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Starbucks (SBUX) Down 3.7% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Starbucks (SBUX - Free Report) . Shares have lost about 3.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Starbucks due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Starbucks Q3 Earnings Top, Revenues Miss
Starbucks reported mixed third-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. On a year-over-year basis, earnings declined but revenues improved, given higher U.S. comparable sales.
Discussion on Earnings, Revenues & Comps
In the quarter under review, the company reported adjusted earnings per share (EPS) of 84 cents, surpassing the Zacks Consensus Estimate of 77 cents by 9.1%. However, the bottom line decreased 15.2% year over year from an adjusted EPS of 99 cents reported in the prior-year quarter.
Quarterly revenues of $8,150.1 million lagged the Zacks Consensus Estimate of $8,227 million by 0.9%. However, the top line increased 9.7% on a year-over-year basis. The upside was primarily driven by solid revenue contributions from the U.S. and stellar performances across its diverse global portfolio. The solid performances of new U.S. company-operated stores (part of the North America Trade Area Transformation initiative) added to the positives.
Global comparable store sales increased 3% year over year. The upside was primarily driven by a 6% rise in average tickets, marginally overshadowed by a 3% decline in comparable transactions.
Starbucks opened 318 net new stores worldwide in the fiscal third quarter, bringing the total store count to 34,948.
Overall Margin Falls in Q3
On a non-GAAP basis, the operating margin during the fiscal third quarter came in at 16.9%, down from 20.4% reported in the prior-year quarter. The downside was primarily caused by inflationary pressures along with increased investments in store partner wages and benefits. Reduced traffic in China also added to the woes. However, this was partially offset by higher pricing in North America.
Segmental Details
Starbucks has three reportable operating segments: North America, International and Channel Development.
North America: This segment’s fiscal third-quarter net revenues came in at $6,058.4 million, up 13% year over year. The segment benefited from 9% growth in company-operated comparable store sales, new store growth and higher contribution from licensed store sales.
Operating margin in the North American segment came in at 22% compared with 24.3% reported in the prior-year quarter. The contraction was due to the rise in supply chain costs (on account of inflationary pressures and higher spending on new partner training) and investments in retail store partner wages. These were partly offset by pricing.
International: This segment’s fiscal third-quarter net revenues came in at $1,584.7 million, down 6% year over year. The downside can be primarily attributed to an 18% decline in comparable store sales owing to COVID-19-related restrictions in China. The decline was marginally overshadowed by net new store openings, higher product sales and royalty revenues. The conversion of the Korean market from a joint venture to a fully licensed market in the fourth quarter-fiscal 2021 added to the positives.
Operating margin in the segment contracted 1,090 basis points (bps) year over year to 8.5%. The downside can be attributed to sales deleverage owing to COVID-19 restrictions in China, investments in strategic initiatives, store partner wages and benefits as well as higher profit and distribution costs from a sales mix shift. However, this was partially offset by sales leverage across markets outside of China.
During the fiscal third quarter, comps in China declined 44% year over year. The downtick was caused by a 1% decline in average tickets and a 43% fall in transactions. China continues to battle COVID resurgences and navigate through prolonged lockdowns.
Channel Development: Net revenues in the segment increased 16% from the prior-year quarter’s figure to $479.7 million. The upside was primarily driven by growth in its ready-to-drink business and Global Coffee Alliance.
The segment’s operating margin, however, contracted 1,220 bps to 40%. The decline was mainly due to a fall in income from the North American Coffee Partnership joint venture, primarily on account of inflationary pressures and a business mix shift.
Financial Details
The company ended the third quarter with cash and cash equivalents of $3,177.5 million compared with $6,455.7 million as of Oct 3, 2021. As of Jul 3, 2022, long-term debt totaled $13,930.8 million compared with $13,616.9 million as of Oct 3, 2021.
Meanwhile, the company declared a quarterly cash dividend of 49 cents per share. The dividend is payable on Aug 26, 2022, to shareholders of record as of Aug 12, 2022.
Other Updates
Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 27.4 million, reflecting an increase of 13% year over year.
Fiscal 2022 Guidance
Given the ongoing uncertainty around China, increasing inflation and the significant investments that the company has been planning, SBUX management has suspended guidance for Q4 for the time being. SBUX believes that the balance of the year will be under massive pressure.
The company intends to provide a comprehensive update on its business outlook for fiscal 2023 and beyond at its Investor Day in September.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -7.88% due to these changes.
VGM Scores
At this time, Starbucks has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Starbucks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Starbucks is part of the Zacks Retail - Restaurants industry. Over the past month, Chipotle Mexican Grill (CMG - Free Report) , a stock from the same industry, has gained 0.7%. The company reported its results for the quarter ended June 2022 more than a month ago.
Chipotle reported revenues of $2.21 billion in the last reported quarter, representing a year-over-year change of +17%. EPS of $9.30 for the same period compares with $7.46 a year ago.
Chipotle is expected to post earnings of $9.05 per share for the current quarter, representing a year-over-year change of +28.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Chipotle. Also, the stock has a VGM Score of C.
