Starbucks Reports Mixed Results but Shares Gains 6% on ‘Record Demand’ Commentary, Analysts Remain Cautious
2022.05.04 15:46
Starbucks (SBUX) Reports Mixed Results but Shares Gains 6% on ‘Record Demand’ Commentary, Analysts Remain Cautious
Starbucks (NASDAQ:SBUX) reported worse-than-expected Q2 comparable sales and adjusted EPS but shares are still up over 6% in pre-open Wednesday as results proved to be better than feared.
The coffeehouse chain reported Q2 adjusted EPS of 59c, almost in line with the consensus estimates of 60c. Revenue came in at $7.64 billion, slightly ahead of the $7.62 billion that analysts were expecting.
Comparable sales rose 7% in the quarter, missing the analyst consensus of 7.51% growth. A better-than-feared performance was driven by North America business, where comp sales grew 12% vs the 8.66% estimate.
“Given record demand and changes in customer behavior we are accelerating our store growth plans, primarily adding high-returning drive-thrus, and accelerating renovation programs so we can better meet demand and serve our customers where they are,” said interim CEO Howard Schultz.
Evercore ISI analyst David Palmer upgraded Starbucks shares to Outperform from In Line with a $95.00 per share price target as results were “less fearful of the big step-down.”
“We had been concerned that Howard’s return would include another major step-up in labor and/or overhead expense in fiscal 2023. While there will be some incremental expense (e.g. tech spending in G&A), we do not see such an investment as a major setback to the earnings recovery as we look at a likely margin recovery in China and the US,” Palmer said and added he sees a strong risk-reward in SBUX stock.
Morgan Stanley analyst John Glass lowered the price target to $87.00 per share from $94.00 but said he remains optimistic long-term on SBUX stock.
“Fear of the unknown was the greatest driver of the stock’s decline over the past quarter. Now we have a tighter list of known unknowns – the extent of the China pressures, impact and duration of inflation, incremental investment spend needed in FY23 to support the agenda to fix the operational engine that drives sales, and the length of time it will take to implement these fixes. But at least we now know when we will be better informed (Sept.22), that demand in the US and many other regions remains strong,” Glass said to clients.
UBS analyst Dennis Geiger also cut the PT to $82.00 per share from $86.00 on Neutral-rated SBUX shares.
“Intact consumer demand, upcoming investments, and brand strength should help SBUX emerge post-pandemic better positioned. Focus now is on any add’l necessary investment to meet demand and resulting impacts to FY23 margin & earnings power to better assess current valuation and medium-term upside potential,” Geiger added.
By Senad Karaahmetovic
