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Unit & Comp Growth Aids Starbucks (SBUX), Inflation Hurts
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Shares of Starbucks Corporation (SBUX - Free Report) are riding high on robust North America sales, expansion efforts, digitalization and menu innovation. The stock has gained 32.8% in the past year compared with the industry’s rally of 14.8%.
In 2023, we expect the company’s sales to increase 11.1% year over year to $35,842.9 million. Our model estimates North America and International sales to increase 13.6% and 2.6% year over year, respectively. The adjusted operating margin is anticipated to be 15.8%.
However, dismal China results, higher-than-expected inflationary pressures, increased costs and a tight labor market continue to weigh on SBUX’s performance.
Let’s delve deeper.
Growth Drivers
The company’s North America comps impressed investors for the eighth straight quarter by improving 14% in first-quarter fiscal 2023. The uptick was driven by 10% growth in company-operated comparable store sales, new store growth and higher contribution from licensed store sales. Average ticket and transaction increased 9% and 1%, respectively.
Despite unfavorable economic conditions, Starbucks is focusing on expansion efforts. In the fiscal first quarter, it opened 459 net new stores worldwide, bringing the total store count to 36,170. In fiscal 2023, the store count in the United States and China is expected to grow 3% and 13%, respectively, on a year-over-year basis.
SBUX expects global store growth to be 7%. Capital expenditure in fiscal 2023 is estimated to be $2.5 billion.
The Zacks Rank #3 (Hold) company is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. It is leaning toward fast-growing categories like Cold Brew, Draft Nitro beverages, and plant-based modifiers, including almond, coconut and soy milk alternatives. Apart from the numerous beverage innovations, Starbucks has been making efforts to offer more nutritional and healthy products to its customers.
Image Source: Zacks Investment Research
Concerns
COVID-19 has negatively impacted SBUX’s performance in China. In the fiscal first quarter, comps in China declined 29% year over year (compared with a 16% fall in the previous quarter). The downtick was caused by declines of 28% and 1% in transactions and average tickets, respectively. The pandemic is expected to affect Starbucks’ performance in China in the near term as well.
Inflationary pressures, along with increased investments in labor growth (including enhanced store-partner wages and partner training), limited the company’s margin in first-quarter fiscal 2023. Reduced traffic in China (due to COVID-19 restrictions) added to the woes. On a non-GAAP basis, the operating margin in fiscal first quarter was 14.4%, down from 14.6% in the prior-year quarter.
Chuy’s Holdings has a trailing four-quarter earnings surprise of 19.1%, on average. The stock has gained 35.6% in the past year.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the year-ago period’s reported levels.
Arcos Dorados has a long-term earnings growth rate of 7.8%. Shares of the company have declined 6.2% in the past year.
The Zacks Consensus Estimate for ARCO’s 2024 sales and EPS indicates increases of 8% and 11.4%, respectively, from the year-ago period’s reported levels.
Bloomin' Brands has a long-term earnings growth rate of 12.3%. The stock has risen 16.2% in the past year.
The Zacks Consensus Estimate for BLMN’s 2024 sales and EPS suggests improvements of 2.4% and 5.5%, respectively, from the year-ago period’s reported levels.
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Unit & Comp Growth Aids Starbucks (SBUX), Inflation Hurts
Shares of Starbucks Corporation (SBUX - Free Report) are riding high on robust North America sales, expansion efforts, digitalization and menu innovation. The stock has gained 32.8% in the past year compared with the industry’s rally of 14.8%.
In 2023, we expect the company’s sales to increase 11.1% year over year to $35,842.9 million. Our model estimates North America and International sales to increase 13.6% and 2.6% year over year, respectively. The adjusted operating margin is anticipated to be 15.8%.
However, dismal China results, higher-than-expected inflationary pressures, increased costs and a tight labor market continue to weigh on SBUX’s performance.
Let’s delve deeper.
Growth Drivers
The company’s North America comps impressed investors for the eighth straight quarter by improving 14% in first-quarter fiscal 2023. The uptick was driven by 10% growth in company-operated comparable store sales, new store growth and higher contribution from licensed store sales. Average ticket and transaction increased 9% and 1%, respectively.
Despite unfavorable economic conditions, Starbucks is focusing on expansion efforts. In the fiscal first quarter, it opened 459 net new stores worldwide, bringing the total store count to 36,170. In fiscal 2023, the store count in the United States and China is expected to grow 3% and 13%, respectively, on a year-over-year basis.
SBUX expects global store growth to be 7%. Capital expenditure in fiscal 2023 is estimated to be $2.5 billion.
The Zacks Rank #3 (Hold) company is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. It is leaning toward fast-growing categories like Cold Brew, Draft Nitro beverages, and plant-based modifiers, including almond, coconut and soy milk alternatives. Apart from the numerous beverage innovations, Starbucks has been making efforts to offer more nutritional and healthy products to its customers.
Image Source: Zacks Investment Research
Concerns
COVID-19 has negatively impacted SBUX’s performance in China. In the fiscal first quarter, comps in China declined 29% year over year (compared with a 16% fall in the previous quarter). The downtick was caused by declines of 28% and 1% in transactions and average tickets, respectively. The pandemic is expected to affect Starbucks’ performance in China in the near term as well.
Inflationary pressures, along with increased investments in labor growth (including enhanced store-partner wages and partner training), limited the company’s margin in first-quarter fiscal 2023. Reduced traffic in China (due to COVID-19 restrictions) added to the woes. On a non-GAAP basis, the operating margin in fiscal first quarter was 14.4%, down from 14.6% in the prior-year quarter.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Chuy's Holdings, Inc. (CHUY - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Bloomin' Brands, Inc. (BLMN - Free Report) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Chuy’s Holdings has a trailing four-quarter earnings surprise of 19.1%, on average. The stock has gained 35.6% in the past year.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the year-ago period’s reported levels.
Arcos Dorados has a long-term earnings growth rate of 7.8%. Shares of the company have declined 6.2% in the past year.
The Zacks Consensus Estimate for ARCO’s 2024 sales and EPS indicates increases of 8% and 11.4%, respectively, from the year-ago period’s reported levels.
Bloomin' Brands has a long-term earnings growth rate of 12.3%. The stock has risen 16.2% in the past year.
The Zacks Consensus Estimate for BLMN’s 2024 sales and EPS suggests improvements of 2.4% and 5.5%, respectively, from the year-ago period’s reported levels.