Is Starbucks (NASDAQ: SBUX) a Buy Ahead of Earnings? Starbucks (NASDAQ: SBUX) is set to report its fiscal Q2 2021 earnings tomorrow; the coffee giant's business collapsed in fiscal Q3 2020, but sales have improved each of the last two quarters. Starbucks' sales should continue heading in the right direction - but it appears that guidance isn't calling for enough growth.

Starbucks (NASDAQ: SBUX) is set to report its fiscal Q2 2021 earnings tomorrow; the coffee giant's business collapsed in fiscal Q3 2020, but sales have improved each of the last two quarters.

Sales have still declined on a yoy basis in the last two quarters, but Starbucks' fiscal 2021 guidance calls for double-digit growth for the full-year. That said, the guidance appears to be too conservative.

Starbucks is Being Too Cautious

When Starbucks released its fiscal Q4 2020 earnings, the company said it expected global comps to rise 18% to 23% in fiscal 2021. The release came days before word that the Pfizer (NYSE: PFE) vaccine had exceeded expectations and could end the pandemic sooner than many had hoped. Starbucks shares reacted by jumping more than five points because the company clearly stood to gain from people returning to the office and just generally going out more.

So, you would expect Starbucks to raise its guidance in the next earnings release, right?

Of course… But that's not what happened. In its fiscal Q1 2021 release, Starbucks said that it still expects global comps to grow by 18% to 23% in fiscal 2021.

Here are two reasons why Starbucks may have opted to keep the same guidance in place:

1. Long-time CFO Roz Brewer is leaving the company. With a new CFO incoming, it's possible that Starbucks wanted to set a low bar while the new hire gets up to speed.
2. The coffee giant, like most companies, may be pessimistic about the timeline for the world to return to pre-pandemic life.

Let's start by addressing the first reason. If we were talking about a new CEO, it might make sense for investors to expect lower numbers over the new hire's first 3-6 months. But we're talking about the CFO of a well-oiled machine in Starbucks. This isn't a 20-person company that has been around for five years and hasn't turned a profit.

The second reason to keep the same guidance makes a little more sense. While millions of Americans have been vaccinated, there has been no definitive timeline for the entire country to return to pre-pandemic life. Yes, there have been some states that have lifted restrictions, but many haven't. And Starbucks has an outsized presence in major cities – many of which have kept restrictions in place.

On top of that, Starbucks is a global company. While most Americans who want to be vaccinated have gotten their jabs by now, that is not the case in many countries across the world. The vaccines may not be widely distributed worldwide until sometime in 2022.

While there is more validity behind the second reason, we knew all of this before the Pfizer vaccine news was released. The fact of the matter is that the 2021 outlook – as it pertains to a return to pre-pandemic life – is better now than it was back in late October.

Starbucks' Rewards Growth Offers Further Reason for Optimism

Starbucks launched "Stars for Everyone" in the fourth quarter, which helped drive a 2.5-million-member increase in the Starbucks Rewards base. That base is now 21.8 million strong – all active within the last 90 days.

On the fourth-quarter earnings call, CEO Kevin Johnson pointed out, "As the number of active Starbucks Rewards members grew during the quarter, so did their engagement. Rewards customers contributed 50% of U.S. company-operated sales in Q1, up from 43% last year before the onset of COVID-19 and up from 47% in the prior quarter, demonstrating our loyal customer's resilience and affinity for Starbucks."

The program has prevented Starbucks' sales from really cratering over the last year, but can help to turbocharge growth in a post-pandemic world.

How Should You Play Starbucks?

Starbucks' comp growth is going to slow in 2022 and beyond because the coffee giant will lose the benefit of easy pandemic comps. But comps should still continue increasing for the foreseeable future.

But the real long-term difference-maker is Starbucks' expansion plans – the coffee giant expects to have 55,000 locations by 2030, an increase of nearly 70% over the company's current 32,900 locations. Doubt Starbucks at your own peril.

At 41.1x forward earnings, you're paying a pretty penny for Starbucks shares, but the long-term growth outlook gives shares additional upside from here.

Shares are a bit extended at the moment but are still shy of overbought territory on the RSI.

The chart is far from perfect, but the possibility of raised guidance tomorrow makes SBUX shares appealing ahead of earnings.

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