ii view: iced coffee helps Starbucks’ sales run hot

Looking to hasten drink making times and with a new leader in waiting, we assess prospects. 

Fourth-quarter results to 2 October

• Global comparable store sales up 7%
• Revenue up 11% to $8.4 billion
• Adjusted Earnings per share down 18% to 81 US cents 

Interim chief executive Howard Schultz said:

“We saw accelerating demand for Starbucks coffee around the world in Q4 and throughout the year. And our Q4 results demonstrate early evidence of the success of our U.S. Reinvention investments. Reinvention will touch, and elevate, every aspect of our Starbucks partner, customer and store experiences, and ideally position Starbucks to deliver accelerated, sustainable, long-term, profitable growth and value creation beginning in 2023.” 

ii round-up:

Global coffee chain Starbucks Corp (NASDAQ:SBUX) reported sales and profits which beat Wall Street forecasts, helped by continued demand in its North American home market for higher priced iced coffee drinks and Pumpkin Spice Lattes.

• Discover more: Buy international shares | Interactive investor Offers | Most-traded US stocks

Fourth-quarter revenue hit a record $8.4 billion as global comparable store sales accelerated to 7% from the previous quarter’s 3%. Like-for-like North American sales climbed 11%, aided by a one-tenth hike in the average product price and a 1% rise in volumes. 

Starbucks shares are up 10% Friday having come into this latest announcement down by just over a quarter year-to-date. Shares for fast-food icon McDonald's Corp (NYSE:MCD) are up by around 2% in 2022, while pizza sellers Domino's Pizza Group (LSE:DOM) and Papa John's International Inc (NASDAQ:PZZA) are down by around two-fifths. 

Starbucks' international comparable sales fell 5%, hit by a 16% fall at its second biggest collection of outlets in China given ongoing Covid-related lockdowns. 

Stores in the US and China account for three-fifths of its total global store portfolio, with 15,878 stores in the US and 6,021 stores in China and now including 1,000 in Shanghai, the first city in the world to pass this milestone. 

Total net new stores during the period rose by 763 to a global total of 35,711. Its active customer rewards membership in the US rose 16% to 28.7 million. 

Accompanying management outlook comments pointed to expected growth in both earnings and revenues for 2023. 

ii view:

Founded in 1971 and headquartered in Seattle, Washington, Starbucks today operates in around 80 countries. Across its global store total, some 51% are company operated and 49% are licenced out or franchised. Under its returned former head Howard Schultz, management is pushing initiatives to improved training, speed up the time it takes to make drinks including iced beverages via new equipment and automation and expand its number of drive-thru stores. Laxman Narasimhan, formerly of Reckitt Benckiser (LSE:RKT), is set to head the Nasdaq listed company from April 2023. 

• Investors stunned as Federal Reserve issues threat in war on inflation
• ii view: Apple breaks records
• A tech stock as cheap as chips?

For investors, a cost-of-living crisis could see demand hindered. Rising costs such as energy and its transformation plans are also weighing on earnings, while souring relations between the US and China now warrant high consideration. Environmental and climate change issues also remain firmly on the agenda of big business. 

On the upside, the return of its former head has injected vigour back into its strategy. Investment in staff wages and new store innovation is now being pursued, while the new leader in waiting also has experience in revitalising corporate growth. For now, and with the relatively small ticket item of its products arguably seen by many consumers as essential, there appears reasonable grounds to remain optimistic. 

Positives: 

• Diverse geographical footprint
• Planning to restart share buyback programme

Negatives:

• Rising cost pressures
• Covid hindered Chinese outlets

The average rating of stock market analysts:

Strong hold