Starbucks (SBUX) To Report Q2 Earnings: What's In Store?

Starbucks Corporation (NASDAQ:SBUX) is set to report second-quarter fiscal 2017 results on Apr 27, after the closing bell.

The coffee chain giant’s earnings were in line with the analysts’ expectations in the last reported quarter. In fact, Starbucks met expectation in three of the last four quarters and delivered a positive earnings surprise in the quarter ending Sep 2016, resulting in an average positive earnings surprise of 0.46%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Starbucks’s operating fundamentals remain strong with solid global retail footprint, successful innovations, best-in-class loyalty program and digital offerings. Particularly, Starbucks is strengthening its portfolio with significant innovation around beverages and core food offerings.

Again, a revamped customer loyalty program, one of the most popular programs for any retailer now, is expected to boost customer engagement and thereby, accelerate comps beyond fiscal 2017.

Starbucks’ latest digital offering, Mobile Order and Pay, is also witnessing increasing usage and could prove to be a key growth driver in the to-be-reported quarter as well as in 2017.

Now for the second quarter, though the company refrained from providing guidance, Starbucks anticipates global comp growth in full-year 2017 in the mid-single digit range. The first half of the year is likely to witness comps at the lower end of the range, with some improvement expected in the second half.

We expect global comps to be driven by significant menu innovations with the introduction of Sous Vide Egg Bites and the launch of its Macchiato products. The launch of ready-to-drink premium Teavana Craft Iced Teas is also likely to boost Channel Development division’s revenue.

Again, addition of new restaurants is expected to contribute to Starbucks’s revenue growth in the to-be-reported quarter.

With fiscal second quarter earnings around the corner, a major decision that Starbucks is dealing in recent times is the stepping down of Howard Schultz. Kevin Johnson, who served as a board member of the company for several years before joining its executive team two years ago, took over as CEO. Many analysts remain apprehensive about the decision and believe that this may hit the coffee chain in the near future. Despite the management shakeup, the company is forging ahead with its expansion plans, with focus on China.

While the company has been performing well, one dampening factor last quarter was the meager 3% growth in its comparable store sales or simply comps. The reported comps fell below the company's mid-single-digit guidance.

A challenging environment in the U.S. restaurant space, along with Starbucks’ recent sales performance, might be a cause of worry for investors in the near term. Again, stiff competition from companies like McDonald's Corporation (NYSE:MCD) may also exert pressure on Starbucks’ performance.

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Meanwhile, for the second quarter, the Zacks Consensus Estimate for earnings is pegged at 52 cents a share, reflecting an increase of 13% year over year, while the consensus for revenues is at $5.82 billion, implying 8.4% year-over-year growth.

Earnings Whispers

Our proven model does not conclusively show that Starbucks is likely to beat earnings this quarter. That is because a stock needs to have both a positive Zacks Investment Research

Written By: Zacks Investment Research