Starbucks Earnings For Q1 2016 Should Be In Line With Estimates

  • Starbucks earnings for Q1 2016 will be released on January 21.
  • Holiday publicity most likely served as a draw for customers in Starbucks' Americas segment.
  • Look for robust results in its China/Asia Pacific segment.
  • Coli concerns could serve as a small drag on results.
On January 21, global beverage restaurant chain Starbucks (NASDAQ:SBUX) will come out with its Q1 FY 2016 earnings announcement. Wall Street earnings per share (EPS) predictions for Starbucks average $0.45. If Starbucks meets this estimate it will represent a 13% year-over-year increase.

Investors could certainly use a positive external catalyst from an earnings beat. Starbucks stock is down 7% since the release of its FY 2015 earnings, pulled down in part by a sour market sentiment overall (see chart below). I certainly believe that Starbucks can meet earnings estimates or come close to doing so. Let’s examine the possibilities.
SBUX stock chart

Starbucks stock price vs S&P 500 comparison chart by

Holiday Publicity Served As A Draw

Starbucks’ first quarter coincided with the holidays, which saw the introduction of its minimalist and religiously neutral red cup. This drew criticism from certain religious groups and presidential candidates alike. I would conjecture to say that more than a handful of people went to Starbucks to see what all the controversy was about and bought beverages served in this controversial cup. As they say, there is no such thing as bad publicity.

Growth Potential In China/Asia Pacific

In FY 2015, Starbucks experienced robust growth in its China/Asia Pacific segment. Its revenue and operating income expanded 112% and 34%, respectively in that segment. Starbucks’ total location count increased 18%, representing a higher percentage than any other segment.

Also, customers returned to Starbucks’ established locations at a healthy pace. Last year, Starbucks saw its same store sales increase an incredible 9% with an 8% increase in transactions and a 1% increase in ticket size. Customers spent more money at a higher frequency.

Indications hint that this pattern will continue into Q1 FY 2016 for Starbucks. The company wants to expand its location footprint by 1,400 stores by 2019. Starbucks plans to open 500 locations this year alone. Starbucks CEO Howard Schultz worked his public relations magic in China by speaking to families and offering perks, such as retreats and housing subsidies. Starbucks wouldn’t announce such a massive expansion and significant investment in the workforce if performance in the region was showing signs of losing its luster.

Starbucks Earnings To Face An E.coli Drag?

It was reported in the early part of December that Starbucks had to remove turkey Paninis and other miscellaneous items due to concerns over E.coli. This could serve as a potential catalyst for an earnings miss. Starbucks’ customers, worried about other outbreaks, could shy away from its locations putting a dent in its overall sales and hurting its earnings per share. Chipotle Mexican Grill (NYSE:CMG) could very well see a 15% decline in same store sales due to its E.coli outbreak. However, unlike Chipotle Mexican Grill, with its real problem in its supply chain, Starbucks merely pulled some product lines as a pre-emptive measure. That's the reason I wouldn't say this is a huge threat right now, but you wouldn't want to ignore the possibility.

Starbucks Earnings Q1 2016 - Closing Thoughts

Finally, there stands a real chance that even if Starbucks beats earnings estimates its stock price will sink due to an overall sour market sentiment. So far this year, the S&P 500 is down 6%. However, long-term investors should stand ready to take advantage if a drop does occur. Starbucks really knows how to work a crowd with new products and initiatives.

Starbucks sports rock solid fundamentals and a solid dividend yield of 1.4%. More importantly, Starbucks’ consumers really love its quality products and return to its locations for more. As long as Starbucks can bring customers back through its doors, it deserves a long-term spot in your portfolio.

Show Full Article
5 2
Is this article helpful ?    

Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and SBUX stock

Do share this awesome post