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Can SBUX Overcome the Chinese Slowdown to Post Robust Q1 Results?

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SBUX’s performance

Starbucks (SBUX) is expected to post its fiscal 2019 first-quarter earnings results after the market closes on January 24.

As of January 17, the company’s stock price was trading at $64.28, an increase of 9.6% since its announcement of its fiscal 2018 fourth-quarter earnings results on November 1.

In the fourth quarter of fiscal 2018, which ended on September 30, Starbucks posted adjusted EPS of $0.62 on revenue of $6.30 billion, outperforming analysts’ EPS expectation of $0.60 and their revenue estimate of $6.27 billion. The company’s same-store sales growth of 3.0% beat analysts’ estimate of 2.3% in the quarter.

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On December 13, Starbucks’s management outlined its strategy to deliver EPS growth of at least 10% in the long term via the expansion of its delivery service, the acceleration of its cold beverage innovation strategy, and the creation of deeper customer connections. These plans increased investors’ confidence, leading to a rise in the company’s stock price. However, on January 11, Goldman Sachs downgraded Starbucks from a “buy” to a “neutral” on concerns about a slowdown in China, Starbucks’s second-largest market. The downgrade offset some of the rise in Starbucks’s price.

Peer comparison

From November 1 to January 17, Starbucks’s peers McDonald’s (MCD) and Dunkin’ Brands (DNKN) returned 3.6% and -5.7%, respectively. The broader comparative index, the Consumer Discretionary Select Sector SPDR ETF (XLY), which invests ~8.0% of its holdings in restaurant and travel companies, returned -2.0%.

Series overview

In this series, we’ll discuss analysts’ revenue and EPS expectations for Starbucks’s first quarter of fiscal 2019. We’ll also discuss management’s guidance and analysts’ expectations for fiscal 2019. Finally, we’ll look at analysts’ recommendations and the company’s valuation.

First, let’s discuss analysts’ revenue expectations for Starbucks in the quarter.

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