Here's a Nifty Reason Why Starbucks Could Shock Everyone With Its Earnings
A burst of new products may leave some investors wondering why they didn't nibble at Starbucks' (SBUX) - Get Reportdowntrodden stock ahead of its earnings release on Thursday.
According to research by RBC Capital Markets, the coffee king debuted an eye-popping 13 new products -- which came in the wake of consumer backlash to changes made to Starbucks' popular rewards plan in April -- during the fiscal quarter ended June 30. Six of the new products were in the higher-priced frappuccino category.
The headliners included sugar bombs such as the caramel cocoa cluster frappuccino, s'more frappuccino, birthday cake frappuccino, caramel waffle cone frappuccino and the double double fudge bar frappuccino.
Elsewhere in the drinks business, Starbucks launched three new iced tea flavors, a flavor for its popular cold brew, a shaken espresso beverage, bottled cold brew at supermarkets and three granitas, which are made with shaved ice.
A year ago, notes RBC, Starbucks only introduced six new products -- most of which were food.
The steady stream of product innovation likely helped Starbucks navigate an economic slowdown in the U.S. restaurant industry and volatile operating conditions in Europe with reasonable success.
"We are maintaining our fiscal third-quarter Americas same-store sales growth estimate of 6% based on results of our proprietary consumer panel analysis through June," wrote RBC Capital Markets analyst David Palmer in a July 12 note about Starbucks' largest region.
He added, "Should the company report 6% Americas same-store sales growth, we believe this would represent a strong result given weak retail and restaurant traffic trends the quarter and the company's tougher comparisons."
And if Starbucks delivers a decent quarter on the back of its innovation spurt, it may reawaken interest in its stock. Shares have fallen about 4.9% year to date, lagging the S&P 500's 6.4% gain.
It's not hard to see the source of Wall Street's angst over how Starbucks did in the quarter, however.
Total restaurant industry traffic was flat in the first quarter, according to the latest data from research firm NPD. Even the historically hot fast-casual sector -- led by names such as Chipotle (CMG) - Get Report and Panera Bread (PNRA) -- was sluggish in the first quarter as traffic levels were unchanged from the prior year.
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"There is a confluence of changing demographics, economic pressures and evolving consumer attitudes and behaviors creating shifts in what, where, when and how we eat," said Bonnie Riggs, NPD restaurant industry analyst.
Share prices for some of the biggest restaurant chains have subsequently taken a hit. Buffalo Wild Wings (BWLD) shares have dropped 14% year to date, DineEquity (DIN) - Get Report (owner of Applebee's and IHOP) has shed 3.1%, Brinker International (EAT) - Get Report , which operates Chili's and Maggiano's, has lost 0.3% and Chipotle has plunged 13%.
The outlier this year has been Panera Bread, whose stock has gained roughly 7% due to optimism over enhancements to its menu and new digital ordering platform.