What to expect when Starbucks (SBUX) reports Q1 earnings this week

Shares of Starbucks Corporation (NASDAQ: SBUX) were down slightly on Monday. The stock has gained 24% over the past three months. The coffeehouse chain is slated to report its first quarter 2023 earnings results on Thursday, February 2, after market close. Here’s a look at what to expect from the upcoming report:

Revenue

Analysts are projecting revenue of $8.7 billion for Starbucks in the first quarter of 2023. This compares to $8.1 billion reported in the first quarter of 2023. In the fourth quarter of 2022, consolidated revenues increased 3% year-over-year to $8.4 billion.

Profits

Analysts are predicting EPS to be $0.77 in Q1 2023 which compares to adjusted EPS of $0.72 in the year-ago quarter. In Q4 2022, adjusted EPS was $0.81, down 18% YoY.

Points to note

In Q4, global comparable sales increased 7%, driven by growth in average ticket. While comp sales in North America and US increased 11% during the fourth quarter, International comps declined 5%, mainly hurt by the impact of the pandemic in China. It remains to be seen how much the China market has recovered and its overall impact on the International segment.

In its Q4 report, Starbucks said it expects China comp in the first quarter to be negative followed by outsized comp in the balance of the year. Global comps are expected to be low in the first quarter and then expand over the coming quarters.

In the fourth quarter, Starbucks’ operating margin dropped 400 basis points YoY to 14.2% due to investments and growth in labor as well as inflationary pressures. The company expects operating margin to remain soft in the first and second quarters of 2023 and then gain traction in the latter half of the year helped by margin benefits from the Reinvention plan and the expected recovery in China.

China is Starbucks’ second largest market and the pandemic-related headwinds in the region have taken a toll on the company’s international segment results. The pace of recovery in China and the performance of the International segment along with comp sales and margin outlook are key points to watch.

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