Starbucks Earnings: What to Look For
- Analysts estimate EPS of $0.35 vs. $0.60 in Q2 FY 2019.
- Same-store sales are expected to fall by 9.2% YOY.
- COVID-19 is expected to hurt revenue, especially from international operations.
Starbucks Corp. (SBUX), the giant global coffee house and roastery chain, has posted out-sized annual profit and revenue growth during much of the past decade as it has expanded dramatically in both the U.S. and international markets. That unbroken growth has come abruptly to an end as the COVID-19 pandemic has sent Starbucks' sales and share price plunging. The company has been forced to indefinitely close all Starbucks locations without drive-through services. Investors will want to hear more detail about how Starbucks plans to weather the pandemic when management reports earnings for Q2 FY 2020 on April 28, 2020 after market close. The company's fiscal year ends in September.
In the report, investors are likely to look closely at a key metric, same-store sales, which is a benchmark of Starbucks' growth. For the quarter, analysts expect same-store sales to plunge, pulled down by a 31.7% decline at Starbucks' international stores. Analysts also expect plunging adjusted earnings per share as revenue drops.
This year, Starbucks' shares initially took a steep dive on news of the pandemic, but since mid-March have recouped more than half of their losses. As a result, in the past 12 months, Starbucks shares have modestly outperformed the broader market, with a total return of 4.5% as compared with -0.9% for the S&P 500.
After small declines in Q4 2017, Starbucks has posted year-over-year (YOY) gains in quarterly revenue and adjusted earnings per share (EPS) in every quarter since Q1 FY 2018. During that time, YOY gains in adjusted EPS have been strong, rising by double-digit figures in nearly every quarter, most notably a 25.1% jump in adjusted EPS in 3Q 2019. The only lackluster quarter came in the most recent one, Q1 FY 2020, when Starbucks reported a 5.2% gain in profit. By comparison, the coronavirus pandemic is expected to inflict a precipitous 40.9% plunge in adjusted EPS in Q1 FY 2020 to $0.35.
YOY revenue growth has generally slowed since posting an impressive 16.5% gain in FY 2015. On a quarterly basis, growth since Q1 FY 2018 has been generally solid but characterized by significant swings from quarter to quarter. Growth has ranged from13.9% in Q2 FY 2018 to a low of 4.5% in Q2 2019. For Q2 of 2020, analysts expect the first revenue decline in at least 3 years, a 6.2% drop, to $5.9 billion.
|Starbucks Key Metrics|
|Estimate for Q2 2020 (FY)||Actual for Q2 2019 (FY)||Actual for Q2 2018 (FY)|
|Adjusted Earnings Per Share ($)||0.35||0.60||0.53|
|Same-store Sales (%)||-9.2||3.0||2.0|
Source: Visible Alpha
Investors will be especially focused on Starbucks' same-store sales, also known as comparable-store sales. Same-store sales is a key metric for retailers that provides a performance comparison of stores that have been in operation for at least one year. Examining same-store sales helps investors in determining what portion of a chain's sales come from existing stores and what portion come from opening new stores. Investors and analysts also use the metric to determine management's success in producing revenue growth from existing assets.
Starbucks' same-store sales growth slowed between FY 2017 and FY 2018, and then rebounded sharply in FY 2019, when same-store sales rose by between by 50% to 500% compared to the same quarter a year earlier. In recent fiscal Q2 periods, for example, Starbuck same-store sales growth slowed from 3% in Q2 2017 to 2.0% in Q2 FY 2018, and then rebounded to 3.0% in Q2 FY 2019. The best recent quarters were 6.0% in Q3 2019 and 5.0% both on Q4 2019 and Q1 2020.
Now, analysts estimate the shrinking global economy will cause same-stores sales to fall 9.2% in Q2 2020. Most notably, Starbucks' Americas' operations, primarily the U.S., are expected to suffer only minor damage, seeing same-store sales fall only 2.3%. The main source of the decline is expected to be international sales which, as mentioned, will fall an estimated 31.7%. These numbers may understate the damage to Starbucks since the company closed many of its stores with only 10 days remaining in the quarter.
Business Insider. "Starbucks prepares to reopen stores closed in coronavirus pandemic, predicting a return to normal operations in June," Accessed April 19, 2020.
Starbucks Corp. "Q2 Fiscal 2020 Starbucks Earnings Conference Call," Accessed April 19, 2020.
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