What Happened

After markets closed on January 28, Starbucks reported Q1 FY2020 earnings. It slightly beat earnings expectations and matched revenue expectations. Most notably its same-store sales growth was significantly higher than expected, coming in at 5% versus consensus estimates of 4.4% expected. Growth wasn't evenly spread however, with same store sales up 6% in the U.S., but only up 3% in China.

(Below is Investopedia's original earnings preview, published Jan 21, 2020)

What to Look For

Starbucks Corp. (SBUX), the coffee chain that helped popularize artisanal coffee, is set to report earnings on January 28, 2020 for Q1 fiscal year (FY) 2020. Starbucks' fiscal year ends in September. A key focus for investors will be same-store sales, a key benchmark for the company's growth both in the U.S. and globally. Analysts are forecasting rising profits, revenue, and same-store sales for the quarter. Over the past 12 months, Starbucks shares have outperformed the broader market with a total return of more than 47% compared to the S&P 500's total return of just under 25%.

One Year Total Return for S&P 500 and Starbucks
Source: TradingView.

During the final quarter of the coffee chain's 2019 FY, earnings per share (EPS) grew 19.6% year-over-year (YOY) to $0.67. Revenue for the quarter grew 7.0% YOY, slightly lower than what analysts are expecting for Q1. During the week following the report, Starbucks' shares tumbled as much as 2.7% before beginning a sustained comeback from a downward trend that had begun in early September.

Starbucks shares shot up 8.9% the day after its Q3 2019 FY report, in which beat analysts' forecasts.  EPS grew 83.6% compared to the same quarter a year earlier, while revenue grew by 8.1%.  Analysts are expecting revenue to rise in Q1 2020 but at a slower rate of growth than the same quarter a year ago.

Starbucks Key Metrics
  Estimate for Q1 2020 (FY) Actual for Q1 2019 (FY) Actual for Q1 2018 (FY)
Earnings Per Share ($) 0.73 0.61 1.57
Revenue ($B) 7.1 6.6 6.1
Same-store Sales (%) 4.4 4.0 2.0

Source: Visible Alpha and YCharts

Investors will be especially focused on Starbucks' same-store sales, also known as comparable-store sales. Same-store sales is a key metric for retailers that provides a performance comparison of stores that have been in operation for at least one year. It is a figure that is expressed as a percentage, which indicates the relative amount of increase or decrease in same-store sales from the prior period.

During Q4 and Q3 of fiscal year 2019 (FY), global same-store sales were up 5.0% and 3.0% from the year earlier period, respectively. Analysts are expecting that figure to come in at 4.4% for Q1 2020 (FY), slightly lower than last quarter but a robust increase from the same quarter a year ago. Starbucks seeks to grow sales by finding new locations underserved by its existing coffee shops. But when sales are increasing at Starbucks' existing shops, it means a better return on the investment in those existing assets and also suggests the store may be attracting more customers from nearby competitors.