2023 is a transition year
SBUX is a SHORT
The SBUX earnings call started with a bullish tone, with the CEO saying the SBUX customer and brand is strong:
"While we are sensitive to the impact inflation and economic uncertainty are having on consumers, it's critically important that you all understand we are not currently seeing any measurable reduction in customer spending or any evidence of customers trading down, reflecting the strength of the Starbucks brand, deep customer engagement and loyalty, pricing power, and the premium nature of our beverage and food offerings."
Yet, the core North American business has not recovered from the pandemic, with transactions stalling and decelerating again, and the company needs to reinvent itself!
The other headline from the quarter were also generally positive, with global comps +3%, driven by a 6% increase in average ticket, partially offset by a 3% decline in comparable transactions; North America comparable store sales increased 9%, driven by an 8% increase in average ticket and a 1% increase in comparable transactions; U.S. comparable store, sales increased 9%, primarily driven by an 8% increase in average ticket.
International is still an issue, with comparable store sales decreasing 18%, driven by a 15% decline in comparable transactions and a 4% decline in average ticket; in China, comparable store sales decreased 44%, driven by a 43% decline in comparable transactions and a 1% decline in average ticket. Consolidated Net Revenues Up 9% to $8.2 Billion and Active Starbucks Rewards Membership Up 13% in the U.S. The company did point to "green shoots" in China, which is a net positive, but SSS is still down 20%, and the reason the company is guiding down 4Q22. With EBIT margins decelerating to down 396bps YoY in 3Q22 and the EPS beat coming from a tax benefit, the general conclusion is a low-quality quarter.
Guidance remains suspended but guided down 4Q22 (lol):
- "We now expect our Q4 margin and EPS to be lower than Q3 with greater y-over-y pressures primarily due to three reasons."
- "First, the start of mobility recovery in China was later than expected, impacting the pace of recovery previously assumed in Q4."
- "Second, our Q3 performance benefited from approximately $0.05 of non-reoccurring benefits including release of a customs duty accrual, tax credit, government subsidies, and other items which we do not expect to continue in Q4."
- "And third, as previously announced, Q4 will be impacted by a sequential step-up in our investments, as well as our typical seasonality."
Reinvention Efforts |
Long-Term Operating And Financial Performance |
- "First, in the U.S. company-owned retail business, we will focus on better integrating our culture and values across the three cohorts of our retail partners, operations partners, and support center partners. Our end game is a greater focus as a single company with the agility and an empowered organization. We see this work as the fabric that will help bind our change management plan and be meaningfully catalytic to our long-term operating and financial performance."
New Partner Engagement |
- "Secondly, we fully embrace the need to radically improve our in-store partner experience. We know our partners are vital to bringing an elevated Starbucks brand to our customers daily, and we seek to honor, empower and affirm their strategic importance. The first principles of our new partner engagement approach include more excellent safety and kindness in our stores, personalized career pathing that drives advancement and opportunity, and an explicit and purposeful emphasis on improving overall partner well-being. Each of these critical actions is part of a multi-phased path to reinventing the retail partner experience that we expect will positively affect partner retention, customer connection, and essential brand affinity metrics."
Reimagine |
- "Third, we must reimagine our stores. This starts with the core engine of production and must be better calibrated for the customer habits of today and deliver superior experiences through personalization across every format and in every channel. Innovation such as new bar configurations, patented coffee technology, and novel store prototypes are priorities in the plan designed to improve throughput and heavily customized beverages and customer and partner experience. Our high-priority improvement efforts include critical equipment acceleration to drive more efficient and effective operations such as Clover Vertica and an expansive renovation and new store agenda."
Novel And New Strategic Partnership |
- "Fourth, we will further evolve how we reconnect with customers, mindful that each consumer must be provided a uniquely personal experience that is unified across channels. Building on our strong track record of superior customer engagement, representative initiatives in this sphere includes a reimagined approach for customer-facing products and platforms, new models of effortless digital ordering, and further growing the value proposition of our loyalty programs; through a novel and new strategic partnerships."
Innovation And Accountability |
- "Fifth, we will redesign what partnership means at Starbucks, creating new ways to continue to evolve from a listening company to a co-creation company. This translates into new approaches to shared innovation, shared accountability, and shared success. This is both a competitive and a generational necessity; for us, it's pretty natural. Starbucks was built through the power of our partners' ideas and voices, and we know that reinvention must unleash and then harness the power within every one of our partners. Finally, it's essential to be declarative that coffee innovation is far more than an initiative or project within our highly integrated change agenda."
