Starbucks Earnings: What to Watch
After an unimpressive fiscal 2017, marked by performance that lagged management's initial expectations for the year, coffee-giant Starbucks (NASDAQ: SBUX) will get a chance to prove to investors it can rekindle its growth story. For fiscal 2018, Starbucks has big expectations for growth.
Management said it expected non-GAAP earnings per share (EPS) during the period to rise 12% to 13% year over year. This would mark an acceleration from Starbucks' 11.4% year-over-year growth in non-GAAP EPS. But Starbucks will need to have a good first quarter for investors to take this ambitious outlook seriously.
Ahead of Starbucks' first-quarter earnings report next week, here's a preview of three areas for investors to check in on.
Image source: Starbucks.
Non-GAAP EPS
For Starbucks' first quarter of fiscal 2018, missing its target 12% to 13% year-over-year growth range for non-GAAP EPS during the year wouldn't be a whiff. Management clearly said in its fourth-quarter earnings call that it expected growth in the metric during the first half of the year to be "a bit below the full year average and growth in the back half somewhere above it."
Starbucks' recent strategic actions to exit its non-core activities, namely closing its Teavana stores and the Starbucks e-commerce platform and selling Tazo, are expected to become meaningfully accretive to earnings growth toward the back half of fiscal 2018 and into 2019. With this backdrop in mind, investors should look for non-GAAP year-over-year earnings growth in Q1 of about 10%.
Comparable sales
In Starbucks' fourth quarter, the important comparable-store sales-growth metric, or a measurement of sales growth at stores open for more than a year, was 2%. Management said this was driven by a 2% year-over-year bump in average ticket prices and a 1% boost in transactions.
But this figure understated Starbucks' ongoing operational health, as global comparable-store sales would have increased 3% year over year when excluding the impact of hurricanes Harvey and Irma. Starbucks' recently introduced long-term guidance calling for comparable-store sales growth in the range of 3% to 5%, so investors should look for the metric to move toward 3% in Q1.
China
Starbucks has been on a roll recently in China, with comparable-store sales rising 7% year over year in fiscal 2017, crushing U.S. comparable-store sales growth of 3% during the same period. Even more, growth in the market accelerated toward the end of fiscal 2017, with comparable-store sales growth of 8% during Q4. The sharp increase was driven primarily by a 7% increase in transactions, management said.
Beyond looking for continued strength in comparable-store sales in the market, investors should look for more rapid growth in net new stores in the region. Starbucks added a whopping 550 net new stores in China in fiscal 2017 and plans to add nearly 600 stores in the market during fiscal 2018.
Starbucks investors should keep an eye on Starbucks' performance in China when the company reports its first-quarter results. After all, management says the market is its second-largest and fastest-growing market.
Mark your calendar. Starbucks reports its first-quarter results after market close on Thursday, January 25.
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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.
