As the COVID-19 pandemic ravaged the world, it also felled many restaurants and retail operators in its wake. Retail operators and restaurants worldwide have suffered from unprecedented difficulties, including new variants of the virus affecting consumer demand, government restrictions keeping outlets closed, or a reduction in footfall.
Now, it seems inflationary pressures and supply chain issues could further hamper operations.
What about coffee retailer Starbucks (SBUX)?
The company’s net revenues soared 31.3% year-over-year in fiscal Q4 to $8.1 billion, but fell short of the consensus estimate of $8.2 billion. Global comparable-store sales rose 17% year-over-year, driven by an increase in average ticket size by 2%, and a 15% growth in comparable transactions.
Adjusted earnings came in at $1 per share in Q4, up 96.1% year-over-year, marginally surpassing the consensus estimate of $0.99.
Furthermore, the company is also concentrating on its mobile and digital capabilities and in FY 2021, grew the membership to its 90-day active Starbucks Rewards program by 30% year-over-year to 24.8 million members.
Kevin Johnson, president and CEO of Starbucks said, “Our strong finish to fiscal 2021, including record performance in the fourth quarter, demonstrates the resilience of Starbucks and reinforces the value of the bold strategic moves we have taken over the past two years.”
The company also made changes to its management team in Q4 resulting in change in the reporting structure of its operating segments. As a result, the “Americas operating segment has been renamed the North America operating segment, comprised of company-operated and licensed stores in the U.S. and Canada.”
In a significant announcement, SBUX also announced that it will increase the wages of its employees in the U.S., resulting in average retail wage of around $17 per hour by the summer of next year.
However, the rise in wages also means that the company is expecting its operating margin in FY 2022 to be approximately 17% below its target over the long term, “driven by approximately 400 basis points of impact related to the wage investments, coupled with an additional headwind of approximately 200 basis points from a combination of inflationary pressures, other growth investments and discontinuation of government subsidies.”
SBUX does expect that its operating margin will return to the range between 18% to 19% in FY 2023. (See Top Smart Score Stocks on TipRanks)
When it comes to inflation, SBUX intends to mitigate this risk through “thoughtful pricing actions” that could bolster its rise in global comparable sales. The company is anticipating global comparable sales growth in “high single-digit” in FY 2022.
What’s more, Starbucks has projected revenues for FY 2022 to be in the range of $32.5 billion to $33 billion, above its “long-term guidance of 8% to 10% growth.” The company’s management also expects to restart its share repurchase program, and is committed to returning $20 billion to its shareholders over a period of three years.
Considering these factors, Wedbush analyst Nick Setyan remained optimistic about SBUX, inflationary pressures notwithstanding, as he believes that “SBUX boasts one of the highest levels of visibility into sustained top line growth in-line to above LT growth targets.”
Moreover, Setyan is of the view that Starbucks is “the best positioned companies within the publicly traded restaurants universe to manage through near-term margin headwinds towards medium-term margin normalization.”
As a result, Setyan has rated SBUX a Buy but reduced his price target from $132 to $128 (21.1% upside) on the stock.
Wall Street analysts, however, remain cautiously optimistic about Starbucks with a consensus rating of a Moderate Buy, based on 14 Buys and six Holds. The average Starbucks price target of $124.42 implies approximately 17.8% upside potential to current levels.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
