Starbucks Corporation (O:SBUX) Consumer Discretionary - Hotels, Restaurants & Leisure | Reports January 21, After Market Closes
Key Takeaways
- The Estimize calls for EPS of $0.46 and revenue of $5.39 billion, in line with Wall Street and corporate guidance
- Starbucks biggest source of growth has come from expansion in China and Pacific Asia
- The coffee retailer has focused on building out its digital and market initiatives
Today, January 21, Starbucks is scheduled to report their FQ1 2016 earnings after the market closes. Starbuck’s first fiscal quarter, which saw the introduction of the controversial religious neutral red cup, is expected to be strong despite a weaker than expected FQ4 2015. Share prices rose a resounding 47% over the course of 2015 and the coffee retailer continues to be viewed favorably in the eyes of investors. For FQ1 2016, the Estimize community calls for EPS of $0.46, a penny higher than Wall Street and corporate guidance. Revenue expectations are just slightly higher at $5.39B vs. the Street’s $5.38B. Compared to FQ1 2015, this represents a projected YoY increase for EPS and revenue of 14% and 12%, respectively. The biggest contributor of Starbuck’s success is their rapid growth in Asia-Pacific, specifically China. Furthermore, strong same sales growth, improving average ticket transactions, lower coffee costs, and new offerings present the coffee retailer additional upside potential coming into 2016.
After a stronger than expected fiscal 2015, Starbuck’s has the pieces in place to continue its growth into fiscal 2016. Driving this trend is a burgeoning international expansion in Asia-Pacific. Currently, Starbucks has 21,000 stores in over 65 countries and plans to open over 500 new stores in China alone over 2016. Despite the fact that fourth quarter growth was at its slowest pace in 25 years for the Chinese economy, Starbucks manages to remain relevant in that market by continually reinventing themselves through new products and offerings. Compared to their multinational competitors, (N:MCD) and (N:YUM), Starbucks is viewed as more sophisticated and on par with a higher-end brand. While the Chinese economy has certainly seen better days, coffee is typically considered recession proof. Starbucks hit a rough patch during the US recession, but has likely learned from that experience. Coffee is a part of many consumers’ daily routines and is an everyday luxury that people still allow themselves. Consequently, both Asian and American Starbucks locations performed well in 2015, posting strong same store sales growth, improving average ticket orders and increasing traffic. 
Best known for their coffee, the Seattle based company is focusing in on higher margin food offerings such as baked goods and ready made lunches, hoping to fill in the non-peak hours. That being said, coffee is still Starbuck’s primary source of business and as of late, prices of the commodity have begun to fall. Financially, this has helped lower the company’s cost of goods sold and improve margins. Outside of their in-store offerings, Starbucks has made strides to expand its digital and marketing initiatives. The coffee retailer now offers mobile ordering and delivery services, a loyalty program, and Starbucks Reserve coffee subscription in hopes to drive business. Starbucks, like many other multinationals, faces the risks posed by a relatively strong U.S. dollar. This however should not factor into what should be a strong 2016 for the coffee retailer, domestically and abroad.