SBUX Black Book
In 2022, Starbucks was at a critical juncture, grappling with internal challenges and external perceptions. But the question arises: Was the company truly facing a breakdown in its business model, or was this narrative strategically amplified to counter the burgeoning union movement? Overall, the financial performance of Starbucks in FY 2023 was not that of a company that was broken in FY22. The company's growth was robust, with a strong focus on growth, customer experience, and operational efficiency. Where do we go from here?
As the global coffee market continues to percolate with competition and challenges, our upcoming Starbucks Black Book offers an in-depth analysis of the company's strategy for 2024, juxtaposed against the backdrop of management's recent commentary. This comprehensive review delves into the intricate layers of Starbucks' plans, highlighting where our insights diverge from the official narrative of the company's leadership. We will unravel a series of themes from the September 2022 Reinvention Analyst meeting and compare them with the revelations from the company's more recent strategy session. Our analysis is not just a recapitulation of Starbucks' projections but a critical examination of its strategic roadmap gaps and potential inconsistencies.
More details are in the invite sent out yesterday.
EVENT DETAILS:
- Date & Time: Tuesday, November 28th, at 12:30 PM ET.
- Webcast & Slides: Coming Soon
A LOOK AHEAD AT JACK
Jack in the Box Inc. will report its fourth-quarter earnings on November 21st after the market closes. In 3Q23 and 4Q23, Jack in the Box demonstrated notable margin erosion from the questionable Del Taco acquisition. Now projections for customer traffic in the upcoming fourth fiscal quarter continue to erode. Del Taco didn't quite meet expectations this quarter, despite achieving reasonable traffic numbers in 3Q23. This underperformance comes at a time when the quick-service sector is experiencing a noticeable slowdown in customer traffic in 4Q23, and consumers are resisting the aggressive pricing strategies of many operators (See the BB SOTU). Below are three key themes to watch in the upcoming earnings report:
- Comparable Sales Growth and Unit Expansion:
- Comparable Sales (Comps): Jack in the Box is expected to show a comparable sales increase of 4.4%, while Del Taco, which is also part of the company, is anticipated to report a more modest growth of 1.3% ( will always ask the question why did they buy this chain).
- Units: The total number of Jack in the Box units is 2,198, with a split of 140 company-owned and 2,057 franchised units. Del Taco has 595 units, comprising 183 company-owned and 412 franchised units.
- Revenue Streams and Profitability Margins:
- Revenue Breakdown: The company is expected to report a total revenue of 372.5 million (-7.5%), with a breakdown showing company revenue at 178.9 million, franchise rental revenue at 83.3 million, franchise royalties and others at 55.4 million, and franchise contributions for advertising and other at 55.0 million.
- Profitability Margins: The food and packaging costs are projected to be 30.0%, with the restaurant margin for company-owned units at 16.5% and the franchise margin at 39.8%. The operating margin is expected to be 14.1% versus 20.9% last year.
- Earnings Per Share (EPS) Comparison: The EPS for 4Q23 is forecasted at 1.14 (-14%) YoY.
- 1Q24 SSS: Looks aggressive at Jack in the Box +2.2% and Del Taco +2.0%
The Black Box SOTU
As we continue to emphasize, the restaurant industry is navigating through various challenges, including labor inflationary pressures and increasingly changing consumer behaviors. Success in this environment seems to hinge on adapting pricing strategies, enhancing online engagement, focusing on hospitality, and efficiently managing workforce dynamics. Unfortunately, the pricing strategy may have run its course. Here are three key takeaways from the Black Box 4Q23 State of the Industry (SOTI) webinar for the restaurant industry as we approach 2024:
Sales, Traffic, and Pricing Dynamics: There has been a slowdown in restaurant sales and traffic growth in the latter half of 2023. Notably, sales growth is declining more rapidly than traffic, mainly due to a moderation in average check growth following several quarters of high menu-price inflation. Customer sensitivity to price changes and average check growth is more pronounced in limited-service restaurants (quick service and fast casual) than in full-service restaurants. Higher average check growth year-over-year increases in limited-service segments lead to declining customer counts.
Online Presence and Customer Feedback: The volume of online customer feedback significantly influences brand perception. Restaurants with high ratings (over 4.5 stars) received substantially more online reviews than those with ratings between 3.5 and 4.0 stars in the first nine months of 2023. This indicates the growing importance of maintaining a strong online presence and actively managing customer reviews and feedback.
Workforce Trends and the Importance of Hospitality: Staffing challenges are gradually easing, and the pressure on wage growth has subsided. The year-over-year growth in starting wages for key hourly, non-management positions in both limited-service and full-service restaurants is now lower than the levels seen in 2018 and 2019. Elevating the restaurant experience beyond just a transaction is proving beneficial. Restaurants offering higher levels of hospitality experienced better same-store sales and traffic growth than those with lower levels of hospitality. This suggests that investing in customer service and creating a welcoming, caring environment can significantly impact business performance.
