Starbucks (SBUX) is scheduled to report results of its fiscal first quarter after the market close on Thursday, January 24, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. FY19, LONG TERM GUIDANCE: When Starbucks reported fourth quarter earnings on November 1, 2018, it gave fiscal year 2019 guidance, saying it saw FY19 adjusted EPS $2.61-$2.66 versus a consensus at the time of $2.64, and saw consolidated revenue growth of 5%-7%, including approximately 2% net negative impact related to streamline-driven activities, for FY19. It also said it saw FY19 global comparable store sales growth near the lower end of its 3%-5% range, and added that it expected to add approximately 2,100 net new Starbucks stores globally. Starbucks also gave Q1 guidance, saying it saw Q1 EPS flat to down slightly year-over-year.
On December 13, 2018, Starbucks made multiple announcements at its Investor Day. Of note, the company reiterated its FY19 guidance and presented long-term financial targets. The coffee giant announced that it expects adjusted earnings per share to grow at least 10% per year over the longer term, a figure which is lower than the company's previous forecast of 12% growth on this basis. The company added that long-term revenue growth will be between 7%-9%. In addition, Starbucks reaffirmed its FY19 guidance for adjusted EPS of $2.61-$2.66, FY19 global comparable store sales growth near the lower end of the 3%-5% range, and consolidated revenue growth of 5%-7%.
2. CORPORATE LAYOFFS: As part of its reorganization announced earlier this fall, Starbucks laid off about 5%, or 350, of its corporate employees. Most of the job cuts were expected to hit the company's headquarters, where about 5,000 people work, and no layoffs at the retail store level were planned. In an email to employees on November 13, CEO Kevin Johnson said the job reductions "came as a result of work that has been eliminated, deprioritized or shifting way of working within the company."
3. DELIVERY PARTNERSHIP WITH UBER EATS: During Starbucks' investor day, Chief Operating Officer Roz Brewer announced that the company is expanding delivery availability in a partnership with Uber Eats. The partnership, which started with a trial in Miami, is expected to bring delivery to about a quarter of its U.S.-based, company-owned stores by the end of Q2. Brewer noted, "in locations where drive-thru isn't feasible we are testing platforms like delivery." Speaking about the profitability of delivery, Brewer said she was "encouraged" by the 'expanded ticket" the company was seeing with delivery orders.
On January 22, Starbucks announced the expansion of its Starbucks Delivers pilot to an additional six cities across the United States. The expansion, in partnership with Uber Eats, begins in San Francisco, the first of six new markets to offer the service to customers. Following an initial test in Miami, the company remains on track to bring Starbucks Delivers to nearly one-quarter of U.S. company-operated stores, with planned expansion to select stores in Boston, Chicago, Los Angeles, New York and Washington, D.C., in the coming weeks. In total, Starbucks Delivers will be available in seven U.S. cities this spring.
4. IMPACT OF NESTLE GLOBAL COFFEE ALLIANCE: In May of 2018, Starbucks and Nestlé S.A. (NSRGY) announced they would form a global coffee alliance "to accelerate and grow the global reach of Starbucks brands in Consumer Packaged Goods and Foodservice." As part of the alliance, Nestlé obtained the rights to market, sell, and distribute Starbucks products. Starbucks said on its Q4 earnings call that it transitioned over 500 partners to Nestlé as part of its Global Coffee Alliance, and added that it expected the Nestlé deal to become accretive in 2020 ahead of prior guidance. At its investor day event in December, it add that the Nestlé deal would negatively affect FY19 EPS by 1%-2%.
5. GOLDMAN SACHS BEARISH: On January 11, Goldman Sachs analyst Karen Holthouse downgraded Starbucks to Neutral from Buy and lowered her price target for the shares to $68 from $75. The analyst remained "reasonably confident" that Starbucks' initiatives to drive digital engagement could lead to a "more stable" 3%-4% comp trajectory in the U.S. over the next few years. However, its valuation has "rapidly re-rated" to reflect this, and gift cards and digital trends could be points of caution in fiscal Q1, Holthouse added. Further, she had "incremental concerns" regarding the China macro environment and the company's comp trajectory in that region. Other consumer companies, like Apple (AAPL) and McDonald's (MCD), have noted weakness in China, the analyst pointed out.
Keywords: earnings, earnings report, quarterly earnings, quarterly report, Q1, coffee, global coffee alliance, uber, china