Yahoo Finance Why Is Starbucks (SBUX) Down 6.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Starbucks (SBUX). Shares have lost about 6.1% 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 Q2 Earnings & Revenues Beat
Starbucks reported second-quarter fiscal 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. Moreover, both the top and bottom lines increased year over year.
Investors’ sentiment was hurt after the company said that sales in China moderated after reopening. Average weekly sales in China are likely to increase sequentially in third-quarter fiscal 2023 but at a moderate pace than what it witnessed in second quarter.
Discussion on Earnings, Revenues & Comps
In the quarter under review, SBUX reported adjusted earnings per share (EPS) of 74 cents, surpassing the Zacks Consensus Estimate of 64 cents by 15.6%. The bottom line increased 25.4% year over year from an adjusted EPS of 59 cents reported in the prior-year quarter. Quarterly revenues of $8,719.8 million beat the Zacks Consensus Estimate of $8,404 million by 3.9%. The top line increased 14.2% on a year-over-year basis, primarily driven by growth in comparable store sales and net new store. Solid performances in global licensed store businesses added to the positives. Global comparable store sales increased 11% year over year. The upside was primarily driven by a 4% rise in average tickets and 6% rise in comparable transactions. In the fiscal second quarter, Starbucks opened 464 net new stores worldwide, bringing the total store count to 36,634.
Overall Margin Expansion in Q2
On a non-GAAP basis, the operating margin was 14.3%, up from 13% reported in the prior-year quarter. The upturn was mainly driven by sales leverage, pricing, productivity improvement and gain on the sale of Seattle's Best Coffee brand. The margin gain was marginally overshadowed by investments in labor and inflationary pressures.
Segmental Details
Starbucks has three reportable operating segments — North America, International and Channel Development.
North America: Net revenues were $6,380.6 million, up 17% year over year. The segment benefited from 12% growth in company-operated comparable store sales and new store growth. Average ticket and transaction increased 5% and 6%, respectively. Operating margin in the North American segment was 19.1% compared with 17.1% reported in the prior-year quarter. Strategic pricing, sales leverage as well as productivity improvement drove SBUX’s margin.
International: Net revenues were $1,854.8 million, up 9% year over year. A 7% gain in comparable store sales, 10% growth in net new store and improvement in its licensed store revenues primarily resulted in the uptick. However, this was marginally offset by nearly 10% unfavorable impact from foreign currency translation. Operating margin expanded 640 basis points (bps) year over year to 17%, driven by sales leverage and lapping amortization expenses. In the fiscal second quarter, comps in China rose 3% year over year (against the 23% fall reported in the prior-year quarter). The increase was caused by a 4% rise in transactions. However, in average tickets it declined 1%.
Channel Development: Net revenues increased 4% year over year to $480.7 million. The upside was primarily driven by growth in its Global Coffee Alliance. Meanwhile, the segment’s operating margin expanded 1,180 bps year over year to 54.5%, primarily driven by gain on the sale of Seattle's Best Coffee brand.
Financial Details
The company ended fiscal second quarter with cash and cash equivalents of $3,0716.8 million compared with $2,818.4 million as of Oct 2, 2022. As of Apr 2, long-term debt totaled $13,544.8 million compared with $13,119.9 million as of Oct 2, 2022. Meanwhile, management declared a quarterly cash dividend of 53 cents per share. The dividend will be payable on May 26, to shareholders of record as of May 12.
Other Updates
The Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 30.8 million, reflecting a year-over-year increase of 15%.
Guidance
SBUX reiterated its fiscal 2023 guidance. It anticipates global comparable sales to reach the high end of the 7-9% target. Margin improvement is expected on a sequential basis in third and fourth-quarter fiscal 2023. The company anticipates earnings per share to increase sequentially in third and fourth-quarter fiscal 2023. However, third-quarter fiscal 2023 EPS is likely to be well below SBUX’s yearly guided range of 15-20%.
During the year, management expects store count in the United States and China to grow 3% and 13%, respectively, on a year-over-year basis. Capital expenditure is estimated to be $2.5 billion. Consolidated revenues for fiscal 2023 are anticipated to grow 10-12% on a year-over-year basis.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Starbucks has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. 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.
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