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Why Are Analysts Expecting Starbucks’s Revenue to Rise in 2Q17?

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Revenue sources

Starbucks (SBUX) has classified its operations into five segments:

  • Americas
  • China and Asia-Pacific (or CAP)
  • EMEA (Europe, the Middle East, and Africa)
  • Channel Development
  • All Others

In fiscal 1Q17, the Americas segment generated 69.6% of total revenue, while the CAP, EMEA, Channel Development, and All Others segments generated 13.4%, 4.6%, 9.7%, and 2.7%, respectively.

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Fiscal 2Q17 estimates

In fiscal 2Q17, analysts are expecting Starbucks to post revenue of $5.4 billion, which represents a growth of 8.4% from $5.0 billion in fiscal 2Q16. The revenue growth is expected to be driven by same-store sales growth (or SSSG), the addition of new restaurants in the last 12 months, and channel development.

The company management expects fiscal 2017 SSSG to be in the mid-single-digit range with 1H17 to be on the lower end of the range and 2H17 to be on the higher end of the range. Analysts are expecting SSSG to be driven by a growing number of Starbucks Rewards members, menu innovations, and the implementation of technological advancements. The introduction of its Sous Vide Egg Bites and the launch of its Macchiato products are expected to drive Starbucks’s SSSG. The launch of ready-to-drink premium Teavana Craft Iced Teas is expected to increase revenue from the Channel Development segment.

Compared to fiscal 2Q16, the company operated 426 more company-operated restaurants and 1,387 more restaurants by the end of 1Q17. The addition of these restaurants along with the newly opened restaurants in fiscal 2Q17 is expected to contribute to Starbucks’s revenue growth in fiscal 2Q17.

Peer comparisons

In fiscal 2Q17, Dunkin’ Brands (DNKN) and Domino’s Pizza (DPZ) are expected to post revenue growth of 1.3% and 14.1%, respectively. During the same period, McDonald’s (MCD) revenue is expected to fall 6.6%.

Outlook

Analysts are expecting Starbucks to post revenue of $23.5 billion in the next four quarters, which represents a growth of 8.3% from $21.7 billion in the corresponding quarters of the previous year. The revenue growth is expected to be driven by SSSG, unit growth, and increased revenue from the Channel Development segment.

Next, we’ll look at Starbucks’s estimated EBIT margin in fiscal 2Q17.

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