All eyes are on Starbucks’ earnings as multiple fast-food restaurants smash expectations (SBUX)

Associated Press

Starbucks is the latest fast-food restaurant expected to post an earnings win after Chipotle and Darden Restaurants, which owns Olive Garden, beat expectations.
Starbucks will report its third-quarter results after the market close on Thursday.
The coffee chain has focused on growth in the US and China, and boosting traffic to its stores.
Watch Starbucks trade live on Markets Insider.

Fast-food restaurants are having a moment.

Chipotle soared to a 52-week high after it reported quarterly earnings on Tuesday. Darden Restaurants, which owns Olive Garden and Cheddar’s Scratch Kitchen, also posted an earnings beat and gain in share price in July.

Analysts are expecting Starbucks’ third-quarter earnings release on Thursday to be the latest in a row of strong food industry earnings led by fast-food restaurants. The most recent earnings release sent the coffee chain’s shares up 2% on the solid report and updated fiscal 2019 guidance.

Shares of Starbucks traded up slightly early Thursday ahead of the company’s earnings.

Here’s what analysts surveyed by Bloomberg expect:

Adjusted earnings-per-share: $0.72 expected

Revenue: $6.7 billion expected

Comparable store sales: +4% expected

Comparable store sales in the Americas: +4.375% expected

Starbucks is also one of many fast-food restaurants that has outperformed the S&P 500 this year, rising by over 40% while the benchmark index has gained nearly 20%. Revenues have been up in the restaurant industry across the board, jumping 19% since the beginning of 2018. Retail sales at food and beverage places like Starbucks are up 9% from January 2018 to June, according to data compiled by Yardeni Research.

And, it’s expected that this growth trend will continue. Forward earnings, or estimates of how companies will perform in the next earnings period, are also on an upward climb.

"The industry’s forward earnings has been on a tear since the start of 2015," wrote Ed Yardeni of Yardeni Research in a note to clients Wednesday. Since then, forward earnings have risen 61%.

Starbucks also expects that it will see higher growth through the end of the year. Following strong second-quarter sales numbers in the US and China — key regions for the coffee chain — the company raised its guidance for adjusted earnings-per-share growth in fiscal 2019 to a range of $2.75-$2.79, up from $2.68-$2.73.

Starbucks continues to open more stores worldwide — analysts expect that it will have more than 30,000 stores globally at the end of the third quarter. In the second quarter, the company reported that 94% of its new stores were outside the US.

While the company is expanding its number of stores, it has struggled to grow its transactions in stores. In the second quarter, much of Starbucks’ 4% comparable sales growth was attributed to an increase in the average ticket size.

To address its traffic problem, Starbucks has rolled out new drinks and delivery services. In January, the company announced that it was teaming up with Uber to start delivering coffee in cities across the US. In July, it released its tie-dye Frappuccino, sending shares to an all-time high. Novelty drinks like the tie-dye Frappuccino and the unicorn Frappuccino help boost the number of customers that visit stores as people flock to Starbucks to try the limited-edition beverages.

Shares of Starbucks are up 42% year-to-date.

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