Fly Intel: What to watch in Starbucks earnings report

Starbucks (SBUX) is scheduled to report results of its fiscal second quarter after the market close on Thursday, April 25, with a conference call scheduled for 5:00 pm ET. What to watch for: 1. FY19 GUIDANCE: When Starbucks reported first quarter earnings on January 24, it raised its fiscal year 2019 adjusted EPS view to $2.68-$2.73 from $2.61-$2.66, against a consensus at the time of $2.65. The company updated its non-GAAP EPS view to reflect the favorability related to certain discrete income tax items recognized in Q1. Starbucks said it saw Q2 results being "seasonally lower." Starbucks reiterated its outlook of adding approximately 2,100 net new Starbucks stores globally, and for consolidated GAAP revenue growth of 5%-7%, which includes approximately 2% net negative impact related to Streamline-driven activities. Starbucks also updated its FY19 global comparable store sales guidance to growth between 3%-4% to "conform with its ongoing earnings growth model provided at its December 2018 Investor Day." Starbucks CEO Kevin Johnson said, "Starbucks delivered solid operating results in the first quarter, demonstrating continued momentum in our business, as we drive our growth-at-scale agenda with focus and discipline. We are particularly pleased with the sequential improvement in quarterly comparable store transactions in the U.S., underpinned by our digital initiatives and improved execution of our in-store experience. With this solid start to the fiscal year, we are on track to deliver on our full-year commitments." 2. REWARDS PROGRAM, UBEREATS PARTNERSHIP: Starbucks said on its Q1 conference call that its Starbucks Rewards loyalty program grew to 16.3M active members in the U.S., up 14% year-over-year, and the company stated that it was still aiming to enhance both its loyalty and rewards programs. Starbucks also said on its Q1 conference call that it was "confident" in the long-term prospects of UberEATS, and added that the partnership with UberEATS was gaining momentum. Starbucks Delivers has been "seamlessly" integrated into UberEATS app, the company added. Starbucks expanded the active user base by about 1M customers in Q1. The day after the Q1 report, Morgan Stanley analyst John Glass said Starbucks reported a "positive, less controversial quarter," with sequentially improving traffic in U.S. and "stable" China comps, both of which were better than investors feared. The roll out of nitro cold brew, upcoming changes to the loyalty program and delivery via UberEats all suggest that current U.S. momentum could be maintained, said Glass, who continues to assume global comp growth of about 3% for the year. He kept an Equal Weight rating and $70 price target on Starbucks shares. 3. STARBUCKS CUT TO NEUTRAL AT UBS: On April 8, UBS analyst Dennis Geiger downgraded Starbucks to Neutral from Buy while raising his price target for the shares to $78 from $72. The risk/reward on shares "appears balanced" with the stock up 55% since June, Geiger wrote at the time. He believes Starbucks is better positioned going forward with improved same-store sales momentum and streamlined operations. However, the shares "reflect this and expectations are now elevated," Geiger added. The analyst concluded that while repurchase activity and upside to forecasts "could support further multiple expansion," he sees risks from "downside to more elevated sales/earnings expectations as an offset."