Starbucks (SBUX) is getting its wings clipped along with the market today ahead of earnings. What will be more interesting than Starbucks’ actual earnings report is how this impacts the other coffee-trade stocks.
The report is due after the close, and Thomson Reuters has consensus data at EPS of 28 cents and $2.6 billion in revenues. TheStreet.com listed the consensus as 27 cents and $2.585 billion.
It is hard to use Starbucks as a bogey to determine any key metrics on shares of McDonald’s (MCD), which is set to report earnings on Friday. McDonald’s has launched a whole slate of specialty coffees in recent years to go after the strength of Starbucks. Dunkin’ Donuts has done the same. McDonald’s was successful in getting some of that business over the last two years, but the blood-letting seems to have stopped as Starbucks has been getting its own house in order.
There is also a new entrant that is not really so new. Green Mountain Coffee Roasters (GMCR) has won the bid for its buyout of Diedrich (DDRX), and while it has received a request for more information from the FTC, it is a deal that is expected to close. It will be interesting to see how much Green Mountain’s model becomes an issue down the road for Starbucks, and we would expect at least one analyst or more to address this in a Q&A session during the conference call.
Green Mountain had been a steady $20 to $30 stock for most of 2008, but then shares rose all year in 2009, and now sit above $80 based upon the growth of its Keurig self-serve units and its strong brand recognition with Tully’s, Newman’s Own, and its own Green Mountain.
As far as metrics to look for outside of earnings tonight, Starbucks is still in the midst of a turnaround after Howard Schultz returned to take the shop over again. The expectation is that same-store sales for the last quarter will be for a gain of roughly 1%. The big issue is that Starbucks trades back at almost 23 times fiscal September 2010 earnings estimates of $1.02. Even if the company manages to exceed estimates and meet the 2011 estimate of $1.17 this year, the forward multiple is still almost 20 times earnings.
Many will try to draw an inference from Starbucks into that of Peet’s Coffee & Tea (PEET) and in Caribou Coffee Company (CBOU). The reality is that each of these is too small to have much impact looking up, but these may share the same momentum after the direction of the Starbucks trading goes on Thursday and beyond. At $33 and change, Peet’s is still down more than 20% from its 52-week highs; Caribou at $7.65 is down almost 20% from its 52-week highs. Starbucks at $23.10 is down less than 4% from its 52-week high.
Starbucks has been trading in a tight range of $23 to $24 for most of the last month, which is indicative that an overhang may be forming now that this stock has more than doubled from early 2009 when its metrics looked awful.
There have been some active trades seen in the February call options with $22, $23 and $24 strikes, but not enough to draw a huge inference. Same for the $23 and $24 strike put contracts. What is interesting is that the short interest fell off a cliff in the January report by more than 25% down to 18.5 million shares listed in the short interest.
We have seen a strong bias of sell-the-news in earnings developing so far this earnings season. It seems that Starbucks will have to do significantly better than the consensus estimates to avoid some profit-taking.
