Starbucks Stock (NASDAQ:SBUX)
Starbucks Corporation (NASDAQ:SBUX) reported first-quarter fiscal 2023 earnings and revenues that fell short of the Consensus Estimate. However, both the top and bottom lines grew year after year. Following the results, Starbucks stock fell 1.8% in after-hours trading on February 2.
Earnings, Revenues, and Comparables
The company reported adjusted earnings per share (EPS) of 75 cents in the quarter under review, missing the Consensus Estimate of 77 cents by 2.6%. However, the bottom line improved by 4.2% year on year from the prior-year quarter’s adjusted EPS of 72 cents.
Quarterly revenue of $8,713.9 million fell 1% short of the Consensus Estimate of $8,805 million. However, the top line climbed by 8.2% year on year.
The increase was primarily driven by year-over-year improvement in comparable store sales and net-new store openings.
This, together with strong performances in worldwide licensed store sectors, contributed to the positives. Year over year, global comparable store sales climbed by 5%. The increase was mostly driven by a 7% increase in average ticket prices.
Starbucks opened 459 net new outlets worldwide in the fiscal first quarter, increasing the overall store count to 36,170.
Non-GAAP operating margin in the fiscal first quarter was 14.4%, down from 14.6% in the prior-year period. Inflationary pressures and sales deleverage were the primary causes of the downturn (related to COVID-19 restrictions in China).
Additional issues included increased investments in labor growth (including increased store partner compensation and new partner training). However, this was partially countered by clever pricing in North America and cross-market sales leverage (outside China).
Specifics on Each Segment
Starbucks operates in three reportable segments: North America, International, and Channel Development.
North America: Net revenues in the fiscal first quarter were $6,551.3 million, up 14% year on year. The division benefited from a 10% increase in company-operated comparable store sales, as well as new store growth and a greater contribution from licensed store sales. The average ticket price and transaction price grew by 9% and 1%, respectively.
The North American segment operating margin was 18.5%, compared to 18.9% in the prior-year quarter. Commodity and supply-chain cost increases (due to inflationary pressures) and labor-growth investments functioned as headwinds. Strategic pricing and sales leverage helped to offset some of these costs.
International: Net revenues in the fiscal first quarter of $1,680.1 million were down 10.4% year on year, attributable principally to a 13% fall in comparable store sales (due to restricted mobility in China) and a 13% unfavorable impact from foreign currency translation. Net new store openings (8% year on year), stronger product sales, and royalty revenues more than offset the decline.
The segment’s operating margin shrank by 1700 basis points (bps) year on year to 14.3%. The decline is due to sales deleverage in China. However, this was countered in part by lapping amortization expenditures, company mix, and sales leverage in areas other than China.
Comps in China fell 29% year on year in the fiscal first quarter (compared to a 16% drop reported in the previous quarter). The fall was caused by a 28% drop in transactions and a 1% drop in average tickets.
Channel Development: The segment’s net revenues climbed 14.6% year on year to $478.2 million. The increase was driven mostly by growth in its ready-to-drink division and the Global Coffee Alliance.
Meanwhile, the segment’s operating margin increased by 340 basis points year on year to 47.3%. The increase was mostly driven by increased profits from its North American coffee partnership joint venture.
Starbucks concluded the fiscal first quarter with $3,186.5 million in cash and cash equivalents, up from $2,818.4 million as of October 2, 2022. Long-term debt stood at $13,176.7 million on January 1, compared to $13,119.9 million on October 2, 2022.
Meanwhile, Starbucks declared a 53-cent quarterly cash dividend per share. The dividend will be paid on February 24 to stockholders on record as of February 10.
Outlook for Fiscal Year 2023
Starbucks reaffirmed its fiscal 2023 outlook. It expects global comparable sales to exceed the upper half of the 7-9% target range. The company anticipates that store counts in the United States and China will increase by 3% and 13%, respectively, this year. The anticipated capital expenditure is $2.5 billion.
Consolidated revenues are expected to increase 10-12% year on year in fiscal 2023. For fiscal 2023, the business expects non-GAAP EPS growth to be in the mid 15-20% range.
Starbucks stock has gained 10.5% in the past year.
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