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Can Americas Segment Boost Starbucks' (SBUX) Q1 Earnings?
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Starbucks’ (SBUX - Free Report) Americas segment revenues, comprising 70% of its total revenues, are expected to witness improvement in the first quarter of fiscal 2018. This could aid the company in reporting higher quarterly revenues when it reports on Thursday, Jan 25.
A Look at Starbucks’ Americas Performance in Q4
Net revenues in this flagship segment (inclusive of the United States, Canada and Latin America) were down 0.5% year over year to $3.9 billion in the preceding quarter. Comps grew 3% in the quarter, softer than the 5% growth witnessed in Q3. U.S. comps grew 2%, comprising 1% increase in average ticket. In fiscal 2017, Starbucks’ Americas segment posted 3% comps growth, down considerably from 6% in the year-ago period. In fact, transactions remained unchanged year over year and ticket grew 4%. This compares unfavorably with 5% growth in transaction and an increase of 1% in ticket in fiscal 2016.
In Q4, membership increased 11% year over year in the My Starbucks Rewards (MSR) program. Customers in the United States are using the chain's mobile app to order and pay for their drinks and are joining the company's rewards program. Mobile payments represented 30% of U.S. transactions, reflecting an increase from 25% a year ago.
Operating margin in the segment, however, contracted 390 basis points to 24%, as strong sales leverage was more than offset by hurricanes, higher investments in store partners and the impact of product sales mix.
Q1 Expectation
The company’s segment is likely to experience higher revenues with comps growth in the mid-single digits or more. The improvement is expected to be driven by additional store openings, Starbucks’ mobile order/pay along with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. Starbucks has secured a leading position in leveraging its mobile and digital assets and loyalty, and e-Commerce platforms to capitalize on these trends and create more revenue streams to boost its top line.
Overall, Starbucks’ Americas segment revenues are expected to witness 8.3% growth year over year and 9.4% sequentially, per the Zacks Consensus Estimate.
Again, operating margin will be driven by strong sales leverage that will be partly offset by higher investments in store partners and the impact of product sales mix.
Apart from the Americas segment, Starbucks’ Channel Development business needs special mention. Although the business is small (in terms of its revenue contribution), it generates impressive operating margins, owing to its cost structure. Hence, the Channel Development segment represents a significant profitable growth opportunity.
Overall Earnings & Revenues Expectations
The Zacks Consensus Estimate for earnings of 57 cents reflects a 9.6% growth from the prior-year quarter profit of 52 cents. Also, the Zacks Consensus Estimate for revenues of $6.15 billion indicates a 7.2% increase on a year-over-year basis.
Starbucks’s operating fundamentals such as solid global retail footprint, successful innovations, best-in-class loyalty program and digital offerings remain strong. Again, digital initiatives like mobile order/pay, delivery services and third-party loyalty partnerships can stimulate stronger sales trends in the Americas. Internationally, the company’s focus on China/Asia expansion is another positive.
Meanwhile, change in the product mix (as food, tea and cold beverages will become an increasing part of the product mix), focus on the use of loyalty cards and mobile order and pay technology to boost sales and profits are added tailwinds. Finally, Starbucks’ endeavor to boost its presence in premium coffee consumed at home through K-cups and with ready-to-drink beverages needs special attention.
Overall, apart from higher revenues, lower tax rate along with share repurchases will help Starbucks to post higher earnings. That said, headwinds, especially in the labor front is a cause for concern for this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Schedules of Other Major Restaurant Service Providers
McDonald's Corporation (MCD - Free Report) and Yum! Brands, Inc. (YUM - Free Report) are slated to report quarterly numbers on Jan 30 and Feb 8, respectively.
Restaurant Brands International Inc. (QSR - Free Report) is expected to report quarterly results on Feb 12, 2018.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
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Can Americas Segment Boost Starbucks' (SBUX) Q1 Earnings?
Starbucks’ (SBUX - Free Report) Americas segment revenues, comprising 70% of its total revenues, are expected to witness improvement in the first quarter of fiscal 2018. This could aid the company in reporting higher quarterly revenues when it reports on Thursday, Jan 25.
A Look at Starbucks’ Americas Performance in Q4
Net revenues in this flagship segment (inclusive of the United States, Canada and Latin America) were down 0.5% year over year to $3.9 billion in the preceding quarter. Comps grew 3% in the quarter, softer than the 5% growth witnessed in Q3. U.S. comps grew 2%, comprising 1% increase in average ticket. In fiscal 2017, Starbucks’ Americas segment posted 3% comps growth, down considerably from 6% in the year-ago period. In fact, transactions remained unchanged year over year and ticket grew 4%. This compares unfavorably with 5% growth in transaction and an increase of 1% in ticket in fiscal 2016.
In Q4, membership increased 11% year over year in the My Starbucks Rewards (MSR) program. Customers in the United States are using the chain's mobile app to order and pay for their drinks and are joining the company's rewards program. Mobile payments represented 30% of U.S. transactions, reflecting an increase from 25% a year ago.
Operating margin in the segment, however, contracted 390 basis points to 24%, as strong sales leverage was more than offset by hurricanes, higher investments in store partners and the impact of product sales mix.
Q1 Expectation
The company’s segment is likely to experience higher revenues with comps growth in the mid-single digits or more. The improvement is expected to be driven by additional store openings, Starbucks’ mobile order/pay along with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. Starbucks has secured a leading position in leveraging its mobile and digital assets and loyalty, and e-Commerce platforms to capitalize on these trends and create more revenue streams to boost its top line.
Overall, Starbucks’ Americas segment revenues are expected to witness 8.3% growth year over year and 9.4% sequentially, per the Zacks Consensus Estimate.
Again, operating margin will be driven by strong sales leverage that will be partly offset by higher investments in store partners and the impact of product sales mix.
Apart from the Americas segment, Starbucks’ Channel Development business needs special mention. Although the business is small (in terms of its revenue contribution), it generates impressive operating margins, owing to its cost structure. Hence, the Channel Development segment represents a significant profitable growth opportunity.
Overall Earnings & Revenues Expectations
The Zacks Consensus Estimate for earnings of 57 cents reflects a 9.6% growth from the prior-year quarter profit of 52 cents. Also, the Zacks Consensus Estimate for revenues of $6.15 billion indicates a 7.2% increase on a year-over-year basis.
Starbucks’s operating fundamentals such as solid global retail footprint, successful innovations, best-in-class loyalty program and digital offerings remain strong. Again, digital initiatives like mobile order/pay, delivery services and third-party loyalty partnerships can stimulate stronger sales trends in the Americas. Internationally, the company’s focus on China/Asia expansion is another positive.
Meanwhile, change in the product mix (as food, tea and cold beverages will become an increasing part of the product mix), focus on the use of loyalty cards and mobile order and pay technology to boost sales and profits are added tailwinds. Finally, Starbucks’ endeavor to boost its presence in premium coffee consumed at home through K-cups and with ready-to-drink beverages needs special attention.
Overall, apart from higher revenues, lower tax rate along with share repurchases will help Starbucks to post higher earnings. That said, headwinds, especially in the labor front is a cause for concern for this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
(Read More: Starbucks to Report Q1 Earnings: What's in the Cards?)
Earnings Schedules of Other Major Restaurant Service Providers
McDonald's Corporation (MCD - Free Report) and Yum! Brands, Inc. (YUM - Free Report) are slated to report quarterly numbers on Jan 30 and Feb 8, respectively.
Restaurant Brands International Inc. (QSR - Free Report) is expected to report quarterly results on Feb 12, 2018.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>