Despite a lukewarm Q1 earnings report, Starbucks’ (SBUX) investors remained unfazed. The coffee chain behemoth missed analyst estimates for both revenue and earnings, leading to a reduction in its full-year sales guidance. While revenue rose 8% year over year to $9.4 billion, it fell short of the expected 10.2% jump to $9.6 billion. Similarly, the adjusted earnings per share increased by 20% to $0.90, lower than the anticipated 22.5% rise to $0.93. Nevertheless, the company’s shares surged by over 4% in after-hours trading, as investors had apparently anticipated worse results. US same-store sales also underperformed, growing by 5%, as opposed to the 5.73% growth estimated by Wall Street. Foot traffic increased by just 1%, while check size rose by 4%, both missing the estimates. As a result, Starbucks revised its fiscal 2024 total revenue growth forecast to 7-10%, down from the previous range of 10-12%, and lowered the expected increase in global and US same-store sales from 5-7% to 4-6%. The company also expects a lower same-store sales growth in China by the end of the year, revising it from 4-6% to low single digits. Despite falling short of expectations, Starbucks remains confident in its position, with an increase in foot traffic suggesting that the company is outperforming the industry. Additionally, loyalty customers spent a record amount per member in the quarter. To attract more customers in the US, Starbucks plans to introduce three new flavor lines aimed at Gen Z consumers and new drinks ahead of Valentine’s Day. On an investor call, Starbucks’ CEO, Laxman Narasimhan, expressed concerns about the impact of misinformation on the company’s business, particularly the negative impact in the Middle East, which then had a spillover effect in the US due to misconceptions about its position. Starbucks had ambitious plans to expand in China, its second-largest market, aiming to grow to 9,000 stores by the end of 2025. However, same-store sales in China fell short of expectations, rising by only 10% compared to the anticipated 16%. As COVID restrictions eased, foot traffic increased by 21% year over year, but check sizes dropped by 9% due to cautious spending by Chinese consumers. The company also faces heightened competition in China, as local brands adopt aggressive pricing strategies. In response, Starbucks plans to focus on innovation in its local menus, increase investments in technology, and open more stores in lower-tier markets. Despite the challenges in international markets, Starbucks saw a 7% increase in international sales, with a decline in average check sizes but an increase in foot traffic. The company’s CFO, Rachel Ruggeri, reassured investors that the challenges faced in China and the Middle East are temporary, and the company remains committed to its international expansion plans. Starbucks aims to grow its global store count from over 38,000 to 55,000 by 2030, and in Q1, it opened 549 net new stores. In addition, the company announced a $3 billion efficiency program over the next three years, with $2 billion expected to be saved from the corporate side. It also aims to double workers’ hourly incomes compared to fiscal year 2020 by fiscal year 2025. Prior to the earnings report, Starbucks’ shares had declined by 14% over the past year, while the S&P 500 had gained 21%. In contrast, McDonald’s (MCD), which recently announced its foray into the coffee market with CosMc, saw its shares rise by approximately 7.3% over the same period. The earnings breakdown Here’s a comparison of what Starbucks reported in Q1 versus the Wall Street expectations, based on Bloomberg consensus estimates: Revenue: $9.4 billion versus $9.6 billion Adjusted earnings per share: $0.90 versus $0.93 expected Same-store sales growth: 5% versus 6.39% expected North America and US: 5% versus 5.73% expected International: 7% versus 11.6% expected China: 10% versus 16.1% expected Traffic growth: Ticket size growth:Correction: A previous version of this article misspelled the name of Wedbush analyst Nick Setyan. We regret the error. —Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.Click here for all of the latest retail stock news and events to better inform your investing strategy
