This will take time
SBUX is a SHORT
How much will it cost to "reengineer" 17,000 stores in North America? How long will the process take?
The company has identified over $200 million of incremental investments to the current committed spending in the US company-operated stores base in 2022. The earnings conference call was a plea to give the company time to develop a plan to re-engineer the company. They will outline the plan at an analyst's day in the Fall of this year and appear to be taking a very different approach from the last restructuring.
Yesterday SBUX reported global comparable-store sales rose 7% during FY2Q22, with the average ticket up 4% and transaction growth of 3%. Total revenue was $7.64B vs. $7.60B expected. Comparable sales in the Americas increased 12%, with transactions up 5% and a 7% increase in average ticket. International comparable sales fell 8% during the quarter. China's comparable-store sales plunged 23%, driven by a 4% decline in average tickets and a 20% decline in transactions. Active membership in Starbucks Rewards in the U.S. rose 17% to 26.7M. The company's consolidated non-GAAP operating margin fell to 13.0% of sales vs. 16.0% a year ago.
According to the CEO, Howard Schultz, the root cause of the company's problems; Strong demand for the product and a lack of investment in the sales process coupled with the anxieties of the "Gen Z cohort coming of age during turbulent moments in our country's history, as explained on the call: "The 2008 global financial crisis, the Great Recession, and now the global coronavirus pandemic. Given today's uncertainty and economic instability, these young people have valid concerns. They look around and see the burgeoning labor movement as a possible remedy to what they are feeling. I understand the climate, and I'm deeply sensitive to the needs of all of our Green Apron partners. Yet we have a very different and vastly more positive vision for our company based on listening, connecting, and collaborating directly with our people."
The fix: (1) Making investments in partners and businesses to catch up on investments that should have been made and position the company for future growth (2) Accelerating new store growth with 90% of new stores being drive-thrus. "Our newest class of drive-thrus will integrate new store designs, technology, including more handheld devices and equipment improvements that will increase efficiency, speed of service, and we believe deliver even greater profitability in the future." (3) "We have a big breakthrough idea around the launch of Starbucks Web 3.0 and a unique platform for NFTs" "I believe Web 3.0 will create an authentic digital third-place experience and drive substantial new revenue streams for Starbucks and be accretive to the brand. Our Web 3.0 strategy is a proxy for the greater ambition for the company in the future." (4) slowing the labor union movement.
The company withdrew guidance and cites the materiality and the high level of ongoing uncertainty around China, accelerating inflation, and significant investments that it is planning. Interim CEO Howard Schultz said: "Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year."
Casual Dining Struggles
EAT is a SHORT
EAT Reports 3Q22 Revenue $980.4M vs FactSet $978.1M and (A) EBITDA $97.7M vs FactSet $107.6M. FY3Q22 Non-GAAP EPS of $0.92 misses by $0.11. FY Guidance (Jun 2022): EPS $3.05-3.30 ex-items vs FactSet $3.48 and Revenue $3.75B-3.85B vs FactSet $3.80B
Adding to the MACRO pressures, the company is accelerating unit growth suggests incremental spending will put further pressure on margins. From the press release: "Despite these near-term obstacles, we are well-positioned to increase our investment in Chili's and Maggiano's, significantly expanding our restaurant development while leaning further into technology to improve our performance and guest experience."
More after the company's earnings call
YUM China
YUMC SSS performance the past quarter was significantly better than SBUX, but not clear we
YUMC reports Q1 EPS $0.24 ex-items missing FactSet $0.27, with revenue above consensus. Comps (8%) with KFC (9%) and Pizza Hut (5%) excluding store closures. Restaurant margin beat by +170bps and operating margin beat by +70bps. The guidance of note is that although the company generated operating profit in Q1, it experienced a loss for the month of March. Unless the COVID-19 situation improves significantly in May and June, management expects to incur an operating loss in Q2. Reiterates FY22 targets to open ~1,000-1,200 net new stores and make capital expenditures in the range of ~$800M-$1B.
