[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 Q2 2023 results on Tuesday, May 2. We expect SBUX stock to trade lower compared to the market due to revenues and earnings likely missing expectations marginally in its second-quarter results. Q1 consolidated operating margin contracted 60 basis points from the prior year to 14.5%, primarily driven by investments in growth in labor, part of which represent the reinvention plan, inflation, and deleveraging in China. We expect a similar trend to continue into the fiscal second quarter as well. China, Starbucks’ fastest-growing region, was decimated by Covid lockdowns. And when restrictions eased, cases of the disease started spiking. Comps in China, where there are currently 6,090 Starbucks stores, were down 29% year-over-year (y-o-y) in the quarter.
Despite macroeconomic headwinds and inflation, the company reiterated its fiscal 2023 financial targets of 11% revenue growth (at the midpoint) and adjusted EPS growth of at least 15%. Starbucks expects its U.S. comparable sales to grow by as much as 9% in 2023. It also anticipates 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.
Our forecast indicates that Starbucks’ valuation is $103 per share, which is 10% lower than the current market price. Look at our interactive dashboard analysis on Starbucks Earnings Preview: What To Expect in Fiscal Q2? for more details.
(1) Revenues expected to be slightly below consensus estimates
Trefis estimates Starbucks’ Q2 2023 revenues to be around $8.2 Bil, slightly below the consensus estimate. The coffee king’s adjusted revenue rose 8% y-o-y to $8.7 billion in Q1. While transactions at Chinese Starbucks fell, strong growth in the restaurant chain’s core U.S. market has helped to offset Covid-related declines in China. On a global level, comps rose 5% in Q1 thanks to a higher average transaction size. The U.S. saw 10% growth in comp sales and the international market comps were up double-digits internationally (excluding China). The business now has 30.4 million 90-day active rewards members in the U.S., up 15% y-o-y. And customers loaded their accounts with $3.3 billion of funds during the fiscal first quarter, demonstrating how powerful the brand still is. Also, the company opened 459 net new stores in Q1, ending the period with 36,170 stores globally – 51% company-operated and 49% licensed.
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’ Q2 2023 earnings per share (EPS) is expected to come in at 64 cents per Trefis analysis, slightly below the consensus estimate. Q1 EPS was $0.75, up 4% from the prior year. While China’s recovery was expected to be nonlinear, the headwinds in Q1 were larger than estimated by approximately $0.06 due to the unforeseen changes in Covid restriction and infection spikes.
(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 2023, this translates into a price of $103, which is 10% 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.
|S&P 500 Return||1%||8%||85%|
|Trefis Multi-Strategy Portfolio||-1%||7%||237%|
 Month-to-date and year-to-date as of 4/28/2023
 Cumulative total returns since the end of 2016