Starbucks Corporation (NASDAQ:SBUX) shares traded slightly lower on Wednesday after the company reported fiscal first-quarter earnings on Tuesday afternoon and said rising costs may eat into profitability in 2022.
Starbucks reported first-quarter adjusted EPS of 72 cents, missing the consensus analyst estimate of 80 cents. First-quarter revenue of $8.05 billion beat analyst expectations of $7.95 billion. Revenue was up 19% from a year ago.
Global same-store sales were up 13% in the quarter. U.S. same-store sales grew 18% year-over-year and 12% on a two-year basis. Starbucks Rewards active 90-day membership was up 21% to 26.4 million customers.
Starbucks also cut its fiscal 2022 GAAP EPS growth forecast from a previous estimate of a 4% drop to a new forecast of between a 4% and 6% decline.
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Near-Term Uncertainty: MKM Partners analyst Brett Levy said the long-term growth outlook for Starbucks coupled with near-term cost pressures creates uncertainty for investors.
"The key summary of the quarter, in our view, was the continued top-line recovery in the U.S. (+), which was more than mitigated by Chinese sales and overall cost pressures (-), contributing to the reduced fiscal 2022 margin and profit guidance (-)," Levy wrote.
Stephens analyst James Rutherford said Starbucks' U.S. recovery has been impressive, but its rebound in China has stalled.
"The upcoming F2Q is expected to be more pressured, but then Starbucks expects a combination of sales leverage, incremental menu pricing, lower discounting, operational efficiencies, and G&A savings to drive improvement in the back half," Rutherford wrote.
Wedbush analyst Nick Setyan said Starbucks shares have a compelling valuation, and the guidance cut removes a bearish catalyst.
"We believe SBUX boasts one of the highest levels of visibility into sustained top line growth in-line to above LT growth targets," Setyan wrote.
Margin Pressures Ahead: KeyBanc analyst Eric Gonzalez said Starbucks is facing an uphill margins battle.
"A full margin recovery is unlikely until FY24—one year later than previously communicated," Gonzalez wrote.
Bank of America analyst Sara Senatore said Starbucks' EPS guidance was better-than-expected, and its U.S. traffic trends were solid.
"Notably, while US traffic remains below ~12% below F1Q20 levels, we believe that is in-line to better than the industry, despite Starbucks’ higher exposure to urban and commuter traffic," Senatore wrote.
Ratings And Price Targets:
- MKM Partners has a Buy rating and $123 target.
- Stephens has an Overweight rating and $125 target.
- Wedbush has an Outperform rating and $106 target.
- KeyBanc has a Sector Weight rating.
- Bank of America has a Buy rating and $135 target.
