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Earnings preview: Here’s a look at what is brewing in Starbucks ahead of Q3 report

Starbucks (Nasdaq: SBUX) is one of the rare Wall Street stocks that consistently stayed on the growth path, mostly unaffected by adverse market conditions. When the coffee giant unveils its third-quarter numbers Thursday evening, analysts will be looking for earnings of $0.72 per share on revenues of $6.67 billion, up 16% and 6% respectively from last year.

Starbucks Comparable Stores Sales Performance Trend

If the company’s past performance is any indication, a positive earnings surprise is very much on the cards this time. Growth will be driven by the stable demand in the Americas, China and Asia-Pacific, aided by new store openings. In addition to the growing popularity of the company’s digital platform, strategic partnerships with industry leaders like Alibaba (BABA) in China and Uber Eats (UBER) in the US bodes well as for as quarterly performance is concerned.

Growth Drivers

The ongoing digitalization and expansion of the loyalty program validates the management’s upbeat outlook for the current year and beyond, as the initiatives will translate into positive comparable store sales. Earlier, the company had revealed plans to open around 2,100 net new stores across the globe by year-end.

Starbucks reports strong earnings and revenue growth for Q2

Meanwhile, the softening sales at the Channel Development segment in certain markets, especially in Europe and the Middle East, will likely weigh on overall performance in the to-be-reported quarter. Also, the ongoing company reorganization, with a focus on streamlining operations, might offset a part of the benefit from the higher comparable-store sales.

Past Performance

For the second quarter, Starbucks reported a 13% increase in adjusted earnings to 60 cents per share, beating the estimates. Unadjusted earnings rose to 53 cents per share, aided by a 5% growth in net sales to $6.31 billion. A further increase in average ticket lifted global comparable sales rose by 3%.

Competition

Of late, the company has been facing tough competition in China, its second-largest market after the US, mainly from local player Luckin Coffee which is currently preparing for its Wall Street debut. Coca-Cola (KO), which has been aggressively promoting its coffee business, this week reported a 4% increase in second-quarter earnings to $0.63 per share on revenues of $10 billion, reflecting the stable demand for its brands in the key markets.

Also see: Starbucks Q1 2019 Earnings Call Transcript

Starbucks shares spiked about 75% since last year and traded slightly above $90 this week, outperforming the S&P 500 index. The stock, which gained 41% since the beginning of the year, hit an all-time high last week.

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