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ETFs in Focus After Starbucks' Q2 Earnings Report

Sweta Jaiswal, FRM
Here we discuss the impact of Starbucks' Q2 earnings results on certain ETFs with high exposure to the coffee giant.

Starbucks Corporation SBUX released second-quarter fiscal 2019 results after market close on Apr 25, with earnings surpassing estimates but revenues lagging the same.

Earnings in Focus

Starbucks reported adjusted earnings of 60 cents per share, beating the Zacks Consensus Estimate by 4 cents and improving 13% from the year-ago quarter. Revenues grew nearly 5% year over year to $6.31 billion but missed the Zacks Consensus Estimate by 0.04%.

Strength in the Americas and China-Asia-Pacific segments and store openings drove the company’s performance in the reported quarter. Ownership change in the East China business and robust performance during the holiday season aided Starbucks’ quarterly performance. Furthermore, comparable sales from China increased for the third straight quarter.

Starbucks has raised its guidance for fiscal 2019 earnings. Non-GAAP EPS is expected in the range of $2.75 to $2.79 against the previous guidance of $2.68-$2.73. The Zacks Consensus Estimate for fiscal 2019 earnings is currently pegged at $2.75.

Business Update

Starbucks opened 319 net new stores worldwide, taking the tally of stores to 30,184. Global store growth came in at 7%, based on year-over-year comparisons. The company stated that 94% of net new store openings were outside the United States while 88% were licensed.

Moreover, global comparable store sales increased 3%. The upside was driven by comp growth in the United States and China. Global comps were driven by a 3% increase in average ticket.

The company’s Active Starbucks Rewards Membership grew to 16.8 million active members in the United States, up 13% on a year-over-year basis.

Market Impact

Post the earnings release, Starbucks’ shares rose about 0.4% to close at $77.45 on Apr 26. The company currently has a Zacks Rank #2 (Buy) and a VGM Score of C. However, Starbucks belongs to a bottom-ranked Zacks industry (bottom 31%).

ETFs in Focus

The consumer discretionary ETFs having notable exposure to Starbucks seemed to have benefited on Apr 26 (see: all the Consumer Discretionary ETFs here):

Invesco Dynamic Leisure and Entertainment ETF PEJ —5.53% exposure

The fund tracks the Dynamic Leisure and Entertainment Intellidex Index, which comprises stocks of U.S. leisure and entertainment companies. The index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. The fund comprises 29 holdings with Starbucks occupying the third highest spot. Its AUM is $67.3 million and expense ratio is 0.63%.

Following the earnings release, the fund has gained about 0.97% to close at $44.84 on Apr 26. The fund carries a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Job Growth Almost Halts in US: Sector ETFs in Focus).

Invesco Dynamic Food & Beverage ETF PBJ —5.33% exposure

The fund tracks the Dynamic Food & Beverage Intellidex Index comprising stocks of 30 U.S. food and beverage companies. These are companies that are principally engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies. The fund comprises 30 holdings with Starbucks occupying the second spot. Its AUM is $70.9 million and expense ratio is 0.63%. Following the earnings release, the fund has gained about 0.09% to close at $33.69 on Apr 26. The fund carries a Zacks ETF Rank #4 (Sell) with a Medium risk outlook (read: ETFs & Stocks to Tap on Highest Retail Sales Gain in 1.5 Years).

iShares Evolved U.S. Consumer Staples ETF IECS —4.53% exposure

It is an actively managed fund which employs data science techniques to identify companies with exposure to the consumer staples sector. The fund comprises 130 holdings with Starbucks occupying the seventh spot. Its AUM is $4 million and expense ratio is 0.18%. Following the earnings release, the fund has gained about 0.88% to close at $26.42 on Apr 26 (read: U.S. Consumer Sentiment Hit by Shutdown: ETFs in Focus).

Consumer Discretionary Select Sector SPDR Fund XLY —4.16% exposure

The fund tracks the Consumer Discretionary Select Sector Index and comprises 65 holdings. Starbucks sits at the sixth spot. The fund’s AUM is $13.67 billion and expense ratio is 0.13%.Following the earnings release, the fund has gained about 0.79% to close at $120.67 on Apr 26. It carries a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: U.S. Stocks Near Record High: Top-Ranked ETFs to Buy).