Categories Analysis, Consumer

Starbucks (SBUX): Four key takeaways from the coffee chain’s Q4 earnings report

For fiscal year 2023, Starbucks expects consolidated revenue growth of 10-12%

Shares of Starbucks Corporation (NASDAQ: SBUX) were up 8% on Friday, a day after the company delivered strong results for the fourth quarter of 2022. Starbucks continued to see strong demand across all of its markets and despite the pandemic-related challenges in China, it remains optimistic about the opportunity in that region. Here are four points worth highlighting from the Q4 earnings report:

Results beat  

In the fourth quarter of 2022, Starbucks’ consolidated revenues rose 3% year-over-year to $8.4 billion. Revenue growth was 11% on a 13-week basis. The top line beat estimates and was driven by a 7% growth in comparable store sales and 6% net new store growth over the past 12 months, solidified further by momentum in the global licensed store businesses. Adjusted EPS fell 18% to $0.81 but exceeded expectations.

Growth in the US

Starbucks witnessed strong demand in the US during the fourth quarter. Comparable store sales grew 11% in Q4 with strong momentum in the US licensed store business. Despite price hikes, daily store traffic in the US reached around 95% of pre-pandemic levels while the volume of beverage and food items sold per store has surpassed pre-pandemic levels meaningfully. The number of unique customers rose 9% YoY in Q4.

Starbucks is seeing increased demand for customized beverages. In Q4, over 60% of beverage units sold in the US company-operated business were customized. As mentioned on its conference call, there is such strong demand for customized, handcrafted Starbucks cold beverages that cold coffee beverages currently make up 76% of total beverage sales in the coffee chain’s US company-operated stores.

For FY2023, Starbucks expects comparable sales in the US to grow 7-9%. The company expects its US store count to grow by approx. 3% during the year. At the end of Q4 2022, Starbucks had 15,878 stores in the US.

Opportunity in China

Starbucks continues to face pandemic-related challenges in China and although the company witnessed a recovery in this market during the fourth quarter, there is still uncertainty and it expects this recovery to be non-linear. Comp sales in this region declined 16% in Q4. Despite these headwinds, Starbucks sees long-term opportunity in this market.

The company expects mobile orders, digital, and delivery to continue to drive its business in China. In Q4, mobile ordering drove 44% of the sales mix. Delivery, which makes up 24% of sales, was up 35% year-over-year during the quarter.

Starbucks expects to see outsized comps in China during FY2023 as it laps the severity of the lockdowns in the market. The company expects comps to be negative in the first quarter of 2023 and then outsized for the balance of the year.

Starbucks expects to grow its store footprint in China by around 13% in FY2023. At the end of the fourth quarter, Starbucks had 6,021 stores in China and the company aims to have close to 9,000 stores in the country by 2025.

Outlook

For fiscal year 2023, Starbucks expects consolidated revenue growth of 10-12% and global comp growth to be near the high end of its long-term target range of 7-9%. Global store growth is expected to reach approx. 7%, with over 75% of the growth coming from outside the US. GAAP EPS growth is expected to be at the high end of the 15-20% range while adjusted EPS growth is expected to be at the low end of the long-term range of 15-20%.

Click here to read the full transcript of Starbucks’ Q4 2022 earnings conference call

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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