Starbucks Joins McDonalds And Chipotle In Reporting A Remarkable Quarter Despite The Macroeconomic Challenges

On Tuesday, Starbucks Corporation (NASDAQ: SBUX) topped both revenue and earnings estimates fueled by international sales. The coffee giant joined its fellow outliers, McDonald’s Corporation (NYSE: MCD) and Chipotle Mexican Grill Inc (NYSE: CMG), which also experienced increased traffic amid higher prices. But shares fell 5.6% upon the report as the coffee giant reaffirmed its fiscal year guidance.

McDonalds Bucked The Industry Trend Of Slipping Traffic But Also Remained Conservative

McDonalds’ first-quarter earnings and revenue topped Wall Street’s estimates as the fast-food chain’s U.S. traffic rose for the third consecutive quarter. All three of McDonalds divisions, namely USA, international operated markets and international developed licensed markets, reported same-store sales growth of 12.6%. However, executives did warn that a recession could hit the U.S. and Europe later this year, which is why they opted for a conservative outlook.

Chipotle seems almost fully resistant to macroeconomic challenges, joining McDonalds in traffic jump.

The secret behind Chipotle's success could be in the fact it is a somewhat of an affordable luxury for a mass market. Despite higher prices of the menu, restaurant traffic grew during its latest reported quarter with same-store sales rising 10.9%, topping StreetAccount estimates of 8.6%. and leading to better-than-expected earnings and revenue.

Starbucks’ Fiscal Second Quarter

During the quarter that ended on April 2nd, Starbucks made a net income of $908.3 million, or 79 cents per share, rising from last year’s comparable quarter when it made $674.5 million, or 58 cents per share. Excluding items, adjusted earnings amount to 74 cents per share. Net sales rose 14.2% as they amounted to $8.72 billion. Same-store sales rose 11%, topping StreetAccount estimates of 7.1% with 464 net new locations being opened during the quarter.

Market Segmentation

Same stores sales increased in both the largest and second largest market, namely U.S. and China. All markets exceeded expectations with U.S. same-store sales rising 12%, helped by a 6% increase in traffic. Active U.S. loyalty program base expanded by 15% YoY to 30.8 million members. China’s same store sales rose 3% while China Chair Belinda Wong stated that same-store sales growth in March was 30% with that momentum continuing into the undergoing quarter. Outside the U.S., same store sales increased 7%.

A Reaffirmed Full Fiscal Year Outlook

Revenue for the fiscal year is still expected to grow in the range between 10% to 12% with adjusted earnings-per-share growing on the low end of the range between 15% to 20%.

Starbucks did a great job, especially given the current circumstances.

CFO Rachel Ruggeri found the performance to be remarkable across all levels, especially considering the seasonality pressure that are typically present during the second quarter. But despite encouraging signs, there’s a lot that Starbucks needs to navigate. But the expectation the previous CEO Howard Schultz gave seems to be in line when he guided for China’s recovery to take place in the second half of fiscal 2023.

There’s Room To Improve And Evolve

During his first earnings call as the new CEO of Starbucks, Laxman Narasimhan praised the company for its strong financial performance but also noted that its health could be better. Narasimhan is following the reinvention plan previously laid out by Schultz while also giving his contribution as he described the undergoing process as re-founding the company which implies getting back to basics- Starbucks being a place where people make connections. Like McDonalds and Chipotle, with its latest results, Starbucks proved its pricing power in these challenging times.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice. 

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This article Starbucks Joins McDonalds And Chipotle In Reporting A Remarkable Quarter Despite The Macroeconomic Challenges originally appeared on Benzinga.com

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