Key Takeaways

  • Adjusted EPS was $0.51 vs. the $0.30 analysts expected.
  • Revenue exceeded analyst expectations.
  • Same-store sales declined less than analysts estimated.
  • Starbucks opened 480 net new stores.

What Happened

Starbucks posted adjusted EPS in Q4 FY 2020 that surpassed analysts' expectations. Revenue was also higher than forecast, but same-store sales declined by more than expected. Adjusted EPS and revenue also fell compared to the year-ago quarter amid the ongoing COVID-19 pandemic. Starbucks noted that it opened 480 net new stores during the quarter.

(Below is Investopedia's original earnings preview, published October 27, 2020.)

What to Look For

Starbucks Corp. (SBUX) has seen its same-store sales, earnings, and revenue plunge as COVID-19 forced store closures this spring, and as many customers have stayed away even as most of the chain's outlets have reopened. Surging drive-through sales have failed to offset the declines.

Investors will be watching for signs of recovery when Starbucks reports earnings on October 29, 2020 for Q4 FY 2020. The company's fiscal year (FY) ended in September. Analysts expect adjusted earnings per share (EPS) and revenue to decline.

Investors also will focus on Starbucks' same-store sales growth, a key metric used in the retail industry to gauge the ability of a company's established stores to generate revenue growth. Analysts expect same-store sales growth to fall year over year (YOY) for the third straight quarter as the coronavirus continues to spread.

Shares of Starbucks were roughly keeping pace with the broader market in the few months leading up to the pandemic-induced market crash that began in the latter half of February. But they have been underperforming ever since. Starbucks' shares have provided a total return of 9.5% over the past 12 months, a few percentage points below the S&P 500's total return of 11.9%, as of October 26, 2020.

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

The stock has been weighed down by falling earnings and revenue in recent quarters, trading roughly sideways during the four-month period from late April to late August. In Q3 FY 2020, the company reported a loss on adjusted EPS basis as revenue sank 38.1%. It marked the worst quarterly earnings performance in nearly four years as the company felt the full impact of store closures. Most of the company's stores have reopened.

Adjusted EPS fell 48.0% in Q2 FY 2020 as revenue declined 4.9% compared to the same three-month period a year ago. Those marked the first declines in either metric since Q4 FY 2017.  The company's stock fell briefly over the following week after reporting Q2 results on April 28. Then the shares traded mostly sideways until the Q3 earnings report, and slowly began to gain some upward momentum.

For Q4 FY 2020, analysts expect adjusted EPS and revenue to fall 56.5% and 10.4%, respectively. That would make it the third consecutive quarter of dismal YOY earnings results marked either by plunging earnings or a loss. For full-year FY 2020, analysts are forecasting annual adjusted EPS to decline 65.9% as annual revenue falls 11.9%, marking the first declines in at least five years.

Starbucks Key Metrics
  Estimate for Q4 2020 (FY) Q4 2019 (FY) Q4 2018 (FY)
Adjusted Earnings Per Share ($) 0.30 0.70 0.62
Revenue ($B) 6.0 6.7 6.3
Same-Store Sales Growth (%YOY) -11.7 5.0 3.0

Source: Visible Alpha

As mentioned, investors will be especially focused on growth in Starbucks' same-store sales, also known as comparable-store sales. Same-store sales is a key metric for investors that provides a performance comparison of stores that have been in operation for at least one year. Examining same-store sales helps investors in determining what portion of a chain's sales come from existing stores and what portion comes from opening new stores. Investors and analysts also use the metric to determine management's success in producing revenue growth from existing assets.

Starbucks' same-store sales accelerated over the past few years, with YOY quarterly growth ranging between 1% and 6% during FY 2018 and FY 2019. In Q1 FY 2020, same-store sales grew 5.0% YOY. But in Q2 FY 2020, sales sank 10.0% amid the initial outbreak of COVID-19. Then, as the effects of the pandemic worsened, same-store sales plunged 40.0% in Q3 FY 2020 compared to the year-ago quarter.

Analysts expect same-store sales to fall 11.7% in Q4 FY 2020, which would make it the third consecutive quarter of YOY declines. For full-year FY 2020, analysts are forecasting same-store sales to decline 13.2%, the first annual decline in at least five years.