Why Starbucks Earnings Are Tanking the Stock

Starbucks Corp. (NASDAQ: SBUX) reported fiscal fourth-quarter and full-year 2017 results after markets closed Thursday. For the quarter, the coffee roasting and restaurant company posted adjusted diluted earnings per share (EPS) of $0.54 on revenues of $5.7 billion. In the same period a year ago, the company reported EPS of $0.56 on revenues of $5.71 billion. Fourth-quarter results also compare to consensus estimates for EPS of $0.55 and $5.8 billion in revenues.

For the full year, Starbucks reported EPS of $1.97 and revenues of $22.39 billion, compared with fiscal year 2016 totals of $1.90 in EPS and revenues of $21.32 billion. Analysts were expecting EPS of $2.06 and revenues of $22.5 billion.

U.S. same-store sales rose 3% and U.S. average ticket rose 2% while transactions increased by 1%. China, Asia-Pacific (CAP) same-store sales rose 2% driven by a 7% increase in transactions in China.

On a non-GAAP basis, EPS totaled $0.55 in the fourth quarter compared with $0.50 in the same period last year. The sale this year of the company’s Singapore operations added six cents and a tax benefit added two cents to adjusted earnings per share, while restructuring and impairment charges cost three cents as did a donation to the Starbucks Foundation. The acquisition of some Japanese assets also snipped one cent off adjusted EPS.

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Company CEO Kevin Johnson said:

Food, beverage and digital innovation are bringing customers into our stores at the same time as ongoing operational improvements are enabling us to drive increased throughput – particularly in our busiest stores at peak – and deliver a further elevated Starbucks Experience to our customers.

CFO Scott Maw added:

Starbucks delivered solid top and bottom line growth – and our strongest quarterly traffic number in the U.S. since mid-2016 – despite a difficult operating environment in both the quarter and year. Continued strong growth and performance from CAP demonstrates that Starbucks now has two significant profit engines driving our global returns, our North America business and the broader CAP market.

The company said it would introduce fiscal year 2018 financial targets on its conference call later this afternoon. Analysts are expecting Starbucks to post first-quarter EPS of $0.58 and revenues of $6.26 billion For the full year, analysts are looking for EPS of $2.35 and revenues of $24.75 billion.

Starbucks is also selling its Tazo tea brand to Unilever for $384 million. The company will concentrate its focus on its Teavana brand.

The revenue miss and the lighter earnings disappointed investors and the announcement of a new $15 billion share buyback program over 3 years was not enough to put a smile on their faces. With valuations at today’s nosebleed levels, even a tiny miss can take shares down, as Starbucks is find out right now

Starbucks’ shares traded down about 6.1% in after-hours trading at $51.50 in a 52-week range of $50.84 to $64.87. The 12-month consensus price target on the stock was $63.98 before today’s report.

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