Should I invest in Starbucks after the Q3 results?
Starbucks Corporation (NASDAQ: SBUX) reported better than expected third-quarter results this Tuesday, but the company’s guidance remains suspended for the balance of this fiscal year.
Total revenue topped expectations, and the coffee chain opened 318 net new stores and ended the third quarter with a record 34,948 stores globally.
Starbucks opened 318 net new stores in Q3
Starbucks reported strong third-quarter results on Tuesday; total revenue has increased by 8.7% Y/Y to $8.15 billion, slightly above expectations, while the Non- GAAP earnings per share were $0.84 (beats by $0.08).
Global comparable store sales rose 3% during the third quarter, and it is important to mention that Starbucks opened 318 net new stores during the quarter and ended the period with a record 34,948 stores globally.
Comparable sales in North America rose 9%, supported by an 8% increase in average ticket, while the comparable transactions were up 1% in the region.
Active membership in Starbucks Rewards in the U.S. increased 13% to 27.4 million during the quarter, but the company’s management said that it expects margins and earnings to be lower sequentially in the fourth quarter due in part to a late comeback in mobility in China and a negative impact from a sequential step-up in investments.
Comparable store sales in China plunged 44% in the third quarter, mainly due to a decline in transactions with COVID restrictions holding back traffic in key cities.
Despite this, Starbucks remains confident about the upside in China, and Chief Financial Officer Rachel Ruggeri said:
We remain highly confident in the resilience and dynamism of the Chinese consumer economy. China’s coffee market is still in its very early stages, and we have a long runway for growth ahead.
China market is already seen as a key catalyst for long-term growth, and according to Jefferies analyst Andy Barish, Starbucks shares will probably remain subdued in the near term as the company paves the way for a new CEO hire later in 2022.
Starbucks has a very good position in the market, but the company continues to face potential risks mainly due to inflation, labor costs, and covid concerns. The risk/reward ratio is not good enough for “value” investors currently, and if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels.
$80 represents a strong support level
Data source: tradingview.com
The strong support level stands at $80, while $90 represents the first resistance level. If the price falls below $80, it would be a “sell” signal, and we have the open way to $70 or even below.
On the other side, if the price jumps above $90, the next target could be at $100.
Starbucks Corporation reported better than expected third-quarter results, but the company’s guidance remains suspended for the balance of this fiscal year. Starbucks continues to face potential risks mainly due to inflation, labor costs, and covid concerns, and according to Jefferies analyst Andy Barish, Starbucks shares will probably remain subdued in the near term.
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