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Starbucks (SBUX) Banks on Solid Comps Growth Amid Inflation
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Starbucks Corporation (SBUX - Free Report) is benefiting from robust comps and store growth as well as revenue recovery in China. Also, its focus on product innovation boosts growth.
Recently, Starbucks reported second-quarter fiscal 2023 results, with earnings and revenues beating the Zacks Consensus Estimate by 15.6% and 3.9%, respectively. Also, the bottom and the top lines grew 25.4% and 14.2% year over year, respectively. The Zacks Consensus Estimate for the company’s fiscal 2023 sales and EPS indicates growth of 11.9% and 16.2%, respectively, from the previous year’s reported levels.
Shares of SBUX have rallied 43.7% in the past year against the Zacks Retail - Restaurants industry’s growth of 32.1%. Earnings estimates for fiscal 2023 have moved north to $3.44 per share from $3.42 per share over the past 30 days. This depicts analysts' optimism over the company’s growth prospects.
Image Source: Zacks Investment Research
However, persisting inflationary pressure, increased expenses and consumer spending risks are major concerns.
What is Favoring SBUX?
Starbucks witnessed solid comps growth in all its operational segments in second-quarter fiscal 2023, attributable to increase in comparable transactions and average ticket. In the reported quarter, North America comps grew 12% courtesy of a 6% increase in comparable transactions and a 5% increase in average ticket. International comps also grew 7%, driven by a 7% increase in comparable transactions. Global comps increased 11%, mainly because of a 6% increase in comparable transactions and a 4% increase in average ticket.
Starbucks also focuses on increasing global market share by judiciously opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs and aggressive product innovation and brand building. In second-quarter fiscal 2023, the company opened 464 net new stores globally, reflecting a total store count of 36,634. For 2023, the company expects global store growth to be nearly 7%, with anticipated store count in the United States and China likely to grow approximately 3% and 13%, respectively, on a year-over-year basis.
After the business downturn due to COVID-19, China bounced back faster than expected and has been contributing majorly to consolidated revenues of SBUX for the past three quarters. In second-quarter fiscal 2023, revenues in China increased 3% to $763.8 million year over year with 3% comps growth. In the quarter, the company opened 153 net new stores across China and it anticipates nearly 13% store growth in 2023. The company ended second-quarter fiscal 2023 with approximately 6,200 Starbucks stores across 244 cities in China and is on track to have 9,000 stores by 2025.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. In February 2023, the company launched the Starbucks Oleato range of beverages, available in 650 stores across Italy, Japan and the United States, receiving positive feedback upon launching.
Headwinds
Starbucks is facing restrictions in its potential growth due to persisting inflationary pressure. Our model predicts total operating expense to increase 10.3% year over year on higher store operating and other operating expenses.
Also, being a retail restaurant, Starbucks is dependent on the consumer discretionary spending environment. Consumers’ propensity to spend largely depends upon the overall macroeconomic scenario.
Here are some better-ranked stocks from the Zacks Retail-Wholesale sector.
Chipotle Mexican Grill, Inc. (CMG - Free Report) sports a Zacks Rank #1. CMG has a long-term earnings growth rate of 31.8%. The shares of the company have risen 39.6% in the past six months.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS suggests growth of 14% and 33.9%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. Shares of the company have gained 24.2% in the past six months.
The Zacks Consensus Estimate for ARCO’s 2023 sales and EPS suggests growth of 13.4% and 4.4%, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of the company have increased 19.9% in the past six months.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.1% and 23.4%, respectively, from the year-ago period’s levels.
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Starbucks (SBUX) Banks on Solid Comps Growth Amid Inflation
Starbucks Corporation (SBUX - Free Report) is benefiting from robust comps and store growth as well as revenue recovery in China. Also, its focus on product innovation boosts growth.
Recently, Starbucks reported second-quarter fiscal 2023 results, with earnings and revenues beating the Zacks Consensus Estimate by 15.6% and 3.9%, respectively. Also, the bottom and the top lines grew 25.4% and 14.2% year over year, respectively. The Zacks Consensus Estimate for the company’s fiscal 2023 sales and EPS indicates growth of 11.9% and 16.2%, respectively, from the previous year’s reported levels.
Shares of SBUX have rallied 43.7% in the past year against the Zacks Retail - Restaurants industry’s growth of 32.1%. Earnings estimates for fiscal 2023 have moved north to $3.44 per share from $3.42 per share over the past 30 days. This depicts analysts' optimism over the company’s growth prospects.
Image Source: Zacks Investment Research
However, persisting inflationary pressure, increased expenses and consumer spending risks are major concerns.
What is Favoring SBUX?
Starbucks witnessed solid comps growth in all its operational segments in second-quarter fiscal 2023, attributable to increase in comparable transactions and average ticket. In the reported quarter, North America comps grew 12% courtesy of a 6% increase in comparable transactions and a 5% increase in average ticket. International comps also grew 7%, driven by a 7% increase in comparable transactions. Global comps increased 11%, mainly because of a 6% increase in comparable transactions and a 4% increase in average ticket.
Starbucks also focuses on increasing global market share by judiciously opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs and aggressive product innovation and brand building. In second-quarter fiscal 2023, the company opened 464 net new stores globally, reflecting a total store count of 36,634. For 2023, the company expects global store growth to be nearly 7%, with anticipated store count in the United States and China likely to grow approximately 3% and 13%, respectively, on a year-over-year basis.
After the business downturn due to COVID-19, China bounced back faster than expected and has been contributing majorly to consolidated revenues of SBUX for the past three quarters. In second-quarter fiscal 2023, revenues in China increased 3% to $763.8 million year over year with 3% comps growth. In the quarter, the company opened 153 net new stores across China and it anticipates nearly 13% store growth in 2023. The company ended second-quarter fiscal 2023 with approximately 6,200 Starbucks stores across 244 cities in China and is on track to have 9,000 stores by 2025.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. In February 2023, the company launched the Starbucks Oleato range of beverages, available in 650 stores across Italy, Japan and the United States, receiving positive feedback upon launching.
Headwinds
Starbucks is facing restrictions in its potential growth due to persisting inflationary pressure. Our model predicts total operating expense to increase 10.3% year over year on higher store operating and other operating expenses.
Also, being a retail restaurant, Starbucks is dependent on the consumer discretionary spending environment. Consumers’ propensity to spend largely depends upon the overall macroeconomic scenario.
Zacks Rank & Key Picks
Starbucks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are some better-ranked stocks from the Zacks Retail-Wholesale sector.
Chipotle Mexican Grill, Inc. (CMG - Free Report) sports a Zacks Rank #1. CMG has a long-term earnings growth rate of 31.8%. The shares of the company have risen 39.6% in the past six months.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS suggests growth of 14% and 33.9%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. Shares of the company have gained 24.2% in the past six months.
The Zacks Consensus Estimate for ARCO’s 2023 sales and EPS suggests growth of 13.4% and 4.4%, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of the company have increased 19.9% in the past six months.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.1% and 23.4%, respectively, from the year-ago period’s levels.