Starbucks Earnings Preview: First Quarter 2009

Starbucks [[SBUX]] is scheduled to report their fiscal first quarter 2009 results after the market closes on Wednesday, January 28. Based on our analysis, we at are expecting SBUX to report disappointing results that fail to meet Wall Street’s expectations.


Analyst Expectations

We are forecasting revenues of $2.59 billion and EPS of $.15. This would represent a 6% decline in revenues from last year’s $2.77 billion in the same period. The current analyst consensus calls for revenues of $2.70 billion and $.17 EPS.


Starbuck’s continues to be one of the big victims of the failing economy. One of the first cuts people make to their budgets is the daily latte. Personal finance pundits have harped on individuals for years to give up those “$4 latte’s” and save that extra $1,200 a year.


While Starbuck’s has desperately to control costs, we believe that declining store traffic combined with higher commodity costs could continue to pressure margins. In addition, the competitive environment continues to worsen. Now McDonald’s is introducing their McCafe concept at stores nationwide. Those consumers that still require their premium coffee drinks will still be able to save money by choosing McCafe’s over Starbuck’s. Therefore, we expect the company to continue to perform poorly until the economy shows clear signs of recovery.


Share Performance

Starbuck’s shares are down 4% since the beginning of the year. In 2008, Starbuck’s lost over half of their market cap – falling 54%.  



Shares are now trading at 10x consensus FY2010 EPS estimates. While this is a slight discount to their peer group, we believe that Wall Street will continue to reduce their 2009 and 2010 estimates for SBUX. We don’t believe that Starbucks shares will perform very well in this environment and do not recommend holding at this time.


Recommendation: Sell with a $8 price target.


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