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Starbucks Earnings Preview: What Wall Street Is Saying

Stocks in this article: SBUX MCD DNKN

NEW YORK (TheStreet) -- Fiscal third-quarter earnings at Starbucks (SBUX) are expected by analysts to rise 20% to 66 cents a share on revenue growth of 11% to $4.14 billion. As the coffee company expands its food as well as cold drink offerings, quarterly same-store sales are forecast to rise 5.1%, according to Consensus Metrix.

Starbucks is opening new stores, with a heavy focus on international expansion. Last week it opened its first store in Colombia. Digital and mobile technology also is a strong focus for the coffee chain. CEO Howard Schultz ceded his daily operational responsibilities earlier this year to focus on "Starbucks mission, growth initiatives and the convergence and integration of our retail and e-commerce, digital, card and mobile assets around the world," he said in January.

The company forecast in April that it expected third-quarter profit to range between 64 cents and 66 cents a share.

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Starbucks shares have risen 1.7% this year. Shares of Dunkin' Brands (DNKN) (which also reports quarterly results on Thursday), are down 7.3% while McDonald's (MCD) shares are flat.  Here's what Wall Street will be watching when Starbucks reports earnings after Thursday's closing bell.

Coffee Prices

Nicole Miller Regan, Piper Jaffray (Overweight; $90 PT)

Coffee prices remain elevated, but moved lower sequentially in June. We note that coffee prices are expected to move higher over the near-term and thus likely remain in the mainstream headlines. Looking forward, we expect inflation to continue in CY14 as coffee prices move higher from multi-year lows set at the end of last year. That said and despite the likelihood for inflation, we note that SBUX has its coffee needs locked for the remainder of this year at favorable prices and is already locked for ~40% of 2015 at roughly flat pricing. Thus, while inflation will eventually work its way into numbers we believe the company remains well-positioned to weather near-term inflation given its already established contracts and lever its industry-leading brand equity vis-a-vis potential menu pricing power.

Food Sales

Brian Bittner, Oppeneheimer (Outperform)

SBUX sales/unit are still relatively "low" at $1.3M (vs. MCD at $2.5M), mostly because food is only 20% of SBUX sales. But the product pipeline is one of the best in company's history, comparisons now ease and the competitive moat remains very deep. The Street models comps decelerating to +5% (vs. +7% average since 2010) over the next six quarters, despite these favorable dynamics. Foodadded 1-2% to comps prior to roll-out of La Boulange bakery products. This fresh line-up is now the largest contributor to the comp, with catalysts for an acceleration in the form of a new breakfast sandwich platform (debuted in March and driving 50% increase in breakfast sandwich sales) and full lunch roll-out in F15 (Exhibit 2 below from a test location in NYC).

Consumer Packaged Goods

Nick Setyan, Wedbush Securities (Outperform; $90 PT)

[The] CPG segment [is] poised for acceleration, in our opinion. Our weekly grocery price checks indicate Starbucks is poised to benefit from the most favorable relative pricing vs. competitors since our checks started in the summer of 2012. Starbucks not only lapped a price decrease in May, but we've seen competitors increase prices recently. Our analysis of weekly coffee check price data and IRI grocery data (which have shown 95% correlation historically), indicate SBUX is best positioned among competitors to increase prices without losing share, and also stands to benefit most from competitors' price increases.

-- Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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