Starbucks beat earnings and sales expectations, but the stock slipped in after-hours trading.
Starbucks Corporation (Stock ticker: SBUX) reported adjusted earnings of 74 cents per share, beating estimates of 65 cents per share. Revenue of $8.7 billion jumped 14%, beating analysts’ expectations of $8.4 billion.
The stock fell 0.8 percent to $113.46 in after-hours trading.
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Starbucks had a strong 2023, with the stock closing at its highest price since January 2022.
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Whether the momentum continues or fades depends on the earnings report, due after the market closes on Tuesday.
Wall Street expects Starbucks (ticker symbol: SBUX) to report adjusted earnings of 65 cents per share on $8.4 billion in sales. Same-store sales, a metric used to evaluate the performance of existing stores, are expected to rise 7.3%.
Many analysts are optimistic that the coffee chain will meet, or even beat, expectations, after better-than-expected results from other restaurants such as Chipotle Mexican Grill (CMG) and McDonald’s (MCD). Traffic to stores in the US — which has been a major contributor to the company’s same-store sales growth in the past few quarters — also remained strong this quarter, wrote Zachary Fadem, an analyst at Wells Fargo. Fadem has an overweight rating on the stock.
With consumers poised to slump over the latter half of the year, beating estimates may not be enough to jumpstart inventory. In this case, all eyes will be on the company’s guidance. Analysts say that if Starbucks reiterates or raises guidance, shares could boost. However, if the company lowers guidance, or management takes a cautious tone, shares could trade lower. That’s what happened last week, when it was McDonald’s
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The company’s stock declined after its earnings report, in response to the company’s management’s comments.
Baird analyst David Tarantino believes the company could raise earnings guidance for fiscal 2023, but is choosing to remain on the sidelines until there is more clarity about consumer behavior looking beyond the next couple of quarters.
“We continue to see the risk of a slowdown in US business traffic performance in the second half of 2013 amid a more challenging macro backdrop, a dynamic that could ultimately contribute to less positive investor sentiment about equities,” he wrote in a research note last week. Tarantino has a Neutral rating on the stock.
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Investors will also be looking for any updates on the company’s performance in China. In the prior quarter, Starbucks missed out on earnings expectations because nationwide lockdowns contributed to a 6 percent drop in earnings per share — so any positive news is likely to be well received by the market.
“We believe that the pace of recovery in China has likely progressed more quickly than is reflected in the consensus forecast,” Stifel analyst Chris Uckel wrote.
O’Cull, which holds a hold rating on the stock, pointed to the fact that recent economic data indicated that the current quarter saw the restaurant perform better than the previous one. Indeed, China’s GDP rose 4.5% in the first quarter of 2023, with the accommodation and restaurant sector jumping 13.6% year-on-year, the most of any industry.
But with the stock up 15% this year, Baird’s Tarantino fears the market has already made a recovery in China. Citi’s John Tower agrees, adding that while Starbucks’ current valuation has risen in recent months, it could remain stagnant unless the company provides more details on how it plans to increase margins in China after its initial reopening phase. The tower received a neutral rating for Starbucks stock.
Shares of Starbucks rose 0.2% on Monday, closing at $114.56. The stock is up 15% this year, outperforming
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Standard & Poor’s 500
8.6% rise. Starbucks was Barron Stock pick last year.
Write to Sabrina Escobar at sabrina.escobar@barrons.com