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Why Starbucks’s Fiscal 1Q18 Earnings Didn’t Impress Analysts

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Jan. 31 2018, Updated 12:59 a.m. ET

Fiscal 1Q18 performance

Starbucks (SBUX) posted its fiscal 1Q18[1. fiscal 1Q18 ended December 31, 2017] earnings after the market closed on January 25, 2018. The company posted adjusted EPS (earnings per share) of $0.58 on revenues of ~$6.1 billion. Compared to fiscal 1Q17, Starbucks’s revenues grew 5.9%, while its EPS increased 11.5%.

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Stock performance

Analysts expected Starbucks to post EPS of $0.57 on revenues of ~$6.2 billion. Although the company’s earnings per share were better than analysts’ estimates, its revenues failed to meet analysts’ expectations. The company also failed to meet analysts’ SSSG (same-store sales growth) estimate of 3.0% by posting a systemwide SSSG of 2.0%.

The company’s management pointed to weak sales of holiday beverages, merchandise, and gift cards for its lower-than-expected fiscal 1Q18 SSSG. After posting lower-than-expected fiscal 1Q18 SSSG, Starbucks’s management is expecting its fiscal 2018 SSSG to be closer to the lower end of its earlier guidance of 3.0%–5.0% range.

The lower-than-expected fiscal 1Q18 SSSG appears to have led the company’s stock price to fall. On January 26, 2018, SBUX stock fell to as low as $56.55 but closed the day at $57.99—a 4.2% fall from its previous day’s closing price.

Year-to-date performance

Starbucks had a tough 2017, as its stock returned only 3.4%. Since the beginning of 2018, the company’s stock price has risen 1.0%.

During the same period, Dunkin’ Brands (DNKN), McDonald’s (MCD), and Domino’s Pizza (DPZ) have returned 5.8%, 3.6%, and 14.7%, respectively.

The S&P 500 Index (SPX) and the Consumer Discretionary Select Sector SPDR ETF (XLY) returned 7.5% and 10.4%, respectively, year-to-date.

Series overview

In this series, we’ll look at Starbucks’s (SBUX) fiscal 1Q18 performance and compare it with analysts’ estimates. We’ll also look at management’s guidance for fiscal 2018 and analysts’ estimates for the next four quarters. Finally, we’ll look at the company’s valuation multiple and analysts’ recommendations.

Next, we’ll look at Starbucks’s fiscal 1Q18 revenues.

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