North America

Earnings Preview: Starbucks Q1 2016 (SBUX)

By: Craig Bowles

Overview:

Starbucks, Corp. (SBUX) is slated to report 1Q 2016 earnings after the bell on Thursday, January 21st. The earnings release is expected at approximately 4:05 p.m. EST with a conference call to follow at 5:00 p.m. that is webcast through Starbucks Investor Relations. Starbucks is a component of the S&P 500 and NASDAQ 100 indices, so results can impact index futures. Starbucks announced a two-for-one stock split on March 18, 2015.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS) and Earnings Per Share (EPS) Excluding Items: Company guidance for Adjusted EPS is $0.44 to $0.45. The current Street estimate is $0.45 (range $0.44 – $0.46). (Source: Yahoo! Finance).  Consensus was $0.47 three months ago. If an adjusted number is unavailable, Earnings Per Share (EPS) number would be comparable to consensus estimates.
  • Revenues: Company guidance is for annual growth of 12%. Analysts expect an increase of 12.2% y/y to $5.39 bln (range $5.22 bln to $5.55 bln).
  • Comparable Sales: 2016 company guidance is for somewhat above mid-single digits. 2Q and 3Q were 7% and 4Q was 8%.

Adjusted Earnings Per Share (EPS) Guidance:

  • Adjusted Earnings Per Share (EPS) Guidance (2Q 2016): The current consensus is $0.40 (range $0.38 – $0.42).
  • Adjusted Earnings Per Share (EPS) Guidance (FY 2016): Company guidance is for $1.87 to $1.89. The current estimate is $1.89 (range $1.87 – $1.90).
  • Starbucks’ Price/Book of 15.2 compares to a 5-year average of 9.8; Price/Sales of 4.7 vs 5-year average 3.5; Price/Cash Flow of 24.0 vs 5-year average 48.1; Dividend yield of 1.1% compares to a 5-year average of 1.2%.
  • Analysts are bullish on Starbucks with 19 Buy, 3 Hold, and 0 Sell ratings. (source:  MarketBeat.com)
  • Insiders have sold 214,688 (1,423,589 last qtr) shares the last three months and 2,539,611 shares in the past year. (source: NASDAQ.com) Starbucks’ stock repurchases have become increasingly more aggressive since 2010 and the company sold $850 mln in bonds in June for debt refunding and stock buybacks. In July 2015, the company authorized an additional 50 million shares to be repurchased in addition to the 11 million shares under an existing authorization.
  • Starbucks is compared to major coffee retailers with quarterly results possibly impacting Dunkin’ Brands Group (DNKN), Green Mountain Coffee Roasters (GMCR) and new entry McDonald’s (MCD).
  • Starbucks shares have shown a 1-day average price change on earnings of 2.50%. Options are pricing in an implied move of 4.59% off earnings.

Recent News

  • 01/12: Starbucks already runs 2,000 stores in 100 Chinese cities, plans to open 500 stores in China every year for the next five years, according to a post on WSJ.com.
  • 12/04: Starbucks wants to continue setting the standard in mobile and their Delivery Pilot Program is ramping up, according to a post on Fool.com.
  • 11/28 Netherlands will appeal the Starbucks tax ruling. The EU has ordered Fiat and Starbucks to repay tens of millions of euros in back taxes, according to a post on Forbes.com.

Technical Review

Starbucks third leg up of this expansion made a similar move up as the first leg, so this resistance in the $60 area was expected.  Point and figure technicians have a bearish price objective of $51 but their uptrend line is still in the teens. (Chart courtesy of StockCharts.com)

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Summary

Starbucks benefited in 2014 from having hedged their coffee purchases but 2015 hedges acted as a drag with wholesale coffee having moved lower. So, the company began locking in 2016 needs back in April and prices continued declining the rest of the year. The company has reported earnings similar to consensus three of the last four quarters and beat by 1c one quarter. Estimize consensus for an Non-GAAP EPS of $0.46 on revenue of $5.382 bln compares to analyst consensus of $0.45 on revenue of $5.39 bln. Comparable store sales and guidance are always important, as well.

 

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