Starbucks sales set to hit record thanks to inflation

At its Investor Day last month, however, Starbucks executives touted the company as one that had learned from the “hubris” that characterized its culture during the Great Recession, and said 2008 was not a year. not the same as 2022.

“So far, we’ve been immune,” acting general manager Howard Schultz said at the event.

Starbucks executives, during the company’s latest earnings call in August, said they had raised prices about 5% over the past 12 months. A recent study by MagnifyMoney.com found that Starbucks imposes an 18.3% “tax” on its popular Pumpkin Spice Latte, which makes the price of a dollar higher than a standard 16-ounce latte.

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But B. of A. analysts said Starbucks customers could bear the higher prices. In a Wednesday note, they said Starbucks was among its top stock picks for the holiday season, saying “its higher-income customer base is more immune to macro pressure.” And they are not alone.

“US business is buzzing and Chinese risk is increasingly understood,” Wedbush analyst Nick Setyan wrote in a research note on Friday. “Meanwhile, international trade, ex. China continues to perform well. This bodes well not only for the FQ4 results, but also for the FY23 forecast.

But analysts have expressed reservations about the company’s longer-term goals. Some have suggested that Starbucks’ long-term financial goals outlined then — including annual same-store sales growth of 7% to 9% over the next two fiscal years — might be a bit too optimistic.

In the shorter term, the company raised wages as part of an incipient organizing campaign. But the union representing those workers said some efforts to negotiate with the coffee chain failed within minutes, after company representatives walked out of meetings over objections, with some members potentially participating remotely. Starbucks, in turn, alleged that broadcasting or taping these meetings amounted to “failing to negotiate in good faith,” and said the two sides agreed to meet in person.

Read more: Starbucks urged to work with unions in letter from members of Congress

What to expect

Earnings: Wall Street analysts expect Starbucks to report adjusted earnings of 72 cents per share, down from $1 per share in the same quarter a year ago, according to FactSet. Estimize, which compiles estimates from analysts, hedge fund managers, executives and others, reports a consensus estimate of a loss of 75 cents per share.

Revenue: Analysts expect sales of $8.32 billion, which would be a quarterly record up from $8.15 billion in the quarter last year, according to FactSet. Same-store sales are estimated to be up 4.2%. Estimize reports a consensus sales estimate of $8.37 billion.

Stock price: Starbucks stock has fallen 25.8% this year. For comparison, the S&P 500 SPX index,
-2.50%
is down 19.1%.

What analysts say

Executives at Investor Day said cold drinks like Nitro Cold Brews and frozen shakes “command a high price.” And analysts expect those items to help Starbucks’ fourth-quarter sales.

“We expect domestic comps to be driven by modest traffic growth, as well as pricing, higher food attachment and strong sales of more expensive cold drinks,” William Blair analysts said in a statement. research note this month.

But they said they expect Starbucks’ North America segment operating margin to decline, due to “inflationary pressure and partially offsetting investments in workforce/operational initiatives.” by prices (including additional increases taken over the summer to compensate for further salary increases) and sales leverage. ”

Oh my gourd! People pay 14.1% more on average for pumpkin and spice products.

In May, Starbucks withdrew its outlook for the remainder of the fiscal year, citing rising costs and saying the direction of China’s COVID-19 policies was increasingly difficult to assess. On Thursday’s call, there could be more questions about whether inflation has dampened demand, even for customers who haven’t yet felt the pinch.

B. of A. analysts, in a separate note earlier this month, said credit and debit card data showed overall restaurant demand “constantly weakened” from March to July. . But then it rebounded in August and held up until September.

“Industry mixes have generally proved more resilient than expected, leaving investors focused on any signs that macroeconomic weakness is translating into much slower mixes or a broader weakening of demand (e.g. groups higher income who have been more isolated so far), ”they said.