Starbucks falls after weakness in China leads to comparable sales miss

JohnFScott

Starbucks Corporation (NASDAQ:SBUX) reported global comparable store sales rose 5% during FQ1 to fall short of the consensus estimate of +6.9%. Average ticket was up 7% to offset a 2% decline in transactions during the quarter.

Total revenue was up 8.2% to a record $8.7B.

Comparable sales in North America increased 10% vs. +7.6% consensus, driven by an 9% increase in average ticket. Comparable transactions were up 1% in the region. Operating margin fell to 18.5% of sales in the region from 18.9% a year ago with labor and input costs higher.

International comparable sales fell 13% during the quarter. China comparable store sales dropped 28% vs. a consensus estimate of -13%, driven lower by a 28% decline in transactions with COVID restrictions holding back traffic in key cities.

Active membership in Starbucks Rewards in the U.S. rose 15% to 30.4M during the quarter.

The company's consolidated non-GAAP operating margin fell 20 basis points to 14.4% of sales.

Starbucks (SBUX) opened 459 net new stores during the quarter. The coffee chain ended the period with a record 36,170 stores globally.

CEO Howard Schultz: ""We posted today's strong results despite challenging global consumer and inflationary environments, a soft quarter for retail overall and the unprecedented, COVID-related headwinds that unfolded in China in Q1."

Starbucks (SBUX) has a conference call scheduled for 5:00 p.m. ET during which execs are likely to discuss the most recent trends in China following the easing of COVID restrictions.

Shares of Starbucks rose 3.35% AH to $105.72 following a 0.76% dip during the regular session.

Read the latest breakdowns on Starbucks from Seeking Alpha contributors.

Comments

[NamanLo]

Is "average ticket" essentially the same as ARPU or am I missing something here?

[Joost Z]

I don't go to Starbucks. Overpriced, insipid coffee. But I'm a shareholder and love watching a crowded Starbucks as I walk past. The elite brand attracts the masses like bees to honey.

For the same reason I invest in LVMH and Hermès.

[SouthEastAsia]

The Chinese people are no longer willing to spend big money on sugar drinks at Starbucks. It was once a fad but that is fading.

[DrewMcVay]

32 P/E for a coffee store. Yikes.

In real life, with your own finances, it would be an extremely small fraction of that you'd be willing to take a risk on. Somewhere between a P/E of 2 and 5.

[Pmg1959]

You don’t believe in Starbucks? You don’t believe in hot coffee? The Chinese will come around. They are sick of staying home, playing checkers. Be patient, the doctor says.

[MoneyPig]

@Pmg1959

If it sells off, I am a buyer. :) My last buy was around $80. This is a name I am accumulating. It's one of the best brands.

[Pmg1959]

@MoneyPig The Starbucks near me has comfy chairs. I go there with my AA posse to drink coffee and chat. Beats church basements. (And if you pick college towns, the scenery is stimulating!)

[SouthEastAsia]

@Pmg1959 We will not come around to Starbucks, it is a waste of money.

[SPDY84]

"Comparable sales in North America increased 10% vs. +7.6% consensus, driven by an 9% increase in average ticket."

You mean inflation?, it's not people ordering more.. it's people paying the higher prices still.

[Lunch_Buffet]

@SPDY84 it still counts!

[Former 80s Rockstar]

@SPDY84 Maybe it's the 25% tip they try to shame you into paying at the drive through.

[Pmg1959]

@Former 80s Rockstar I’m ok with my tip if the honey at the window treats me warmly

[Winnertakesall]

China lets them in learns the ropes, and then starts a Moonbucks.

[TigerCub911]

Starbucks and China are always in the same sentence

[MoneyPig]

@TigerCub911

True. American envy strikes the successful. Look at Biden and his war against Huawei, the most successful telecom equipment maker or China Mobile, the most successful Telcom company.

Bitter feelings? Then the Chinese space program inspired a me too waste of money over in the USA. Racism. It's what it is.