Starbucks Shares Hit a Record High Ahead of Earnings

(Bloomberg) -- Starbucks Corp. shares climbed to a record high before the coffee chain’s second-quarter earnings report later Thursday.

A possible traffic gain of 1 percent could further boost the stock as a 4 percent gain in Americas comparable sales is already embedded in expectations, wrote Morgan Stanley analyst John Glass. Even so, he said estimates and forecasts may need to rise as “valuation has little, if any, room to further expand.”

Investors may be overlooking a gift-card accounting change that could benefit gross margins in the Americas, particularly in the second quarter, Cowen’s Andrew Charles wrote in a note. That switch, along with contingencies built into 2019 earnings-per-share forecasts, may provide a “continued cushion” for Starbucks to be “more promotional with loyalty tactics,” or to set up a quarterly beat, according to the analyst.

Meantime, Wedbush’s Nick Setyan wrote that he was “somewhat cautious” before the earnings report as there was “little risk of upside” to consensus expectations in the U.S., and as expectations for an uptick in China comparable sales growth was likely accounted for.

Revenue growth may have slowed to the mid-single digits, Bloomberg Intelligence senior restaurant analyst Michael Halen said. A 3 percent same-store sales gain and a 7.5 percent net unit growth were partly offset by headwinds from lapping the 2018 East China acquisition, and from the fourth-quarter closing of the Global Coffee Alliance with Nestle, according to him.

Adjusted operating margin may have contracted in the quarter due to higher-wage rates and shifts in product mix, Halen added. Margins should improve in the second half, he said, as “G&A savings are realized.”

ESTIMATES

  • 2Q adjusted EPS estimate 56c (range 54c to 58c)
  • 2Q net revenue estimate $6.32 billion (range $6.21 billion to $6.51 billion)
  • FY adjusted EPS estimate $2.72 (range $2.65 to $2.86)
  • Comp sales est. up 3.1%: Consensus Metrix
    • Americas +3.7%
    • EMEA +0.1%
    • China and Asia Pacific +1.5%
  • Bloomberg Intelligence, April 17: Starbucks Revenue Rose on Same-Store Sales, Units: 2Q Preview

DATA

  • 15 buys, 16 holds, 1 sell; avg PT $73.46
  • Shares rose after 6 of prior 12 earnings announcements
  • Adjusted EPS beat or met estimates in 11 of past 12 quarters
  • Shares up 33.1% in past year vs SPX Index up 11.0%

TIMING

  • Earnings release expected April 25 after market close

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