Yahoo Finance Why Starbucks’s Sales Growth Will Be Important to Watch in 3Q15
Starbucks's 3Q15 Earnings: Must-Knows ahead of the Big Day
Sales growth impact on valuation
Previously in this series, we discussed the importance of same-store sales growth. This driver has a significant impact on sales growth at Starbucks (SBUX). With both 1Q15 and 2Q15 earnings releases, the company’s rate of revenue growth came in higher. The company reported a 13.2% sales growth rate in Q1 and a 9% rate in Q2. The five-year historical average is 11.8%.
In the chart above, you can see that Starbucks’ forward PE (price-to-earnings ratio) has closely tracked sales growth. This is an important relationship that Starbucks investors should follow closely. We’ll track how sales growth will affect share prices after the 3Q15 earnings report on July 23, 2015. Certain scenarios involving this relationship could affect the company’s share price.
Scenarios that could affect Starbucks stock
Comps growth is the major driver of Starbucks’ sales growth. Most of Starbucks’ sales growth, about 68%, comes from its Americas segment. Comps in the Americas segment grew by 7%, but mostly because of a higher ticket as opposed to an increase in the more important traffic.
In the next quarter, if comps growth comes in higher, investors should see the stock rise. If comps grow in the CAP (China, Asia-Pacific) region, the stock should do even better.
In another scenario, comps in the Americas segment may not come in as high as expected and the CAP segment’s comps may not be sufficient to offset this difference. In that case, shares are likely to drop.
To mitigate this risk, investors can invest in a broader portfolio such as the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY invests 3% of its portfolio in Starbucks (SBUX), 1% in Chipotle Mexican Grill (CMG), 1.5% in Yum! Brands (YUM), and 0.3% in Darden (DRI).
Next, we’ll wrap up this series with Wall Street analysts’ estimates for Starbucks’ 3Q15 earnings.
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