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Starbucks (SBUX) Down 0% 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 0% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Starbucks Q1 Earnings Lag Estimates, Margins Rise Y/Y

Starbucks reported first-quarter fiscal 2024 results, with earnings and revenues missing the Zacks Consensus Estimate. The top and the bottom line increased year over year.

Starbucks' first-quarter performance showcased strength across key metrics. CEO Laxman Narasimhan highlighted the loyalty of the customer base, growth in rewards program membership and spending per member. Despite challenges, Narasimhan emphasized the brand's resilience, attributing it to innovation and a focus on supporting green apron partners. The management stated optimism and that the factors along with the Triple Shot Reinvention initiative, will propel sustained earnings growth in the upcoming periods.

Discussion on Earnings, Revenues & Comps

During the fiscal first quarter, the company reported adjusted earnings per share (EPS) of 90 cents, missing the Zacks Consensus Estimate of 92 cents by 2.2%. The bottom line jumped 20% year over year from adjusted EPS of 75 cents reported in the prior-year quarter.

Quarterly revenues of $9.4 billion missed the Zacks Consensus Estimate of $9.5 billion. The top line rose 8.2% on a year-over-year basis, primarily driven by growth in comparable store sales and net new stores. Also, solid performances in licensed store businesses added to the positives. Global comparable store sales rose 5% year over year. The upside was backed by growth of 2% and 3% in average tickets and comparable transactions, respectively.

In the fiscal first quarter, Starbucks opened 549 net new stores worldwide, bringing the total store count to 38,587.

Overall Margin Expands in Q1

On a non-GAAP basis, the operating margin was 15.8%, up from 14.5% in the prior-year quarter’s levels. The positive outcome was mainly propelled by operational efficiencies within the stores and increased sales leverage. However, growth was somewhat mitigated by investments committed to store partner wages and elevated general and administrative costs associated with the reinvention Plan.

Segmental Details

Starbucks has three reportable operating segments — North America, International and Channel Development.

North America: During the fiscal first quarter, segmental net revenues were $7.1 billion, up 9% year over year. The segment benefited from a 5% rise in comparable store sales and new store growth. Average ticket and transaction moved upward by 4% and 1%, respectively.

Operating margin was 21.4% compared with 18.5% in the prior-year quarter. The upside was backed by sales leverage and in-store operational efficiencies.

International: Segmental net revenues of $1.8 billion ascended 10% year over year. An improvement of 7% in comparable store sales and net company-operated new store growth of 12% resulted in the uptick. This was marginally offset by an unfavorable impact of nearly 2% from foreign currency translation.

Operating margin contracted 120 basis points (bps) year over year to 13.1%. The downside can be attributed to investments in store partner wages and benefits, business mix shift and strategic investments.

In the fiscal first quarter, comps in China rose 10% year over year. The metric fell 29% in the prior-year quarter. A 21% rise in transactions drove the upside. However, average tickets declined 9%.

Channel Development: Net revenues in the segment fell 6% year over year to $448 million. The dismal performance of the global ready-to-drink and Global Coffee Alliance added to the downside.

During the quarter, the segment’s operating margin contracted 50 bps year over year to 46.8%. This was mainly driven by product costs related to the Global Coffee Alliance.

Financial Details

The company ended the fiscal first quarter with cash and cash equivalents of $3 billion compared with $3.6 billion as of Oct 1, 2023. As of Dec 31, long-term debt totaled $13.6 billion compared with $13.5 billion as of Oct 1, 2023.

Meanwhile, management declared a quarterly cash dividend of 57 cents per share. The dividend is payable on Feb 23 to shareholders of record as of Feb 9.

Other Updates

The Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 34.3 million, up 13% year over year.

2024 Guidance

Transitioning to the fiscal 2024 guidance, SBUX affirmed that business challenges encountered in the first quarter are temporary. Consequently, the guidance remains consistent with the reinvention update provided in November concerning global store growth, operating margin and EPS. However, adjustments are made to the full-year outlook for revenue and comparable sales (comp) due to the cumulative impact of first-quarter revenue and recent trends (including a softer January) that are expected to affect second-quarter performance.

In the fiscal 2024, the company anticipates global revenue growth in the range of 7-10% compared with the previous projection of 10-12%. Full-year global and U.S. comp growth is forecast to be in the range of 4-6%, down from the previous range of 5-7%. The company anticipates China's comp growth to be in the low single digits for the remainder of the year.

Management forecasts global net store growth to be approximately 7%. In fiscal 2024, both GAAP and non-GAAP EPS earnings per share are expected to improve in the range of 15-20%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -5.7% 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. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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. It's no surprise Starbucks has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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