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Starbucks (SBUX) Down 3.7% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Starbucks (SBUX - Free Report) . Shares have lost about 3.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Starbucks due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Starbucks Q3 Earnings Top, Revenues Miss
Starbucks reported mixed third-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. On a year-over-year basis, earnings declined but revenues improved, given higher U.S. comparable sales.
Discussion on Earnings, Revenues & Comps
In the quarter under review, the company reported adjusted earnings per share (EPS) of 84 cents, surpassing the Zacks Consensus Estimate of 77 cents by 9.1%. However, the bottom line decreased 15.2% year over year from an adjusted EPS of 99 cents reported in the prior-year quarter.
Quarterly revenues of $8,150.1 million lagged the Zacks Consensus Estimate of $8,227 million by 0.9%. However, the top line increased 9.7% on a year-over-year basis. The upside was primarily driven by solid revenue contributions from the U.S. and stellar performances across its diverse global portfolio. The solid performances of new U.S. company-operated stores (part of the North America Trade Area Transformation initiative) added to the positives.
Global comparable store sales increased 3% year over year. The upside was primarily driven by a 6% rise in average tickets, marginally overshadowed by a 3% decline in comparable transactions.
Starbucks opened 318 net new stores worldwide in the fiscal third quarter, bringing the total store count to 34,948.
Overall Margin Falls in Q3
On a non-GAAP basis, the operating margin during the fiscal third quarter came in at 16.9%, down from 20.4% reported in the prior-year quarter. The downside was primarily caused by inflationary pressures along with increased investments in store partner wages and benefits. Reduced traffic in China also added to the woes. However, this was partially offset by higher pricing in North America.
Segmental Details
Starbucks has three reportable operating segments: North America, International and Channel Development.
North America: This segment’s fiscal third-quarter net revenues came in at $6,058.4 million, up 13% year over year. The segment benefited from 9% growth in company-operated comparable store sales, new store growth and higher contribution from licensed store sales.
Operating margin in the North American segment came in at 22% compared with 24.3% reported in the prior-year quarter. The contraction was due to the rise in supply chain costs (on account of inflationary pressures and higher spending on new partner training) and investments in retail store partner wages. These were partly offset by pricing.
International: This segment’s fiscal third-quarter net revenues came in at $1,584.7 million, down 6% year over year. The downside can be primarily attributed to an 18% decline in comparable store sales owing to COVID-19-related restrictions in China. The decline was marginally overshadowed by net new store openings, higher product sales and royalty revenues. The conversion of the Korean market from a joint venture to a fully licensed market in the fourth quarter-fiscal 2021 added to the positives.
Operating margin in the segment contracted 1,090 basis points (bps) year over year to 8.5%. The downside can be attributed to sales deleverage owing to COVID-19 restrictions in China, investments in strategic initiatives, store partner wages and benefits as well as higher profit and distribution costs from a sales mix shift. However, this was partially offset by sales leverage across markets outside of China.
During the fiscal third quarter, comps in China declined 44% year over year. The downtick was caused by a 1% decline in average tickets and a 43% fall in transactions. China continues to battle COVID resurgences and navigate through prolonged lockdowns.
Channel Development: Net revenues in the segment increased 16% from the prior-year quarter’s figure to $479.7 million. The upside was primarily driven by growth in its ready-to-drink business and Global Coffee Alliance.
The segment’s operating margin, however, contracted 1,220 bps to 40%. The decline was mainly due to a fall in income from the North American Coffee Partnership joint venture, primarily on account of inflationary pressures and a business mix shift.
Financial Details
The company ended the third quarter with cash and cash equivalents of $3,177.5 million compared with $6,455.7 million as of Oct 3, 2021. As of Jul 3, 2022, long-term debt totaled $13,930.8 million compared with $13,616.9 million as of Oct 3, 2021.
Meanwhile, the company declared a quarterly cash dividend of 49 cents per share. The dividend is payable on Aug 26, 2022, to shareholders of record as of Aug 12, 2022.
Other Updates
Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 27.4 million, reflecting an increase of 13% year over year.
Fiscal 2022 Guidance
Given the ongoing uncertainty around China, increasing inflation and the significant investments that the company has been planning, SBUX management has suspended guidance for Q4 for the time being. SBUX believes that the balance of the year will be under massive pressure.
The company intends to provide a comprehensive update on its business outlook for fiscal 2023 and beyond at its Investor Day in September.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -7.88% due to these changes.
VGM Scores
At this time, Starbucks has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Starbucks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Starbucks is part of the Zacks Retail - Restaurants industry. Over the past month, Chipotle Mexican Grill (CMG - Free Report) , a stock from the same industry, has gained 0.7%. The company reported its results for the quarter ended June 2022 more than a month ago.
Chipotle reported revenues of $2.21 billion in the last reported quarter, representing a year-over-year change of +17%. EPS of $9.30 for the same period compares with $7.46 a year ago.
Chipotle is expected to post earnings of $9.05 per share for the current quarter, representing a year-over-year change of +28.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Chipotle. Also, the stock has a VGM Score of C.