A quarterly caffeinated sales report for Starbucks.
Starbucks shares rose 7% Wednesday morning after a better-than-expected quarter results. CEO Brian Niccol told Yahoo Finance that the company’s long-awaited comeback has finally taken hold, some 19 months into his tenure at the helm of the coffee giant.
This comes even though consumers have to deal with $4 per gallon gas and still complain about high prices at Starbucks.
“If you want a cup of brewed coffee, it starts at $3… you can go all the way with Frappuccinos that are highly customized and closer to the $7 to $8 range. But we actually offer almost every drink you can imagine at almost every price point you can create,” Niccol said in Yahoo Finance’s initial offering (video above).
“We want to make sure you understand that you’re getting the best craftsmanship, the best quality, and then you’re going to get this touch of humanity that you’re not going to get anywhere else,” he added of the company’s goal.
Starbucks’ comeback quarter at a glance: The company reported fiscal second-quarter sales growth of 8% to $9.5 billion. Earnings of $0.50 beat analyst estimates of $0.43.
The performance was driven by a resurgence in customer traffic, particularly in North America, where comparable store sales increased 7.1%. Transactions for the region increased at their strongest pace in three years. One blemish on the bottom line: Investments in store hours, training and wages pressured North American operating margins by 170 basis points year over year.
The quarter’s success is attributed to Niccol’s “Back to Starbucks” strategy, aimed at improving line speeds and mobile ordering. The company has also launched new, more thoughtful menu items, including “energy sodas” and matcha teas aimed at the afternoon crowd.
Starbucks said same-store sales globally and in the United States for its current fiscal year are now expected to increase at least 5%. Previous expectations were for a 3% increase. Starbucks also raised its adjusted earnings per share forecast to a range of $2.25 to $2.45, up from $2.15 to $2.40 previously.
What Wall Street says
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Jon Tower, Citi analyst: “With top line running and shares trading at ~25x (PE ratio) the high end of FY2028 EPS guidance, the next stage of growth will likely require some combination of cost savings (target $2 billion gross) and underlying leverage to visibly benefit the bottom line.”
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Chris O’Cull, Stifel analyst: “Valuation concerns continue to keep many investors on the sidelines…We believe this overlooks a fundamental structural change. By offloading the operational burden and capital requirements of the China business to a proven partner, Starbucks is essentially selling volatility and buying back capacity from its balance sheet. Additionally, the $4.00 EPS target appears conservative given the cost savings program and the position of the American brand, which is arguably structurally stronger today than it has been over the past decade. We believe Starbucks is better positioned for the return of the expansion of invested capital and compound growth, justifying a multiple above historical norms.”
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Danilo Gargiulo, Bernstein analyst: “Valuation remains elevated in the near term, but we believe Starbucks will grow to its fiscal 2028 multiple over time. In a market with few large-cap companies offering comparable earnings durability, acceleration and brand-driven demand visibility, Starbucks has a scarcity premium and we believe investors will be willing to pay more for Starbucks.”