Investors could certainly use a positive external catalyst from an earnings beat. Starbucks stock is down 7% since the release of its FY 2015 earnings, pulled down in part by a sour market sentiment overall (see chart below). I certainly believe that Starbucks can meet earnings estimates or come close to doing so. Let’s examine the possibilities.
On January 21, global beverage restaurant chain Starbucks (NASDAQ:SBUX) will come out with its Q1 FY 2016 earnings announcement. Wall Street earnings per share (EPS) predictions for Starbucks average $0.45. If Starbucks meets this estimate it will represent a 13% year-over-year increase.
Starbucks stock price vs S&P 500 comparison chart by amigobulls.com
Holiday Publicity Served As A Draw
Starbucks’ first quarter coincided with the holidays, which saw the introduction of its minimalist and religiously neutral red cup. This drew criticism from certain religious groups and presidential candidates alike. I would conjecture to say that more than a handful of people went to Starbucks to see what all the controversy was about and bought beverages served in this controversial cup. As they say, there is no such thing as bad publicity.
Growth Potential In China/Asia Pacific
In FY 2015, Starbucks experienced robust growth in its China/Asia Pacific segment. Its revenue and operating income expanded 112% and 34%, respectively in that segment. Starbucks’ total location count increased 18%, representing a higher percentage than any other segment.
Also, customers returned to Starbucks’ established locations at a healthy pace. Last year, Starbucks saw its same store sales increase an incredible 9% with an 8% increase in transactions and a 1% increase in ticket size. Customers spent more money at a higher frequency.
Indications hint that this pattern will continue into Q1 FY 2016 for Starbucks. The company wants to expand its location footprint by 1,400 stores by 2019. Starbucks plans to open 500 locations this year alone. Starbucks CEO Howard Schultz worked his public relations magic in China by speaking to families and offering perks, such as retreats and housing subsidies. Starbucks wouldn’t announce such a massive expansion and significant investment in the workforce if performance in the region was showing signs of losing its luster.
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