Starbucks’ Financial Performance Under Howard Schultz

Key Takeaways

  • Starbucks is reiterating its growth prospects, with earnings per share increasing 15-20% in the next three years.
  • Outgoing CEO Howard Schultz outlined a plan to speed up service and enhance the loyalty program.
  • Investors responded positively to the news, pushing the stock price higher.

Starbucks has been a strong long-term investment, thanks in large part to CEO Howard Schultz, who oversaw most of the growth, Starbucks has not only become a household name but a daily fixture for coffee lovers.

Now that Mr. Schultz is retiring and has decisively stated that he will not be leading Starbucks anymore, where does this leave the company and its shareholders? Here is what investors need to know about the future of Starbucks.

Starbucks stock news

On Investor Day, September 13, 2022, stockholders received two key pieces of positive news. The coffee chain expects to improve its comparable-store sales growth from 7% to 9% annually over the next three years. It also predicts its growth in China to be 4% to 6% over the same time period as China emerges from COVID lockdowns. Both forecasts are much higher than their previous expectations of 4% to 5% growth for existing stores and 2% to 4% growth for China.

The news caused the stock price to surge from its recent low of $82.94 on September 2, 2022, to a high of $91.31 on September 16, 2022. Analysts are enthusiastic about the new roadmap laid out by the soon-to-be-departing CEO Howard Schultz as it provides a definitive plan for the next CEO. One analyst has issued a price target of $103 for the stock in the upcoming quarter.

Starbucks’ Income Statement

Starbucks has a market capitalization of $104.76 billion as of September 2022. This decreased 23.65% from a year ago when the company’s market capitalization was $137.22 billion. Its current revenue for 2022 is $23.84 billion, with its recent quarterly earnings coming in at $9.12 million, down from $1.15 billion in 2021 for the same period.

Starbucks reported its third quarter of the fiscal year 2022 on August 8, 2022. The company stated that consolidated net revenues were up 9% compared to the same quarter a year ago for a quarterly record of $8.2 billion. Comparable-store sales were up 3% globally and up 9% in the U.S. Starbucks also reported a 13% increase in active rewards members in the U.S., for a total of 27.4 million members.

Revenues for the company were $6.05 million as of the end of the third quarter of the 2022 fiscal year, up 13% from the same period a year ago. This was primarily driven by an 8% increase in overall prices and new store growth of 2% over the previous 12 months.

Starbucks’ Balance Sheet Review

As of the period ending July 3, 2022, Starbucks had $3.18 billion in cash and cash equivalents on hand, a decrease from $3.91 billion the previous year. It had $76 million in short-term investments, down from $82 million in the third quarter of fiscal year 2021. The company had $1.1 billion in accounts receivable, $2.1 billion in inventories, $1.19 billion in short-term debt, and long-term debt of $13.9 billion. Starbucks had current assets of $7.07 billion and total assets of $28.16 billion.

More on Starbucks Investor Day

On its Investor Day for its shareholders on September 13, 2022, CEO Howard Schultz outlined his plans for the last six months of his final stint as the coffee chain’s CEO. Schultz, who is 69, is staying on until early 2023 and is implementing a strategic plan to revamp how the chain operates in the U.S. He intends to make sure that the plan is in place and that the chain is back on track in China before he leaves. Schultz said definitively that this was his final time leading Starbucks as CEO, as he has returned twice after stepping down from the post in 2000 and 2017.

Plans for the chain include investing billions of dollars in the stores and staff, as well as laying out a plan to return $20 billion to shareholders through dividends and stock buybacks. Starbucks also raised its performance expectations for the next few years. Wall Street responded favorably to the news by pushing the stock price up by 6.4% for the day, making it one of the leading stocks of the week.

Where Starbucks stock goes from here

During Investor Day, Schultz highlighted many of the changes that will propel the growth of Starbucks into the future. The company is investing $450 million into its cafés to simplify operations. This will, in turn, speed up service.

The reason for this is the evolution of the customer. In the past, customers would primarily walk into a café and place an order at the counter. Now, customers tend to use the drive-thru and order online. Additionally, more people are ordering cold brew drinks instead of hot drinks. The updates to the operations will decrease the time it takes to make a cold drink in half.

The Starbucks loyalty program will also be enhanced, allowing users to earn points or stars when they shop at partner brands. This will allow them to accumulate points faster for free drinks.

These new developments have Starbucks changing its earnings per share growth estimates from 10-12% to 15-20% over the next three years. Additionally, a reinstated share buyback program has investors expecting higher share prices.

Bottom Line

The future of Starbucks is strong. They have a solid plan for continued growth in the U.S., and CEO Howard Schultz has laid out a plan to return to growth in China, which includes an additional 3,000 new stores. This, along with China reopening from lockdowns will increase revenue for the region. If new CEO Laxman Narasimhan can execute this plan, investors and shareholders can expect good things from this stock. But even if things don’t go as planned, Starbucks will likely remain a leader in the U.S., allowing it to pivot overseas as it figures out its next step internationally.

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