Starbucks (SBUX) set to report earnings next week. Here’s what to expect

Coffee giant Starbucks Corporation (NASDAQ: SBUX) is expected to report earnings next week amid expectations that the results would benefit from the recent recovery in China, which is a key market for the company. It is estimated that the market reopening and travel recovery would lift comparable sales in the latter half of the year but changing customer preferences and the inflation-induced dip in confidence remain a concern.

Stock Dips

Starbucks’ stock closed Thursday’s session slightly above $100, after trading lower throughout the day. The stock lost momentum in recent weeks and is maintaining the downtrend ahead of the earnings. In 2023, SBUX has underperformed the market quite often. However, the current weakness looks temporary, and the stock is likely to make meaningful gains in the back half of the year.

Recently, the management said it expects average weekly sales in China would grow sequentially in the third and fourth quarters, but moderately. On the positive side, sales have been pretty stable lately, and profit margins are growing. Also, the prospects of the broad fast-food market look bright despite the short-term uncertainties.  

What’s in Cards?

When Starbucks reports third-quarter 2023 results on Tuesday, after regular business hours, Wall Street will be looking for an increase in earnings and revenues. Analysts’ consensus earnings estimate is $0.86 per share, compared to $0.84 per share in the year-ago quarter. June quarter revenue is expected to grow about 3% from last year to $8.38 billion.

From Starbucks’ Q2 2023 earnings call:

“For our long-term sustainable growth, we will look to discover ways to first; further elevate the brand by getting the basics right, operating our stores well, and with a beverage forward food attached focus for renovation. Second, build on our leadership position in digital by scaling and introducing new and relevant customer experiences. Third, evolve to a more global presence for our business and for our brand. Fourth, work to become less wasteful and move with greater speed, and fifth, and critically reinvigorate our culture around what it means to be a partner at Starbucks.“

Key Metrics

In the second quarter, Starbucks’ adjusted earnings and revenues increased year-over-year and topped expectations, after missing both metrics in the preceding quarter. At $8.7 billion, the top line was up 14% year-over-year. Adjusted earnings increased by a quarter to $0.74 per share. Sales from North America, which accounts for nearly three-fourths of the company’s revenues, rose 17%. Global comparable store sales were up 11% annually.

Currently, SBUX is slightly above its 52-week average and close to where it was at the beginning of the year. The stock has gained 19% in the past twelve months.