Here’s What We Are Watching For In Starbucks’ Q4 2017 Results

Starbucks (NASDAQ: SBUX) will report its Q4 and fiscal year 2017 results on November 2^nd 2017 and expectations from this quarter are not very high given that the company lowered its EPS guidance based on its Q3 2017 results. Below is a summary of consensus estimates for Starbucks’ revenue and EPS (earnings per share) for Q4 2017:

Starbucks is facing rough times with the changing retail landscape and declining mall traffic. The company’s comparable sales growth in Q3 2017 was only due to an increase in ticket size and it did not witness any growth in customer traffic. (Read Is Starbucks Looking At A Rough Road Ahead?).

Click here to see our forecast for the growth in average daily customers per Starbucks’ company owned store.

On the other hand, McDonald’s has been able to increase guest count for three consecutive quarters and the company is now increasing focus on its McCafes  to grab a share in the beverage market. While Starbucks is looking at gourmet coffee as one of its key growth drivers in the long term, this segment might also get competitive with players such as Nestle entering this market via its stake in Blue Bottle. (Read Can Starbucks Be Threatened By Nestlé’s Acquisition Of A Majority Stake In Blue Bottle?).

Innovation is likely to be the key growth driver for restaurant companies in the future and Starbucks is focusing on introducing beverages which would be preferred by the high spending millennial population. The company is looking to quadruple its cold brew business by 2021 as it focuses on millennials who prefer their coffee cold as against the hot beverage preference of the previous generation. (Read Here’s Why Starbucks Is Innovating Around Iced Drinks).

Click here to see our complete analysis of Starbucks.

Challenging Industry Environment, Hurricane Impact Can Drag Sales Down

After a minor recovery in June, the restaurant industry remained challenging in Q3 2017 with comparable sales and comp traffic declining in all three months of the quarter, according to data published by TDn2K.

While quick service and fast causal restaurants are performing better than other formats, the two major hurricanes in the U.S. are likely to impact sales negatively. In the last week of August comparable sales in Texas declined by 15% due to the impact of Hurricane Harvey.  Same store sales in Florida declined by 6.2% in September due to the impact of the storm. Starbucks operates nearly 1100 restaurants in the storm affected areas and there could be an impact on the company’s revenues due to the shutdown caused by the storms.

Starbucks did not have a good  run in 2017 so far and the company is struggling to grow traffic. We remain positive on its long term growth and have a price estimate of $65 for the company. However, we might revise our price estimate based on the company’s Q4 and fiscal year 2017 results.

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