$SBUX massive earnings beat not priced in

You may know me as the shitpost king and/or SPY $440 permabull who timed the recent Monday drop almost perfectly by buying puts the prior Thursday/Friday (can't remember which day). After pretty much being glued to SPY for the last few weeks, I was feeling fatigued and went back to the oldest game in the book, buying risky calls going into an earnings print. I am from the school of Peter Lynch - buy what you know. After almost a year of staying at home and brewing my own coffee, I went to Starbucks for the first time in a long time (back in June) and found myself going back again and again. The wait time was much shorter than I remember and every morning it was quite packed. In true WSB fashion, I only got interested in SBUX after a massive move of 9.5% in a matter of 5 trading days on the back of a big CMG earnings print. I debated writing this because I bought SBUX $130c 7/30 as a complete yolo and then found myself thinking about this more and more and realizing that the street may have sized this up wrong. Is this confirmation bias for myself - maybe?? Change in average ticket / Massive earnings beat In Q2 2021, comparable store sales were up 9% quarter over quarter (Q2 2020). Easy comps right? Well, dig a little deeper and we see there was 10% DROP in transactions, but a 22% INCREASE in average ticket (total receipt/sale). You might think this is some COVID anomaly, but increasing average ticket has been on a positive trend (increased 5% Q2 2020 over Q2 2019). In the earnings, Starbucks attributed it to more group orders and the high / record 'food attach' (people buying overpriced sandwiches with their coffees). Enter Mad Money interview, June 24, 2021 (link). The CEO told Jim Cramer that the volume of transactions has hit an all time record and food attach remains high (at a record? too lazy to listen to it for a 3rd time). So to estimate this quarter's (Q3) EPS, I wanted to see what a normalized EPS would have been for Q2 2021 if the volume of the transactions were flat vs Q2 2019. Grossed up Q2 2021 EPS assuming no change in transactions since 2019 would have been $0.67 So 2021 vs 2019 should have seen a 24% increase in EPS all other things equal (obviously too hard to dissect the financial statements further than this oversimplification). What was Q3 2019 EPS? $1.13. Grossed up by 24%? $1.40!! Average Q3 2021 street estimate (Yahoo Finance)? $0.77 Usually, SBUX beats by about 10-20 cents. Chipotle Comparison There has been a lot of chatter about SBUX rallying on CMG earnings and earnings are priced in. I am not sure about this. CMG is up 38% YTD and SBUX is only up 22%. If you look at the SBUX chart, it hit $118 in April, then fell thru May and consolidated. I think there is still a little left here for a move up - but honestly I have no idea and we know price action is fake basically all the time. ​ TLDR: Higher average ticket price not priced in. SBUX $130c 7/30 for a move up. NOT FINANCIAL ADVICE. THIS COULD BE TOTALLY DUMB. I DON'T CARE WHAT YOU DO. BUY PUTS IF YOU MUST. Edit: I think the average ticket thesis is the biggest factor, but there are some other tailwinds for this quarter that I thought were encouraging (supporting revenue trend) I think I saw drive thru revenue coming in anywhere between 25-35 pct of revenue. Gasoline demand has been up all quarter. link The CEO also said business picked up once they saw 35 pct vax rate which for US was April.

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quarantrader

Jul 26, 2021

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Change % Since Posting

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SBUX

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$SBUX massive earnings beat not priced in

bullish

You may know me as the shitpost king and/or SPY $440 permabull who timed the recent Monday drop almost perfectly by buying puts the prior Thursday/Friday (can't remember which day).

After pretty much being glued to SPY for the last few weeks, I was feeling fatigued and went back to the oldest game in the book, buying risky calls going into an earnings print.

I am from the school of Peter Lynch - buy what you know. After almost a year of staying at home and brewing my own coffee, I went to Starbucks for the first time in a long time (back in June) and found myself going back again and again. The wait time was much shorter than I remember and every morning it was quite packed. In true WSB fashion, I only got interested in SBUX after a massive move of 9.5% in a matter of 5 trading days on the back of a big CMG earnings print.

I debated writing this because I bought SBUX $130c 7/30 as a complete yolo and then found myself thinking about this more and more and realizing that the street may have sized this up wrong. Is this confirmation bias for myself - maybe??

Change in average ticket / Massive earnings beat

In Q2 2021, comparable store sales were up 9% quarter over quarter (Q2 2020). Easy comps right? Well, dig a little deeper and we see there was 10% DROP in transactions, but a 22% INCREASE in average ticket (total receipt/sale). You might think this is some COVID anomaly, but increasing average ticket has been on a positive trend (increased 5% Q2 2020 over Q2 2019). In the earnings, Starbucks attributed it to more group orders and the high / record 'food attach' (people buying overpriced sandwiches with their coffees).

Enter Mad Money interview, June 24, 2021 (link). The CEO told Jim Cramer that the volume of transactions has hit an all time record and food attach remains high (at a record? too lazy to listen to it for a 3rd time).

So to estimate this quarter's (Q3) EPS, I wanted to see what a normalized EPS would have been for Q2 2021 if the volume of the transactions were flat vs Q2 2019.


&auto=webp&s=302c2b9e1273aafb42335388e715d57446ba91bf">Grossed up Q2 2021 EPS assuming no change in transactions since 2019 would have been $0.67

So 2021 vs 2019 should have seen a 24% increase in EPS all other things equal (obviously too hard to dissect the financial statements further than this oversimplification).

What was Q3 2019 EPS? $1.13. Grossed up by 24%? $1.40!!

Average Q3 2021 street estimate (Yahoo Finance)? $0.77

Usually, SBUX beats by about 10-20 cents.

Chipotle Comparison

There has been a lot of chatter about SBUX rallying on CMG earnings and earnings are priced in. I am not sure about this. CMG is up 38% YTD and SBUX is only up 22%. If you look at the SBUX chart, it hit $118 in April, then fell thru May and consolidated. I think there is still a little left here for a move up - but honestly I have no idea and we know price action is fake basically all the time.

TLDR: Higher average ticket price not priced in. SBUX $130c 7/30 for a move up.

NOT FINANCIAL ADVICE. THIS COULD BE TOTALLY DUMB. I DON'T CARE WHAT YOU DO. BUY PUTS IF YOU MUST.

Edit: I think the average ticket thesis is the biggest factor, but there are some other tailwinds for this quarter that I thought were encouraging (supporting revenue trend)

I think I saw drive thru revenue coming in anywhere between 25-35 pct of revenue.

Gasoline demand has been up all quarter. link

The CEO also said business picked up once they saw 35 pct vax rate which for US was April.

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read-time
3 min

130.00

Target Price

9/ 10

Confidence

2-4 Weeks

Timeframe
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Earnings Release
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News
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SEC Filing
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Sentiment
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SBUX Channel

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