Starbucks earnings preview: China reopening and U.S. resiliency could be the coffee buzz
mattjeacock

Starbucks (NASDAQ:SBUX) will report FQ1 earnings on February 2 in a report that is expected to set the tone for 2023.
Consensus expectations are for Starbucks (SBUX) to report revenue of $8.78B and EPS of $0.77. Global comparable sales are forecast to be up 6.9% and SBUX is seen reporting a EBIT margin of 14.7%. Of note, 15 of the last 19 EPS revisions from analysts have been to the upside. Starbucks has topped profit expectations in five straight quarters. Options trading on the consumer discretionary stock indicates a 5.5% swing in share price after earnings drop. SBUX rallied 8.5% after its last earnings report.
Stocks with a strong trading correlation with Starbucks (SBUX) include Luckin Coffee (OTCPK:LKNCY), Yum China (YUMC), and Restaurants Brands International (QSR). Despite not being in the same industry, Nike (NKE) also has a very strong trading correlation with Starbucks on its earnings day.
Analysts think the color on the SBUX conference call could be crucial as the quarter may have showed some late traffic strength in China and potentially a deceleration in the U.S.
Heading into the earnings report, Baird is somewhat cautious. The firm expects FQ1 results to be mixed, with strength in North America comparable sales potentially countered by China weakness. "Looking ahead, we have become more optimistic about the potential positives associated with China's reopening, but we still see risks related to the macro backdrop for the U.S." updated analyst David Tarantino. The firm's Neutral rating is predicated on a number of puts/takes related to the near-term setup.
In the bull camp, Cowen expects the China reopening narrative following the pullback from a zero-tolerance COVID policy in the nation will support a higher multiple for the stock. Other 2023 catalysts seen for Starbucks (SBUX) include sustained U.S. same-store sales strength and resumed share buyback activity.
Wells Fargo also thinks the China narrative will offset any hiccups with the SBUX earnings report. The coffee chain stock is called a top way to play the China recovery within the restaurant sector. Analyst Zachary Fadem reminded that China represents 33% of owned stores, but just ~9% of sales vs. 12% at the peak. The firm has an Overweight rating on Starbucks and price target of $120.
Seeking Alpha author Liang Zhao also has a positive view on the China potential for Starbucks. She expects higher per capita coffee consumption in China to bolster sales growth over the long term.
The Seeking Alpha Quant Rating on SBUX is flashing Hold with low marks for valuation and growth holding back the score.