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Is It Time To Short Starbucks Corporation (SBUX) Ahead Of Earnings?

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Starbucks Corporation (SBUX) Consumer Discretionary – Hotels, Restaurants & Leisure | Reports January 25, After Market Closes

Starbucks Earnings – Key Takeaways

  • The Estimize consensus is calling for earnings per share of 53 cents on $5.85 billion in revenue, 1 cent higher than Wall Street on the bottom line and $15 million on the top
  • The combination of mobile pay, new menu items and an improved customer loyalty program boosted comps in 2016
  • McDonald’s plan to expand the McCafe brand with $1-2 coffee poses a legitimate threat to Starbuck’s core business that relies on high margin sales
  • What are you expecting for SBUX? Get your estimate in here!

Starbucks prepares to report fourth quarter earnings tomorrow after the closing bell. This marks the first reports since Howard Schultz ceded the position of CEO to Kevin Johnson in early December. Despite the shakeup, the focus remains on expanding in international markets, namely China, increasing operational efficiency and releasing new menu items on a frequent basis. Tomorrow’s conference call will ideally highlight many of these ongoing initiatives but also address the future under new management. The report itself must still meet analyst targets for revenue, earnings and same store sales to be deemed successful.

The Estimize community forecast earnings of  53 cents per share, 16% higher than the same period last year. That estimate dropped 4% since Howard Schultz stepped down from the position of CEO. Analysts expect a 9% jump in revenue to $5.85 billion, reflecting a slight slowdown compared to third quarter comparisons.

Investor sentiment started to improve at the end of the year despite the drastic change at the helm. In the past 3 months stock increased in value by about 8%. With that in mind shares tend to stay flat in the 1 to 5 days following an earnings report.

Popular initiatives such as mobile pay and a revamped customer loyalty program have proven to be the most popular programs for the retailers. The addition of a robust lunch menu in all of its stores along with popular seasonal items such as Pumpkin Spiced anything bode well. These moves help drive traffic and thereby boost comps for first quarter and beyond.

In the long run, Starbuck’s expects China to outpace U.S. operations in terms of size and sales. The chain opened 1,000 new stores in the region over the past year, bringing the total to 2,500. In total management hopes to open about 5000 stores by 2021.

Meanwhile McDonald’s recent initiative to expand its McCafe brand puts pressure on Starbuck’s near term outlook. The golden arches said it will start selling coffee anywhere between $1 and $2, roughly half the price of any Starbuck’s beverage. Additional pressure from Dunkin Donuts and questions surrounding the new CEO Kevin Johnson create another layer of uncertainty.


Do you think SBUX can beat estimates? There is still time to get your estimate in here!

Article by Estimize

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