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Starbucks (SBUX) Q4 Earnings Beat Estimates, Revenues Lag
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Starbucks Corporation (SBUX - Free Report) reported mixed fourth-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. The top line rose year over year, while the bottom line declined from the prior-year quarter's figure.
Following the results, the company’s shares moved up 2.3% in the after-hour trading session on Nov 3. Positive investor sentiments were witnessed as the company reported signs of recovery in China while navigating through reoccurring COVID outbreaks and a turbulent consumer mobility scenario. Also, strong U.S. comparable sales despite higher inflationary pressures added to the positives.
Discussion on Earnings, Revenues & Comps
In the quarter under review, the company reported adjusted earnings per share (EPS) of 81 cents, surpassing the Zacks Consensus Estimate of 73 cents by 11%. However, the bottom line decreased 18.2% year over year from an adjusted EPS of 99 cents reported in the prior-year quarter.
Starbucks Corporation Price, Consensus and EPS Surprise
Quarterly revenues of $8,414.2 million lagged the Zacks Consensus Estimate of $8,426 million by 0.1%. However, the top line increased 3.3% on a year-over-year basis. The upside was primarily driven by growth in comparable store sales and net-new store on a year-over-year basis. This and solid performances in global licensed store businesses added to the positives.
Global comparable store sales increased 7% year over year. The upside was primarily driven by an 8% rise in average tickets.
During the fiscal fourth quarter, Starbucks opened 763 net new stores worldwide, thereby bringing the total store count to 35,711.
Overall Margin Falls in Q4
On a non-GAAP basis, the operating margin during the fiscal fourth quarter came in at 15.1%, down from the 19.5% reported in the prior-year quarter. The downside was primarily caused by inflationary pressures and sales deleverage (related to COVID-19 restrictions in China). This and higher investments in labor growth (including enhanced store partner wages and new partner training) added to the downside. However, this was partially offset by strategic pricing in North America and sales leverage across markets (outside China).
Segmental Details
Starbucks has three reportable operating segments: North America, International and Channel Development.
North America: This segment’s fiscal fourth-quarter net revenues came in at $6,134.4 million, up 6% year over year. The segment benefited from 11% growth in company-operated comparable store sales, new store growth and higher contribution from licensed store sales.
Operating margin in the North American segment came in at 18.6% compared with 21.8% reported in the prior-year quarter. The contraction was due to a rise in commodity and supply chain costs (on account of inflationary pressures) and investments in labor growth. These were partly offset by strategic pricing and sales leverage.
International: This segment’s fiscal fourth-quarter net revenues came in at $1,777 million, down 7% year over year. The downside can be primarily attributed to a 5% decline in comparable store sales (owing to COVID-19-related restrictions in China) and an 11% unfavorable impact from foreign currency translation. The decline was marginally overshadowed by net new store openings (8% year over year), higher product sales and royalty revenues. The conversion of the Korean market from a joint venture to a fully licensed market in the fourth quarter-fiscal 2021 added to the positives.
The operating margin in the segment contracted 750 basis points (bps) year over year to 12.2%. The downside can be attributed to sales deleverage (owing to COVID-19 restrictions in China), investments in store partners and lower government subsidies. However, this was partially offset by strategic pricing and sales leverage across markets outside China.
During the fiscal fourth quarter, comps in China declined 16% year over year (compared with a 44% fall reported in the previous quarter). The downtick was caused by a 17% decline in transactions, partially offset by a 1% increase in average tickets.
Channel Development: Net revenues in the segment increased 10% from the prior-year quarter’s figure to $483.7 million. The upside was primarily driven by growth in its ready-to-drink business and Global Coffee Alliance.
However, the segment’s operating margin expanded 50 bps to 50.6%. The upside was mainly driven by the business mix shift.
Financial Details
The company ended the fourth quarter with cash and cash equivalents of $2,818.4 million compared with $6,455.7 million as of Oct 3, 2021. As of Oct 2, 2022, long-term debt totaled $13,119.9 million compared with $13,616.9 million as of Oct 3, 2021.
Meanwhile, the company declared a quarterly cash dividend of 53 cents per share. The dividend is payable on Nov 25, 2022, to shareholders of record as of Nov 11, 2022.
