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Starbucks Corporation (SBUX - Free Report) reported mixed third-quarter fiscal 2023 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. The top and bottom lines increased on a year-over-year basis. The upside was primarily backed by solid recovery in China, progress in the Reinvention Plan and innovative beverage and equipment rollouts.
Discussion on Earnings, Revenues & Comps
In the quarter under review, the company reported adjusted earnings per share (EPS) of $1, surpassing the Zacks Consensus Estimate of 95 cents by 5.3%. The bottom line increased 19% year over year from an adjusted EPS of 84 cents reported in the prior-year quarter.
Quarterly revenues of $9,168.3 million lagged the Zacks Consensus Estimate of $9,290 million by 1.3%. However, the top line increased by 12.5% on a year-over-year basis. The upside was primarily driven by growth in comparable store sales and net-new store on a year-over-year basis.
Starbucks Corporation Price, Consensus and EPS Surprise
This and solid performances in global licensed store businesses added to the positives. Global comparable store sales increased 10% year over year. The upside was primarily driven by a 4% rise in average tickets and a 5% rise in comparable transactions. Per our model, global comparable store sales were estimated to grow 8.5% year over year.
In the fiscal third quarter, Starbucks opened 588 net new stores worldwide, bringing the total store count to 37,222.
Overall Margin Expands in Q3
On a non-GAAP basis, the operating margin in the fiscal third quarter was 17.4%, up from 16.9% reported in the prior-year quarter. Our estimate for the metric was 16.8%.
The upside was primarily driven by sales leverage, pricing and productivity improvement. The margin gain was marginally overshadowed by investments in labor and higher general and administrative costs (in support of reinvention).
Segmental Details
Starbucks has three reportable operating segments — North America, International and Channel Development.
North America: This segment’s fiscal third-quarter net revenues were $6,737.8 million, up 11% year over year. The segment benefited from growth in company-operated comparable store sales (of 7%), net new company-operated store growth (4%) and strong licensed store sales. The segment's average ticket and transaction increased 6% and 1%, respectively, on a year-over-year basis.
The operating margin in the North American segment was 21.7% compared with 22% reported in the prior-year quarter. The downside was primarily caused by increased investments in terms of enhanced store partner wages and benefits and partner training. However, this was partially offset by strategic pricing, sales leverage and productivity improvement.
International: This segment’s fiscal third-quarter net revenues were $1,972.9 million, up 24% year over year, primarily due to a 24% gain in comparable store sales, net new store growth of 11% and growth in its licensed store revenue. The gain was marginally offset by a nearly 5% unfavorable impact from foreign currency translation.
The operating margin in the segment expanded 1,050 basis points (bps) year over year to 19%. The upside was driven by sales leverage, the lapping of mobility restrictions in China and the prior year’s amortization expenses.
In the fiscal third quarter, comps in China rose 46% year over year (compared with a 44% fall reported in the prior year quarter). The increase was caused by a 48% year-over-year rise in transactions. However, in average tickets declined 1% year over year.
Channel Development: Net revenues in the segment declined 6.4% year over year to $448.8 million. The downside was primarily driven by a fall in its Global Coffee Alliance business.
Meanwhile, the segment’s operating margin expanded 630 bps year over year to 46.3%. A rise in North American Coffee Partnership joint venture income and mix shift primarily drove the upside.
Financial Details
The company ended the fiscal third quarter with cash and cash equivalents of $3,357 million compared with $3,071.8 million as of Apr 2, 2023. As of Jul 2, long-term debt totaled $13,544.4 million compared with $13,544.8 million as of Apr 2, 2023.
The company declared a quarterly cash dividend of 53 cents per share. The dividend is payable on Aug 25 to shareholders of record as of Aug 11, 2023.
Other Updates
The Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 31.4 million, reflecting a year-over-year increase of 15%.
Guidance
For fiscal 2023, the company anticipates global comparable sales to reach the high end of 7-9% target range. During the year, the company expects store count in the United States and China to grow approximately 3% and 13%, respectively, on a year-over-year basis. Capital expenditures in fiscal 2023 are estimated to be approximately $2.5 billion.
Consolidated revenues for fiscal 2023 are anticipated to grow in the range of 10-12% on a year-over-year basis. For fiscal 2023, the company anticipates non-GAAP EPS growth to in the range of 16-17% compared with the previous expectation of 15-20% range.
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) sports a Zacks Rank #1 (Strong Buy). PLAY has a trailing four-quarter earnings surprise of 6.8%, on average. Shares of PLAY have gained 14% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PLAY’s 2024 sales and EPS indicates a rise of 17% and 29%, respectively, from the year-ago period’s levels.
Domino's Pizza, Inc. (DPZ - Free Report) sports a Zacks Rank #1. DPZ has a long-term earnings growth rate of 13%. The stock has gained 2.2% in the past year.
The Zacks Consensus Estimate for Domino's 2024 sales and EPS suggests growth of 6.2% and 14.4%, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have skyrocketed 72.7% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings’ 2023 sales and EPS suggests growth of 10% and 27.7%, respectively, from the year-ago period’s levels.
