Starbucks Corp (NASDAQ:SBUX) Earnings Model  

Author: Raag Shah, Published: July 18, 2019 1:15pm Category: Earnings Preview (Prior to the F3Q2019 SBUX Results)
​Starbucks Corporation (NASDAQ:SBUX) is set to release earnings for the fiscal third quarter at the end of July 2019 and things are looking quite promising for the beverage and food company in the retail sector. One of the key takeaways from the fiscal second quarter earnings call of 2019 was comp store sales growth, primarily due to an improvement of in-store customer experience and enhanced beverage platform.

Highlights from the fiscal second quarter earnings call:
  • Starbucks introduced Nitro cold brew in 50% company operated stores in fiscal second quarter and targets to reach 100% by end of fiscal 2019.
  • Converted 90% of the stores operated in EMEA to be licensed stores.
  • Introduced enhanced Starbucks Rewards Loyalty program to facilitate flexibility in redeeming rewards.
  • Comp store growth sales increased by 2% from fiscal first quarter to fiscal second quarter in China.
Geographically Starbucks’ operations are primarily divided in three main markets: Americas, China/Asia Pacific (CAP), and Europe Middle East & Africa (EMEA). The model is comprised of and is sensitive to changes in any of these three markets resulting in a dynamic change in the earnings forecast. Furthermore, since the Americas segment is the primary market for Starbucks, any changes in the Americas would have the most impact on the model. Diving into the Americas segment, following inputs are in alignment with the management guidance for fiscal third quarter:

Americas
  • Management is expecting a little over 600 stores, which is less than last year. As a result, operating expenses could stay on a lower end, in turn boosting total operating margin.
  • Starbucks’ improved membership rewards, enhanced smart application, and innovative beverages during summer months will increase customer base resulting into higher comp store sales.
  • In comparison to prior quarter, comp store sales are expected to increase by 20 basis points leading to 4.2%, followed by another 20 basis points bump in the third quarter.
  • Historically, second quarter has seen a considerable drop in operating expenses (73.6% to 71.8% in 2017 and 75.9% to 74.8% in 2018, excluding depreciation) due to reduced number of new store counts and increased customer base in the months of summer. It is expected that operating expenses would be lower than this in the second quarter of 2019 to 74.0% from 75.2% in the first quarter.
Source: Management’s guidance from the Fiscal 1Q2019 earnings call.
SBUX Earnings Model (Raag Shah).xlsx
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​Disclosure: ​The author of this article/model has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in the content represent the author’s opinions.