Global coffee products retailer Starbucks NYSE: SBUX
stock has been basing in a shallow range setting up for another breakout heading into earnings season. The popular
restaurant chain saw worse than expect results in its fiscal Q1 2022 results. The Omicron
variant severely impacted top and bottom lines as it amplified the effects of inflation, supply chain
, materials costs, labor shortage, and COVID-pay despite strong demand. China’s zero-tolerance COVID policy cut into hours and sales resulting in a (-14%) fall in quarterly sales. Ecommerce
remained strong as their loyalty program experienced over $3 billion in reloads and activations. While the Company lowered forward guidance, this may be providing an opportunity as the Company sets the bar low heading into 2022. As Omicron peaks and wanes, the transitory effects should disperse. The question is when? In the meantime, prudent investors can use the lowered bar to capitalize on opportunistic pullback entries into shares of Starbucks before top-line momentum resumes.
Q1 Fiscal 2022 Earnings Release
On Feb. 1, 2022, Starbucks released its fiscal first-quarter 2022 results for the quarter ending December 2021. The Company reported an adjusted earnings-per-share (EPS) profit of $0.72, excluding non-recurring items versus consensus analyst estimates for $0.80, missing estimates by (-$0.08). Revenues rose 19.3% year-over-year (YOY) to $8.05 billion, beating analyst estimates for $7.95 billion. Global comparable store sales (CSS) rose 13%. U.S. and North America CSS rose 18% comprised of 12% increase in comparable transactions and 6% increase in average ticket. International sales CCS fell by (-3%) comprised of (-5%) in average ticket offset by 2% increase in comparable transactions. China CSS fell (-14%) driven by (-9%) decline in average ticket and (-6%) decline in transactions. Non GAAP operating margins fell to $15.1% from 15.4% year ago. Loyalty program members rose 21% YoY to 26.4 million.
Starbucks CEO Kevin Johnson commented, ““This holiday quarter delivered strong revenue growth highlighted by incredible customer demand for Starbucks. As we enter the third year of this pandemic, our stores continue to play an important role as a community gathering place that offers safe, familiar and convenient experiences for our customers. Although demand was strong, this pandemic has not been linear, and the macro environment remains dynamic as we experienced higher-than-expected inflationary pressures, increased costs due to Omicron and a tight labor market. We remain focused on actions that drive both top and bottom line growth, including industry-leading investments to attract, train and retain the best talent for our stores as customer occasions increase.”
Starbucks lowered guidance for full-year fiscal 2022 with EPS in the range of $3.35 to $3.41 (down 8% to 10%) versus $3.43 consensus analyst estimates. The Company warns that margin headwinds exist in the high inflation operating environment. Starbucks reiterates high single digit full-year 2022 global comp guidance between $32.5 billion to $33 billion versus $32.63 consensus estimates.
Conference Call Takeaways
CEO Johnson noted that Starbucks hit new records for its Q1 fiscal 2022 revenues of $8.1 billion representing 19% growth. While the Company has experienced “extraordinary” revenue growth, it has also experienced extraordinary cost pressures from high. China’s zero-COVID policy had a significant negative impact on store hours and transaction volumes, but while net new store growth and performance was strong, overall top, and bottom lines were less than expected. Starbucks Card activations and reloads exceeded $3 billion for the quarter. The Omicron surge happened when labor shortage and inflationary costs were already evident but amplified the effects. CEO Johnson pointed out that inflation, COVID-related pay, and the training of new workers offset the strong customer demand resulting in shortfalls. He underscored the proactive steps taken to remedy the situation, “We have already taken pricing actions this fiscal year, one in October 2021 and another in January 2022. And we have additional pricing actions planned through the balance of this year, which play an important role to mitigate cost pressures, including inflation, as we position our business for the future.” He concluded, “While we expect these complexities to persist through the near-term, Starbucks is well-positioned to adapt and continue to deliver great experiences for partners and customers. Consumer demand for Starbucks is strong across all markets and continues to grow. We will continue to balance appropriate levels of near-term profitability with the partner investments and innovations that drive customer loyalty and, in turn, long-term growth.”
SBUX Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for SBUX stock. The weekly rifle chart downtrend has a falling 5-period moving average (MA) at $96.84 as shares attempt to bottom out near the $94.28 Fibonacci (fib) level. The weekly 15-period MA continues to fall at $107.19. The weekly stochastic formed a mini inverse pup to the 10-band. The weekly market structure low (MSL) buy triggers above $99.15. The daily rifle chart is still in a make or break pattern with compressed Bollinger Bands (BBs) at $100.38 and $93.01 upper and lower envelopes, respectively. The daily 5-period MA is flat at $95.58 followed by a flattening 15-period MA at $96.47. The daily stochastic is forming a mini pup towards the 40-band. The daily 50-period MA sits at $106. Either the stochastic will follow through on the mini pup to get the 5-period MA to cross up through the 15-period MA for a breakout or the stochastic crosses back down for an inverse pup from here. Prudent investors can look for opportunistic pullbacks at the $94.20 fib, $92.66 fib, $88.73 fib, $85.47 fib, $84.06 fib, and the $81.75 fib level. Upside trajectories range from the $107.37 fib up towards the $123.15 fib level.
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