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Starbucks (SBUX) Q3 Earnings Beat Estimates, Margins Rise Y/Y
Starbucks Corporation (SBUX - Free Report) reported mixed third-quarter fiscal 2023 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. The top and bottom lines increased on a year-over-year basis. The upside was primarily backed by solid recovery in China, progress in the Reinvention Plan and innovative beverage and equipment rollouts.
Discussion on Earnings, Revenues & Comps
In the quarter under review, the company reported adjusted earnings per share (EPS) of $1, surpassing the Zacks Consensus Estimate of 95 cents by 5.3%. The bottom line increased 19% year over year from an adjusted EPS of 84 cents reported in the prior-year quarter.
Quarterly revenues of $9,168.3 million lagged the Zacks Consensus Estimate of $9,290 million by 1.3%. However, the top line increased by 12.5% on a year-over-year basis. The upside was primarily driven by growth in comparable store sales and net-new store on a year-over-year basis.
Starbucks Corporation Price, Consensus and EPS Surprise
Starbucks Corporation price-consensus-eps-surprise-chart | Starbucks Corporation Quote
This and solid performances in global licensed store businesses added to the positives. Global comparable store sales increased 10% year over year. The upside was primarily driven by a 4% rise in average tickets and a 5% rise in comparable transactions. Per our model, global comparable store sales were estimated to grow 8.5% year over year.
In the fiscal third quarter, Starbucks opened 588 net new stores worldwide, bringing the total store count to 37,222.
Overall Margin Expands in Q3
On a non-GAAP basis, the operating margin in the fiscal third quarter was 17.4%, up from 16.9% reported in the prior-year quarter. Our estimate for the metric was 16.8%.
The upside was primarily driven by sales leverage, pricing and productivity improvement. The margin gain was marginally overshadowed by investments in labor and higher general and administrative costs (in support of reinvention).
Segmental Details
Starbucks has three reportable operating segments — North America, International and Channel Development.
North America: This segment’s fiscal third-quarter net revenues were $6,737.8 million, up 11% year over year. The segment benefited from growth in company-operated comparable store sales (of 7%), net new company-operated store growth (4%) and strong licensed store sales. The segment's average ticket and transaction increased 6% and 1%, respectively, on a year-over-year basis.
The operating margin in the North American segment was 21.7% compared with 22% reported in the prior-year quarter. The downside was primarily caused by increased investments in terms of enhanced store partner wages and benefits and partner training. However, this was partially offset by strategic pricing, sales leverage and productivity improvement.
International: This segment’s fiscal third-quarter net revenues were $1,972.9 million, up 24% year over year, primarily due to a 24% gain in comparable store sales, net new store growth of 11% and growth in its licensed store revenue. The gain was marginally offset by a nearly 5% unfavorable impact from foreign currency translation.
The operating margin in the segment expanded 1,050 basis points (bps) year over year to 19%. The upside was driven by sales leverage, the lapping of mobility restrictions in China and the prior year’s amortization expenses.
In the fiscal third quarter, comps in China rose 46% year over year (compared with a 44% fall reported in the prior year quarter). The increase was caused by a 48% year-over-year rise in transactions. However, in average tickets declined 1% year over year.
Channel Development: Net revenues in the segment declined 6.4% year over year to $448.8 million. The downside was primarily driven by a fall in its Global Coffee Alliance business.
Meanwhile, the segment’s operating margin expanded 630 bps year over year to 46.3%. A rise in North American Coffee Partnership joint venture income and mix shift primarily drove the upside.
Financial Details
The company ended the fiscal third quarter with cash and cash equivalents of $3,357 million compared with $3,071.8 million as of Apr 2, 2023. As of Jul 2, long-term debt totaled $13,544.4 million compared with $13,544.8 million as of Apr 2, 2023.
The company declared a quarterly cash dividend of 53 cents per share. The dividend is payable on Aug 25 to shareholders of record as of Aug 11, 2023.
Other Updates
The Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 31.4 million, reflecting a year-over-year increase of 15%.
Guidance
For fiscal 2023, the company anticipates global comparable sales to reach the high end of 7-9% target range. During the year, the company expects store count in the United States and China to grow approximately 3% and 13%, respectively, on a year-over-year basis. Capital expenditures in fiscal 2023 are estimated to be approximately $2.5 billion.
Consolidated revenues for fiscal 2023 are anticipated to grow in the range of 10-12% on a year-over-year basis. For fiscal 2023, the company anticipates non-GAAP EPS growth to in the range of 16-17% compared with the previous expectation of 15-20% range.
Zacks Rank & Key Picks
Starbucks carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail – Restaurants industry include:
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) sports a Zacks Rank #1 (Strong Buy). PLAY has a trailing four-quarter earnings surprise of 6.8%, on average. Shares of PLAY have gained 14% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PLAY’s 2024 sales and EPS indicates a rise of 17% and 29%, respectively, from the year-ago period’s levels.
Domino's Pizza, Inc. (DPZ - Free Report) sports a Zacks Rank #1. DPZ has a long-term earnings growth rate of 13%. The stock has gained 2.2% in the past year.
The Zacks Consensus Estimate for Domino's 2024 sales and EPS suggests growth of 6.2% and 14.4%, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have skyrocketed 72.7% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings’ 2023 sales and EPS suggests growth of 10% and 27.7%, respectively, from the year-ago period’s levels.