Starbucks (SBUX) Reports Q2 Earnings Thursday: What To Expect?

Starbucks (NASDAQ:SBUX) stock is up over 41% YTD. But, will this uptrend continue after the coffee giant’s earnings report is released after the market closes on Thursday, July 25?

Overview

Starbucks is the largest player in the U.S. coffee chain industry, with a market share of 39.8%.The next largest U.S. coffee chain is Dunkin' Brands (NASDAQ:DNKN) at 21.9%. Last year, Starbucks brought in $24.72 billion in revenue. The company currently has around 30,000 stores worldwide, with about half located in the U.S. and Canada.

Starbucks reached an agreement with Nestle (OTC:NSRGY) in May of last year to create a “global coffee alliance.” This deal gave Nestle the exclusive rights to market, sell and distribute Starbucks' packaged coffees and teas around the world in exchange for $7.2 billion. Nestle started by simply selling Starbucks products in global markets, which has produced strong growth. Last week, the two companies announced a line of creamers designed to imitate popular Starbucks drinks. These creamers are targeted to customers who want to make specialty coffees themselves.

Starbucks’ largest overseas competitor is currently Luckin Coffee (NASDAQ:LK) , a Chinese firm listed on the NASDAQ through an ADR. The firm currently has about 3,000 stores in China and plans to have 4,500 by the end of the year. Luckin announced Monday that it has reached a partnership with the Americana Group to open and run stores in the Middle East and India. Luckin’s mounting global challenge comes at a time when Starbucks is also trying to expand in foreign markets, creating competition and making investments riskier.

Outlook

From 2010 onward, Starbucks has only had one quarter, Q4 2017, where year over year quarterly revenues and earnings fell. The company’s financials show a history of steady, positive growth over a very long period. And these growth numbers are not small, average year over year earnings growth is at 16.13% for the past six quarters, with revenue at 9.27% over the same period.

For this quarter, our Zacks Consensus Estimates predict revenue growth of 5.93% to reach $6.68 billion. Meanwhile, earnings are projected to grow by 16.13% to reach $0.72 a share. Our estimates show earnings for next quarter, fiscal 2019, and fiscal 2020 all with growth rates in the teens. Analysts split their revisions between raising and lowering this quarter, but have almost exclusively raised estimates for the future, as you can see below.

Starbucks is also not sitting idle. The company announced just this week that it will take a stake in Brightloom (formerly eatsa), a tech company that offers an integrated digital platform for restaurant brands. Through the partnership, Starbucks will make an investment and acquire a board seat. Brightloom will help to speed up the adoption of technology at Starbucks stores and help improve Starbucks’ platform for mobile ordering and payment, loyalty perks, and delivery.

Bottom Line

Starbucks looks set to continue its long history of impressive growth, while seeking opportunities to push even further. While the top- and bottom-line financials look stellar, investors should be wary of SBUX’s valuation. It is currently trading at a forward P/E of 29.86x, while its peer group, containing companies like McDonald’s (NYSE:MCD) and Yum! Brands (NYSE:YUM) , is valued at an average multiple of 25.68x.

Starbucks currently holds a Zacks Rank #2 (Buy), but the stock generally does not jump just on positive earnings reports, so look for figures such as growing Asia revenues and rewards program growth to move the needle. Investors should remember, at the end of the day, Starbucks’ business model has worked for the past 20+ years and shows no obvious signs of slowing yet.

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