Unlike McDonald's Corporation (NYSE: MCD) who topped Wall Street estimates across the board last week, Starbucks Corporation (NASDAQ: SBUX) delivered a mixed quarterly earnings reported on Tuesday after market close, with the highlight of the report being the coffee giant's skyrocketing sales growth in China.
Fiscal Third Quarter Highlights
For the quarter ended on July 2nd, Starbucks made $9.17 billion in revenue that rose 12% but still came below Refinitiv's consensus estimate of $9.29 billion. Starbucks earned a net income of $1.41 billion, or 99 cents per share, rising from last year's comparable quarter when it made $912.9 million, or 79 cents per share. Adjusted earnings per share came to $1, topping 95 cents that Refinitiv's survey of analysts expected.
With improved productivity and higher menu prices, operating margin expanded from 15.9% to 17.3%.
Same-store sales both in North America and international markets was weaker than expected. The rise of 10% was below the 11% growth that StreetAccount estimated. The U.S. and China made 61% of the coffee giant's portfolio.
Non-US same-store sales expanded 24%, below the estimated 24.2%. Like McDonald's, Starbucks' international growth was fueled by China whose same-store sales skyrocketed 46%. International transactions rose 21%, slightly less the expected 23%. But the average ticket was only up 2%, far below the expected 8%, suggesting that consumers are spending less.
Trouble On The Domestic Front?
Unlike McDonald's whose same-store U.S. sales rose 10.3% with visits rising for the fourth straight quarter, there seems to be trouble for Starbucks at its home market. Unlike McDonald's who reported double-digit growth for same-store sales across all three of its divisions, Starbuck's North America same-store sales grew only 7% below the estimated 8.4%, customer traffic grew 1% at the coffee giant's domestic market as customers were getting more sandwiches and extras like cold foam to their coffees, with the undergoing consumer trend shifting away from hot coffees to cold beverages that made three quarters of beverage orders in the U.S. With higher prices and these additions, the average ticket size jumped 6% in the region. However, transactions only rose 1%, below the expected 3%
The loyalty app continues to grow, again gaining momentum during the reported quarter with total active members rising 15% YoY to 31.4 million.
Reaffirmed Fiscal 2023 Outlook
Revenue is projected to grow between 10% and 12% while adjusted EPS guidance was slightly changed from its prior range of 15% to 20% to a new window between 16% and 17%. Despite mixed results and weaker than expected sales, CEO Laxman Narasimhan remains confident of Starbucks' strong growth narrative with multiple paths going forward on its quest to further improve its margins.
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