in the U.S. Starbucks’ fiscal 2016 outlook was in line with the market as well as our expectations. Shares of the company rose in the trading session following the earnings release but fell thereafter. Earnings in Detail Starbucks’ adjusted earnings of 43 cents per share missed the Zacks Consensus Estimate of 44 cents by 2.3%. However, earnings were on the higher end of management’s guided range and grew 16% year over year as solid top-line growth offset lower margins. Fiscal fourth quarter sales escalated 18% year over year to $4.91 billion, outpacing the Zacks Consensus Estimate of $4.89 billion by 0.5% driven by robust comps. Global same-store sales (comps) growth of 8% was higher than a 7% rise in the previous quarter, driven by increased traffic trends. The comps rise included 4% improvements each in global traffic and average ticket. Higher food/beverage sales, strong comps in the U.S. and Europe and incremental revenues from Starbucks Japan primarily drove sales. The coffee giant opened 1,677 net new stores in fiscal 2015, ending the fiscal year with 23,043 stores in 68 countries. Starbucks expects revenues to grow more than 10% in fiscal 2016, excluding the extra 53rd week. Comps are expected to grow somewhat above the mid single-digit range. The company expects to open 1,800 stores in the next fiscal year. Adjusted earnings (including the 53rd week) are expected in the range of $1.87 to $1.89 per share during fiscal 2016, in line with the Zacks Consensus Estimate. Excluding the extra week, management expects to deliver earnings growth of at least 15%. Starbucks also announced a 25% hike in the dividend to 20 cents per share, which should be welcoming news for income-hungry investors out there. ETFs in Focus Despite lower-than-expected earnings, Starbucks’ growing comps – an important metric in the restaurant industry – make us confident about the company. Strong traffic growth both in the U.S. and China are the key opportunities for the company (read: 4 Solid Reasons to Buy Consumer Discretionary ETFs ). Further, the restaurant industry has been benefiting from cheap fuel and rising income, which along with an improving U.S. economy, better job prospects and increasing consumer confidence are making the segment a great space to stay invested. In addition, with the holiday season fast approaching, investors should keep a close eye on the below mentioned Consumer Discretionary ETFs with a good exposure to Starbucks (see all Consumer Discretionary ETFs here). PowerShares Dynamic Leisure & Entertainment Portfolio ETF (NYSEARCA: PEJ ) PEJ tracks the Dynamic Leisure and Entertainment Intellidex Index, holding 30 stocks with Starbucks occupying the fifth position with 5.13% allocation. The fund includes many other restaurant stocks, such as, Papa John’s International Inc. (NASDAQ: PZZA ), Denny’s Corp. (NASDAQ: DENN ), etc. It has amassed $196 million in assets and trades in a moderate volume of nearly 34,000 shares. The product charges 63 bps in fees and returned 8.9% in the year-to-date timeframe (as of November 2, 2015). It carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Consumer Discretionary Select Sector SPDR ETF (NYSEARCA: XLY ) This top-asset grossing consumer discretionary ETF follows the Consumer Discretionary Select Sector Index, holding 88 stocks. Starbucks occupies the sixth position in the fund with 3.82% allocation. Amazon.com (NASDAQ: AMZN ) and Walt Disney (NYSE: DIS ) are the top two holdings in the fund. The product has garnered a robust $11.5 billion in assets and trades in a strong volume of 6.5 million shares. It is one of the cheapest ETFs in its category with only 15 bps in annual fees. The fund has been up 12.7% so far this year and holds a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Fidelity MSCI Consumer Discretionary Index ETF (NYSEARCA: FDIS ) This product provides exposure to a large basket of 383 stocks by tracking the MSCI USA IMI Consumer Discretionary Index. Starbucks is at the sixth position holding a share of 3.03%. Amazon and Walt Disney are the top two holdings in the fund. The product manages nearly $286 million in asset base and trades in a solid volume of 129,000 shares per day. It charges a negligible 12 bps in fees and gained 9.5% in the year-to-date period. FDIS carries a Zacks ETF Rank #3 with a Medium risk outlook. Link to the original post on Zacks.com