North America

Earnings Preview: Starbucks Q4 2017 (SBUX)

By: Craig Bowles

Overview

Starbucks, Corp. (SBUX) is slated to report 4Q 2017 earnings after the bell on Thursday, November 2nd. 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.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS) and Earnings Per Share (EPS) Excluding Items: Company guidance is $0.55 to $0.56 (conference call). The current Street estimate is $0.55 (range $0.53 – $0.57). (Source: Yahoo! Finance).  Consensus was $0.58 three months ago, as well. If an adjusted number is unavailable, the Earnings Per Share (EPS) number would be comparable to consensus estimates.
  • Revenues: Analysts expect an increase of 1.6% y/y to $5.81 bln (range $5.59 bln to $6.13 bln).
  • Comparable Sales: Q3 returned to 4% and there’s debate whether that can be sustained. FY guidance is 3% to 4%.

Adjusted Earnings Per Share (EPS) Guidance (now only given on the conference call):

  • Adjusted Earnings Per Share (EPS) Guidance (FY 2017): Company guidance is $2.04 to $2.06. The current Street estimate is $2.06.
  • Starbucks’ Price/Book of 13.4 compares to a 5-year average of 11.4; Price/Sales of 3.6 vs 5-year average 3.8; Price/Cash Flow of 18.1 vs 5-year average 48.4; Dividend yield of 1.8% compares to a 5-year average of 1.3%.
  • Analysts are bullish on Starbucks with 19 (25 last qtr) Buy, 11 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 69,742 shares the last three months and a net 618,461 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. 2016 had close to $2 bln spent on stock buybacks.
  • 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 2.86%. Options are pricing in an implied move of 4.14% off earnings.

Recent News

  • 10/09: Deutsche Bank is bullish on Starbucks citing expectations of revenue growth and earnings expansion. Slower comp sales has nearly three times as many bears as bulls when investors were asked the stock, according to a post on Barron’s.com.
  • 10/04: Starbucks closed its online store in order to focus its digital efforts on its mobile app, which encourages customers to come into stores by way of app features that allow customers to pay and preorder in advance, according to a post on Barron’s.com.
  • 09/29: The ready-to-drink coffee market, a strong competitor for traditional coffee shops, is expected to show a 67 percent sales growth from 2017 to 2022. Starbucks is responding by focusing on a premium coffee market to appeal to the increased spending power of millennial consumers, according to a post on CNBC.com.
  • 09/26: Coffee sold in California could soon carry cancer warnings, according to a post on RT.com.
  • 09/06: Starbucks hired a former Wal-Mart executive, Rosalind Brewer, as chief operating officer in an attempt to help operations and to boost U.S. sales, according to a post on Bloomberg.com.
  • 08/29: Simon Property Group, one of the nation’s largest mall operators, filed a lawsuit against Starbucks over its plans to shut all of the Teavana stores operating in its centers nationwide, according to a post on indystar.com.

Summary

Kevin Johnson began his new role as Starbucks’ CEO in April. Despite losing market share to lower priced single serving producers, the company is bringing more higher-priced “premium” products to their stores. Starbucks guidance for the year was lowered last quarter.  Share buybacks have been a larger source of support the past three years. Insider selling slowed the past three months but analysts became more neutral on the stock. The company has reported earnings similar to consensus three of the last four quarters and beaten by 1c the other quarter. Estimize consensus for a Non-GAAP EPS of $0.56 on revenue of $5.81 bln compares to analyst consensus of $0.55 on revenue of $5.81 bln. Comparable store sales will be of interest and guidance will only be available on the conference call.

 

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