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Starbucks (SBUX) Up 22.3% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Starbucks (SBUX - Free Report) . Shares have added about 22.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Starbucks due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Starbucks Q3 Earnings Meet Estimate, Revenues Lag
Starbucks reported third-quarter fiscal 2024 results, with earnings meeting the Zacks Consensus Estimate but revenues missing the same.
In the fiscal third quarter, the company reported adjusted earnings per share (EPS) of 93 cents, in line with the Zacks Consensus Estimate. The bottom line decreased 7% year over year from adjusted EPS of $1.00 reported in the prior-year quarter.
Quarterly revenues of $9,113.9 million missed the Zacks Consensus Estimate of $9,224 million. The top line declined 0.6% on a year-over-year basis, due to dismal international revenues. Global comparable store sales declined 3% year over year. The downside was backed by a decrease of 5% in comparable transactions, partially overshadowed by a 2% increase in average tickets.
In the fiscal third quarter, Starbucks opened 526 net new stores worldwide, bringing the total store count to 39,477.
Overall Margin Contracts in Q3
On a non-GAAP basis, the operating margin was 16.7%, contracted 70 basis points (bps) from the prior-year quarter’s levels. The decrease was caused by several factors including increased costs due to investments in employee wages and benefits and intensified promotional efforts. However, some of these losses were mitigated by pricing adjustments and improved operational efficiencies in stores.
Segmental Details
Starbucks has three reportable operating segments — North America, International and Channel Development.
North America: In the fiscal third quarter, segmental net revenues were $6.8 billion, up 1% year over year. The segment’s comparable store sales declined 2% against 7% growth in the prior-year quarter. Average transactions declined 6%, whereas change in tickets rose 3% year over year.
Operating margin was 21% compared with 21.7% in the prior-year quarter. The negative impact stemmed from a combination of deleverage, additional investments in store partner compensation and benefits, heightened promotional efforts.
International: Segmental net revenues of $1.84 billion declined 7% year over year. The segment’s comparable store sales declined 7% year over year, owing to 3% and 4% decline in transactions and ticket, respectively. Operating margin contracted 340 bps year over year to 15.6%. The downside was due to investments in store partner wages, benefits and promotional activities and strategic investments.
In the fiscal third quarter, comps in China dropped 14% year over year, against growth of 46% in the prior-year quarter. A 7% decline in transactions and tickets each hurt the company’s performance in China.
Channel Development: Net revenues in the segment fell 2% year over year to $438.3 million. The dismal performance was due to a decline in revenues in the Global Coffee Alliance. In the quarter, the segment’s operating margin expanded 740 bps year over year to 53.7%. This was attributed to a change in the sales mix, reduced product costs from the Global Coffee Alliance and strong income from our North American Coffee Partnership joint venture.
Financial Details
The company ended the fiscal third quarter with cash and cash equivalents of $3.2 billion compared with $3.6 billion as of Oct 1, 2023. In Jun 30, long-term debt totaled $15.6 billion compared with $13.5 billion as of Oct 1, 2023.
Meanwhile, management declared a quarterly cash dividend of 57 cents per share. The dividend is payable on Aug 30 to its shareholders of record as of Aug 17.
Other Updates
The Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 33.8 million, up 7% year over year.
2024 Guidance
The company reaffirmed its fiscal 2024 guidance. In fiscal 2024, the company continues to anticipate global revenue growth of low single digits. Full-year global and the U.S. comp growth is forecast to be in the range of low single-digit decline to flat. The company anticipates China's comp to decline 12% year over year.
Management forecasts global net store growth to be 6%. In fiscal 2024, GAAP and non-GAAP EPS earnings per share are expected to improve in the range of flat to low single digits.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Starbucks has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Starbucks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Starbucks is part of the Zacks Retail - Restaurants industry. Over the past month, McDonald's (MCD - Free Report) , a stock from the same industry, has gained 8.2%. The company reported its results for the quarter ended June 2024 more than a month ago.
McDonald's reported revenues of $6.49 billion in the last reported quarter, representing a year-over-year change of -0.1%. EPS of $2.97 for the same period compares with $3.17 a year ago.
For the current quarter, McDonald's is expected to post earnings of $3.15 per share, indicating a change of -1.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.1% over the last 30 days.
