Starbucks (SBUX) posted fiscal second quarter earnings Tuesday after market close that mostly were in line with Wall Street estimates, as the company navigates ongoing inflationary pressures, supply chain disruptions, labor costs, unionization efforts and the search for a permanent CEO to take the helm of the company after CEO Kevin Johnson announced his retirement in March.
Here's what the Seattle-based company reported, compared to Wall Street estimates, according to a Bloomberg consensus:
Revenue: $7.6 billion versus $7.62 billion expected
Adj. earnings per share (EPS): $0.59 versus $0.60 expected
U.S. same-store sales: 12.00% versus 8.90% expected
International same-store sales: -8.00% versus 1.87% expected
This is the first quarterly report since the Board of Directors appointed the founder and former CEO and executive chairman Howard Shultz as interim CEO, effective April 4, 2022, as the company looks for a permanent successor. Schultz also rejoined the company's board. Upon the announcement, Starbucks said it hired a search firm and anticipates to find a new leader by fall.
"We are single-mindedly focused on enhancing our core U.S. business through our partner, customer and store experiences. Given record demand and changes in customer behavior we are accelerating our store growth plans, primarily adding high-returning drive-thrus, and accelerating renovation programs so we can better meet demand and serve our customers where they are,” Schultz, said in the earnings release.
Comparable sales in the U.S. jumped by 12%, primarily driven by a 5% gain in transactions and a 7% increase in the average ticket size.
Meanwhile, the Starbucks Rewards loyalty program 90-day active members in the U.S. rose to 26.7 million, up 17% compared to a year ago.
Wall Street also kept a close eye on the company's overseas sales, particularly in China. There, sales decreased 23%, driven by a 20% decline in comparable transactions and a 4% decline in average ticket sales amid the rise in COVID-19 cases and government shutdowns.
At the end of Q2, stores in the U.S. and China comprised 61% of the company’s global portfolio, with 15,544 stores in the U.S and 5,654 stores in China.
Unionization efforts
Throughout the fiscal quarter, which ended April 3, 2022, analysts kept a close eye on unionization efforts underway at some Starbucks locations.
BTIG recently reduced estimates and its price target to $110 from $130 for the coffee giant to "reflect the uncertainty of unionization, high probability of wage and benefit investment and the announced suspension of share repurchase," but still has a Buy rating on shares.
BTIG Analyst Peter Saleh told Yahoo Finance, "The greatest risk to Starbucks at this point is a loss of market share and tarnishing its brand," but said unionization efforts are just "a thorn in Starbucks' side."
NEW YORK, NEW YORK - APRIL 14: People hold signs while protesting in front of Starbucks on April 14, 2022 in New York City. Activists gathered to protest Starbucks' CEO Howard Schultz anti-unionization efforts and demand the reinstatement of workers fired for trying to unionize. (Photo by Michael M. Santiago/Getty Images) ·Michael M. Santiago via Getty Images
BTIG recently surveyed roughly 1,000 U.S. customers to understand their allegiance to the brand and probability of going elsewhere if the company and the unions fail to reach an agreement.
Saleh told Yahoo Finance only 4% of consumers said they would never visit a Starbucks again should no agreement be reached, while the vast majority, 68%, said it would have no impact on their visit frequency. Fifteen percent said they'd visit less, and 13% said they'd actually visit more.
"I don't think consumers are going to push back enough to really push this to a fully unionized staff," he later added.
As of Monday, more than 240 stores in 32 states have filed for union elections of the coffee chain's nearly 9,000 company-operated U.S. locations.
Foot traffic
According to data intelligence platform Placer.ai's Shira Petrack high inflation rates and rising gas prices are forcing many consumers "to spend more on essentials, which means that their budget is tighter – even if their spending habits have not changed."
During the week of March 14, 2022, visits to Starbucks were up 2.5% compared to 2019, but for the following four weeks foot traffic was down. As of April 11, 2022, visits were down 1.9% compared to the same week in 2019.
Sean Dunlop of Morningstar told Yahoo Finance that the firm expects Starbucks to adapt its stores to better reflect consumers' needs. "We expect investments in store equipment — ice machines, cold beverage prep areas — and footprint [reimagining], with the firm shrinking dine-in footprints in response to consumer traffic and demands," he said in an email.
"Over time, these should theoretically pay for themselves in the form of better peak transaction capacity and lower rent/common area maintenance costs, otherwise we'd prefer shareholder returns (dividends and repurchases) from the investor side of the table," he added.
New data from Gravy Analytics supports this thesis. CMO Jolene Wiggins told Yahoo Finance that "despite easing COVID-19 restrictions, many coffee drinkers still prefer to order beverages to-go," with fewer customers opting to dine in.
"In fact, we’ve seen a similar pattern across many types of quick-service restaurants. So it’s not surprising that lingering pandemic-related consumer habits could also be the cause of Starbucks’ decline in foot traffic," Wiggins added.
Shares of Starbucks are down roughly more than 35% compared to a year ago.
Brooke DiPalma is a producer and reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
