Starbucks' Breakfast Sandwich A Bright Spot In Q4

Starbucks Corporation SBUX reported its FQ4 earnings ahead of expectations, while its FY 2017 guidance came in line. The stock may react negatively, given the projected increase in investments in 2017 and SSS (same-store sales) likely to be at the lower end of guidance in the first half, Jefferies’ Andy Barish said in a report.

Barish maintains a Buy rating on the company with a price target of $65.

SSS In Line

Starbucks witnessed a rebound in U.S. SSS to +5 percent, from +4 percent in the prior quarter. “SBUX's US business saw growth in all dayparts, most notably breakfast, led by SBUX's breakfast sandwich, which is up 17 percent y/y and contributed 1pp to US SSS,” Barish wrote.

Europe, the Middle East and Africa (EMEA) SSS were down on ongoing macro and geopolitical concerns.

Guidance

Management plans to add 2,100 net new units in 2017, with 60 percent of these outside the United States. Although Starbucks projected its global SSS in the mid-single-digit range, the company is expected to meet only the lower end of this range in the first half.

Higher Investments Ahead

Starbucks projected an increase in partner and digital investments of $250 million in 2017 after having increased to $160 million in FY 2016. This investment figure is higher than expected and “an incremental $0.04–$0.05 drag on EPS with a majority of the investments going towards wage and benefits in the US,” the analyst pointed out.

The EPS estimate for 2017 has been reduced from $2.15 to $2.13.

Since growth is likely to be at the lower-end of the guidance ranges in the first half of 2017, the stock is unlikely to outperform in the near term, Barclay’s Jeffrey A. Bernstein said in a separate report. He reiterated an Equal-Weight rating on Starbucks, while reducing the price target from $60 to $57.

At last check, Starbucks was up 2.48 percent at $53.06.