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Starbucks’s 3Q17: What to Expect from the Unicorn Frap Giant

PART:
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Part 3
Starbucks’s 3Q17: What to Expect from the Unicorn Frap Giant PART 3 OF 6

Will Starbucks’s Earnings Margin Expand in Fiscal 3Q17?

Fiscal 3Q17 estimates

Analysts expect Starbucks (SBUX) to post EBIT (earnings before interest and tax) of $1.20 billion in fiscal 3Q17, which represents an EBIT margin of 20.9%. Comparatively, the company posted an EBIT margin of 19.9% in fiscal 3Q16.

Will Starbucks&#8217;s Earnings Margin Expand in Fiscal 3Q17?

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Factors that could expand SBUX’s margins

Analysts expect sales leverage from positive same-store sales growth, a decline in the cost of sales, and lower SG&A (selling, general, and administrative) and D&A (depreciation and amortization) expenses to expand Starbucks’s EBIT margins.

Compared to fiscal 3Q16, the company’s cost of sales is expected to fall 0.05% to 39.3%. Analysts expect sales leverage to overcome unfavorable commodity prices and lower the cost of sales. The company’s management expects commodity prices to be unfavorable in the second half of 2017.

During the quarter, analysts expect SG&A expenses to fall 0.4%. The initiatives the company has undertaken are expected to lower its SG&A expenses. Also, during the quarter, D&A expenses should fall 0.3% to 4.4% of total revenue.

Peer comparisons

During the same period, McDonald’s (MCD), Domino’s Pizza (DPZ), and Dunkin’ Brands (DNKN) are expected to post EBIT margins of 36%, 19.1%, and 53.1%, respectively.

Outlook

For next four quarters, analysts are expecting Starbucks to post EBIT margins of 20.7% compared to 19.9% in corresponding quarters of the previous year. The sales leverage and lower SG&A expenses are expected to drive Starbucks’s margins.

Next, we’ll look at Starbucks’s fiscal 3Q17 earnings.

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