Why Is Starbucks (SBUX) Up 3.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Starbucks (SBUX). Shares have added about 3.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Starbucks due for a pullback? 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 drivers.
Starbucks Q2 Earnings Lag Estimate
Starbucks reported second-quarter fiscal 2024 results, with earnings and revenues missing the Zacks Consensus Estimate for the second straight quarter. The top and bottom lines decreased year over year. Following the announcements, shares of the company declined 11.6% during the after-hour trading session on Apr 30.
Laxman Narasimhan, the CEO, expressed disappointment with quarterly results, attributing to the difficult circumstances the company had faced. Despite the setbacks, he emphasized confidence in the brand's strength, capabilities of the team and the promising opportunities ahead.
Discussion on Earnings, Revenues & Comps
During the fiscal second quarter, SBUX reported adjusted earnings per share (EPS) of 68 cents, missing the Zacks Consensus Estimate of 79 cents by 13.9%. The bottom line decreased 8.1% from 74 cents reported in the prior-year quarter.
Quarterly revenues of $8,563 million lagged the Zacks Consensus Estimate of $9,140 million. The top line declined 1.8% on a year-over-year basis primarily due to dismal U.S. and China stores performance. The company's performance in China was affected by a decline in occasional customers, shifts in holiday patterns, heightened promotional activity and normalization of customer behavior.
Global comparable store sales declined 4% year over year. The downside was due to a decrease of 6% in comparable transactions partially overshadowed by 2% increase in average tickets.
In the fiscal second quarter, Starbucks opened 364 net new stores worldwide, bringing the total store count to 38,951.
Overall Margin Contracts in Q2
On a non-GAAP basis, the operating margin was 12.8%, contracting 150 basis points from prior-year quarter’s levels. The decrease was mainly caused by several factors including increased costs due to investments in employee wages and benefits, intensified promotional efforts and lapping the gain on the sale of Seattle's Best Coffee brand. Higher general and administrative expenses, particularly related to supporting SBUX's reinvention initiatives, added to the woes. However, some of these losses were mitigated by pricing adjustments and improved operational efficiencies in stores.
Segmental Details
Starbucks has three reportable operating segments — North America, International and Channel Development.
North America: Segmental net revenues were $6.4 billion, flat year over year. Comparable store sales declined 3% against a gain of 12% in the prior-year quarter. Average transaction declined 7%, whereas change in ticket rose 4% year over year.
Operating margin was 18% compared with 19.1% in the prior-year quarter. The downtick stemmed from a combination of deleverage, additional investments in store partner compensation and benefits, and heightened promotional efforts.
International: Segmental net revenues of $1.8 billion declined 5% year over year. Comparable store sales declined 6% year over year owing to a 3% fall in transactions and ticket each.
Operating margin contracted 370 basis points (bps) year over year to 13.3%. The downside was due to investments in store partner wages and benefits, sales mix shift and promotional activities.
In the fiscal second quarter, comparable sales in China declined 11% year over year. The metric rose 3% in the prior-year quarter. A 4% and 8% decline in transactions and tickets hurt the company’s performance in China.
Channel Development: Net revenues fell 13% year over year to $418.2 million. The dismal performance was due to a decline in revenues in the Global Coffee Alliance.
Operating margin contracted 280 bps year over year to 51.7%. This was mainly due to lapping the gain on the sale of Seattle's Best Coffee brand.
Financial Details
SBUX ended the fiscal second quarter with cash and cash equivalents of $2.8 billion compared with $3.6 billion as of Oct 1, 2023. As of Mar 31, long-term debt totaled $15.5 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 May 31 to shareholders of record as of May 17.
Other Updates
The Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 32.8 million, up 6% year over year.
2024 Guidance
In fiscal 2024, management anticipates global revenue growth of low-single digits compared with the prior projection of 7-10% increase. Global and U.S. comp growth is forecast in the range of low-single digit decline to flat compared with the earlier expectation of 4-6% growth. The company anticipates China's comp to decline 12% year over year.
Management forecasts global net store growth to be approximately 6%, down from the earlier estimate of 7% increase. In fiscal 2024, both GAAP and non-GAAP EPS is expected to improve in the range of flat to low-single digits compared with the prior estimate of 15-20% growth.
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 -13.25% due to these changes.
VGM Scores
At this time, Starbucks has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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. 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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