North America

Earnings Preview: Starbucks Q2 2017 (SBUX)

By: Craig Bowles

Overview

Starbucks, Corp. (SBUX) is slated to report 2Q 2017 earnings after the bell on Thursday, April 27th. The earnings release is expected at approximately 4:05 p.m. ET 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: The current Street estimate is $0.45 (range $0.44 – $0.46). (Source: Yahoo! Finance).  Consensus was $0.46 three months ago, as well. If an adjusted number is unavailable, Earnings Per Share (EPS) number would be comparable to consensus estimates.
  • Revenues: Analysts expect an increase of 8.4% y/y to $5.41 bln (range $5.33 bln to $5.50 bln).
  • Comparable Sales: Consensus is 3.5% with expectations for a pickup in the June qtr. Q1 was 3% after the previous two quarters at 4%. Last year’s Q2 was 6%.

Adjusted Earnings Per Share (EPS) Guidance:

  • Adjusted Earnings Per Share (EPS) Guidance (3Q 2017): If available, the current consensus is $0.55 (range $0.52 – $0.59).
  • Adjusted Earnings Per Share (EPS) Guidance (FY 2017): Company guidance for Adjusted EPS is $2.12 to $2.14. The current Street estimate is $2.13.
  • Starbucks’ Price/Book of 15.2 compares to a 5-year average of 11.4; Price/Sales of 4.1 vs 5-year average 3.8; Price/Cash Flow of 20.2 vs 5-year average 48.4; Dividend yield of 1.5% compares to a 5-year average of 1.3%.
  • Analysts are bullish on Starbucks with 24 Buy, 6 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 129,040 shares the last three months and a net 1,858,209 shares in the past year. (source: NASDAQ.com) In July 2015, Starbucks approved an additional 50 million shares stock buyback on top of the 11 million shares available in the old plan.
  • Coffee prices rebounded in 2016 until November’s reversal that has carried over in 2017. (Chart)
  • 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 2.23%. Options are pricing in an implied move of 3.50% off earnings.

Recent News

  • 04/20: Stifel Nicolaus upgraded Starbucks to Buy while predicting four straight quarters of growing same-store sales by “at least 5%-6%” beginning in the June quarter, according to a post on fool.com.
  • 04/12: Instinet warns that a sluggish retail foodservice environment could prevent Starbucks from reporting 4% same-store sales. The company may also choose to discuss its Mercato lunch menu (which debuted at about 100 Chicago stores on April 11), the recent opening of a dedicated “Mobile Order & Pay Only” unit at its headquarters in Seattle, and/or its test of syrup extracts (replacing sugary syrups) at some stores in the Portland, Oregon market, according to a post on Barron’s.com.
  • 04/10: Piper Jaffray’s survey of over 5,500 U.S. teenagers showed Starbucks did best in terms of holding onto its “mindshare,” according to a post on Barron’s.com.
  • 04/04: Higher prices were blamed after Nielsen data show Starbucks-brand pods and single-serve packages fell 8.4% during the four weeks leading up to March 25 compared to the overall market increasing 6.4%, according to a post on Barron’s.com.
  • 03/20: Starbucks rolled out gluten-free, vegan food options and expect more higher-priced premium products in the stores, according to a post on Barron’s.com.
  • 03/17: Wells Fargo reiterated an Outperform rating on Starbucks citing a greater conviction that recent challenges are being appropriately addressed, and comps will reaccelerate in the back half of the year through higher premium prices and higher traffic. Canaccord Genuity notes inclement weather mid-month and an unfavorable Easter shift weighed on March same store sales, according to a post on Barron’s.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 remains an issue since October 2015’s $63.84.  Point and figure charts show the balance area around $57, so the stock is on the favorable side going into earnings. (Chart courtesy of StockCharts.com)

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Summary

Kevin Johnson begins his new role as Starbucks’ CEO this month. Despite losing market share to lower priced single serving producers, the company is bringing more higher-priced “premium” products to their stores. Starbucks guidance predicts that this year will see “mid-single digit comparable store sales growth globally.”  Solid growth prospects and share buybacks have analysts mostly bullish on the stock. Insider selling returned the past three months. The company has reported earnings similar to consensus three of the last five quarters and beaten by 1c the other two quarters. Estimize consensus for a Non-GAAP EPS of $0.46 on revenue of $5.431 bln compares to analyst consensus of $0.45 on revenue of $5.41 bln. Comparable store sales and guidance will be of interest.

 

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