The company will also share a Reinvention Plan update on Thursday after market close.
Starbucks (SBUX) is set to report its fiscal Q4 earnings early Thursday morning, and it may be brewing up a tale of two countries.The coffee giant's analysts think US consumers are still willing to splurge for their pumpkin spice and chai tea lattes, but the company's ambitious Chinese plans may run against multiple headwinds.
Based on Bloomberg consensus data, Starbucks' revenue is expected to increase 10.3% from a year ago to $9.28 billion, while adjusted earnings per share are expected to jump 19.2% year-over-year to $0.97.
In the US, same-store sales are expected to be up 6.31%. North America foot traffic is expected to increase 1.45%, with ticket size rising 5.63%, in part due to higher prices and more food orders.
"Heightened promotional activity plus the earlier launch of Pumpkin and fall drink lineup likely supported traffic in a difficult discretionary spending backdrop," Baird analyst David Tarantino said in a note to clients. This past quarter marked the pumpkin spice latte's 20th anniversary.
Starbucks' international business has picked up momentum over the years. It recently announced its 20,000th location outside of North America and plans to expand to 9,000 stores in China over the next two years.
At the end of last quarter, the US and China made up 61% of the company's portfolio, with 16,144 and 6,480 stores, respectively.
Recently, the company announced the opening of its China Coffee Innovation Park manufacturing facility. The $220 million initiative, introduced in 2020, is the company's largest investment in any manufacturing and distribution center.
"China's coffee market is still in its early stages, with huge potential to expand the addressable market," Starbucks China CEO Belinda Wong said during Starbucks 2022 Investor Day. "Per capita demand for coffee in China will grow further from 12 cups per year to 14 cups by 2025."
But Chinese sales results are "a greater wild card," William Blair analyst Sharon Zackfia said in a note to clients. The country's famed Mid-Autumn Festival didn't start until Sept. 29 this year, delaying Starbucks' usual promotions around the holiday. However, China had stricter COVID lockdowns in 2022 that depressed Starbucks' results.
The country is also experiencing an economic slowdown while some local competitors provide cheaper options. In the fourth quarter, same store sales in China are expected to increase 4.64% year over year. Last quarter, its Chinese same-store sales jumped 46%.
Earnings expectations
Here's what Wall Street expects for Starbucks Q4 results, based on Bloomberg consensus estimates.Revenue: $9.28 billion expected
Adjusted per share: $0.97 expected
Same-store sales: 6.31% expected
- North America same-store sales: 6.30%
- U.S. same-store sales: 6.31%
- International same-store sales: 6.29%
- China same-store sales: 4.64%
- North America: 1.45%
- International: 5.67%
- North America: 5.63%
- International: 5.05%
General view of Starbucks' Coffee Innovation Park on Sept. 19, 2023, in Kunshan, Jiangsu Province of China.(Photo by VCG/VCG via Getty Images)
Stocks of food and beverage companies have been hit by uncertain consumer sentiments and fears about weight loss drugs. Shares of Starbucks are down more than 8% this year, compared to the S&P 500's (^GSPC) gain of 9.5%.
After market close on Thursday, the company is set to host an update on the Reinvention Plan it announced last September, which includes a set of initiatives aimed at driving growth by 2025. The investments include updates to its store equipment, digital experience, menu innovation, and expansion of its international operations.
In a note to clients, Bernstein analyst Danilo Gargiulo said investors have "expressed skepticism" in Starbucks' "ability to meet management's ambitious goals."
Post-COVID recovery and consumer spending levels are still uncertain, while the labor shortage is ongoing. The company's focus on investing in expensive equipment upgrades to increase store productivity may not produce the desired results, added Gargiulo.
Starbucks earnings preview: US likely to stay resilient, China remains a 'wild card'
Did the Pumpkin Spice Latte boost sales once again?
