[Note: Starbucks’ fiscal year 2021 ended October 3, 2021]
Starbucks stock (NASDAQ: SBUX), the world’s leading roaster, marketer, and retailer of specialty coffee worldwide, is scheduled to report its Q3 2022 results on Tuesday, August 2. We expect SBUX stock to trade in line with the market due to revenues and earnings likely matching expectations in its third-quarter results. The company is growing organically as it keeps opening more stores around the globe. Consumers are willing to pay for the products they deem premium, based on Starbucks’ gross margin of 28% over the most recent 12-month period. This high margin gives the business room to absorb higher input costs while still being profitable. Starbucks has consistently been able to raise prices with no adverse effect on demand throughout the inflationary environment in the U.S. – demonstrating the strength of its business. Starbucks’ prior investments in delivery, mobile app, beverage innovation, and its membership program have generated loyalty. In FYQ2, the company’s mobile orders and payments were up 20% year-over-year (y-o-y) and the delivery business was up 30%. Starbucks reported 26.7 million 90-day active rewards members in the U.S. as of April 3, an increase of 17% y-o-y. As a result of its loyalty program, these customers accounted for 54% of revenue at company-owned stores in the U.S. in Q2. Notably, Starbucks is able to retain its customer loyalty thanks to its rewards and loyalty programs – which is an added advantage to the company.
Our forecast indicates that Starbucks’ valuation is $86 per share, which is only 2% higher than the current market price. Look at our interactive dashboard analysis on Starbucks Earnings Preview: What To Expect in Fiscal Q3? for more details.
(1) Revenues expected to be slightly ahead of consensus estimates
Trefis estimates Starbucks’ Q3 2022 revenues to be around $8.3 Bil, 4% ahead of the consensus estimate. Starbucks posted a 15% year-over-year (y-o-y) sales increase with U.S. same-store sales growing to 12% in FY Q2 (ended April 3). This is an incredible gain for an established company, particularly during a quarter when the consumer faced considerable headwinds due to inflation. Overall, the company posted global same-store sales growth of 7%, which is again impressive given the weak results from China – where comparable store sales declined 23% during Q2. It should be noted that the company was still able to add 97 new locations in China despite the challenging environment. Further, since China is opening back up and returning to normal life as lockdowns in Shanghai and other major cities end, the company plans to drive sales through its digitally enabled outlets there.
Starbucks has 34,630 stores worldwide at present, yet management believes there are still plenty of opportunities to expand the retail footprint of the company. The company expects to have 55,000 Starbucks locations across 100 different markets by the year 2030 – with 75% of this expansion outside the U.S. market.
2) EPS is also likely to be marginally ahead of consensus estimates
Starbucks’ Q3 2022 earnings per share (EPS) is expected to come in at 76 cents per Trefis analysis, slightly above the consensus estimate. In Q2, the company reported earnings per share of 59 cents, down 3% y-o-y. Inflationary pressures outpaced the company’s price increases, resulting in several points of margin compression in the short term and costing it over 200 basis points in the first half of the fiscal year. The pandemic has resulted in consumers showing less enthusiasm for sitting down and enjoying hot drinks, and more interest in handcrafted, cold beverages on the go. Consequently, cold beverages are now almost 80% of the company’s business. While the newfound interest in cold beverages is putting pressure on both customers and coworkers – the company is looking into improvements in store design, technology, equipment, worker payments, and beverage selection to fulfill this demand. Going forward, these improvements should enhance the customer experience, as well as boost profitability.
(3) Stock price estimate in line with the current market price
Going by our Starbucks Valuation, with an EPS estimate of around $3.00 and a P/E multiple of 28.6x in fiscal 2022, this translates into a price of $86, which is marginally higher than the current market price of $85 (as of June 28).
It is helpful to see how its peers stack up. SBUX Peers shows how Starbucks’ stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
With inflation rising and the Fed raising interest rates, Starbucks has fallen 28% this year. Can it drop more? See how low can Starbucks stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||8%||-15%||82%|
|Trefis Multi-Strategy Portfolio||11%||-14%||240%|
 Month-to-date and year-to-date as of 7/29/2022
 Cumulative total returns since the end of 2016