Earnings Preview: Starbucks

Starbucks Corporation (SBUX) is expected to report Q3 earnings after market close Wednesday, July 30, with a conference call scheduled for 5:00 pm ET.

Guidance

Analysts are looking for a profit of 18c on revenue of $2.62B. The consensus range is 15c to 20c for EPS, and revenue of $2.54B to $2.66B, according to First Call. In April, the company forecast FY08 EPS less than 87c vs. First call consensus of 81c and said FY08 revenue growth is expected to be 13% to 14%.

Analyst Views

In addition to laying off 100 global store development employees, Starbucks is expected to dump all of its in-store music retail offerings by September and now only offer four CD "slots" per store; Starbucks will reportedly continue to offer free Wi-Fi for Apple's (AAPL) iTunes. The coffee retailer also announced its decision to close approximately 600 underperforming stores in the U.S. market and, along with cutting up to 12,000 jobs, will open fewer than 200 new stores in FY09. Pre-tax charges related to the closures include approximately $200M of asset write-offs which will be recognized in Q3.

Due to the company's slower growth rate, lack of positive investment catalyst and lack of share price appreciation, Piper Jaffray downgraded shares to Neutral from Buy on July 17. The firm said that Starbucks' turnaround is going to take longer than we previously anticipated and while the firm credits management with further quantifying turnaround measures, Piper does not expect those strategies to have a meaningful impact in the short term. Longer-term, Piper believes stores closures, G&A rationalization and capital deployment are critical initiatives. BusinessWeek reporter Carl Winfield believes that the chain may never "recapture the glory days of the 1990s," but expects the brand will survive, "albeit in a leaner and meaner form."

Comments

[brewboy:]

What a Kettle of smelly fish. SBUX, once touted as a 'great place to work', a paragon of 'Corporate Virtue" is no different than any other corporation, perhaps worse as they touted they were the new mold. Benefits for everyone are nice but if you get laid off, what good are they? The problems were evident over three years ago yet the top dogs refused to act for fear of offending the man behind the curtain, "MISTER S". Yes-people get you nowhere, ignoring history begs a repeat. They saw McD over expansion, They saw KrispyKreme debacle, They saw the Boston Market Debacle, yet SBUX was immune, their customer was different.

2008 Jul 29 03:06 PM

[John Z:]

interesting move in all the announcements today. Dumping pres, killing Australia, more layoffs etc... Gotta figure just how bad earnings will be tommorrow. And why they decided to make several announcements just 24 hrs prior.

as far as schultz - he NEVER really left. And he's been back as the CEO for several months... you really expect him to do something drastic.. The morale at my local sbux store has hit bottom.. For a company that was supposed to be SO GREEN, SO Full of its employees w/empowerment principals, etc..... comes to figure they are just as much of Pawns as many other- expendible. That'll play on morale.

I equate the sbux story to Microsoft , made millionaires of many.. during its first 20yrs or so of existance.. but as competitors impeade and take away the landscape, this company too will be a Mediocre NON - Growth stock with a rapidly degrading stock price...and will widdle into almost nothing...

2008 Jul 29 05:45 PM