Specialty coffee retail giant Starbucks Corporation (SBUX) missed its quarterly comparable store sales growth estimates for the third quarter of fiscal 2023 (ended July 2). The company reported a comparable sales growth of 10%, compared to the analysts’ estimate of 11.8%.
SBUX experienced a surge in sales in China, although the U.S. and other international markets showed signs of a slowdown. However, competition in China is also intensifying. Hence, to attract more customers in the country, the company launched a smaller size cup across its 6,500 stores.
Bearing these considerations in mind, an analysis of SBUX’s key financial metrics provides insight into the current status of its stock. It suggests that potential investors may benefit from waiting for a more opportune investment moment.
Analyzing Starbucks Corporation's Financial Performance: A Deep Dive into Profitability Metrics (December 2020 - July 2023)
The reported trailing-12-month revenue of SBUX demonstrated a steady upward trend from December 2020 to July 2023.
- At the starting point in December 2020, the revenue stood at $23.17 billion.
- The revenue gradually rose to $32.15 billion by October 2022, with slight fluctuations.
- In the first quarter of 2023, there was another significant increase to $32.91 billion.
- The revenue peaked at $35.02 billion on July 2, 2023, reflecting the maximum value in this series.
From the start to the end of the series, SBUX has demonstrated a growth rate of roughly 51%. This increasing pattern, centered on more recent data and the last value, suggests a favorable financial outlook for the company. Overall, the company displayed consistent growth in revenue between December 2020 and July 2023, registering the highest revenue of $35.02 billion in July 2023.
Examining the gross margin of SBUX over the given period reveals an interesting trend and some fluctuations. The data, spanning from December 27, 2020, to July 2, 2023, shows a general, however non-consistent, increase with occasional slumps occurring. Key Points:
- Starting with a gross margin of 67.60% on December 27, 2020, the margin steadily grew, reaching a peak of 69.90% on October 3, 2021.
- A series of mild fluctuations were then observed, resulting in the margin falling marginally to 68.40% by July 3, 2022.
- The margin continues to show signs of instability until it reaches 68.10% by July 2, 2023.
This suggests that while there was a rise and fall pattern during the given period, SBUX managed to stabilize its gross margin slightly above the value at the beginning of the period. If we measure SBUX's growth rate from the first to the last value, we witness a growth of just about 0.50% over these two and a half years.
Please note that this analysis emphasizes more on the recent data and the last value of the gross margin series. Although subtle, these changes in the gross margin have significant implications for SBUX's overall profitability.
Upon reviewing the provided series data, SBUX has shown a notable trend in its Return On Assets (ROA) over the past few years. Let's dissect it chronologically:
- From December 27, 2020, the ROA value was 0.023.
- There was a remarkable jump in the second quarter of 2021 as ROA increased to 0.097 by June 27.
- It reached a peak in the first quarter of 2022, showing an ROA score of 0.149, at which point it steadily plateaued until April 3 of the same year with the same value.
- However, a decline began on July 3, 2022, which continued to drop through October of that year to 0.115.
- An upward trend began again from the start of 2023, reaching 0.133 by July 2, 2023, illustrating an overall ascending trajectory.
In terms of growth rate, calculating the last value from the first value indicates a significant improvement; from 0.023 in late December 2020 to 0.133 in early July 2023, this conveys a growth rate of approximately 478%.
It's important to note that these data insights focus more on the recent values, which corroborate a resurgence in SBUX's ROA from the start of 2023 after witnessing a dropping phase during the latter part of 2022.
Here is a summary of the trend and fluctuations in the current ratio of SBUX:
- Beginning on December 27, 2020, SBUX had a current ratio of 1.06.
- Throughout the year 2021, there were slight variations in the current ratio, which peaked at 1.20 on October 3, 2021.
- A noticeable downturn began in January 2022, when the current ratio dropped to 0.813. This value slightly climbed back to 0.841 by July 3, 2022.
- However, there was another dip, reaching 0.767 on October 2, 2022, followed by a further decrease to 0.75 by the start of 2023.
- As we move into the second and third quarters of 2023, a minor upward trend can be observed, with the current ratio increasing to 0.772 by April 2, 2023, and then again to 0.778 by July 2, 2023.
