Date: 08/02/2023
Author: Mr. X
Starbucks (SBUX) posted $1.00 earnings per share, slightly beating expectations of just $0.95 per share. Same store sales were up, especially internationally. China was huge for the company – same store sales were up almost 50%.
Revenue was up more than 10% in North America and almost 24% internationally. The company also opened up 588 new stores. There are also about 20 million people involved in its rewards program.
So what the stock do in the light of this success? It fell both during the trading day and after-hours.
The big problem is that revenue was a bit short, at just $9.2 billion, short of $9.3 billion expected. Incredibly, even the increase in same-store sales was also shy of expectations, 10% instead of 11%.
That may sound like nothing, but stocks are above all an expectations game, and SBUX fell short.
The full-year estimate for earnings is in line with previous projections for growth – the 16-17% estimate firmly in the zone of 15% to 20% that was advanced earlier.
There are two major vulnerabilities for the company.
First, Starbucks is now heavily dependent on China. Sales in China increased by 46% (ahead of expectations of about 41%) and foot traffic was up almost 50%. However, customers are buying less, with the average ticket size actually decreasing. As economic and political tensions continue to grow between China and the United States, and the Chinese economy continues to stagnate, SBUX’s growth program in China will be increasingly hard to pull off.
Second, labor problems could still hurt Starbucks. Even as this is written, workers rallied in San Francisco and went on strike in Farmingville. The National Labor Relations Board is considering about 500 cases involving Starbucks. In February, a judge ruled against the company – a possible sign of things to come. If Starbucks is forced to deal with a totally unionized workforce, its entire business model will come under unprecedented strain.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing
