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Why Analysts Are Expecting Starbucks’s Earnings to Fall in 3Q17

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Dec. 4 2020, Updated 10:52 a.m. ET

Fiscal 4Q17 estimates

For fiscal 4Q17, analysts are expecting Starbucks (SBUX) to post EPS (earnings per share) of $0.55, which represents a fall of 1.8% from $0.56 in fiscal 4Q16. Despite the expectation of revenue growth, analysts are expecting Starbucks’s EPS to fall due to a decline in its EBIT (earnings before interest and tax) margins.

In fiscal 4Q17, analysts are expecting Starbucks (SBUX) to post EBIT margins of 20.9% compared to 21.8% in fiscal 4Q16. The contraction is expected to be due to a rise in the cost of sales and an increase in goodwill and other asset impairment expenses due to the closing of 379 Teavana stores in malls.

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Analysts are expecting the cost of sales for fiscal 4Q17 to rise from 39.5% of total revenue in fiscal 4Q16 to 39.8%. Despite a sales leverage from positive SSSG (same-store sales growth), analysts are expecting the cost of sales to rise due to commodity inflation. However, they’re expecting some of the contraction in the EBIT margin to be offset by a fall in G&A (general and administrative) expenses. The measures undertaken by management could have prompted analysts to forecast a fall in G&A expenses, from 7.0% to 6.8% of total revenue.

Peer comparisons and outlook

During the same period, Dunkin’ Brands (DNKN), McDonald’s (MCD), and Domino’s Pizza (DPZ) posted rises in EPS of 1.7%, 8.6%, and 32.3%, respectively.

For the next four quarters, analysts are expecting Starbucks to post EPS of $2.24, which represents a rise of 7.7% from $2.08 in the corresponding four quarters of the previous year.

Dividends

In fiscal 3Q17, Starbucks paid dividends of $0.25 per share at a dividend yield of 1.8% and a payout ratio of 48.5%. For fiscal 4Q17, analysts are expecting the company to raise its dividends to $0.27 to take the total to $1.02 for fiscal 2017, which represents a rise of 20.0% from $0.80 in fiscal 2016.

Next, let’s look at Starbucks’s valuation multiple.

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