Four key factors investors should watch for when Starbucks reports earnings on Tuesday

Published Tue, Jul 27 202110:37 AM EDT

Starbucks is expected to report its fiscal third-quarter results on Tuesday after the bell, presenting investors with the opportunity to see how its international cafes are bouncing back. A year ago, the coffee giant saw customer traffic crater as office workers stayed home, skipping their typical morning routines. During its fiscal third quarter of 2020, the company lost an estimated $3.1 billion in revenue. Since then, the business has steadily shown signs of improvement, although there have been some bumps in the road. High vaccination rates helped its U.S. recovery last quarter, but lockdowns and travel restrictions in other regions dragged down its revenue. Shares of Starbucks have risen over 17% this year, giving the stock a market value of $147 billion. Since Dunkin' Donuts went private , Starbucks has fewer direct rivals that are publicly traded, but its stock is relatively expensive compared to other peers in the fast-food sector. Starbucks shares are trading at roughly 42 times its forward earnings, while Restaurant Brands International — owner of Tim Hortons — and McDonald's are trading at less than 30 times each company's forward earnings. Wall Street is increasingly bullish on Starbucks as well. According to Refinitiv, 22 analysts currently have buy ratings for the stock, up from 19 three months ago. On July 23, Baird upgraded the stock to outperform and raised its price target from $117 to $142 per share, citing signs of improved sales across the U.S. coffee category and Starbucks' speedy recovery. Wall Street analysts surveyed by Refinitiv are expecting earnings per share of 77 cents on revenues of $7.28 billion for the company's fiscal third quarter. As Starbucks reveals its latest results, investors should pay attention to these four key areas: 1. Customer traffic Throughout the pandemic, restaurant executives have said that customers are spending more on every order but visiting less frequently. Starbucks is no different. Last quarter, the average transaction total was 21% higher than a year before. Traffic, however, was down by 10%. According to traffic analytics firm Placer.ai , Starbucks visits have been improving sequentially every month since the start of the year. The firm's data shows that traffic fell just 3.1% in June, compared with the same time two years ago. One key driver of traffic for Starbucks is its digital sales. Last quarter, mobile orders accounted for 26% of transactions at U.S. company-owned cafes, up from 18% a year earlier. The company has also turned to adding new menu items to drum up excitement and visits. In March, for example, it added Oatly 's oat substitute to menus nationwide. However, shortages kept many customers from ordering the dairy alternative. 2. Supply chain issues Oat milk isn't the only shortage that Starbucks has reportedly faced in recent months. The Wall Street Journal reported in June that the company was also in need of disposable cups and the syrups it uses to flavor its coffee drinks. Later that month, CEO Kevin Johnson denied that the company was facing any shortages of cups or coffee in an interview on CNBC's "Mad Money with Jim Cramer." Nevertheless, Johnson did acknowledge some supply chain issues with some of its food items, like the breakfast sandwiches. 3. Covid-19 delta variant The seven-day average of new Covid cases surpassed 62,000, according to CNBC analysis of Johns Hopkins University data. That's up 57% from a week ago. Health officials have pointed to the Covid delta variant as the cause of the surge. The U.S. Centers for Disease Control and Prevention is also expected to recommend on Tuesday that fully vaccinated people wear masks indoors in areas with high Covid-19 transmission rates, people familiar with the matter told CNBC. Meanwhile, Los Angeles County has reinstated its indoor mask mandate , sparking concerns about the return of harsher restrictions if new Covid cases don't slow down. Further, while the U.S. is Starbucks' largest market, the global coffee giant still has a sizeable presence in other countries, making it even more exposed to the impact of the variant. China, Starbucks' second-largest market, has seen a resurgence of cases tied to the delta variant , resulting in new local lockdowns . 4. The fiscal 2021 forecast Investors should also watch to see if the company once again raises its fiscal 2021 outlook, with one quarter left in its year. Still, uncertainty about the delta variant could keep the company's outlook more conservative. Starbucks' executives expect to earn $2.65 to $2.75 per share for fiscal 2021, according to the company's second-quarter call in April. On an adjusted basis, it's expecting earnings of $2.90 to $3 per share. Full-year revenue is forecast to be $28.5 billion to $29.3 billion. Wall Street is predicting that the company to earn $3 per share and report revenue of $28.8 billion for fiscal 2021.

A person wearing a protective mask enters a Starbucks coffee shop in San Francisco, California, U.S., on Thursday, Jan. 21, 2021.

David Paul Morris | Bloomberg | Getty Images

Starbucks is expected to report its fiscal third-quarter results on Tuesday after the bell, presenting investors with the opportunity to see how its international cafes are bouncing back.