ii view: Starbucks’ takings hit new quarterly record

Shares for this global coffee mammoth are down by more than a quarter year-to-date. Buy, sell, or hold? 

Third-quarter results to 3 July 

• Global comparable store sales up 3%
• Revenue up 9% to $8.2 billion
• Earnings per share fell 15% to 84 US cents 

Interim chief executive Howard Schultz said:

“We have clear line of sight on what we need to do to reinvent the company, elevate our partner and customer experiences and drive accelerated, profitable growth all around the world. The Q3 results we announced today demonstrate the early progress we have made in just four short months.”

ii round-up:

Global coffee chain Starbucks (NASDAQ:SBUX) detailed record quarterly revenues as resilient demand in its home North American market more than countered a fall for international and largely Covid-hit China sales.

Third-quarter revenues of $8.15 billion beat Wall Street hopes nearer to $8.1 billion with growth of 9% for North American same-store-sales set against a fall of 18% for international like-for-like demand. Same-store Chinese sales fell 44% for its more than 5,000 outlets. 

Earnings per share retreated 15% to 84 US cents, hindered by inflationary pressures including higher wages, although surpassed analyst forecasts for a fall to 75 US cents per share. 

Starbuck shares rose by more than 1% in US trading following the results, having fallen by close to 30% year-to-date. Shares for pizza sellers Domino's Pizza (NYSE:DPZ) and Papa John's (NASDAQ:PZZA) are down by a similar amount, while shares for value restaurant mammoth McDonald's (NYSE:MCD) have fallen by under 5%. 

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The Nasdaq-listed Starbucks again offered no full-year estimates having previously suspended them given ongoing Chinese Covid-related uncertainty. Earlier in the year it also axed its share buyback programme following the return of former head Howard Schultz and outlined plans to spend $1 billion on wage hikes, improved training, and store innovation during the current financial year.

Total global store numbers in the period climbed by a net 318 to 34,948. Overall group sales during the quarter were aided by a 6% increase in product prices, including an 8% hike in North America. 

Fourth-quarter and full-year results are scheduled for 3 November. 

ii view:

Founded in 1971 and headquartered in Seattle, Washington, today Starbucks operates in around 80 countries. Of its near 35,000 stores, some 51% are company operated and 49% are licensed out. Stores in the US and China currently account for three-fifths of its global store portfolio. 

For investors, souring relations between the US and China continue to warrant consideration. A cost-of-living crisis for consumers almost globally and rising business costs need to be remembered. As does the pandemic and its continued impact on China operations, while environmental and climate change issues also remain firmly on the agenda of big business. 

On the upside, investment in new stores, store upgrades and staff training is ongoing. The return of its former head should again inject vigour back into its strategy, while its customer loyalty membership numbers continue to grow, reaching 27.4 million. On balance, and with the world’s addiction to coffee showing few signs of abating and analysts’ estimating a fair value price of just over $90 per share, existing investors may wish to stay patient.   

Positives: 

• Diverse geographical footprint
• Growing store portfolio

Negatives:

• Rising cost pressures
• Covid-hindered Chinese outlets

The average rating of stock market analysts:

Buy