Starbucks (SBUX) is scheduled to report first fiscal quarter results after the market close on Thursday, February 2, with a conference call scheduled for 5:00 pm ET. What to watch for:
OUTLOOK: When Starbucks reported it fourth quarter earnings results on November 3, 2022, the company gave fiscal 2023 guidance, saying it saw FY23 adjusted EPS growth at the low end of its 15%-20% range, and saw FY23 revenue growth of 10%-12%. Broken down, Starbucks said it saw FY23 U.S. comp sales growth of 7%-9%; China comp sales growth negative in Q1; New store growth 3% in U.S.; 13% in China; 7% global. Additionally, management said it saw "solid" global operating margin growth, an FY23 CapEx of ~2.5B, and an effective tax in the mid-20's range.
CHINA: Starbucks said it was "confident" in its long term growth opportunity in China, during its Q4 earnings conference call, however it expects Covid-related uncertainty to continue in China, and added that the new Covid restrictions and lock-downs are hurting traffic. Management expects the recovery in China to be "non-linear," but feels the aspirations for business in China have "never been greater." Starbucks concluded that it expects to be the number one Western consumer brand in China.
DEUTSCHE BANK DOWNGRADE: In early December, 2022, Deutsche Bank analyst Brian Mullan downgraded Starbucks to Hold from Buy with a price target of $106, up from $100. The analyst was making a risk/reward and valuation call on the shares, saying "there is not much more to it than that." He is "truly neutral at current levels; neither positive nor negative." A bull case could emerge for $5 per share in adjusted earnings per share, equating to a $125 stock price over time, but the "offsetting risk here is of course that the potential U.S. recession dynamic has not gone away," Mullan told investors in a research note.
JEFFERIES DOWNGRADE: Later in December, Jefferies analyst Andy Barish downgraded Starbucks to Hold from Buy with an unchanged price target of $100. The analyst maintained a positive view on the U.S. restaurant and foodservice distribution sector into 2023, but turned more selective to reflect greater chance of a recession in 2023. McDonald's (MCD), Bloomin' Brands (BLMN), Dave & Buster's (PLAY) and Performance Food Group (PFGC) were Barish's top picks. The analyst sees continued demand for full-service restaurants, and believes any potential sales declines will be offset by lower food inflation and cost management. Barish is less positive on limited service restaurants, citing mixed same-store-sales and margin trends. He believes pricing power for limited service is less robust than in full-service. Meanwhile, foodservice distribution set for a shift in 2023, with a "relatively favorable" setup on better supply chain efficiencies and fewer cost headwinds, Barish told investors in a research note.
WELLS BULLISH: On January 23, Wells Fargo analyst Zachary Fadem initiated coverage of Starbucks with an Overweight rating and $120 price target. The company "leads a high-growth global category with big aspirations," said the firm, which sees multi-year upside given "robust" coffee fundamentals, a global economic recovery and re-opening, share gains, unit growth, and innovation. Fadem views Starbucks' FY23-25 algorithm for high-single digit percentage comp growth and 15%-20% EPS growth as "achievable with wiggle room."
SENTIMENT: Click here to check out recent Media Buzz Sentiment on Starbucks as measured by TipRanks.