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Could Starbucks Surprise Analysts Again in 1Q17?

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Part 2
Could Starbucks Surprise Analysts Again in 1Q17? PART 2 OF 7

Why Are Analysts Optimistic about Starbucks’s 1Q17 Revenue?

Revenue sources

Starbucks (SBUX) has classified its operations into five categories: Americas, China and Asia-Pacific (or CAP), EMEA (Europe, the Middle East, and Africa), and Channel Development.

In fiscal 4Q16, Starbucks’s Americas revenue formed 69.5% of its total revenue, while CAP, Channel Development, and EMEA formed 14.7%, 9.1%, and 4.7%, respectively.

Why Are Analysts Optimistic about Starbucks&#8217;s 1Q17 Revenue?

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1Q17 revenue estimate

In fiscal 1Q17, analysts expect Starbucks to post revenue of $5.8 billion, which represents a growth of 8.8% from the $5.4 billion reported in fiscal 1Q16. The revenue growth is expected to be driven by the addition of new restaurants in the last 12 months, same-store sales growth (or SSSG), and the expansion of its Channel Development segment.

In fiscal 2017, the company expects to add 2,100 new restaurants, 60% of which will be located outside the United States. In the United States, the company plans to open 800 new restaurants split equally among company-owned and franchised stores. In the CAP region, Starbucks plans to add 1,000 stores, with 60% being franchised stores. The EMEA region is expected to add 300 new franchised stores.

Starbucks’s management has set its 2017 SSSG guidance in the mid-single-digit range. The company expects SSSG for 1H17 to be in the lower end of the range, and SSSG in 2H17 to be in the higher end. SSSG is expected to be driven by menu innovations and customer experience enhancement. The company has reintroduced its holiday beverages and festive food items, which are expected to drive Starbucks’s SSSG.

Peer comparison

During the same period, in fiscal 1Q17, analysts expect peers Dunkin’ Brands (DNKN), Domino’s Pizza (DPZ), and McDonald’s (MCD) to post revenue growth of 6.1%, 4.9%, and -5.4%, respectively.

Outlook

For the next four quarters, analysts expect Starbucks to post revenue of $23.1 billion, which represents a growth of 8.3% from the $21.3 billion posted in the corresponding quarters of the previous year. Next, we’ll look at Starbucks’s estimated EBIT (earnings before interest and tax) margins in fiscal 1Q17.

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