Shares of Starbucks Corporation (SBUX - Analyst Report), a leading coffee chain, reported strong sales growth during the holiday season. However, the company’s mixed fiscal first quarter results and weak outlook had a negative impact on investor sentiment, which led to a decline in the company’s shares following the earnings release late last Thursday. 

Earnings in Focus    

Starbucks’ adjusted earnings of 46 cents per share beat the Zacks Consensus Estimate by a cent. Earnings also increased 15% year over year following strong growth in revenues. Fiscal first quarter sales jumped 12% year over year to $5.373 billion on the back of robust global comparable store sales (comps) and a healthy increase in the opening of net new stores. However, revenues came in lower than the Zacks Consensus Estimate of $5.378 billion.

Comps growth of 8% in the quarter was mostly driven by increased traffic trends. The comps rise included a 4% improvement each in global traffic and average ticket. Meanwhile, the coffee giant opened 528 net new stores in the fiscal first quarter, higher than the year-ago quarter’s 512. Separately, the company reported that net revenue grew at a rate of 16% in the Channel Development segment to $512.1 million following gains in sales of single-serve products premium. 
 
Strong sales increase in Americas and China/Asia Pacific segments also boosted revenue in the quarter. While revenues from the Americas segment surged 11% year on year to $3.7 billion with a gain of 9% in comparable store sales, revenues from the China/Asia Pacific segment soared 32% year over year to $653.6 million driven by comparable store sales growth of 5%. However, the growth rate of comparable store sales in China/Asia Pacific was slower than the gain of 8% recorded in the year-ago quarter (read: Most Vulnerable Asia-Pacific ETFs on China Issues).
 
Meanwhile, quarterly results from Europe, the Middle East and Africa (EMEA) segment were disappointing. Net revenues and operating income declined 6% and 4% from the prior-year quarter to $313 million and $48.1 million, respectively. Unfavorable foreign currency was attributed as the primary reason behind the decline.
 
Weak Outlook
 
Despite reporting strong earnings and revenues growth in the quarter, the company’s guidance for the upcoming quarter and fiscal 2016 came in lower than expected. Starbucks projected fiscal second quarter non-GAAP earnings per share between 38 cents and 39 cents, lower than the current Zacks Consensus Estimate of 40 cents. For fiscal 2016, the company guided non-GAAP earnings per share of $1.87 to $1.89, as compared to the current Zacks Consensus Estimate of $1.89 (read: Starbucks Q4 Earnings Show Strength: ETFs in Focus).
 
However, 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. Though operating margin in China/Asia Pacific is expected to remain unchanged or to decline slightly, operating margins in Americas and EMEA are expected to improve in fiscal 2016.
 
ETFs to Watch

Though weak guidance from the company for the coming quarter and the current fiscal year dampened investor sentiment, the company may benefit from the prevailing favorable economic environment in the near term. Factors including cheap fuel, better job prospects and increasing consumer confidence are likely to play an important role boosting the restaurant industry, to which Starbucks belongs. However, investors will closely monitor the impact of China-led sluggish global growth on the company’s performance in the coming months (read: Time to Buy International Small-Cap Dividend ETFs?). 

In this scenario, we have highlighted 3 ETFs with a good exposure to Starbucks that are expected to remain on investors’ radar following the earnings release.
 
PowerShares Dynamic Leisure & Entertainment ETF (PEJ - ETF report)
 
PEJ tracks the Dynamic Leisure and Entertainment Intellidex Index, holding 30 stocks with Starbucks occupying the fourth position with 5.42% allocation. It has amassed $182.8 million in assets and trades in a moderate volume of nearly 52,000 shares. The product charges 63 bps in fees and lost 10.8% in the past one-month period (as of January 21, 2016). It carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: If the Oil Crash Continues, Buy These 5 ETFs to Outperform).
 
PowerShares Dynamic Food & Beverage ETF (PBJ - ETF report)
 
This product provides exposure to a basket of 30 stocks by tracking the Dynamic Food & Beverage Intellidex Index. Starbucks is at the fourth position holding a share of 5.18%. The product manages nearly $205.8 million in asset base and trades in a solid volume of 118,000 shares per day. It charges 58 bps in fees and declined 6.8% in the past one-month period. PBJ carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
 
Consumer Discretionary Select Sector SPDR ETF (XLY - ETF report)
 
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 4.02% allocation. Amazon.com (AMZN - Analyst Report) and Home Depot Inc. (HD - Analyst Report) are the top two holdings in the fund. The product has garnered a robust $10 billion in assets and trades in a strong volume of 8 million shares. It is one of the cheapest ETFs in its category with only 14 bps in annual fees. Though the fund has lost 8% in the past one-month period, it holds a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.