Fly Intel: What to watch in Starbucks earnings report

Starbucks (SBUX) is scheduled to report results of its fiscal third quarter after the market close on Tuesday, July 27, with a conference call scheduled for 5:00 pm ET. What to watch for:

1. GUIDANCE: When Starbucks reported its second quarter earnings in April, it raised its full year 2021 adjusted earnings per share view to $2.90-$3.00 from a prior range of $2.70-$2.90. The consensus at the time was $2.85, but that has since risen to $2.99. The company also raises its FY21 revenue view to $28.5B-$29.3B from $28B-$29B, vs. a consensus of $28.61B, which has also since bumped up to $28.79B. The retailer also backed its FY21 global SSS growth view of 18%-23%, its FY21 Americas and U.S. SSS growth view of 17%-22%, its FY21 international SSS growth view of 25%-30%, and its FY21 China SSS growth view of 27%-32%.

2. CHINA: Starbucks also discussed its China sales when it reported Q2 results, noting that China comparable store sales increased 91%, driven by a 93% increase in transactions, slightly offset by a 1% decline in average ticket. The company added that resurgent COVID restrictions in China hurt Q2 results, but felt they regained momentum in China at end of Q2. Management was also “particularly pleased” with its ability to improve digital operations in China during the pandemic. On June 18, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating on Starbucks and initiated a 12-month target price of $130 for the shares. The analyst said he believes Starbucks “successfully navigated the COVID-19 pandemic headwinds and should now see a massive uptick in growth as digital initiatives and new store openings along with China expansion drives a re-acceleration of Business Performance trends.”

3. MANAGEMENT CHANGES: On June 15, Starbucks announced several leadership appointments. The company announced the promotions of John Culver as group president, North America and Chief Operating Officer, Michael Conway to group president, International and Channel Development, and Michelle Burns to executive Vice President, Global Coffee, Tea and Cocoa. These changes was effective on June 28. John Culver joined Starbucks in 2002 and led Starbucks International for the past 15 years.

4. BAIRD BULLISH: On July 23, Baird analyst David Tarantino upgraded Starbucks to Outperform from Neutral with a price target of $142, up from $117. The analyst’s recent U.S. coffee category data points have strengthened his confidence that Starbucks can show upside to near-term comps and earnings estimates. When looking further ahead, the company is well positioned to deliver “scarce compounding growth characteristics for many years to come,” Tarantino told investors in a research note. As such, he sees an “increasingly attractive” risk/reward equation for investors with a 6-12 month time horizon.

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