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Starbucks: Investors eye China headwinds, pricing ahead of earnings

Yahoo Finance Live’s Brooke DiPalma joins the Live show to discuss the earnings expectations for Starbucks.

Video Transcript


RACHELLE AKUFFO: All right, well, Starbucks is expected to report its fiscal first quarter results Thursday after the bell. Now, many analysts are keeping a close eye on consumer spending power and sales in China. Brooke DiPalma is here with the details. Hey Brooke.

BROOKE DI PALMA: Good morning, Rachelle. Starbucks once again looking to report earnings results Thursday after market closed. Analysts expecting a boost in revenue here, as the US continues to benefit from those higher prices, customization, like the ability to add that pistachio syrup to your coffee, as well as the addition of food to offerings. But as you noted, Starbucks in China, a different story there as the COVID-19-- zero COVID-19 policy comes to an end.

Taking a closer look at Bloomberg consensus estimates here, revenue expected to come in at $8.75 billion. It's up nearly 9% year over year. Adjusted earnings per share expect to come in at $0.77, that's up 2.7%.

Once again, US same store sales expected to get a boost there, as the US customers seem seemingly unbothered by those price hikes, up nearly 9.26%. International sales brought down by China, down about 13.31% in China in particular.

Howard Schultz, interim CEO, expecting to come out as the number one western leader and certainly the number one undisputed leader in the category in China despite the headwinds that they face there. But here in the US, menu pricing, inflation a hot topic that is expected to be on the fiscal first quarter earnings results.

Really, Howard Schultz sees it as an affordable luxury here in the US. And last earnings results, Starbucks did, in fact, see that fifth consecutive quarter of larger transactions thanks to those higher prices and customers adding food to their coffee orders.

Yahoo Finance asked CFO Rachel Rogerio-- Ruggeri, that is, if she expects price increases this fiscal quarter. And here's what she had to say.

RACHEL RUGGERI: Our pricing in the past year, in FY '22, was really in response to inflationary pressures. We'll have some of that this year based on annual inflation from moves we made last year. But we expect our pricing to return to actions that are more on a historical level.

What we focus on is really, how do we sustain that ticket? Because it isn't just pricing. It's actually volume as well. We've seen our customers purchase more. That's evidenced in attach, increase attach. So we're seeing increased volume.

BROOKE DI PALMA: And Rachel went on to say that Starbucks' key competitive advantage is having food and beverage offerings that customers just can't make at home, with innovation as a key tactic. As of last quarter though, the company did raise prices by about 5% over a 12-month period.

Now, this report is in fact a look back. But analysts are very bullish here. They expect-- well, rather they have ratings of 15 buys, 19 holds, and only one sell on the Street right now, so going into this quarter quite bullish and some holds there.