Earnings Outlook: Starbucks earnings preview: A Nitro-powered quarter will drive U.S. same-restaurant sales

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The Nitro Cold Brew was rolled out with a giveaway

Starbucks Corp. is scheduled to report fiscal fourth-quarter earnings on Wednesday after the closing bell, and KeyBanc Capital Markets analysts expect the Nitro beverage to power U.S. same-restaurant sales.

Starbucks SBUX, +0.63%   began rolling out the frothy on-tap Nitro Cold Brew nationwide this summer, offering a giveaway of Nitro Cold Brew shots to promote the small-batch item.

“We believe Starbucks’ results benefited from improving quick-service industry trends and beverage innovation, including Nitro, which, as of year-end, was likely deployed in all company-owned stores in the U.S. and was supported with TV advertising during the summer months of fiscal third-quarter,” KeyBanc analysts led by Eric Gonzalez wrote.

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With that in mind, KeyBanc raised its U.S. same-store sales growth forecast to 5% from 4%.

KeyBanc rates Starbucks stock overweight with a $105 price target.

Stifel analysts think same-restaurant sales will be top of mind for investors, given the shortened holiday season, which will have six fewer days than last year. The analysts expect 7% U.S. same-restaurant sales growth in the third-quarter.

“Difficult comparisons coupled with concerns about a slowing consumer spending environment could weigh on investor sentiment,” analysts said.

Stifel rates Starbucks shares hold with a $90 price target.

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Starbucks has an average overweight stock rating and $96.16 target price, according to 29 analysts polled by FactSet.

Here’s what to look for in Starbucks earnings:

Earnings: FactSet is guiding for earnings per share of 70 cents, up from 62 cents last year.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects per-share earnings of 73 cents.

Starbucks has beat the FactSet EPS outlook the last five quarters.

Sales: FactSet expects sales of $6.68 billion, up from $6.30 billion last year.

Estimize is guiding for sales of $6.70 billion.

Starbucks has beat the FactSet consensus six of the last 7 quarters.

Stock price: Starbucks shares have fallen 14.1% over the past three months, but they have rallied 30.6% in 2019 and 44.1% for the past year.

The S&P 500 index SBUX, +0.63%   is up 15% for the last 12 months.

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Other items:

-Quo Vadis Capital says the stock price dip over the last three months is logical. “Despite everything we like about Starbucks, this pullback probably makes sense given the reality of the company’s growth rate,” Quo Vadis wrote. “For the recently-ended quarter, Starbucks faces a more difficult comparison and we don’t expect the kind of upside that occurred in June.”

-China is key to Starbucks’ growth, but Luckin Coffee Inc. LK, -3.44%   is a tough competitor. “Accelerating Luckin app download and usage share highlights heightened competition in China, but Starbucks metrics improved some after mobile order and pay expansion this summer,” wrote UBS analysts.

UBS rates Starbucks stock neutral with a $95 price target.

“We believe China uncertainty, in addition to valuation and tax rate guidance, are reasons for Starbucks stock’s recent weakness,” wrote KeyBanc. “And rightfully so given geopolitical pressures and increased competition from local players in coffee (e.g. Luckin Coffee) and other high-end beverages.”

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Still, KeyBanc thinks there’s room for more than one coffee company in the country, and analysts note that results for McDonald’s Corp. MCD, +0.43%   and Nike Inc. NKE, -1.73%   suggest that Chinese consumers are still willing to spend with American companies.

-The Starbucks mobile app is now the second biggest payment app in the U.S., according to eMarketer. The app was overtaken by Apple Pay, the first time a generic mobile app is more popular than the coffee chains.

The Starbucks app will have 25.2 million users this year while Apple Pay will have 27.7 million, eMarketer wrote in a report published Sunday.

“Apple Pay has benefited from the spread of new point-of-sale systems that work with the NFC signals Apple Pay runs on,” said Yory Wurmser, eMarketer’s principal analyst.

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