Fly Intel: What to watch in Starbucks earnings report

Starbucks (SBUX) is scheduled to report results of its fiscal fourth quarter after the market close on Thursday, November 1, with a conference call scheduled for 5:00 pm ET. What to watch for: 1. GUIDANCE: When Starbucks reported third quarter earnings on July 26, it narrowed its fiscal 2018 earnings guidance. Starbucks narrowed its FY18 adjusted EPS view to $2.40-$2.42 from $2.39-$2.43. The consensus is for FY18 EPS of $2.41. The company now expects FY18 global comparable store sales growth to be just below the 3%-5% targeted range, and Q4 is expected to be at the lower end of the 3%-5% range. Starbucks said it continues to expect consolidated revenue growth in the high single digits, when excluding approximately 2 points of net favorability from the East China acquisition and other streamline-driven activities. The company added that it continues to expect approximately 2,300 net new Starbucks stores globally. 2. WEDBUSH SEES Q4 U.S. SSS SLIGHTLY BELOW CONSENSUS: Wedbush analyst Nick Setyan said in late September that recent checks pointed to Starbucks' U.S. SSS growth tracking in the mid-2% range for Q4, slightly below the 2.8% consensus. While the analyst says a 3% comp in Americas "is possible," a rounded-down 2% comp "may be just as likely" particularly due to the adverse weather in the mid-Atlantic. He viewed new digital initiatives, including the ability to take advantage of mobile pay without being a loyalty member, as an incremental 1%-2% SSS growth driver in FY19. While he no longer saw growing risks to lowered expectations through FY19, Setyan also did not expect drivers of positive revisions to materialize, and maintained a Neutral rating and $53 price target on Starbucks. 3. BILL ACKMAN TAKES $900M STAKE: On October 9, Pershing Square's Bill Ackman -- who previously had teased in August that the fund had taken a new position that accounted for about 10% of its portfolio -- disclosed a roughly $900M stake in Starbucks. Ackman discussed the stake in Starbucks at an investor conference that is not open to the public. Starbucks said at that time, "We view the active, engaged dialogue that we have with shareholders as critical input into our strategic approach and we value constructive feedback on delivering long-term shareholder value. We look forward to maintaining a productive dialogue with Ackman as we do with all of our shareholders." 4. RETURNING CASH TO SHAREHOLDERS: As part of Starbucks' previously announced plan to return $25B to shareholders in the form of share buybacks and dividends through fiscal 2020, the company said on October 12 that it is executing a $5B accelerated share repurchase program, or ASR, of the company's common stock. The company used proceeds from the recently completed transaction with Nestle S.A. to execute the ASR, effective October 1. Initial delivery of shares represented approximately 80% of the total shares that will be repurchased under the ASR, which is expected to be completed as early as February 2019 and no later than March 2019.

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