Starbucks Earnings: What's Brewing This Quarter?

Starbucks has pulled back somewhat recently, but will increasing competition hurt its earnings? Find out more about Starbucks here.

Jan 21, 2014 at 1:05PM

Starbucks (NASDAQ:SBUX) will release its quarterly report on Thursday, and investors have become hesitatnt about the coffee giant's prospects for the near future. With competition from home brewers by Green Mountain Coffee Roasters (NASDAQ:GMCR) as well as increasingly aggressive moves from Krispy Kreme (NYSE:KKD) and Dunkin' Brands (NASDAQ:DNKN) to capitalize on the popularity of premium coffee, Starbucks needs to reestablish itself as the preeminent coffee king in order to sustain what has become a fairly lofty valuation.

Sbux

Source: Wikimedia Commons.

Starbucks has come a long way in the past five years, when recession-related worries somehow convinced investors that customers might disappear forever. The strength of Starbucks' recovery has put those concerns to rest, but even with ambitious growth initiatives around the world, the coffee company still has to work hard to find more ways to boost revenue and profits going forward. Can it overcome its competitors and thrive around the world? 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 report.

Stats on Starbucks

Analyst EPS Estimate

$0.69

Change From Year-Ago EPS

21%

Revenue Estimate

$4.30 billion

Change From Year-Ago Revenue

13.2%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Starbucks' earnings perk up this quarter?
In recent months, analysts have gotten a bit less excited about the prospects for Starbucks' earnings, cutting a nickel per share from their estimates for the current quarter as part of a smaller downgrade for fiscal 2014. The stock has topped out and started to give back ground, falling 2% since mid-October.

Starbucks' September-quarter results gave investors good news on the growth front, with same-store sales growing 7% globally and 8% in the key North American segment. Overall, revenue climbed 13%, boosting earnings by 37% and establishing a continued upward trajectory for the coffee giant. International expansion has remained a key aspect of Starbucks' growth, with the company having just opened its 1,000th location in China. Yet investors weren't happy with its guidance for the full 2014 year, which came in between 1% and 5% below what they had expected to see.

To grow earnings faster, Starbucks will have to overcome competition. Dunkin' Brands expects to boost its store count in the U.S. to almost 14,000 in the coming two decades, posing the threat of oversaturation for customers for whom brand loyalty isn't of paramount importance. Krispy Kreme has mounted an impressive comeback, even though its own pessimistic guidance back in December sent shares skidding from explosive gains earlier in 2013. Still, Starbucks has increasingly turned to licensed locations in areas like shopping malls and airports in order to boost its own growth without the full expense of opening a company-owned location.

Via

Source: Starbucks.

Starbucks is also working to boost sales of its VIA instant line, launching new latte offerings in an effort to cater to the home market. The strategy is interesting in light of the success of Green Mountain's Keurig home-brewing systems, but it indicates that Starbucks thinks there's more to be gained from offering quick-brew coffee in a different format rather than focusing solely on its own Verismo brewer line.

Yet Starbucks has struggled to go beyond its premium beverages to boost sales of food items. Despite huge efforts to roll out more appealing baked goods from its La Boulange acquisition, revenue from food remains at less than a fifth of Starbucks' total sales. That leaves it vulnerable to food-based competition from Krispy Kreme and Dunkin', both of which have brands tied more to their food products than their coffee.

Moreover, Starbucks got hit with an unusual major legal expense, losing an arbitration proceeding that will force it to pay $2.76 billion in damages and interest to Mondelez International (NASDAQ:MDLZ) as a result of its having terminated its supply contract to put Starbucks coffee in grocery stores. The resulting restatement will affect its previous-quarter results rather than the quarter it's about to report on, but the financial hit will still be meaningful for Starbucks.

In the Starbucks earnings report, watch to see how CEO Howard Schultz responds to all the crosscurrents hitting the business lately. With so much at stake at this critical juncture, Starbucks needs to reassure investors that it still has further room to grow even amid cutthroat competition.

Brew up some strong growth stocks
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Click here to add Starbucks to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Green Mountain Coffee Roasters. It recommends and owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers