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Americas & CAP Likely to Drive Starbucks' (SBUX) Q2 Earnings

Zacks Equity Research

Starbucks Corporation SBUX is scheduled to report second-quarter fiscal 2019 results on Apr 25, after the closing bell. In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 15.4%. The bottom line either outpaced or matched the consensus mark in the trailing four quarters, resulting in an average beat of 6%.

Q2 Expectations

The Zacks Consensus Estimate for second-quarter earnings is pegged at 56 cents, indicating a 5.7% rise from the year-ago quarter number. Of late, the company’s earnings estimates have been stable. For revenues, the consensus mark is pinned at nearly $6,305 million, suggesting growth of 4.5% from the prior-year quarter figure.
    
Let’s delve deeper to find out how the company’s top and bottom line will shape up in the upcoming quarterly release.

Factors at Play

Starbucks’ second-quarter fiscal 2019 results are likely to be driven by robust Americas and China-Asia-Pacific (CAP) segments. Also, new store additions, expansion in China and positive global comparable store sales are likely to aid the company’s performance.

Growth in China and the Asia-Pacific region is likely to be driven by rapid unit growth, rising brand awareness and increased usage of the digital/mobile/loyalty platforms. To boost growth in China, the company had announced a historic partnership with Alibaba for providing seamless Starbucks Experience. Also, Starbucks began delivery services in Beijing and Shanghai via Alibaba's Ele.me platform. In China, Starbucks’ delivery program has been expanded to more than 2,000 stores.

These apart, the company is focusing on three key areas that include expansion of the company’s loyalty program, digitalization and new member acquisition. These efforts are likely to drive comps higher. Furthermore, the company holds a leading position in digital, card, loyalty and mobile capabilities.

However, margin contraction has been a major concern for the company. Higher spending in its store partners (employees), the impact of its ownership change in the East China business and rise in costs due to investment in digitalization are likely to dent the company’s margin.

Starbucks Corporation Price and EPS Surprise

Starbucks Corporation Price and EPS Surprise | Starbucks Corporation Quote

What Does the Zacks Model Says?

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Starbucks has an Earnings ESP of +3.29% and a Zacks Rank #2, a combination that increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks With Favorable Combination

Here are a few other stocks from the Restaurant space that investors may consider as our model shows that they too have the right combination of elements to post an earnings beat in the upcoming releases:

Bloomin’ Brands BLMN has a Zacks Rank #3 and an Earnings ESP of +0.20%. The company is scheduled to report quarterly numbers on Apr 26.

Yum! Brands YUM has an Earnings ESP of +2.02% and a Zacks Rank #2. The company is scheduled to report quarterly numbers on May 1.

Dunkin’ Brands DNKN has an Earnings ESP of +0.13% and a Zacks Rank #3.

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