Tuesday, May 30, 2023

Starbucks Stock Is Brewing A Breakout


Global coffee products retailer Starbucks (NASDAQ:) stock has been basing in a shallow range setting up for another breakout heading into earnings season. The Company is a reopening play as workers return to the office means more foot traffic at its brick and mortar stores. That coupled with its bolstering of omnichannel, notably digital channel as continued to accelerate top-line with reopening efforts. The acceleration of COVID-19 vaccinations is driving re-openings which is driving top-line growth as well. The Company has painted itself as the facilitator of the great reconnection of consumers engaging in face-to-face engagement at its locations. The Company was able to galvanize its e-commerce channel during the pandemic and is now gaining traction as COVID-19 is in the rearview mirror. Investors looking to gain exposure in this recovery play can watch for opportunistic pullback levels in shares of Starbucks.

Q2 Fiscal 2021 Earnings Release

On Apr. 27, 2021, Starbucks released its fiscal second-quarter 2021 for the quarter ending March 2021. The Company reported an adjusted earnings-per-share (EPS) profit of $0.62, excluding non-recurring items versus consensus analyst estimates for $0.52, beating estimates by $0.10. Revenues rose 11.2% year-over-year (YOY) to $6.67 billion, missing analyst estimates for $6.75 billion. The Company opened 5 new net stores ending the quarter with 32,943 stores worldwide. Global comparable store sales rose 15% YoY driven by a 19% increase in average ticket. Americas comparable store sales rose 9%, driven by 2% increased average ticket. International comparable sales rose 25%, driven by 26% increase in average ticket. China saw comparable sales increase 91% driven by 93% increase in transactions. Starbucks CEO Kevin Johnson stated:

“We have positioned Starbucks for the inevitable great human reconnection that we see unfolding in the U.S. and will propagate in every market around the world, where people once again connect with others face-to-face to heal, to belong to, to reflect, to share and to celebrate. Starbucks was built for this moment, and as we celebrate our 50th anniversary, we remain confident in our ability to execute our Growth at Scale agenda and unlock the full potential of the Starbucks brand.”

Upside Full-Year Fiscal 2021 Guidance

Starbucks issued upside guidance for full-year fiscal 2021 with EPS in the range of $2.90 to $3.00 versus $2.84 consensus analyst estimates. The Company sees full-year 2021 revenues coming in between $28.5 billion to $29.3 billion versus $28.53 consensus analyst estimates. The Company sees Global comparable store sales growth of between 18% to 23% and Americas growth of $17% to 22%. International comparable same store sales growth between 25% to 30%, while China growth slows to $27% to 32%.

Conference Call Takeaways

CEO Johnson set the tone:

“Starting with the largest contributor to the quarter, expanding digital customer engagement. Digital continues to be a significant driver of our sales recovery in the U.S. Starbucks Rewards’ contribution to the business continues to exceed pre-COVID levels and for the second consecutive quarter is displaying all-time highs across key metrics.”

He went on to detail the 19% growth in the active Starbucks Rewards (SR) member base since the launch of the Stars for Everyone promotion. CEO Johnson pointed out:

“Between continued growth in SR member spend, fueled by strength in ticket and frequency as well as new member acquisition, 52% of our U.S. company-operated sales in Q2 were driven by Starbucks Rewards members, reflecting stronger member engagement and resilience. Total 90-day active members grew by over 1 million member in Q2 to a record 22.9 million.”

Deep Brew is their artificial intelligence (AI) engine that now does predictive analysis by sending personalized offers and suggestions to customers.

Starbucks Corp Stock Chart

Starbucks Corp Stock Chart

SBUX Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for SBUX stock. The weekly rifle chart has been consolidating as the stochastic stalls out. The weekly 5-period moving average (MA) is stalled at $112.45 with 15-period MA at $113.03. The weekly candle is testing the $115.23 Fibonacci (fib) level. The weekly rifle is trying to bounce up off the market structure high (MSH) trigger at $111.61. The weekly market structure low (MSL) buy triggered above $104.51. The daily rifle chart is starting to breakout with a pup formation with rising 5-period MA at 112.94 as the upper Bollinger Band (BB) expands at $114.68. The daily stochastic is trying to stairstep mini pup above the 80-band setting up a potential breakout. Prudent investors can monitor for opportunistic pullback levels at the $112.23 fib, $109.40 fib, $106.56 fib, $105.20 fib, $103.69 fib, $102.10 fib, $99.45 fib, and $96.96 fib. The upside trajectories range from $122.31 fib level up to the $142.37 level.

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