In terms of the growth rate, there has been a significant decrease from the first recorded value to the last. From December 27, 2020, to July 2, 2023, the current ratio has dropped from 1.06 to 0.778. This reflects a decrease of approximately 26.6%, suggesting that the company's ability to pay its short-term liabilities using its short-term assets has declined over this period.
Examining Starbucks’ Share Price Volatility from April to October 2023
The data range from April 28, 2023, to October 18, 2023, showing a fluctuating trend in the share price of SBUX. Below is a more detailed analysis:
- On April 28, 2023, the share price was $111.18.
- The price experienced a gentle decline through May, with a value of $100.23 at the end of the month.
- In early June, the share price showed signs of recovery, with a slight increase to $100.55 by June 23, 2023.
- However, by the end of July, the share price recorded a marginal improvement, increasing to $102.082.
- Starbucks share price began to show a consistent downward pattern from August, with the price dropping to $95.626 on August 25, 2023, and further decreasing to $91.644 by the end of September.
- Though there was a minor recovery in the first half of October, with the price reaching $92.17 on October 13, 2023, it increased slightly to $93.75 on October 18, 2023.
In summary, SBUX’s share price exhibits a clear yet irregular downtrend over this period. Particularly from August 2023, the decelerating trend becomes more distinct, notwithstanding some minor recoveries. Yet, the fluctuation in values implies uncertain growth and diminishing rates across these months. Here is a chart of SBUX's price over the past 180 days.
Starbucks Corporation Performance Analysis: Quality, Momentum, and Growth Ratings
SBUX, which belongs to the Restaurants category that contains a total of 45 stocks, has a POWR Ratings grade of C (Neutral). A brief overview of the POWR grade and its rank in the category over time is as follows:
- On April 22, 2023, the POWR grade was B (Buy), and it ranked at number #18 within its category.
- Throughout most of May 2023, SBUX fluctuated between the ranks of #12 and #15.
- In June 2023, the rank ranged between #12 and #20.
- During July 2023, SBUX improved its standing to range between #12 and #15.
- Over the course of August 2023, SBUX further strengthened its position, ranking as high as #10 in its category.
- In September 2023, SBUX held a stable performance, with the rank fluctuating slightly between #11 and #13.
Based on the most recent data, as of October 19, 2023, SBUX has a POWR grade of C (Neutral) in the Restaurant stocks category. Furthermore, it holds the rank of #12 within this group.
The POWR Ratings for SBUX illuminate the company's performance across various dimensions. When examining the data, we observe three dimensions that stand out in terms of their relevance and prominence: Quality, Momentum, and Growth.
- Quality: The Quality dimension consistently takes the lead in ratings among all categories. The score started at 90 in April 2023, incrementally improved to 91 in May, June, and August, then slightly dropped to 90 from September onwards. These rating scores signify a sustained high quality within SBUX.
- Momentum: The Momentum category presents an interesting display of fluctuation over these months. Starting from a score of 76 in April, it advanced steadily to peak at 88 in July 2023 before indistinctly sliding downwards, settling at 74 by October 2023. Despite this decline, the ratings remained relatively high, indicating significant momentum in the corporation's operations.
- Growth: Within the Growth spectrum, SBUX demonstrated clear and gradual improvements across these months. The ratings were initially low at 25 in April but witnessed subsequent hikes each month, finally stabilizing at 45 by October 2023. This steady increase suggests a continuous growth trajectory over this period.
These trends reveal the strengths of SBUX, particularly in terms of Quality, Momentum, and Growth, as perceived on the respective dates.
How does Starbucks Corporation (SBUX) Stack Up Against its Peers?
Other stocks in the Restaurants sector that may be worth considering are Nathan's Famous, Inc. (NATH), Biglari Holdings Inc. (BH), and Domino's Pizza Group plc (DPUKY) - they have better POWR Ratings. Click here to explore more stocks in the Restaurants category.
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SBUX shares were trading at $95.17 per share on Thursday afternoon, up $1.42 (+1.51%). Year-to-date, SBUX has declined -2.58%, versus a 13.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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