Coffee chain Starbucks (SBUX) is scheduled to report first-quarter results after the closing bell on Tuesday. The company is still moving forward with its expansion plans in China, even though foot traffic and sales in the U.S. are down significantly.
Yahoo Finance’s Brooke DiPalma reports on this story and takes a deep dive into the challenges the company faced.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor’s note: This article was written by Ike Ntekim
video transcript
Akiko Fujita: Well, Starbucks stock is under a bit of pressure today as well as its first quarter results after the bell. Here we have our very own Brooke DiPalma, with everything you’d expect from the coffee giant. Brook.
Brooke DiPalma: Good morning, Akiko-san. That is correct. Starbucks was counting on us to give us some real inside information on the current consumer landscape, especially here in the United States. Currently, the coffee giant’s revenue is still expected to increase, increasing by about 10.2% to $9.6 billion. Adjusted earnings per share are also expected to increase. It rose 22% from the previous year to $0.93.
But many on the street are predicting an economic slowdown here in the United States. Same-store sales are expected to decline by about 5.7% and check size to increase by about 4.6% amid relatively flat foot traffic. Here are some factors that contribute to it.
The quarter got off to a strong start, and October also got off to a strong start. But then, Starbucks CEO Laxman said, in addition to social media boycotts calling on consumers to really boycott Starbucks amid some misinformation, the impact of union strikes like the Red Cup Rebellion. So, Starbucks saw a change in customer traffic between November and December. Narasimhan.
In addition to that, other factors that are expected to result in a relatively volatile report after the bell today are consumers becoming a little more cautious about check size, perhaps offering premium or customized drinks and more food. We are waiting for orders. That’s what so many consumers did after the pandemic.
Rachel Akuffo: And of course, let’s look at what’s happening in the US, Starbucks’ biggest market. What about China, the second largest market? What are your expectations for this quarter’s results?
Brooke DiPalma: Yes, Starbucks still has very big plans in China. They aim to expand to 9,000 stores by 2025. However, Wall Street expects international sales to rise 11.6% year over year. And as seen here, sales for the current quarter were expected to increase by 16% as China lifts travel restrictions caused by last year’s coronavirus infection. However, one analyst said China remains a wild card as these sales are compared to last year.
We are also closely watching competition in China, where Luckin Coffee has developed a very aggressive pricing strategy. So it remains to be seen how Starbucks will actually stay in this battle to win over consumers. Again, they have big plans to continue to grow there.
Rachel Akuffo: surely. We have big expansion plans. They will see how it pays off. As always, thank you to our very own Brooke DiPalma.