Starbucks Corporation (SBUX) is set to report first-quarter fiscal 2015 results on Jan 22, after the market closes. Last quarter, the company delivered in-line results. Let’s see how things are shaping up for this announcement.
Factors to Consider
Adjusted earnings per share are expected in the range of 79–81 cents in the first quarter, representing 14–17% growth from the prior-year quarter.
The first-quarter earnings growth rate is, however, lower than the full-year target (16–18%) due to higher marketing investments for the holiday season, costs related to the October leadership conference and ongoing employee investments.
In the previous quarter, management witnessed slower-than-expected traffic at the American stores as a result of continued shift away from “brick and mortar” retail to online sales.
However, management believes a strong holiday line-up, including the new Chestnut Praline Latte, Starbucks for Life contest and Starbucks gift card program should spur traffic in the to-be-reported quarter.
In 2015, CEO Schultz intends to focus more on leveraging the mobile and digital assets and e-Commerce platforms to create more revenue streams. Starbucks launched its “Mobile Order & Pay” initiative in Portland, OR area on Dec 3 and plans to launch it nationwide by 2015-end. This initiative will allow customers to order even before reaching a Starbucks cafe. Starbucks also expects to introduce food and beverage delivery through users’ mobile devices in select urban markets in the second half of 2015. These mobile initiatives are expected to improve customer loyalty, thereby driving Starbucks’ business.
We believe that these digital efforts, coupled with the La Boulange bakery platform, new handcrafted beverages, revamped lunch and evening program, Teavana tea and K-Cup innovations should spur traffic growth as fiscal 2015 unfolds.
Earnings Whispers?
Our proven model does not conclusively show that Starbucks is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00%.
Zacks Rank: Starbucks’ Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
BJ's Restaurants, Inc. (BJRI), with an Earnings ESP of +4.76% and a Zacks Rank #2 (Buy).
Bob Evans Farms, Inc. (BOBE), with an Earnings ESP of +6.06% and a Zacks Rank #2.
Buffalo Wild Wings Inc. (BWLD), with an Earnings ESP of +2.78% and a Zacks Rank #3.
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