What to Watch For In Starbucks’ Stock Post Q1?

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[Note: Starbucks’ fiscal year 2022 ended October 2, 2022]

Starbucks stock (NASDAQ: SBUX), the world’s leading roaster, marketer, and retailer of specialty coffee worldwide, is scheduled to report its Q1 2023 results on Thursday, February 2. We expect SBUX stock to trade lower compared to the market due to revenues and earnings likely missing expectations marginally in its first-quarter results. In FY’22, Starbucks saw lower earnings despite an 11% year-over-year (y-o-y) rise in revenue to $32 billion. Higher expenses like labor and commodities and the restrictions in China have resulted in operating margins reaching 14.3% in FY’22 down from 16.8% in FY’21. We expect a similar trend to continue into the fiscal first quarter as well.

For the full year 2023, Starbucks expects its U.S. comparable sales to grow by as much as 9%. It also anticipates that its sales in China will rebound as the country eases its Covid restrictions. Additionally, Starbucks intends to expand its global store count by roughly 7%, fueled by growth in its international markets. All told, the company forecast its revenue to increase by 10% to 12% in FY 2023, despite an expected three-percentage-point hit from foreign exchange movements. The company believes this sales growth, coupled with anticipated margin expansion, will drive its earnings per share higher by 15% to 20% in FY 2023.

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Our forecast indicates that Starbucks’ valuation is $103 per share, which is 5% lower than the current market price. Look at our interactive dashboard analysis on Starbucks Earnings Preview: What To Expect in Fiscal Q1? for more details.

(1) Revenues expected to be slightly below consensus estimates

Trefis estimates Starbucks’ Q1 2023 revenues to be around $8.7 Bil, slightly below the consensus estimate. It should be noted that transactions at Chinese Starbucks fell a whopping 22% y-o-y in FY’22 due to the pandemic restrictions in the country, where the chain has more than 6,000 locations. But strong growth in the restaurant chain’s core U.S. market has helped to offset Covid-related declines in China.

Starbucks furthered its relentless global expansion. The company opened 763 net new stores during the fourth quarter of 2022, bringing its total store count to over 35,700 locations worldwide. The company believes the business will have 55,000 locations worldwide by 2030. The important question here is can the brand continue to expand since it is already ubiquitous? The coffee giant’s management could likely be overly optimistic about its long-term expansion prospects.

2) EPS is also likely to miss the consensus estimates

Starbucks’ Q1 2023 earnings per share (EPS) is expected to come in at 75 cents per Trefis analysis, slightly below the consensus estimate. Starbucks’ GAAP EPS was down 20% y-o-y in FY’22. to $2.85.

(3) Stock price estimate lower than the current market price

Going by our Starbucks Valuation, with an EPS estimate of around $3.45 and a P/E multiple of 29.9x in fiscal 2022, this translates into a price of $103, which is 5% lower than the current market price.

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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 SBUX Return 9% 9% 95%
 S&P 500 Return 5% 5% 80%
 Trefis Multi-Strategy Portfolio 9% 9% 243%

[1] Month-to-date and year-to-date as of 1/31/2023
[2] Cumulative total returns since the end of 2016

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