Starbucks (NASDAQ:SBUX) Misses Q1 Sales Targets

Jabin Bastian /
2024/01/30 4:17 pm EST

Coffeehouse chain Starbucks (NASDAQ:SBUX) missed analysts' expectations in Q1 FY2024, with revenue up 8.2% year on year to $9.43 billion. It made a non-GAAP profit of $0.90 per share, improving from its profit of $0.75 per share in the same quarter last year.

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Starbucks (SBUX) Q1 FY2024 Highlights:

  • Market Capitalization: $106.2 billion
  • Revenue: $9.43 billion vs analyst estimates of $9.63 billion (2.1% miss)
  • EPS (non-GAAP): $0.90 vs analyst expectations of $0.94 (4.1% miss)
  • Free Cash Flow of $1.79 billion, up 43.6% from the previous quarter
  • Gross Margin (GAAP): 27.5%, up from 25.7% in the same quarter last year
  • Same-Store Sales were up 5% year on year (miss vs. expectations of up 6.7% year on year)
  • Store Locations: 38,587 at quarter end, increasing by 2,417 over the last 12 months

“Our first quarter performance was strong on many measures. Of note was the unwavering commitment of our most loyal customers, the growth in rewards members, tender and spend per member,” commented Laxman Narasimhan, chief executive officer.

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

Starbucks is one of the most widely recognized restaurant chains in the world and benefits from brand equity, giving it customer loyalty and more influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 8% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new restaurants and grew sales at existing, established dining locations.

Starbucks Total Revenue

This quarter, Starbucks's revenue grew 8.2% year on year to $9.43 billion, missing Wall Street's expectations. Looking ahead, Wall Street expects sales to grow 9.9% over the next 12 months, an acceleration from this quarter.

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Number of Stores

When a chain like Starbucks is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Starbucks's restaurant count increased by 2,417, or 6.7%, over the last 12 months to 38,587 locations in the most recently reported quarter.

Starbucks Operating Retail Locations

Over the last two years, Starbucks has rapidly opened new restaurants, averaging 5.8% annual increases in new locations. This growth is among the fastest in the restaurant sector. Analyzing a restaurant's location growth is important because expansion means Starbucks has more opportunities to feed customers and generate sales.

Same-Store Sales

Starbucks's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 7% year on year. With positive same-store sales growth amid an increasing number of restaurants, Starbucks is reaching more diners and growing sales.

Starbucks Year On Year Same Store Sales Growth

In the latest quarter, Starbucks's same-store sales rose 5% year on year. This growth was in line with the 5% year-on-year increase it posted 12 months ago.

Key Takeaways from Starbucks's Q1 Results

We struggled to find many strong positives in these results. Same store sales missed, leading to a consolidated revenue miss. Gross margin also missed analysts' expectations, flowing down to an EPS miss. Guidance will be given on the earnings call. Overall, this was a mediocre quarter for Starbucks. The stock is up 2.3% after reporting and currently trades at $96.3 per share, showing potentially lowered expectations going into the quarter.

Starbucks may not have had the best quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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