Starbucks Q3 2017 Earnings Preview

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Starbucks (NYSE:SBUX) will announce its Q3 2017 results on July 27 and after two weak quarters in this fiscal year, we will be keenly watching if the company has been able to improve comparable sales growth. Starbucks missed consensus estimates for two quarters in a row, primarily due to a congestion problem caused by a significant increase in orders via its mobile order and pay system. The company has a positive outlook for the second half of 2017 and analysts expect an improvement in the company’s revenues and EPS (earnings per share) compared to the same period last year.

Below is a summary of consensus estimates for Starbucks for Q2 2017:

 

Source: Yahoo Finance

 

While an increase in the number of stores and higher ticket size can drive revenues for Starbucks, we will be keenly watching its growth in comparable sales, which has slowed down in the past two quarters.

Starbucks has taken several measures in the past three months to train employees to handle volumes (along with motivating them) and introduce an innovative menu to drive sales. Below is a summary of some of the key initiatives taken by the company:

  • Appointment of a “Chief Partner Officer”: Starbucks refers to its employees as “partners” and the company recently elevated an 18 year old veteran, Lucy Lee Helm, to the position of “Chief Partner Officer” to ensure that employee issues are addressed and they are trained to face the increased volume of orders due to the overwhelming success of its mobile order and pay system. (Read Here’s Why Starbucks Appointed A Chief Partner Officer).
  • Partnership With Snap Kitchen: In order to grow its food business and meet its goal of doubling its food business by 2021, Starbucks recently partnered with Snap Kitchen to sell their products at its five cafes in Houston. If successful the company will expand this partnership to other regions and it can work as a catalyst to grow Starbucks’ food revenues. (Read Here’s Why Starbucks Is Partnering With Snap Kitchen)
  • Expansion Of Coffee On Tap: As it looks to tap into the “unique coffee experience” trend as millennials look to experiment with interesting ways to drink coffee, Starbucks is expanding its “coffee on tap” test to more than 1,400 locations in the U.S. (Read Here’s Why Starbucks Is Expanding Its “Coffee On Tap” Product).

 

Industry Environment

As per data analyzed by BlackBox Intelligence, the restaurant industry has been “cautiously optimistic” in Q2 2017. While comp sales and traffic growth have remained negative throughout the quarter, June sales were best for the industry for both these metrics in the past six months.

Higher job and economic growth and moderating credit growth should help the restaurant industry going forward. Fine dining and upscale casual were the best performing restaurant segments in Q2 2017. Fast casual restaurants have been the weakest  performing segment and the quick service segment is also struggling to grow.

While Starbucks is well poised to beat the industry trend, we will be watching closely if the company has been successful in driving traffic to its stores in this quarter.

 

For more details, see our complete analysis for Starbucks

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