Starbucks (NASDAQ: SBUX ) will release its quarterly report tomorrow, and investors remain optimistic about the stock as they've lifted share prices to new all-time highs lately. Yet with a high multiple reflected in its valuation, Starbucks earnings need to deliver not just solid growth but strong growth to justify those recent gains.
Starbucks has had a long history of success in delivering not just the premium drinks that its customers rely on but also the experience that they value. Even in the face of rising competition, the coffee giant has managed to keep its customer base loyal, and that has translated into a huge recovery for the stock since the recession five years ago. Let's take an early look at what's been happening with Starbucks over the past quarter and what we're likely to see in its quarterly report.
Stats on Starbucks
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Will Starbucks earnings wake investors up this quarter?
Analysts have had some mixed views in recent months about Starbucks earnings, cutting a penny per share from their June-quarter estimates but raising their full-year estimates both for the current fiscal year and for next year. The stock has continued its impressive run, rising almost 15% since mid-April.
Starbucks demonstrated its continued growth in its April quarterly release, posting global comparable-store sales growth of 6%. Following its course of international expansion, the company had particularly strong success in China, with 8% same-store sales growth there. With a long-term strategy of 1,500 new stores domestically, Starbucks also doesn't think the U.S. market is saturated yet, with 300 stores to open this year.
Some investors are still nervous about the high share price for the stock, suggesting that even solid growth isn't enough. But Starbucks has already demonstrated that it's up to the growth challenge. With its juice- and tea-company acquisitions, Starbucks has aimed at offering a complete line of beverages to beat out coffee offerings from Dunkin' Brands (NASDAQ: DNKN ) while holding off other competitors seeking to carve away specialized niches from its grasp. At the same time, Starbucks' purchase of La Boulange should serve to fend off challenges from Panera Bread (NASDAQ: PNRA ) , which has followed a similar strategy as Starbucks yet come at it from the opposite direction, starting with its healthy baked goods and then gradually expanding its offerings, including coffee. For Starbucks, offering panini sandwiches contributed to the company's 7% rise in U.S. sales, showing the value of combining food with its premium beverages.
Another way that Starbucks has encouraged loyalty is with its rewards program. With features like a free birthday drink and various levels for frequent customers, Starbucks has a quarter of its transactions run through the loyalty program. Rivals Panera and smoothie-seller Jamba (NASDAQ: JMBA ) have also adopted similar programs, and Panera has seen arguably even greater success than Starbucks with its card.
When you look at Starbucks earnings in its coming report, focus on how the company's Verismo home-brewing business is faring. Green Mountain Coffee (NASDAQ: GMCR ) has continued its dominance with its Keurig and Vue brewing systems, and many investors have forgotten about Starbucks since it continued its relationship with Green Mountain. Nevertheless, Verismo marks an important step for Starbucks to stay in consumers' kitchens, and so it's worth looking at as part of the company's overall growth efforts.
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