Starbucks Corp. (SBUX) shares are edging higher in anticipation of the company's year-end results.
The Seattle-based coffee giant is putting in its highest open since April just one day ahead of earnings.
The rise comes as the market is expecting non-GAAP earnings of $0.62 a share for its fiscal fourth quarter and a double-digit increase in revenue to $6.3 billion on Thursday evening.
Expected sales figures would build on an 11.5% increase in revenue charted year-over-year in the past quarter.
Investors will need to focus on guidance as lowered guidance in the past has produced negative price implications for SBUX shares, most obviously with a 9% stock hit in June after reducing forward-looking estimates.
Aside from the raw numbers, there are a number of developments for investors to keep an eye on.
Ackman Attempts to Elevate the Company
One major development investors will be watching on Thursday is the presence of Bill Ackman's Pershing Square following its blockbuster Starbucks investment announced Oct. 9.
The investment, which is valued at almost $900 million, was based on the thesis that the company has streamlined its business in order to remain a "category killer" in what Ackman deems a secular growth story in premium coffee.
He noted that the company's 46% market share globally is 15 times any other coffee retailer in the world. The company also holds a 67% share in the United States alone, dominating coffee demand.
Yet Ackman noted that possibly the largest driver of the company's growth story is China.
Starbucks has long been dominant in the Chinese market, controlling nearly 60% of the market share in the world's most populous nation. The company is not satisfied with a simple majority, however.
Starbucks has 3,400 stores in China and plans to almost double the number of its locations there in short order by opening one store approximately every 15 hours until 2022.
Aside from Ackman and his high-profile stake, the company has inked an agreement with Jack Ma-led juggernaut Alibaba Holdings (BABA) for e-commerce-driven coffee delivery.
"Delivery is now a 'lifestyle' for Chinese consumers, so the absence of a [third party delivery] offering had a detrimental impact on sales," Jefferies analyst Andy Barish said on the announcement of the agreement. "BABA sets SBUX up to capture this opportunity, and extend its quality-assured, premium retail experience beyond its four walls."
Partnering with China's biggest stalwart company while maintaining an already-dominant share in the market is certainly a compelling story for investors.
Revenue from China made up about 26% of Starbucks' revenue in the three quarters ended July 1, 2018, which marked an increase from about 20% in the like period in 2017.
Given the tense relations between China and the United States at present, there remain concerns on what the Xi administration could do to U.S. multinationals operating in China. Starbucks executives will need to calm the nerves of investors anxious about the increasingly important region.
Besides, China is no longer a one-shop show.
"Coke plans to expand the Costa brand internationally across Europe and Asia Pacific (particularly China)," Dara Mohsenian, equity analyst at Morgan Stanley Research, wrote in a note upon the announcement of Coke's deal with Costa's former parent Whitbread (WTBDY) .
Costa Coffee is currently the second-largest coffee retailer in China and the backing of such a large company adds to the pressure that Costa's market share incursion could apply to Starbucks. Costa has slated a similar expansion plan to Starbucks, planning 1,200 stores in China by 2022.
Analysts are noting the potential impact on Starbucks of China's domestic coffee producers and U.S. companies with an already-large presence in China, such as McDonald's Corp. (MCD) .
"We believe competitive pressures from Coffee Box have stepped up and McDonald's now is beginning to introduce coffee delivery in China," BMO Capital Markets analyst Andrew Strelzik wrote in early October.
Strelzik said the staunch competition puts a barrier in the way of Starbucks' continued growth, leading him to give the company's shares a market perform rating.
Executives will need to prove they can retain the dominant market share that Ackman touted for a much-needed stock pop on Thursday.