The enduring love that Americans have shown for Starbucks lattes and iced coffee has been a saving grace for the company during the challenging post-pandemic years. However, the upcoming earnings report may reveal a shift in consumer behavior, indicating that even customers in other regions might not be able to sustain the revenue momentum.
According to FactSet, Wall Street analysts are expecting Starbucks (ticker: SBUX) to report earnings of 95 cents per share on $9.29 billion in revenue for the third quarter. Projections also indicate an 11% growth in same-store sales, a crucial metric that measures sales within stores operating for at least one year.
Despite the potential for an earnings beat, the stock’s performance has been lackluster this year, with only a 2.4% increase as of Monday’s close, underperforming the broader market. Consequently, fiscal-year guidance takes center stage as investors eagerly await today’s earnings report.
The primary driver of growth for the coffee giant in recent quarters has been sustained demand in North America. However, given the recent slowdown in discretionary spending, there are concerns among investors that Starbucks may experience a decline in sales during the latter half of the year. In the second quarter, Starbucks reaffirmed its fiscal-year guidance, anticipating a growth rate between 10% and 12% in revenue and a 15% to 20% increase in earnings per share.
Brian Bittner of Oppenheimer expresses his belief that North American same-store sales could decelerate even more rapidly than anticipated by management, particularly in the fourth quarter of 2023. Bittner has assigned a Perform rating to the stock.
Starbucks Eyes Recovery in Chinese Sales
Analysts remain skeptical, but a potential turnaround in Chinese sales could be a boon for Starbucks.
Starbucks’ management team had previously anticipated a growth in China’s average weekly sales during the third and fourth quarters of this year, albeit at a more moderate pace. However, analysts are quick to point out that such a scenario seems unlikely.
Although the economic recovery in the country has been slower than expected, Starbucks has made some progress in terms of both footfall and sales since the reopening of the economy. In fact, same-store sales in China saw a 3% increase in the second quarter compared to the previous year.
Presently, Starbucks boasts over 6,200 stores in China and aims to expand its footprint to 9,000 stores by 2025. Meanwhile, the company already operates approximately 16,000 stores in the United States.
Despite the challenges, Starbucks continues to be a preferred brand among Chinese consumers. This sentiment bodes well for the company’s long-term prospects in the region, according to Geiger and other analysts. A recent survey conducted by Bank of America revealed that Starbucks was the most-visited Western restaurant chain in China’s top-tier cities. Moreover, consumers still perceive Starbucks as synonymous with quality and good value for money.