Other Updates
Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 28.7 million, reflecting an increase of 16% year over year.
Fiscal 2022 Highlights
Net sales in fiscal 2022 came in at $32.3 billion compared with $29.1 billion in fiscal 2021.
The non-GAAP operating margin in fiscal 2022 was 15.1% compared with 18% in the prior year.
Non-GAAP EPS In fiscal 2022 came in at $2.96 compared with $3.20 in the previous year.
Fiscal 2023 Guidance
For fiscal 2023, the company anticipates global comparable sales to reach the high end of 7-9% target range. During the year, the company expects store count in the United States and China to grow approximately 3% and 13%, respectively, on a year-over-year basis. Capital expenditures in fiscal 2023 are estimated to be approximately $2.5 billion.
Consolidated revenues for fiscal 2023 are anticipated to grow in the range of 10-12% on a year-over-year basis. For fiscal 2023, the company anticipates non-GAAP EPS growth to be at the low end of the 15-20% range.
Wingstop sports a Zacks Rank #1. WING has a long-term earnings growth rate of 11%. Shares of WING have declined 8.6% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the comparable year-ago period’s levels.
Potbelly currently carries a Zacks Rank #2 (Buy). PBPB has a trailing four-quarter earnings surprise of 0.8%, on average. Shares of PBPB have declined 15.9% in the past year.
The Zacks Consensus Estimate for Potbelly’s 2022 sales and EPS suggests growth of 17.9% and 101.9%, respectively, from the corresponding year-ago period’s levels.
Chipotle currently carries a Zacks Rank #2. CMG has a trailing four-quarter earnings surprise of 4.1%, on average. The stock has declined 22.4% in the past year.
The Zacks Consensus Estimate for Chipotle’s 2022 sales and EPS suggests growth of 15.2% and 30.8%, respectively, from the corresponding year-ago period’s levels.
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Starbucks (SBUX) Q4 Earnings Beat Estimates, Revenues Lag
Starbucks Corporation (SBUX - Free Report) reported mixed fourth-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. The top line rose year over year, while the bottom line declined from the prior-year quarter's figure.
Following the results, the company’s shares moved up 2.3% in the after-hour trading session on Nov 3. Positive investor sentiments were witnessed as the company reported signs of recovery in China while navigating through reoccurring COVID outbreaks and a turbulent consumer mobility scenario. Also, strong U.S. comparable sales despite higher inflationary pressures added to the positives.
Discussion on Earnings, Revenues & Comps
In the quarter under review, the company reported adjusted earnings per share (EPS) of 81 cents, surpassing the Zacks Consensus Estimate of 73 cents by 11%. However, the bottom line decreased 18.2% year over year from an adjusted EPS of 99 cents reported in the prior-year quarter.
Starbucks Corporation Price, Consensus and EPS Surprise
Starbucks Corporation price-consensus-eps-surprise-chart | Starbucks Corporation Quote
Quarterly revenues of $8,414.2 million lagged the Zacks Consensus Estimate of $8,426 million by 0.1%. However, the top line increased 3.3% on a year-over-year basis. The upside was primarily driven by growth in comparable store sales and net-new store on a year-over-year basis. This and solid performances in global licensed store businesses added to the positives.
Global comparable store sales increased 7% year over year. The upside was primarily driven by an 8% rise in average tickets.
During the fiscal fourth quarter, Starbucks opened 763 net new stores worldwide, thereby bringing the total store count to 35,711.
Overall Margin Falls in Q4
On a non-GAAP basis, the operating margin during the fiscal fourth quarter came in at 15.1%, down from the 19.5% reported in the prior-year quarter. The downside was primarily caused by inflationary pressures and sales deleverage (related to COVID-19 restrictions in China). This and higher investments in labor growth (including enhanced store partner wages and new partner training) added to the downside. However, this was partially offset by strategic pricing in North America and sales leverage across markets (outside China).
Segmental Details
Starbucks has three reportable operating segments: North America, International and Channel Development.
North America: This segment’s fiscal fourth-quarter net revenues came in at $6,134.4 million, up 6% year over year. The segment benefited from 11% growth in company-operated comparable store sales, new store growth and higher contribution from licensed store sales.
