Coffeehouse chain Starbucks (NASDAQ:SBUX) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, but sales were flat year on year at $9.40 billion. Its GAAP profit of $0.69 per share was 3.7% above analysts’ consensus estimates.
Revenue: $9.40 billion vs analyst estimates of $9.32 billion (flat year on year, 0.9% beat)
EPS (GAAP): $0.69 vs analyst estimates of $0.67 (3.7% beat)
Adjusted EBITDA: $1.63 billion vs analyst estimates of $1.50 billion (17.3% margin, 8.4% beat)
Operating Margin: 11.9%, down from 15.8% in the same quarter last year
Free Cash Flow Margin: 14.7%, down from 19% in the same quarter last year
Locations: 40,576 at quarter end, up from 38,587 in the same quarter last year
Same-Store Sales fell 4% year on year (5% in the same quarter last year) (slight beat vs expectations of down 5% year on year)
Market Capitalization: $113.6 billion
“While we’re only one quarter into our turnaround, we’re moving quickly to act on the 'Back to Starbucks' efforts and we’ve seen a positive response,” commented Brian Niccol, chairman and chief executive officer.
Company Overview
Started by three friends in Seattle’s historic Pike Place Market, Starbucks (NASDAQ:SBUX) is a globally-renowned coffeehouse chain that offers a wide selection of high-quality coffee, beverages, and food items.
Traditional Fast Food
Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.
Starbucks is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost. However, its scale is a double-edged sword because it's harder to find incremental growth when your existing restaurant banners have penetrated most of the market. To accelerate system-wide sales, Starbucks must lean into newer chains.
As you can see below, Starbucks’s 6% annualized revenue growth over the last five years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre as it barely increased sales at existing, established dining locations.
Starbucks Quarterly Revenue
This quarter, Starbucks’s $9.40 billion of revenue was flat year on year but beat Wall Street’s estimates by 0.9%.
Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months, similar to its five-year rate. This projection is underwhelming and suggests its menu offerings will face some demand challenges.
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Restaurant Performance
Number of Restaurants
A restaurant chain’s total number of dining locations often determines how much revenue it can generate.
Starbucks operated 40,576 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years, averaging 6.1% annual growth, much faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
Starbucks Operating Locations
Same-Store Sales
The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing restaurants and is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Starbucks’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 2% per year. This performance suggests it should consider improving its foot traffic and efficiency before expanding its restaurant base.
Starbucks Same-Store Sales Growth
In the latest quarter, Starbucks’s same-store sales fell by 4% year on year. This decline was a reversal from its historical levels.
Key Takeaways from Starbucks’s Q4 Results
We liked that Starbucks's same-store sales outperformed Wall Street’s estimates, leading to beats on the revenue and EPS lines. However, this is the fourth straight quarter of negative same-store sales, and new CEO Brian Niccol is trying to turn around the business with his “Back to Starbucks” strategy. Zooming out, we think this was still a solid quarter despite another negative same-store sales print. The stock traded up 3.8% to $104.21 immediately following the results.
Starbucks had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
