Is Starbucks Shooting For The Moon?

Starbucks (NASDAQ: SBUX) began a reinvention a few months ago, with former CEO Howard Shultz stepping in to take over the position of interim CEO. The reinvention is centered on elevating the customer experience and reinvigorating growth on a global basis. While slow to start and plagued by headwinds, the reinvention is underway and beginning to provide glimmers of success that point not only to growth but to dividend health and dividend growth as well. 

“We have a clear line-of-sight on what we need to do to reinvent the company, elevate our partner and customer experiences and drive accelerated, profitable growth all around the world,” said Howard Schultz, interim chief executive officer. “The Q3 results we announced today demonstrate the early progress we have made in just four short months.”

Starbucks Grows Double-Digits In Q4, Ex-China 

Starbucks had a good quarter in Q2 despite widespread shutdowns in its second-largest market, China. The company reported $8.15 billion in net revenue for a gain of 8.7% over last year which beat the consensus by $0.02 billion. The beat is slim but compounded by strength in the largest market, the U.S., and new store openings. On a comp basis, the global comp is up 3% on a 6% increase in ticket average offset by a 3% decline in tickets. In North America, sales rose 9% on an 8% increase in check average and 1% increase in volume while International sales fell 18% on a 44% decline in China. Ex-China, International sales rose by double-digits, driven by new stores and deeper penetration of emerging coffee markets. 

“We delivered record-breaking revenue performance during the quarter from continued strength in customer demand globally, balanced with our ability to execute investments despite macroeconomic and operational headwinds. Our commitment to deliver shareholder value has not wavered, and we are making the right decisions and investments today for the future of Starbucks,” commented Rachel Ruggeri, chief financial officer.

The bottom line news is a little mixed but otherwise favorable to share prices. The company reported a 400 basis point contraction in GAAP operating margin and a 350 basis point contraction in the adjusted margin, but both were less than feared. The adjusted EPS of $0.84 is down versus last year but managed to beat the consensus by $0.08, and the outlook is favorable too. The company is still withholding guidance for the year but is expecting a sequential decline in earnings due to investment in growth and the slow reopening of China. Even so, the YTD performance has the company on track to exceed the Marketbeat.com analysts' consensus by a fair margin. 

The Analysts Go Back For Another Cup Of Starbucks 

The analyst chatter is positive in the wake of the earnings report, with more than one noting improvement in China and the upcoming investor day as a potential catalyst for share prices. The investor day should give clarity on operations as well as insight into the CEO search, which is expected to be completed by the end of the year. As it is, 5 of the 26 analysts covering the stock issued statements, with 4 upping their price targets and one maintaining. The new consensus is a Moderate Buy with a target of $103, which is 23% above the price action. 

Turning to the chart, the stock appears to have bottomed and may be in a reversal, but there is still resistance at the 150-day moving average. If the market can get above that level a move up to $90 or higher is expected. If not, this stock may be range bound at this level until there is more clarity on the global economy at large.