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Starbucks Corp. (SBUX): A look at the coffee chain’s expectations for the near term

Shares of Starbucks Corporation (NASDAQ: SBUX) have dropped 25% year to date and 19% over the past 12 months. Although the company faced significant challenges from inflation and staffing shortages during its most recent quarter, it is seeing strong demand and sales. Despite the drop, there is a positive sentiment around the stock in general on the back of growth and expansion opportunities. Here’s a look at some of the company’s expectations for the near term:

Revenue

Starbucks generated revenues of $8.1 billion in the first quarter of 2022, up 19% from the prior-year period. Top line growth was driven mainly by a 13% increase in comparable store sales, as the company lapped negative impacts from pandemic-related business disruptions and also saw strength in new US company-operated stores.

Starbucks is seeing strong demand for its offerings. During the first quarter, comparable transactions were up 10% and average ticket was up 3%. Revenues in the US grew 23% year-over-year to $5.3 billion, fueled by a double-digit increase in customer traffic. Revenues in North America increased 23% and international revenues grew 12% YoY.

For fiscal year 2022, Starbucks expects global revenues to range between $32.5-33.0 billion and comparable store sales to grow in the high single digits.

Profitability

In Q1 2022, Starbucks delivered adjusted EPS of $0.72, which was up 18% YoY but lower than expected due to impacts from higher costs. During the quarter, high inflation, COVID-related pay, and costs associated with training and onboarding new partners took a toll on margins. Operating margin contracted 30 basis points from the prior year to 15.1%.

During Q1, supply chain-driven inflationary costs were exacerbated by the pandemic, impacting the US business by more than 170 basis points on margin. Starbucks expects these costs to increase more than previously anticipated for the balance of the year and it believes supply chain disruptions will continue for the foreseeable future.

In FY2022, the company expects to see over 200 basis points of incremental margin pressure from inflation, COVID-related pay, training and support costs, as well as lower sales due to mobility restrictions. GAAP margin is expected to approach 16.5% while adjusted margin is estimated to approach 17%.

FY2022 GAAP EPS is estimated to decline 4-6% while adjusted EPS is expected to grow 8-10%. For the second quarter of 2022, adjusted EPS and margins are expected to be below prior-year levels as pressures are anticipated to increase.

The company expects to see significant improvement during the third quarter as its margin improvement actions take effect. This improvement is expected to continue through the fourth quarter. Starbucks expects EPS to return to double-digit growth in FY2023 and beyond.

Store fleet

During the first quarter of 2022, Starbucks opened 484 new stores ending the period with 34,317 stores globally. Of this, 51% were company-operated and 49% were licensed stores. Stores in the US totaled 15,500 and stores in China totaled 5,557. Starbucks plans to expand its store fleet to approx. 55,000 company-operated and licensed stores across 100 markets by 2030

Shareholder return

Starbucks returned over $4 billion to shareholders in Q1 2022 in the form of share repurchases and dividends. The company has returned over $25 billion to shareholders in the last four fiscal years through dividends and share repurchases. Starbucks is committed to returning $20 billion to shareholders over the next three fiscal years. Through this commitment, the company expects to return more than $45 billion to shareholders over seven years.

Click here to read the full transcript of Starbucks’ Q1 2022 earnings conference call

Categories: Analysis Consumer
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