Starbucks (NASDAQ:SBUX) Falls On Cautious Guidance

Cautious Or Not, Investors Are Not Happy With Starbucks’ Guidance

Shares of Starbucks (NASDAQ:SBUX) fell hard in the wake of the calendar Q4/fiscal Q1 earnings report. The primary culprit is the guidance. The guidance came in weaker than consensus in market expecting more than the consensus but there is a mitigating factor. While tepid results in the Q4 period may have something to do with it the guidance may also be intentionally cautious. Starbucks is undergoing a c-suite change-up due to the exit of long-time CFO Roz Brewer who will be moving on to the CEO position at Walgreens Boots Alliance.

The analysts see the move as a positive for shares of WBA which are up 5% on the news but a potential hurdle for Starbucks. Starbucks is faced with finding a new CFO and may have set the guidance-bar low to help ensure success for the new candidate.

"We believe the decision to not raise 2021 EPS guidance despite 1Q's beat reflects conservatism & setting the new CFO up for success. 2Q's below consensus EPS guidance aligns with prior commentary that 2021 would be 2H weighted, while we are encouraged by above-consensus 2Q U.S. comp guidance,” said analyst Andrew Charles of Cowen following the Q1 release.

Starbucks Has Mixed Start To The Year

Starbucks is still struggling with the pandemic and yet to return to its pre-COVID levels of business. The fiscal Q1 revenue came in at -4.9% on a YOY basis but there is a light at the end of the tunnel. While business is not expected to match the pre-COVID level for a few quarters more the YOY comps will get better beginning with the next quarter. This is the last comparison with pre-COVID conditions but the company is not out of the woods yet.

So, the $6.75 billion in revenue missed the consensus by $0.170 or 250 basis points on weaker than expected comps. Comps fell 5.0% globally with a 6% drop in the U.S. and 3% fall Internationally. Speaking for myself, I used to get my Starbucks at the grocery store while doing the shopping and that’s not possible anymore, not with masks. In terms of check averages and volume, the average check rose 17% but was offset by a 19% decline in total checks.

Moving down the report, the company’s operating margins shrank but not as much as expected. The 270 basis point decline beat the consensus by 140 bps and helped pad the bottom line. On the bottom line, the adjusted EPS of $0.61 beat by $0.05 but fell from last year’s $0.79 while adjusted earnings beat by $0.06.

Looking forward, the company is guiding the Q2 and fiscal 2021 period lower despite the Q1 strength and outlook for a stronger second half. The Q2 period should see comps rise 5% to 10% in the U.S. with regionally stronger comps in areas harder hit by lockdowns (China). The GAAP and Adj EPS are expected to fall from the Q1 period to a range below the consensus as is full-year revenue and earnings. The upshot is that full-year 2021 comps should grow 18-23% globally and that estimate is expected to be low if not very low.

The Technical Outlook: Starbucks Falls, Get Ready To Buy The Dip

Shares of Starbucks fell in the wake of the FQ1 report and may be heading lower but we don’t suggest getting too bearishon the stock. The FQ1 results and the outlook for the year are less than what the market had priced in but do not negate the company’s earnings power or positioning for the rebound. With continued expansion of the store-count underway this company is set up for levered earnings growth later this year. If support does not begin to appear in the $97.50 range the next targets for support are near $93.00 and $91.00.