More Upside for SBUX Stock?
You almost can’t go anywhere these days without eventually coming across a Starbucks Corporation (NASDAQ:SBUX) coffee shop. Starbucks is everywhere and SBUX stock has been riding high on that kind of growth. Going into its earnings report on Thursday after the bell, SBUX stock is up 26%. SBUX stock is near its all-time high, but if Starbucks surprises, the stock could break new levels.
Analysts are expecting another solid quarter from Starbucks. The coffee shop chain is expected to report 18% earnings growth to $0.39 a share on a 10% rise in revenue to $5.03 billion. (Source: “What To Expect From Starbucks Earnings,” Investor’s Business Daily, April 18, 2016.) Analysts are also expecting global same-store sales for the quarter to increase 6.7%. These estimates shouldn’t be difficult for Starbucks to meet or even beat.
So what will it take for SBUX stock to rise after earnings? Let’s take a look.
Mobile App Traffic
Starbucks mobile app has been a big part of the coffee chain’s growth strategy in recent years. It’s become so big with customers that it now accounts for about 21% of all U.S. transactions and it’s still gaining steam. (Source: “Mobile means more bucks for Starbucks,” MobileStrategies360.com, January 26, 2016.)
In the January earnings report, the coffee chain said that the number of customers who use the app to pay for coffee could reach the mid-20% range in the current quarter. (Source: “Starbucks a ‘Top Pick’ Offering a Latte Upside,” Barron’s, March 28, 2016.) But Starbucks could surprise on that number. The company’s recent offer has made it very easy for customers to achieve “gold” status (just one purchase, rather than collecting a certain number of stars), which gives customers access to free refills in-store, free drink offers, and other perks. If the offer catches on, even more customers may be using the app than expected.
Investors will also want to focus on the “mobile order and pay” feature that is also part of the Starbucks app. Mobile order and pay lets customers order ahead of time so they can bypass lines. Fiscal Q1 was the first full quarter for the feature. According to RBC, seven million orders were made through the feature, which is up from six million in the first quarter. (Source: “Starbucks Earnings: What to Watch,” The Wall Street Journal, April 19, 2016.)
Why is the app so important? Simple—it builds customer loyalty. And according to Starbucks, customers who pay with the mobile app spend three times more than customers who don’t. That’s what drives same-store sales growth, so it’s a metric to keep an eye on.
New Loyalty Program
Speaking of loyalty, Starbucks changed its loyalty program last week to reward customers based on how much they spend and not on how many purchases they make. Customers will now earn two “stars” for every dollar spent, rather than one star for each purchase.
Many customers went to social media to spew their anger at the change. Customers have complained that the new system favors bigger spenders rather than someone who just orders a cup of coffee. In February, though, Starbucks said in a conference call that the “vast majority” of customers would earn points just as fast or even faster than before, while a “small minority” wouldn’t earn rewards as fast as before. (Source: “Starbucks’ new loyalty program greeted with a stock selloff,” MarketWatch, April 12, 2016.)
During the earnings report on Thursday evening, it will be interesting to see how the new reward system is going over with customers and how it has affected traffic. My gut tells me there won’t be much of an effect on traffic if any at all.
Helping to drive international sales will be China. Starbucks is planning to grow its store count in the country from around 2,000 to 3,400 by 2019. The coffee chain said that it expects to accomplish this by opening 500 new locations per year. With growth potentially slowing down in China, this will be a metric that investors will want to focus on.
China may be the largest growth opportunity for Starbucks, but it’s not the only country the coffee chain is adding stores in. Starbucks also plans to open 1,800 new stores worldwide in fiscal 2016, with 1,300 of those stores to be opened in Asia.
The Bottom Line on SBUX Stock
If Starbucks can manage to surprise analysts in any of the aforementioned areas, it may lead to an earnings beat. If that happens, SBUX stock should keep its upward trend.