Investors are eagerly awaiting Starbucks’ upcoming earnings report, but with a cautious eye, as the company grapples with a variety of challenges while also exploring potential avenues for growth. There’s particular interest in a rumored new summer beverage featuring fruit-flavored pearls, akin to bubble tea, which could inject some fresh momentum into the coffee chain’s offerings.
Analysts polled by FactSet have set their sights on Starbucks’ second fiscal quarter, expecting earnings of 80 cents per share and $9.1 billion in sales. While these projections indicate growth compared to the same period last year, there’s skepticism about the company’s ability to meet these targets given recent developments.
In the first quarter, Starbucks fell short of earnings expectations and revised its revenue guidance downward for the fiscal year. It now forecasts sales growth between 7% and 10% for 2024, down from the previous estimate of 10% to 12%. This adjustment reflects ongoing challenges, including inflationary pressures and geopolitical tensions.
Inflation poses a significant concern for Starbucks, especially in California, where the minimum wage for fast-food workers rose from $16 to $20 per hour. In response, Starbucks implemented price increases of 7.8% in the state between February and April, one of the largest hikes among its peers. These price adjustments could potentially deter customers and impact foot traffic at its stores.
Moreover, Starbucks faced criticism last year for its response to the Israel-Hamas conflict, resulting in boycott calls and negative repercussions on sales, particularly in the Middle East and among occasional U.S. customers. The extent of this impact on the March quarter remains uncertain.
In China, Starbucks’ second-largest market, the company encountered hurdles related to a slower-than-expected economic recovery and increased competition from local rivals like Luckin Coffee. These factors have created a more challenging operating environment in the region.
Additionally, Starbucks has been contending with labor issues, notably in the U.S., where employees at a small percentage of its stores have voted to unionize. Ongoing contract negotiations with the union add another layer of uncertainty for the company.
Despite these challenges, Starbucks has some positive aspects to its business, including improving operating margins and a robust loyalty program that continues to attract new members. The introduction of new summer beverages, such as the rumored raspberry-flavored refresher with chewy pearls, holds promise for boosting U.S. sales and appealing to younger consumers.
Overall, Starbucks faces a complex landscape characterized by both obstacles and opportunities, and investors are keenly observing how the company navigates these dynamics in its upcoming earnings report.