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Starbucks Trims 2020 Earnings Forecast, Long-term View Intact

Zacks Equity Research

While major indices gained sharply in the last trading session, Starbucks Corporation SBUX witnessed a decline of 0.7%. Starbucks warned that its earnings in fiscal 2020 are likely to be below its long-term growth target of minimum of 10%.

Notably, the company lowered its earnings guidance for fiscal 2020 due to “pull forward” of nearly $2 billion of the share repurchase program. Starbucks had initially expected to repurchase significant portion of its $2-billion share repurchase program in 2020. However, majority of its share was repurchased in 2019 for tax reasons. The Zacks Consensus Estimate for fiscal 2020 earnings is currently pegged at $3.14, suggesting 11% growth from year-ago quarter reported figure.  

Starbucks’ chief financial officer Patrick Grismer stated that tax benefit recorded in fiscal 2019 is likely to be a "significant headwind" to profit in fiscal 2020.

Long-term View Intact

Grismer stated that the company is “firing on all cylinders from an operating performance perspective with the focus and discipline necessary to drive growth at scale for a company like Starbucks, and our long-term double-digit EPS growth model is fully intact.”

Starbucks’ solid execution of several initiatives in the United States and China along with best-in-class loyalty programs and digital offerings are expected to drive profits. Of late, the company’s both the Americas and China-Asia-Pacific segments have been performing exceptionally well. Moreover, store openings, enhanced customer experience and digitalization bode well for the company.

China Asia Pacific (CAP) has now become the fastest-growing segment. Improving customer experience via innovative new store designs, up-leveling product offerings and margin expansion through process and supply chain efficiencies are driving CAP performance. China has delivered comps growth of 1%, 3% and 6% in the first, second and third of fiscal 2019, respectively. Management believes that China and the Asia-Pacific region will drive much more meaningful business over the next five years.

This Zacks Rank #2 (Buy) company’s best-in-class loyalty program is an added positive. In the United States, Starbucks’ membership increased 11% year over year under the My Starbucks Rewards (MSR) program in fiscal 2017 and rose 15% to 15.3 million active members in fiscal 2018. The momentum continued in third-quarter fiscal 2019 as well, with the membership growing 14% year over year to 17.2 million active members.

Year to date, Starbucks has gained 49.2%, outperforming the industry’s 30.4% rally.



Other Key Picks

Some other top-ranked stocks, which warrant a look in the same space, include Dave & Buster's Entertainment, Inc. PLAY, The Wendy's Company WEN and Shake Shack Inc. SHAK, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dave & Buster's Entertainment, Wendy's and Shake Shack have an impressive long-term earnings growth rate of 14.8%, 14.3% and 22.5%, respectively.

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Starbucks Corporation (SBUX) : Free Stock Analysis Report
 
Shake Shack, Inc. (SHAK) : Free Stock Analysis Report
 
Dave & Buster's Entertainment, Inc. (PLAY) : Free Stock Analysis Report
 
The Wendy's Company (WEN) : Free Stock Analysis Report
 
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