Operating margin in the North American segment came in at 18.6% compared with 21.8% reported in the prior-year quarter. The contraction was due to a rise in commodity and supply chain costs (on account of inflationary pressures) and investments in labor growth. These were partly offset by strategic pricing and sales leverage.
International: This segment’s fiscal fourth-quarter net revenues came in at $1,777 million, down 7% year over year. The downside can be primarily attributed to a 5% decline in comparable store sales (owing to COVID-19-related restrictions in China) and an 11% unfavorable impact from foreign currency translation. The decline was marginally overshadowed by net new store openings (8% year over year), higher product sales and royalty revenues. The conversion of the Korean market from a joint venture to a fully licensed market in the fourth quarter-fiscal 2021 added to the positives.
The operating margin in the segment contracted 750 basis points (bps) year over year to 12.2%. The downside can be attributed to sales deleverage (owing to COVID-19 restrictions in China), investments in store partners and lower government subsidies. However, this was partially offset by strategic pricing and sales leverage across markets outside China.
During the fiscal fourth quarter, comps in China declined 16% year over year (compared with a 44% fall reported in the previous quarter). The downtick was caused by a 17% decline in transactions, partially offset by a 1% increase in average tickets.
Channel Development: Net revenues in the segment increased 10% from the prior-year quarter’s figure to $483.7 million. The upside was primarily driven by growth in its ready-to-drink business and Global Coffee Alliance.
However, the segment’s operating margin expanded 50 bps to 50.6%. The upside was mainly driven by the business mix shift.
Financial Details
The company ended the fourth quarter with cash and cash equivalents of $2,818.4 million compared with $6,455.7 million as of Oct 3, 2021. As of Oct 2, 2022, long-term debt totaled $13,119.9 million compared with $13,616.9 million as of Oct 3, 2021.
Meanwhile, the company declared a quarterly cash dividend of 53 cents per share. The dividend is payable on Nov 25, 2022, to shareholders of record as of Nov 11, 2022.
Other Updates
Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 28.7 million, reflecting an increase of 16% year over year.
Fiscal 2022 Highlights
Net sales in fiscal 2022 came in at $32.3 billion compared with $29.1 billion in fiscal 2021.
The non-GAAP operating margin in fiscal 2022 was 15.1% compared with 18% in the prior year.
Non-GAAP EPS In fiscal 2022 came in at $2.96 compared with $3.20 in the previous year.
Fiscal 2023 Guidance
For fiscal 2023, the company anticipates global comparable sales to reach the high end of 7-9% target range. During the year, the company expects store count in the United States and China to grow approximately 3% and 13%, respectively, on a year-over-year basis. Capital expenditures in fiscal 2023 are estimated to be approximately $2.5 billion.
Consolidated revenues for fiscal 2023 are anticipated to grow in the range of 10-12% on a year-over-year basis. For fiscal 2023, the company anticipates non-GAAP EPS growth to be at the low end of the 15-20% range.
Zacks Rank & Key Picks
Starbucks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail – Restaurants industry are Wingstop Inc. (WING - Free Report) , Potbelly Corporation (PBPB - Free Report) and Chipotle Mexican Grill, Inc. (CMG - Free Report) .
Wingstop sports a Zacks Rank #1. WING has a long-term earnings growth rate of 11%. Shares of WING have declined 8.6% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the comparable year-ago period’s levels.
Potbelly currently carries a Zacks Rank #2 (Buy). PBPB has a trailing four-quarter earnings surprise of 0.8%, on average. Shares of PBPB have declined 15.9% in the past year.
The Zacks Consensus Estimate for Potbelly’s 2022 sales and EPS suggests growth of 17.9% and 101.9%, respectively, from the corresponding year-ago period’s levels.
Chipotle currently carries a Zacks Rank #2. CMG has a trailing four-quarter earnings surprise of 4.1%, on average. The stock has declined 22.4% in the past year.
The Zacks Consensus Estimate for Chipotle’s 2022 sales and EPS suggests growth of 15.2% and 30.8%, respectively, from the corresponding year-ago period’s levels.