Starbucks Corp. is scheduled to report third-quarter earnings on Wednesday after the closing bell with RBC Capital Markets analysts expecting a discussion of growth goals that are more realistic than those of the past.
Speaking at the Oppenheimer 18th Annual Consumer Conference in late June, Chief Executive Kevin Johnson said a late start to the “Afternoon Made” marketing campaign after a racial bias incident in Philadelphia hurt third-quarter same-store sales.
Heading into May, U.S. same-store sales were 3%, and the company expects same-store sales growth for the quarter to be 1%, matching the FactSet consensus.
The news also sent shares tumbling, down more than 9% the following day. Starbucks shares are down 13.3% for the last three months.
See: Starbucks racial bias incident delayed its marketing push, hurt same-store sales
“Given management changes and its pre-announcement, we believe Starbucks will reset long-term same-store sales and earnings per share expectations during the upcoming earnings call or this fall (following the hire of a new CFO),” wrote RBC analysts led by David Palmer.
Going into fiscal 2019, RBC identifies three catalysts for growth: U.S. beverage innovation, digital user growth, and reaccelerating China same-store sales trends. Looking back, analysts say the coffee company has been able to use U.S. beverages like the Unicorn Frappuccino alongside digital capabilities and marketing to spur sales.
“We believe the company will be pulling more digital levers with this subset to deepen engagement and drive traffic into calendar ‘19,” analysts wrote. “We also believe that a good portion of the China same-store sales slowdown is short term in nature due to delivery disruption and we expect to learn about delivery capability building in China by the end of calendar 2018.”
RBC rates Starbucks shares outperform with a $58 price target.
Also: Starbucks and McDonald’s plastic straw removal will go down well with millennials
Thirty FactSet analysts have an average overweight stock rating and average price target of $60.14.
Here’s what to expect:
Earnings: FactSet and Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, are guiding for earnings per share of 61 cents, up from 55 cents last year.
Starbucks SBUX, -0.04% missed the FactSet earnings estimate last quarter, but beat the previous two quarters.
Revenue: Both FactSet expect revenue of $6.26 billion, down from $5.66 billion last year.
Estimize expects revenue of $6.27 billion.
Starbucks beat revenue expectations last quarter, but missed the previous five quarters.
Stock price: Starbucks stock has sunk 10.9% for the year to date. The S&P 500 index SPX, +0.48% is up 5.5% for 2018 so far.
See also: Starbucks raises coffee prices at most American cafes
Other issues:
-AB Bernstein analysts suggest that the second-quarter same-store sales deceleration may not be tied to the delivery issues in China that the company referenced at the Oppenheimer event.
“Instead, homegrown and foreign competitors seem to offer better delivery at lower prices,” analysts said. “We believe the growth runway for Starbucks remains long in China, but expect the pace to slow somewhat, paralleling Yum! Brands’ KFC YUMC, -2.08% .”
AB Bernstein rates Starbucks share market perform with a $58 price target.
-CFRA’s Tuna Amobi highlights Starbucks’ mobile payment system, which the company said accounts for about 30% of its total dollar transactions.
Third-party data suggests the importance of digital order to quick-service restaurants is a trend that will last for the coming years, with one late-2017 poll showing that 58% of respondents had ordered a meal using an app or website in the prior year.
CFRA highlights Starbucks among a list of restaurant chains, including Domino’s Pizza Inc. DPZ, -3.19% , and McDonald’s Corp. MCD, -0.51% , that have “potential upside on recent strides for online and mobile initiatives.”
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-Wells Fargo, in a June Starbucks note, calls its digital initiatives “best in class.”
“While we remain concerned that increased digital penetration has yet to drive a sustained improvement in U.S. comps (especially transactions), we ultimately believe that Starbucks’ digital initiatives will be key to driving stronger U.S. comp growth and, as such, are generally pleased by Starbucks’ recent progress,” analysts led by Bonnie Herzog wrote.
Wells Fargo rates Starbucks shares outperform with a $64 price target.
-Starbucks has gotten a lot of buzz for a spate of recent initiatives including a ban on plastic straws, a new store designed to service the deaf, and its new racial bias training.
