Starbucks Delivers Blended Beverages and Results

More than a week ago, Starbucks Corporation SBUX topped analysts' estimates for its fiscal fourth-quarter earnings. However, the coffee chain fell short on revenue along with reporting disappointing sales growth in China and providing a mixed outlook for the coming fiscal year, confirming that the global pandemic is still shaping our lives.

Fiscal Fourth-Quarter Results

During the quarter that ended on October 3^rd, net sales rose 31% to $8.1 billion, below expectations of $8.21 billion. Global same-store sales also missed StreetAccount estimates of 18.3% as they rose 17%. U.S. same-store sales did increase by 22% in the quarter or by 11% on a two-year basis.

As for its second key market, the resurgence of Covid-19 in China weakened sales with same-store sales dropping 7%, missing even Starbucks forecast of flat growth. During the quarter's peak in mid-August, approximately 80% of Starbucks stores in the country were held hostage by the invisible enemy the world has been fighting against during the previous 18 months.

On average, customers spent 3% more on transactions.

Starbucks Rewards loyalty program expanded 28% compared to last year's comparable quarter, counting 24.8 million active members that represented 51% of the quarter's customers.

Adjusted earnings per share amounted to $1, exceeding the expected 99 cents. Net income amounted to $1.76 billion, or $1.49 per share, up from last year's $392.6 million, or 33 cents per share. Taking out the sale of its South Korean joint venture and the one additional week during the reported quarter, Starbucks earned only $1 per share, slightly topping Refinitiv's estimate of 99 cents per share.

Post-Pandemic Trends

According to the Chief Operating Officer and the president of the North America segment, John Culver, cold beverages accounted for 75% of drink sales during the quarter while espresso sales surged 34%. Peak hours are back to pre-pandemic times as last year, busy times shifted to late mornings and early afternoons.

The company added 538 net new locations during the quarter, closing some cafes and opening new ones designed for takeaway orders.

Staffing Troubles

Just like its peers, McDonald's Corporation MCD, Domino's Pizza Inc DPZ, and Chipotle Mexican Grill Inc CMG, Starbucks' results suffered as staffing challenges dented their latest quarter's U.S. results. A day before releasing the latest earnings report, the global coffee chain employee wages will be hiked at least twice next year. Roughly 70% of Starbucks' hourly workers joined the company over the last year.

Holiday and Quarter and Fiscal 2022 Guidance

After a quarter of muted growth, Johnson said that the company is preparing for record-breaking sales with $3 billion anticipated to be added to gift cards during the undergoing holiday quarter.

For fiscal 2022, GAAP earnings per share are expected to shrink by 4% whereas adjusted earnings per share are expected to rise by at least 10%, which is below Wall Street's expectations of $3.73 that implying a growth of 15% compared to fiscal 2021. Profits are expected to peak by the next quarter with earnings expected to be at their lowest in the fiscal second quarter due to wage hikes.

Global same-store sales are expected to be in the high single digits with net sales are anticipated to be between $32.5 billion to $33 billion, topping Wall Street's estimates of $32.07 billion. Starbucks' global footprint will be getting bigger by approximately 2,000 net new cafes with roughly three-quarters of those new locations being built outside of the U.S.

Mixed Feelings Caused by COVID-19: What Else?

In a nutshell, the global coffee chain is battling rising costs and what seems to be a never-ending impact of the ongoing pandemic. It was a mixed quarter of muted growth and the fiscal 2022 outlook for earnings per share is less bright than what Wall Street was hoping for despite revenue predictions topping expectations. The good news is that Starbucks' unique brew and a unique image that appealed to luxury-craving aficionados who relished the prestigious ritual of coffee savoring along with WiFi succeeded to remain an integral part of daily lives despite a virus that pretty much changed how the world and businesses work.

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