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Starbucks shares up despite Q2 warning; Analysts explain why

Published 01/30/2024, 04:18 PM
Updated 01/31/2024, 05:42 AM
© Reuters.  Starbucks (SBUX) misses analyst targets for FQ1 profit, revenue
SBUX
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Starbucks (NASDAQ:SBUX) reported worse-than-expected earnings and revenue for the fiscal first quarter.

Specifically, the coffeehouse chain operator posted Q1 earnings per share (EPS) of $0.90, missing the consensus estimates of $0.94. Revenue came in at $9.43 billion, also below the expected $9.62 billion.

Still, the stock was still up 2.7% in pre-market Wednesday trade as analysts say investor expectations were low into the earnings.

Global comparable store sales saw a 5% increase, attributed to a 3% rise in comparable transactions and a 2% growth in average ticket size. In North America, comparable store sales climbed 5%, and 7% in international markets.

Membership in the U.S. Starbucks Rewards program saw a notable jump, reaching 34.3 million, a 13% increase from the previous year.

The company added 549 net new stores in the first quarter, bringing its total to 38,587 stores globally. These stores are split between 51% company-operated and 49% licensed outlets.

“Our first quarter performance was strong on many measures. Of note was the unwavering commitment of our most loyal customers, the growth in rewards members, tender and spend per member,” said Starbucks CEO Laxman Narasimhan.

For the second quarter of fiscal year 2024, the management expects that all metrics will likely fall below the full year guidance ranges. This is attributed to persistent near-term challenges, although they expect year-over-year margin expansion, albeit at a slower pace compared to the first quarter's levels.

In light of a weaker than anticipated performance in the first quarter and ongoing challenges, the company's management revised its fiscal year 2024 guidance. This update includes lowered expectations for global, US, and China comparable sales and consolidated revenue growth.

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As the second quarter is projected to perform below the full-year guidance ranges, this is suggesting a significant rebound in the second half of the fiscal year.

However, the guidance for earnings per share and unit growth for fiscal year 2024 remains unchanged.

Analysts from Wolfe Research said the stock was likely up on low investor sentiment and reiterated EPS outlook despite a cut to sales guidance.

Analysts at Morgan Stanley said the results were "better than some feared."

"Against palpable concern into the 1Q and pushback on our upgrade to OW earlier in the month, 1Q results and the accompanying commentary were relatively more constructive, likely supporting the stock," analysts said.

Additional reporting by Senad Karaahmetovic

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