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Starbucks Earnings: What to Watch

By Parkev Tatevosian, CFA – Oct 15, 2021 at 8:37PM

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Starbucks is set to report fourth-quarter earnings on Thursday, Oct. 28.

International coffee giant Starbucks (SBUX -0.49%) is set to report fourth-quarter earnings on Oct. 28. The company is expecting to continue gaining momentum as economies reopen worldwide.

In this segment from Beat & Raise, recorded on Oct. 4, Fool.com contributors Brian Withers, Demitri Kalogeropoulos, and Parkev Tatevosian highlight what to look for in the company's results. 

 

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Brian Withers: Let's move on to Starbucks. Another good company looking at, I always think of Starbucks as a good gauge on how the economy is doing.

Parkev Tatevosian: That's a good way to think about it as people are going out and moving around their stopping by a Starbucks, picking up a coffee. That's a good way to look at it. For Starbucks, the analysts are expecting 33 percent revenue growth to reach 8.26 billion in the fourth quarter. Again, that comes with the caveat because they're comparing with last year, which they had a lot of restrictions, store openings, and all of that during the more acute phases of the pandemic last year. Earnings per share is expected to bounce back up to a dollar, that's 96 percent higher than last year. Some interesting things to watch for Starbucks are the comparable store sales growth. Management is expecting to close out the year with 18-21 percent comparable store sales growth. That's a nice recovery from last year. Then you want to look at new store openings. For fiscal 2021, they were expected to open 1,100 stores for the year, interestingly, the net new store openings for Starbucks in 2021 are all going to be international. In the US they've opened about 800 stores, but they've also closed about 800 stores, so net-net, they're not opening any new stores in the US for this year. That's an interesting development to keep an eye on. Management is probably going to provide fiscal 2022 outlook during the fourth quarter conference call, you're going to want to look into that. The company has said it's long-term comparable store sales growth is going to be in the range of 3-4 percent per year and then you add to that about 2-3 percent revenue growth from new store openings, you get to about a stable equilibrium long run growth rate of about 6-7 percent. If management gives outlook for 2022 above that, that means there's still room for it to improve, to bounce back from the COVID, which I totally expect them to do. They're still not at full strength. Most businesses are trying to bring employees back to offices, but we're still not completely back to offices, so that's hurting Starbucks as people don't drive through a Starbucks and pick up a coffee on the way to work and then also on breaks, we're not buying Starbucks, so they're still not back at full strength so the outlook should be above the long run growth rate for 2022. Then finally, we're going to want to hear about their supply chain and materials, how are they being impacted from this. I know the last few times I've went to Starbucks, the drink that I normally get for my son, they've been sold out of. That's been an increasing scenario for Starbucks lately. Then also labor constraints, management has highlighted that they're continuing to invest in labor and wages just to make sure that they have enough staff and that's something that's probably going to continue considering that several businesses are reporting labor constraints. That's another strain on earnings-per-share that should go into 2022.

Brian Withers: Yeah, that's a great point. Last point that you made, Parkev. I think of Starbucks as a business that relies very heavily on its labor and a happy and fully staffed labor force. I know as people come back in the store, that changes their labor dynamics significantly. I don't know that they were back all the way in the US last quarter, so it will be interesting to see whether they feel like they're back to pre-COVID levels in the US region.

Parkev Tatevosian: Yeah, absolutely. Two points I'll make if I can. For the first point, for labor management has been investing in some technologies that should reduce their reliance on labor. It considered a mobile ordering. If you're ordering online or through your app for pickup or delivery to your car, that's one person that doesn't have to take your order at Starbucks, so that's going to relieve some pressure there. Then to the second point, in terms of their complete recovery, Starbucks has about, it's a small percentage, but about 300 of their locations were on college campuses and college campuses have just barely started coming back completely online. I know at the campus I teach at, the Starbucks just opened there and it closes at 4:00 PM. We have classes that start at 4:30 end at 6:00, so those of us getting to campus later, we can't buy a Starbucks yet because they're not extending their operations all the way like they used to.

Brian Withers: Yeah. That totally could be a labor shortage thing as the company's trying to ramp up and fill where the volume is. I look at the situation Starbucks is in and their former COO, Roz Brewer left, I think it was about a year ago now for Walgreens, and she was a tremendous force in the company to help really orient, you think about all these baristas, you're making all these crazy drinks and stuff, and she was very focused on easing their job and making it easier for the individual stores to operate and was highly focused on that. I'm curious, I guess the new guy's name is John Culver, and it'd be interesting to hear what he has to say as the conference calls rolls out because usually the COO I would think would be on these calls.

Parkev Tatevosian: Yeah, absolutely. That's an interesting point. The transition and how that's going to evolve throughout these next few years will be interesting to watch.

Brian Withers: Yeah, so excited to have you back and we'll find out what happens after earnings. Demitri, you have anything to add on Starbucks?

Demitri Kalogeropoulos: I've been a shareholder for a few years. That's a great business to follow too. It's interesting what you said, Parkev, about them not having any net-net new store openings in the US. That's been the story for a little while now. But I know they're pushing into the digital ordering and the drive-thru trying to add more drive-thru locations and that's been accelerated, I guess with the pandemic. I know McDonald's (MCD -1.69%) is, for example, said that that's what they believe their biggest growth avenue is that mobile ordering digital and drive-thru so I wouldn't be surprised to see. I know Starbucks prides itself on being a good place that you can hang out but they also want you to be able to, if you don't want to hang out, just quickly, get whatever you want.

Brian Withers: Yes, I've gotten addicted to the app and won't go in the store unless I've [laughs] pre-ordered something. Parkev, the big question, you teased us with what your son's drink was. I got to hear what it is that he can't get.

Parkev Tatevosian: The mango dragon-fruit refresher.

Brian Withers: Oh.

Parkev Tatevosian: That's his drink of choice. The last few times he's been disappointed. They haven't had that drink available.

Brian Withers: That sounds like one you just got to. It's a once in a lifetime thing you got to try, but you said it's a regular for your son, so that's really interesting.

Parkev Tatevosian: Yeah.

Parkev Tatevosian owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends the following options: short October 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

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