It’s no secret that the retail sector and restaurant stocks are both suffering. Living in the world between the two, venerable slinger of legal stimulants Starbucks Corporation (NASDAQ:SBUX) is caught in the crosshairs of lower consumer spending. With its focus on both beverages and gifts, its earnings report is a critical one for SBUX. Even more so, since it has now started to refrain from providing forward guidance figures.
The name of the game for SBUX will be same-store sales and whether or not its loyalty program is indeed paying benefits in the consumer slowdown.
For investors, this Starbucks earnings report is very much one to watch.
A Focus on Consumer Growth at SBUX
The so-called restaurant recession has even started to have its way with mighty Starbucks. Over the last few quarters, SBUX has seen its global traffic start to slip. Much of that slippage has come from the United States. Just ask McDonald’s Corporation (NYSE:MCD) about its recent numbers coming from the U.S. The restaurant recession is real, and consumers are clamping down on the amount they are spending out to eat.
SBUX was considered more immune to the effects, but it looks like the coffee purveyor could get hit by the slowdown after all.
During the previously reported quarter, SBUX posted just a 1% increase in global consumer traffic for the last 12 months. During the prior quarter, Starbucks posted a 3% jump. Just in the U.S., Starbucks actually reported a 1% decline in traffic. This dwindling of traffic resulted in same-store sales growth dropping to just a 5% increase vs. a 6% in each of the previous four fiscal years.
That drop can be a tad bit worrisome for SBUX stock owners. And considering that it has proved no guidance on what to expect, analysts don’t exactly agree on what the jump — if any — will be.
But one thing they all agree on is that its revamped loyalty program and recent tech initiatives will be its saving grace.
SBUX changed the way it calculated rewards and free drinks a few quarters ago. The new system is proving to be a huge win for consumers and Starbucks itself.
This “digital ecosystem” that links Starbucks Cards, apps, and various corporate partnerships with companies such as Apple Inc. (NASDAQ:AAPL) and the New York Times Co (NYSE:NYT) is continuing to drive sales at the firm and overcome potentially worse dips. Last quarter, payment via mobile means represented 6% of their total and saw a big increase. Traditional Starbucks card orders/payments also rose considerably.
With new plug-ins for its mobile app/loyalty rewards members, the hope is that SBUX stock can turn around the recent drop in sales/foot traffic.
Other efforts such as its continued focus on food should also help. SBUX is quickly turning into a lunch and mid-day destination, rather than just a place to get your morning cup of joe. However, even here, it has seen some adverse effects. Its recent stoppage of late-night beer and wine sales highlights the challenging restaurant environment.
Even with the declines, it is still expected to see a rise in total revenues for the quarter. According to FactSet, Starbucks is expected to report earnings per share of 52 cents. That’s up from up from 46 cents reported for the same period last year. Revenues should clock in at $5.85 billion — up from $5.37 billion last year.
In the end, the focus will be 100% on the trend/pace of sales and store foot traffic. Investors will be looking to see if SBUX can stop the bleeding of foot traffic and reverse the trend.
SBUX Still a Profit Machine
For SBUX, the tale isn’t about profits. It has those. The focus will come down to whether or not the giant can really overcome the new operating environment that all eateries and retailers are facing. It’s tough out there — the recent decline in same-store sales highlight just how tough.
However, don’t forget that SBUX has more arrows in its quiver than the average retailer/restaurant stock.
This quarter will be all about how it uses those arrows and whether it can hit the bullseye. If it falters even a tad, investors could sell down SBUX shares.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