McDonald's has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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Starbucks (SBUX) Up 22.3% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Starbucks (SBUX - Free Report) . Shares have added about 22.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Starbucks due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Starbucks Q3 Earnings Meet Estimate, Revenues Lag
Starbucks reported third-quarter fiscal 2024 results, with earnings meeting the Zacks Consensus Estimate but revenues missing the same.
In the fiscal third quarter, the company reported adjusted earnings per share (EPS) of 93 cents, in line with the Zacks Consensus Estimate. The bottom line decreased 7% year over year from adjusted EPS of $1.00 reported in the prior-year quarter.
Quarterly revenues of $9,113.9 million missed the Zacks Consensus Estimate of $9,224 million. The top line declined 0.6% on a year-over-year basis, due to dismal international revenues. Global comparable store sales declined 3% year over year. The downside was backed by a decrease of 5% in comparable transactions, partially overshadowed by a 2% increase in average tickets.
In the fiscal third quarter, Starbucks opened 526 net new stores worldwide, bringing the total store count to 39,477.
Overall Margin Contracts in Q3
On a non-GAAP basis, the operating margin was 16.7%, contracted 70 basis points (bps) from the prior-year quarter’s levels. The decrease was caused by several factors including increased costs due to investments in employee wages and benefits and intensified promotional efforts. However, some of these losses were mitigated by pricing adjustments and improved operational efficiencies in stores.
Segmental Details
Starbucks has three reportable operating segments — North America, International and Channel Development.
North America: In the fiscal third quarter, segmental net revenues were $6.8 billion, up 1% year over year. The segment’s comparable store sales declined 2% against 7% growth in the prior-year quarter. Average transactions declined 6%, whereas change in tickets rose 3% year over year.
Operating margin was 21% compared with 21.7% in the prior-year quarter. The negative impact stemmed from a combination of deleverage, additional investments in store partner compensation and benefits, heightened promotional efforts.
International: Segmental net revenues of $1.84 billion declined 7% year over year. The segment’s comparable store sales declined 7% year over year, owing to 3% and 4% decline in transactions and ticket, respectively. Operating margin contracted 340 bps year over year to 15.6%. The downside was due to investments in store partner wages, benefits and promotional activities and strategic investments.
In the fiscal third quarter, comps in China dropped 14% year over year, against growth of 46% in the prior-year quarter. A 7% decline in transactions and tickets each hurt the company’s performance in China.
Channel Development: Net revenues in the segment fell 2% year over year to $438.3 million. The dismal performance was due to a decline in revenues in the Global Coffee Alliance. In the quarter, the segment’s operating margin expanded 740 bps year over year to 53.7%. This was attributed to a change in the sales mix, reduced product costs from the Global Coffee Alliance and strong income from our North American Coffee Partnership joint venture.
Financial Details
The company ended the fiscal third quarter with cash and cash equivalents of $3.2 billion compared with $3.6 billion as of Oct 1, 2023. In Jun 30, long-term debt totaled $15.6 billion compared with $13.5 billion as of Oct 1, 2023.
Meanwhile, management declared a quarterly cash dividend of 57 cents per share. The dividend is payable on Aug 30 to its shareholders of record as of Aug 17.
Other Updates
The Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 33.8 million, up 7% year over year.
2024 Guidance
The company reaffirmed its fiscal 2024 guidance. In fiscal 2024, the company continues to anticipate global revenue growth of low single digits. Full-year global and the U.S. comp growth is forecast to be in the range of low single-digit decline to flat. The company anticipates China's comp to decline 12% year over year.
Management forecasts global net store growth to be 6%. In fiscal 2024, GAAP and non-GAAP EPS earnings per share are expected to improve in the range of flat to low single digits.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Starbucks has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Starbucks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Starbucks is part of the Zacks Retail - Restaurants industry. Over the past month, McDonald's (MCD - Free Report) , a stock from the same industry, has gained 8.2%. The company reported its results for the quarter ended June 2024 more than a month ago.
McDonald's reported revenues of $6.49 billion in the last reported quarter, representing a year-over-year change of -0.1%. EPS of $2.97 for the same period compares with $3.17 a year ago.
For the current quarter, McDonald's is expected to post earnings of $3.15 per share, indicating a change of -1.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.1% over the last 30 days.
McDonald's has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.