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Wednesday, August 02, 2006

Previewing Starbucks

Starbucks (SBUX) releases earnings after the close today, and this looks like one to watch. The street is looking for EPS of $0.17 and revenues of $1.96 Billion.

Options traders appear braced for a move of up to about 3.5% in the stock from the earnings.

Even with today's 1.2% gain the shares are down over 16% from the $39.88 highs in May. The shares got as low as about $32.50 yesterday and are now just more than half way up from where it was Monday.

One of the things that affected this volatility in the name was the poor stock performance of Whole Foods. If the company can post better forward numbers, then you can probably expect a short squeeze. SBUX has over 30 million shares in its short interest as last month, which represents about 4% of its float. Burger King (BKC) missing estimates probably didn't help the sector either, although comparing Burker King customers to Starbucks customers may be like drawing the conclusion that all people are alike because of two feet and a preference of wearing shoes.

SBUX trades with a current trailing P/E of 48, and if you believe forward estimates from the street it has a forward P/E for fiscal SEP-2006 of 46.4 and a forward P/E for fiscal SEP-2007 of about 38.

At its last same store sales (s-s-s) report it showed +6% instead of +7% the street was looking for; and its most recent guidance was raised for the full-year 2006 earnings forecast to $0.71 to $0.72 from a prior range of $0.68 to $0.70. The company is increasing its food offerings more and more toward the end of the year, and the verdict is still out on that initiative.

The company's forward guidance will be the key since we have already seen the total quarterly sales for each month of the quarter. We'll see how the Good Hits and Bad Misses theory spills over into coffee shops.

Jon C. Ogg
August 2, 2006
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