Starbucks Corp. slumped after reaffirming its guidance despite handily beating sales and profit estimates in the most recent quarter.
(Bloomberg) — Starbucks Corp. slumped after reaffirming its guidance despite handily beating sales and profit estimates in the most recent quarter.
The lack of a forecast boost suggests there’s little room for upside to expectations in the second half of the fiscal year, analysts said. Executives blamed “economic uncertainties” around the globe and didn’t explicitly reaffirm longer-term targets on a conference call to discuss the earnings report.
“When pressed in the follow-up, management suggested they have not changed guidance, but also did not explicitly re-affirm the multi-year plans outlined last September,” Citigroup analyst Jon Tower said in a note to clients. “We would expect that shifting timing for a China recovery opens the door to at least some tweaks to cadence.”
The shares fell as much as 7.4% on Wednesday, the biggest intraday drop since October 2021. Through Tuesday, the stock had gained 15% year to date — more than double the S&P 500 Index’s advance — leaving the company with little margin for error in its results.
Comparable sales rose 11% in the second quarter ended April 2, besting analysts’ projections for a 7.3% gain. Sales by that measure also surpassed estimates in both key growth markets of the US and China. Excluding some items, profit was 74 cents a share, topping the 65-cent average analyst estimate.
The results underscore consumers’ resilience as they continue paying higher menu prices for discretionary items like oat milk lattes. They also further reinforce that dining out is back: Last week, Chipotle Mexican Grill Inc. and McDonald’s Corp. also posted sales that topped Wall Street expectations.
Starbucks said transactions grew 6% in the US and also rose in China. Traffic in US, company-operated stores also surpassed prepandemic levels in the quarter during the busiest parts of the day, executives said.
Operating margin was 14.3%, surpassing the average estimate from analysts. In North America, profitability was helped by higher prices and the lapping of pandemic-related pay a year earlier, among other factors.
“Investors may have wanted more, but key fundamental drivers remain intact, in our view,” Morgan Stanley analyst Brian Harbour said in a research note.
The decision to leave guidance unchanged signals unease about the economy’s trajectory, with executives referring to uncertainty multiple times during the call. Starbucks joined large US companies such as Ford Motor Co. and Pfizer Inc. in holding steady its outlook despite better-than-expected performance at the start of the year.
–With assistance from Ed Ludlow and Karen Lin.
(Updates with analyst in third paragraph, shares in fourth, profit in fifth.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.