As the market winds down for the day, the coffee industry turns its focus towards Starbucks (SBUX), which is slated to announce its Q3 results later today. The results will be published at 4:05 p.m. Eastern Time, followed by a conference call at 5:00 p.m. The expectations, according to FactSet Consensus, are set high with an EPS of $0.95 and revenue of $9.3 billion. Should these estimates prove accurate, we’re looking at a year-on-year EPS and revenue growth of 13% and 14% respectively.
The Impact of Comparable Store Sales
Moving beyond the primary headline numbers, there’s another significant metric that investors and industry insiders will scrutinize – the comparable store sales. Predictions indicate a potential rise of about 11% globally, which aligns with the numbers seen in the last quarter.
In the U.S., Starbucks has shown promising growth, with a 12% increase in comparable store sales in Q2. A major driving factor behind this success is Starbucks’ loyalty program, which added more than 400,000 members to its ranks in the previous quarter. This consumer loyalty now accounts for a whopping 57% of Starbucks’ total U.S. company-operated revenue.
However, there’s a certain degree of apprehension over the possibility that a decrease in consumer spending may have impacted U.S. comparable store sales in Q3. The company’s shares have already seen a dip of 12% since the Q2 earnings report on May 2, possibly hinting at this issue.
China’s Role in the Picture
China, being Starbucks’ second-largest market with approximately 6,200 stores, presents a significant variable in this equation. The country has seen an encouraging recovery following the winter surge of COVID-19 cases last year. The Q2 results showed a 3% increase in comps, a marked improvement from the 29% drop witnessed in Q1.
Investors will undoubtedly be keen to see stronger comparable growth in Q3, reflecting increased foot traffic in the stores as the recovery continues.
The Importance of FY23 Guidance
The company’s FY23 guidance will also play a key role in shaping investor sentiment in the aftermath of the earnings release. Updated guidance for U.S. comps and total revenue growth for FY23 is expected to be provided during the earnings call.
Despite exceeding analysts’ estimates for EPS and revenue in Q2, the stock took a hit post-earnings announcement. This reaction was largely because Starbucks maintained its FY23 U.S. comp guidance of +7-9% and total revenue growth of 10-12% instead of raising it.
Addressing Inflation: The Price Factor
Finally, Starbucks’ remarks concerning pricing and potential price hikes will be closely observed. In response to inflation, the company has consistently elevated its menu prices, with the average ticket price in the U.S. last quarter rising by 6%. However, with consumers curbing discretionary spending, there may be little room for Starbucks to further increase prices.
Overall, there’s a lot brewing at Starbucks. As the bell tolls for the close of the market, the coffee giant finds itself at the forefront, with industry experts, investors, and loyal customers all eagerly awaiting what its Q3 earnings report has to reveal.
