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Starbucks: Analysts Expect Its Revenues to Rise in Q2

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Analysts’ expectations

Analysts expect Starbucks (SBUX) to post revenues of $6.32 billion in the second quarter—a rise of 4.7% from $6.03 billion in the second quarter of fiscal 2018. The net addition of company-owned and franchised restaurants and positive SSSG (same-store sales growth) will likely drive the company’s revenues. However, the licensing of the CPG and foodservice businesses is expected to offset some of the growth in Starbucks’s revenues.

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Revenue growth

Compared to the second quarter of fiscal 2018, Starbucks operated 804 more company-operated restaurants and 852 more franchised restaurants by the end of the first quarter of fiscal 2019. The net addition of these new restaurants and opening restaurants during the quarter will likely drive the company’s revenues.

Starbucks is focusing on beverage innovation, operational excellence, and the implementation of digital advancements to drive its SSSG. Beverage sales contributed 3.0% of the company’s SSSG during the first quarter, which was driven by a rise in sales of the espresso and brewed platforms. The company offered draft Nitro beverages and Refreshers at ~40% of its restaurants by the end of the first quarter of fiscal 2019. Starbucks plans to offer the beverage at all of its restaurants by the end of fiscal 2019.

On January 22, Starbucks started a delivery service in San Francisco. The company plans to expand the service to six more cities in the United States. The company’s management aims to have a delivery service at ~25% of the company-owned restaurants by April. In China, Starbucks has partnered with Alibaba (BABA) for the Starbucks Delivers program. The program had been deployed in 2,000 cities by the end of December 2018. Along with these initiatives, the growth in membership of the Starbucks Rewards program and opening new Starbucks Reserve Roasteries are expected to drive the company’s SSSG during the quarter. On February 27, Starbucks opened its fifth roastery in Tokyo, Japan. The company opened its fourth roastery in New York on December 14. Starbucks opened its third roastery in Milan, Italy, on September 6.

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Peer comparisons

For the comparable quarter, analysts expect Dunkin’ Brands (DNKN) to post revenue growth of 3.8%, while McDonald’s (MCD) revenue growth is expected to fall 4.1%.

Outlook

For 2019, Starbucks’s management expects its revenues to rise 5.0%–7.0%, which includes a negative impact of ~2.0% from the company’s streamlining initiatives. During this period, the company expects to open 2,100 new restaurants, while its SSSG is forecast to be 3%–4%.

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