Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Russell Kitsis Published: March 19, 2023
Model Forecast Thesis (Point 1): I believe that Starbucks' new drink containing olive oil, the Oleato line of coffee beverages, will be viewed unfavorably in the North America Segment but viewed moderately favorably in the International Segment. The Oleato line is being offered first in Italy, and I share management's optimism that the new beverage line will be popular in the European market. Lines impacted/directed: North America Segment, decrease revenue and increase opex as a % of revenue. International Segment, increase revenue and decrease opex as a % of revenue relative to management's guidance. To reflect this opinion, I have decreased revenue and increased opex as a % of revenue in the North America Segment by 1% relative to management's guidance through FY2025, and I have increased revenue and decreased opex as a % of revenue in the International Segment by 0.5% relative to management's guidance through FY2025.
Model Forecast Thesis (Point 2): I expect the Chinese market to recover from the zero COVID policy. According to estimates by Goldman Sachs, the Chinese household savings rate was 33% in 2022, 3% higher than the trend before the pandemic. These savings were built up due to the COVID lockdowns. Though I am optimistic that the Chinese market is eager to return to restaurants and stores in-person, I expect to see slower growth early on. Lines impacted/directed: International Segment, increase revenue and decrease opex as a % of revenue, decrease new licensed stores added relative to management's guidance. To reflect this opinion, I have increased the International Segment revenue by 1% from FY2024 through FY2027 relative to management's guidance. To reflect the continued risk associated with the Chinese market, I have increased opex as a % of revenue by 0.1% for the remainder of FY2023 and decreased new licensed stores added internationally by 5% each quarter of FY2023 relative to management's guidance. I have also decreased opex as a % of revenue by 0.5% from FY2024 through FY2027 relative to management's guidance.
Model Forecast Thesis (Point 3): I believe that wage inflation pressure is easing. According to the most recent jobs report from the Bureau of Labor Statistics, nonfarm payrolls in February were higher than expectations. However, in the beginning of 2023, job boards Indeed and ZipRecruiter reported declines in job postings, indicating that fewer jobs are available, and the country is gradually returning to pre-pandemic job numbers. Lines impacted/directed: North America Segment, decrease opex as a % of revenue relative to management's guidance. To reflect this opinion, I have decreased opex as a % of revenue in the North America Segment by 2% through FY2026 relative to management's guidance.
Market Multiple Valuation Description: I have selected a PE multiple of 32x, which is near the top of the long-term historic average, because of my bullish view of Starbucks over the next 12 months, driven primarily by the reduction of wage inflation pressure. Even though the long-term historic average range is 18x to 37x, I did not choose a multiple higher than 32x because of the expected challenges associated with selling the Oleato beverage line in North America and the reopening in China.
| SBUX Model (Kitsis).xlsx |
Disclosure: The author of this article/model has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in the content represent the author’s opinions.