Earnings

Starbucks Corporation (SBUX) Earnings; Here’s What to Look For

Starbucks Earnings; Here’s What to Look For
Starbucks is likely to witness a slowdown in its same-store sales due to its new loyalty reward program

Starbucks Corporation (NASDAQ:SBUX) is scheduled to report its third quarter earnings results for fiscal year 2016 on Thursday, July 21 after the closing bell. Analysts and investors have been waiting to see the extent to which Starbucks' new structured loyalty program has affected its numbers.

According to the past performance of the giant coffee retailer, the company failed to surpassed analyst expectations in the last two reported quarters of fiscal year 2016. In the last reported quarter (Q2), it reported earnings per share of $0.39, just in line with analysts’ consensus. However, the reported revenue of $4.99 billion was slightly less than the expected figure of $5.02 billion. Following the announcement, the stock plunged almost 5%.

The company was not able to post stronger results because of a slowdown in global traffic trends.

For 3Q this year, Street analysts anticipate that the giant coffee retailer will report EPS of $0.49 compared to $0.42 a year ago. Analysts estimate that the restaurant retailer will report revenues of $5.34 billion, up 9% from $4.88 billion it had in the same quarter a year ago.

According to the company, its same store sales will come under pressure in Q3 due to the restructuring of its loyalty program. Recently, the company changed its loyalty program to focus more on customers’ actual spending instead of how often its customers visited its stores. Last quarter, Starbucks warned that it could see more “noise” from its customers. However, it believes that in the long run, this loyalty program will pay off.

In April, during a conference call with analysts after its second quarter results, Starbucks Chief Executive Howard Schultz said: “We’re building something so significant over the long term that I wouldn’t be so concerned about noise in the quarter if there is some. It’s going to be one of the most significant changes to the equity of the brand, customer experience.”

For this quarter, the coffee retailer is anticipated to post Comps growth of 5.7%, backed by increase in same-store sales in Canada, US and Latin America.

In recent times, the giant coffee chain has been making a big push in China, targeting more than 3,400 stores by 2019. In June, the company opened its flagship store at the main entrance of the latest Shanghai Disneyland. Although results from this new store might not reflect in the present quarterly results, Starbucks' executives have high expectations from this store as they believe it would be one of its busiest locations internationally.

Recently, the giant coffee chain announced that it had entered into a partnership with a luxury Italian bakery, Princi, and had also expanded its deal with Tata Sons Limited, which will include the launch of a coffee from India. This indicates that the coffee retailer is thinking about new products and new locations for the future.

Earlier this month, Starbucks announced that it was going to give a raise to many of its employees in its domestic stores in order to respond to the tightening labor market that has put pressure on some US companies to increase wages. Under this new program, workers in its company-operated outlets will get an increase in their base pay of 5% or more, depending on the “geographic locations and market factors and is intended to ensure Starbucks remains a retail employer of choice in all the markets where we operate."

According to the Seattle-based coffee chain, this raise will be effective from October 3, and will not have any effect on the company’s third quarter earnings. However, investors will be looking for some more updates in this regard.

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