Starbucks Earnings Call Nuggets: K-Cups and Revenue Guidance

On Thursday, Starbucks Corporation (NASDAQ:SBUX) released its first quarter earnings report and then discussed the following topics at its earnings call. Take a look.

K-Cup

Jeffrey Bernstein – Barclays Capital asked: For the K-Cup, I know you talked about $100 million impact shift in the first quarter. I am wondering if you can size up. How did that compare to your internal expectation? I know it’s only two months to the quarter but I’m just trying to figure out how you assess the momentum in that business. Is it people filling the shelves and therefore that rate is not sustainable or whether it is because post-holiday things pick up?

I’m trying to think about how you do some internal planning for the K-Cup ramp through the rest of this year. More broadly speaking, as you embark on kind of this bigger CPG push, I am wondering whether you had any insights for us or learnings on the new segment’s aggressive growth. Is there anything that gives you pause or have you really exceeded all of your expectations in terms of building the second platform that’s literally going to rival the entire retail business?

Jeff Hansberry – President, Starbucks Channel Development, Seattle’s Best Coffee responded: With regard to K-Cup, it’s still early days, but as we shift over 100 million cups in the first two months, we’re running ahead of our initial expectations on what we expected for the business. Based on everything we can see at this point, it is not just pipeline.

It’s very hard though at this point for us to really have an understanding of how high is high given that we are supply constrained. We are seeing K-Cup at the shelves. We have delivered, as I mentioned in my remarks,an 11 share in essentially an eight-week period after being available. That’s why I call it 66 percent ACV distribution in the food, drug, mass space during the month of December.

We haven’t fully reached distribution yet. We haven’t really started merchandising yet because we are supply constrained and at the same time we are seeing strong sell through. We don’t know what the full upside is yet, because we don’t have enough supply.

Now importantly, we are working closely with Green Mountain (NASDAQ:GMCR) to ensure that we get as many cups as we possibly can. They have been a great partner and meeting their initial expectations on the volume they committed to supply …

Again, we were working closely with them to get additional cups to try to fully meet the need in this premium single-cup space, but we are very encouraged. In fact, the pull on K-Cups is greater than what we had initially expected.

10 Percent Full-Year Revenue Guidance

Sharon Zackfia – William Blair asked: Troy, here’s a question for you on the full year revenue guidance–keeping it at 10 percent. I guess you look at every division and each one has seen solid double-digit revenue gain. So, implicit in your guidance is that revenue growth will decelerate to the single-digit at some point this year.

Is there a particular division you’re looking at or something we should be aware of on the outside which would be happening as the year progresses to bring us down to that 10 percent?

Troy Alstead – CFO and Chief Administrative Officer responded: No there is actually not. We’ve been extremely pleased with the revenue book in the first quarter. It’s outpaced our own expectations. But it’s so early in the year and with three-fourths of the year ahead of us, it’s just too early to meaningfully update much of that guidance.

We have every bit of optimism about our ability to continue to drive growth in the business. The only comment I would make is that I recognize, as we all need to, that the algebra at some point will suggest that those percentages get harder to keep growing, despite the fact that we have every expectation to drive dollars of revenue through all of our channels. So, we’re very optimistic.

Nothing has changed in our view of the future whatsoever, and as we progress through this year, we will continue to watch our progress in the top line and update targets accordingly.