Starbucks drops over 4% as poor sales in China weigh on earnings, but 2023 guidance remains unchanged

Autor: Financial Market
2 min

Starbucks shares lost over 4% on Friday after the coffee chain reported weak financial figures for Q1 2023 (ended Jan 1, 2023). Company earned 75 cents per share slightly below analysts’ estimates of 77 cents.

Revenue rose 8.0% to $8.71 billion, however came in below Refinitiv projections of $8.78 billion due to dwindling demand especially in China, which is the second-largest market.

Fiscal 2023 Highlights

Global sales increased 5%, primarily driven by a 7% increase in average ticket, partially offset by a 2% decline in comparable transactions
North America and U.S. sales increased 10%, driven by a 9% increase in average ticket and a 1% increase in comparable transactions
• International sales decreased 13%, as China sales decreased 29%, driven by a 28% decline in comparable transactions and a 1% decline in average ticket
The company opened 459 net new stores in Q1, ending the period with 36,170 stores globally: 51% company-operated and 49% licensed
• At the end of Q1, stores in the U.S. and China comprised 61% of the company’s global portfolio, with 15,952 stores in the U.S. and 6,090 stores in China
Consolidated net revenues up 8%, to a record $8.7 billion, inclusive of approximately 3% unfavorable impact from foreign currency translation
Operating margin of 14.4% decreased from 14.6% in the prior year, primarily driven by previously committed investments in labor including enhanced store partner wages and benefits, inflationary pressures and sales deleverage in China, partially offset by strategic pricing in North America and sales leverage across markets outside of China
Earnings per share of $0.74 grew 7% over prior year, including an estimated $0.06 of dilutive impact from China

sbux financials

Highlights of Starbucks Q1 2023 earnings report. Source: Alpha Street, XTB Research Department

According to interim CEO Howard Schultz recent figures reflect „challenging global consumer and inflationary environments, a soft quarter for retail overall and the unprecedented, COVID-related headwinds that unfolded in China in Q1.”

Chief Financial Officer Rachel Ruggeri said „excluding China, we had tremendous growth across markets.” She also said the company’s fiscal 2023 outlook remains unchanged.

We anticipate the negative impact on the operating income in Q2 to be comparable to or greater than Q1. Also, we expect the market to see meaningful sales rebound once recovery is in full swing. Until then, we continue to stay focused on the long-term growth opportunities that China will deliver while weathering the short-term and transitory challenges. Now even with that backdrop and taking into account the uncertainty of China’s recovery timing, our fiscal 2023 guidance remains unchanged.